Moreira v. Mary Kay Cosmetics

Claim Pet. 96-021409 (D.O.L. Div. Of Workers' Comp. 1998)
  • Opinion Date: October 22, 1999

WORKER’S COMPENSATION; INDEPENDENT CONTRACTORS—For worker’s compensation purposes, a person that buys goods from a direct selling company and then resells them to his or her own customers may be an employee of the direct selling company even if the agreement between the two states that the person is an independent contractor.

A “beauty consultant,” involved in the sale of products manufactured and distributed by a direct sales cosmetics company, was injured in an automobile accident. She filed a claim for worker’s compensation benefits. According to her agreement with the direct sales company, in exchange for the privilege of becoming a “beauty consultant,” she agreed that she was an independent contractor, and assumed sole liability for all taxes and for compliance with all laws. She was required to purchase cosmetic products from the company outright and would then resell them to her customers. She was not permitted to sell or display the products in retail establishments. She was encouraged to recruit other beauty consultants. The company reserved no right of control or direction over her activities other than the right to question results. There were no geographical limits. The company agreed to sell its products to the beauty consultant at a discount from the “suggested retail price,” and to pay recruiters of other beauty consultants a monthly commission on the value of all purchases made by their recruits. The beauty consultant understood that no office, typewriter or secretarial assistance would be provided, that she could sell products anywhere she desired; that no hours were set by the direct sales company; and, that she could work as much or as little as she wanted. Although encouraged to attend sales conferences, the beauty consultant paid all of her own travel and accommodation costs and expenses. Although she attended sales meetings, which she perceived as mandatory, attendance was voluntary. The sales meetings were conducted by “directors” who served as motivators, advisors, and teachers. The beauty consultant did not receive any benefits; and no income tax was withheld.

In worker’s compensation cases, a petitioner has the burden of proving employment by a preponderance of the evidence. Basically, there are two tests to determine if an individual is an employee: (1) the “right to control” test, and (2) the “relative nature of the work” test. The control test is satisfied so long as the employer has the right to control the work, whether or not the employer exercises actual control over the worker. Under the relative nature of the work test, an employment relationship exists when work being done is an integral part of the business of the employer and the worker, relative to the employer. An important consideration is whether the worker becomes economically dependent on the employer. Under the facts presented, the Worker’s Compensation Judge found that the beauty consultant had sustained her burden of proof under both tests. Although the direct sales company pointed to the agreement and emphasized that every one of its beauty consultants was free to choose his or her own sales territory and devote as much time as desired to selling the company’s products, the Court opined that the company maintained control over its beauty consultants in both actual and implied ways. The Court felt that the company maintained conscientious supervision over the individuals permitted to be beauty consultants. It felt it to be an important factor that the company held full control over the terms of the agreement without any provision for the beauty consultant to modify or change any paragraph or requirement. Acceptance of the agreement obligated the beauty consultant’s recruiters to insure that her recruits received training or materials in order to begin their careers with the direct sales company. According to the judge, it would not be unreasonable to believe that requiring the director’s signature on the recruit’s agreement strongly implied an obligation on the part of the recruiter for the performance of the new recruit. Furthermore, the judge believed that even though the beauty consultant was free to sell, market or give away the product in any manner or any place she desired, the company, by prohibiting the selling or displaying of the products in retail stores, exercised an element of control and direction in the manner in which sales could be conducted. While it was undisputed that it was the beauty consultant’s sole responsibility to solicit and supply her own customers, the judge did not “understand” how the company could have the authority and power to “question the results” unless it maintained control over the level of sales executed by its beauty consultants. In addition, following a long line of New Jersey cases, the signing of an “Independent Contractor Agreement” does not by itself make an employee into an independent contractor. “The benefits of the Workmen’s Compensation Act may not be surrendered by any false label which an employee in fact may put upon his working relationship with another.” The administrative law judge was also impressed by the beauty consultant’s proposition that the company controlled the products that she was required to buy and reserved the right to terminate the contract if it did not approve of the method of her presentation. According to the judge, one of the most important indicia in an employee-employer relationship is the right to hire and fire workers, and the company admitted that it did remove beauty consultants from time to time, though rarely.

With respect to “the relative nature of the work test,” the Court inquired into whether the work done by the petitioner was an integral part of the regular business of the direct sales company. To the judge, it was undisputed that the company’s product was sold only through beauty consultants and that the company would be unable to get any of its products into the flow of commerce without its beauty consultant work force. Thus, the company would be unable to function without its “independent contractors.” Consequently, according to the judge, the company’s sales force was an integral part of the its business. Lastly, although the beauty consultant in question apparently earned very little money, it appeared that she had no earnings other than through her sale of these cosmetics.