Court Opinion

ID: 5364684
Source: CourtListenerOpinion
Date Created: 2022-01-08 07:41:39.321848+00
Date Added: 2024-06-11T08:29:55.517866
License: Public Domain

Bliss, J.
For several years prior to August 7, 1937, Clarence Scott was engaged in the business of painting, papering and interior decorating in the city of Amsterdam, N. Y. He employed a number of painters and paid contributions to the Unemployment Insurance Fund as a covered employer on his payroll for the period from May 15, 1937, to August 7, 1937. On this latter date he made a written agreement with seven painters, four of. whom were former employees of his, by which they purported to form a partnership to conduct a painting, wall-papering and interior decoration business. The first alleged partnership was dissolved on April 24, *4291939, and a new written agreement executed by Clarence Scott and four of the so-called partners. One of the former partners continued after the dissolution to work for the new firm as an employee. The question then arose as to whether or not the moneys paid these men were wages and subject to the payment of unemployment insurance contributions. After a hearing the referee found that no partnership existed and the written agreement was a mere subterfuge conceived for the purpose of avoiding unemployment insurance contributions. He held that the writing was not entered into with any intention of its partnership features being honored by any of the partners and that no valid partnership existed. Upon an appeal the Unemployment Insurance Appeal Board found that an agreement was actually entered into but that this agreement failed as a matter of law to destroy the individual identity as employees and that the agreement itself did not constitute a partnership. The Board also affirmed the decision of the referee.
Under the original agreement Clarence Scott provided the equipment and the capital, procured the business and acted as manager, treasurer and bookkeeper. The other partners were permitted to draw on the firm’s account but only on a daily or weekly basis, with no withdrawals except for days, weeks or months actually devoted to work for the partnership. As to Clarence Scott, he received $5,000 per year, payable monthly, and bore all losses up to $5,000 yearly. Profits beyond the foregoing items of expense were to be shared and losses beyond the $5,000 charged to Clarence Scott borne equally by the partners.
It is to be noted first of all that the partners other than Scott were paid only for time actually worked at a rate suggesting the appropriate hire for their respective work. Clarence Scott, on the other hand, supplied capital and equipment and ran the business, not actually doing any painting work, at $5,000 per year. The comparative scale of pay for the other partners suggests wages for Work actually performed rather than proportionate shares of profits. Section 11 of the Partnership Law provides that sharing the profits of a business is prima facie evidence that one is a partner but not “4 * * * if such profits were received in payment: * * * (b) As wages of an employee * *
Moreover, Clarence Scott’s furnishing capital and equipment, and running the business and taking $5,000 per year, are more consonant with his ownership and operation of an enterprise for profit for himself than of a sharing of the nature typical of partnerships. The provision for the losses of the enterprise to be borne up to $5,000 by Mr. Scott, together with the provision for his taking $5,000 from the business as his share, have the appearance of being in the nature of a' guaranty of wage to the other members *430of the partnership with Mr. Scott bearing the risks of business operations. Due to this provision, wages would be paid to the other partners for work as actually performed by them per day or per week with Mr. Scott bearing the usual risk of owning and running a business that after the payment of actual operating expense, including labor, there would be a loss at the end of the year not borne by the partners, but by Mr. Scott. Actually, no profits Were ever divided. Considering the size and type of enterprise, this $5,000 spread for or against Mr. Scott appears to be an estimate of the position of an owner attempted to be clothed in partnership form.
The decision of the Unemployment Insurance Appeal Board should be affirmed, with costs.
Hill, P. J., Crapser and Schenck, JJ., concur; Heffernan, J., dissents, with an opinion.