Court Opinion

ID: 4445707
Source: CourtListenerOpinion
Date Created: 2019-10-10 14:06:20.841276+00
Date Added: 2024-06-11T14:27:56.837437
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-4508-17T3

MKI ASSOCIATES, LLC,

          Petitioner-Appellant,

v.

NEW JERSEY DEPARTMENT
OF LABOR AND WORKFORCE
DEVELOPMENT,

     Respondent-Respondent.
______________________________

                    Argued September 25, 2019 – Decided October 10, 2019

                    Before Judges Koblitz, Gooden Brown, and Mawla.

                    On appeal from the New Jersey Department of Labor
                    and Workforce Development, Docket No. 16-001.

                    Evan L. Goldman argued the cause for appellant (Law
                    Offices of Goldman Davis, PC, attorneys; Evan L.
                    Goldman and Kristen Ragon, on the briefs).

                    Emily Marie Bisnauth, Deputy Attorney General,
                    argued the cause for respondent (Gurbir S. Grewal,
                    Attorney General, attorney; Melissa Dutton Schaffer,
                    Assistant Attorney General, of counsel; Daniel Pierre,
                    Deputy Attorney General, on the brief).
PER CURIAM

      Appellant MKI Associates, LLC appeals from an April 25, 2018 final

agency decision of respondent Board of Review, New Jersey Department of

Labor and Workforce Development (Department), reversing the decision of an

Administrative Law Judge (ALJ), finding therapists that MKI placed in work

assignments with healthcare facilities were independent contractors. The Board

determined the therapists were employees, and that MKI failed to meet its

burden under N.J.S.A. 43:21-19(i)(6)(A)-(C) to prove otherwise. We affirm.

      In 2015, the Department determined MKI owed $118,347.75 in unpaid

contributions to the unemployment compensation fund and the State disability

benefits fund, under the New Jersey Unemployment and Temporary Disability

Laws (UCL), for the audit period between 2011 and 2014. MKI disputed the

Department's findings and a hearing occurred before an ALJ.

      We summarize the salient facts adduced at the hearing. MKI is owned

and operated by Monica and Kevin Iula.1 The company recruits, screens, and

interviews therapists to work at healthcare facilities, and assigns therapists on a

1
  We utilize the Iulas's first names to differentiate them because they share a
common surname. We intend no disrespect.
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temporary basis to various facilities in northern New Jersey when there are

openings.

      MKI requires its therapists to sign a "Consulting Agreement" which states

MKI agrees to engage the therapists to provide the facilities with rehabilitation

services. MKI's therapist contract lasts for an indefinite term and can only

terminate with a two-week written notice. The contract outlines the therapists'

compensation and contains a non-compete clause stating:

                   Other than with the express written consent of the
            [c]ustomers, which will not be unreasonably withheld,
            the [therapist] will not, during the continuance of this
            Agreement or within [one] year after the termination of
            this Agreement, be directly or indirectly involved with
            a business which is in direct competition with the
            particular business line of the [c]ustomers, divert or
            attempt to divert from the [c]ustomers any business the
            [c]ustomers ha[ve] enjoyed, solicited, or attempted to
            solicit, from other individuals or corporations, prior to
            termination of this Agreement.

The contract contains a non-solicitation clause, which prevents the therapists

from interfering with MKI's relationships with its other employees, consultants,

and customers.

      MKI also enters into a "Staffing Contract" with the facilities, which retain

the services of its therapists. The staffing contract provides MKI must pay the

therapists the wages it offers them. It also requires the therapists to keep their

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files and submit any "requisite monthly family notice and verification logs." It

further provides the facilities cannot change the therapists' job responsibilit ies

without first obtaining MKI's written approval.         Similar to the consulting

agreement, the staffing contract contains a non-compete and non-solicitation

clause. The clause states the client

             specifically agrees that an independent contractor
             therapist cannot be hired by [the client] without a
             buyout agreement between [the client] and [MKI] or
             after a [one] year period has passed from the last day
             that the independent contractor was assigned under the
             direction of [the client]. [The client] agrees that a
             buyout agreement must be procured and finalized prior
             to any negotiations or engagements in any way, directly
             or indirectly, that induce or attempt to induce the
             independent contractor therapist to become an
             employer or enter into a direct business agreement with
             [the client] or violate the terms of his/her contract with
             [MKI].

The clause also states if the client facility uses the services of a therapist placed

by MKI "as its direct employee in any capacity within 365 days starting from

the period after the end of any assignment of the [therapist] to [the client] from

[MKI], [the client] must notify [MKI] and pay [MKI] a fee . . . of $5000."

      Kevin testified the therapists are paid twice per month by MKI and never

by the facilities. MKI requires the therapists to submit biweekly timesheets to

MKI to receive their paychecks. MKI guarantees the therapists' wages, even

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when it does not receive payment from the facilities for the services rendered.

Monica testified MKI often waited six months to a year to receive payment from

the facilities. Kevin and Monica paid the therapists' wages directly from their

personal bank accounts. MKI negotiates the rates of pay for the therapists'

services.

      MKI offered testimony of three therapists who stated they were paid

exclusively by MKI, prohibited from negotiating their rate of pay directly with

the facilities, and required to submit timesheets to MKI to be paid.

Notwithstanding, the therapists testified they believed their relationship with

MKI was that of an independent contractor and MKI did not control the manner

of their work or their work schedule, provide training for the therapists, or

prevent them from seeking work elsewhere. Notably, the therapists testified

one-hundred percent of their business revenue was generated from income they

received from MKI and their individual businesses had no employees. None of

the therapists used their own business telephone, stationary, or advertisements.

      The auditor who performed the audit of MKI, testified on behalf of the

Department. She stated the audit was conducted as a result of a claim for

disability benefits filed by a former MKI therapist. She concluded the therapists

placed by MKI were employees, not independent contractors. She noted MKI

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paid the therapists' wages, required the therapists to submit timesheets,

established and controlled the wages the therapists received, and were subject

to non-compete and non-solicitation contractual obligations. She concluded

MKI hired therapists to perform services in the usual course of MKI's business,

which she determined was the provision of healthcare. She found the therapists

hired provided therapeutic services at healthcare facilities, rendering such

facilities quasi-offices of MKI. She determined most of the therapists hired by

MKI did not have an independently established business, because the therapists

relied predominantly on the income they received from MKI.

      The ALJ found MKI satisfied all three prongs of N.J.S.A. 43:21-

19(i)(6)(A)-(C) and reversed the Department's determination. The Department

submitted exceptions to the Commissioner who issued a final agency decision

reversing the ALJ.

      The Commissioner concluded prong A was not satisfied because

            the documents governing the relationships between
            MKI and the therapists and between MKI and its
            clients, as well as the testimony of witnesses
            confirming the practices of MKI, reflect a degree of
            control over the therapist that is consistent with an
            employment relationship and belies [any] assertion . . .
            that these individuals were free from control or
            direction by MKI.

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The Commissioner found "the 'staffing contract' between MKI and its clients

contains a '[r]ate [s]chedule' listing the hourly rates to be charged for the

services" of its therapists, and the rates the healthcare facilities paid MKI and

that MKI paid its therapists were both set by MKI. He noted the therapists were

not free to negotiate their own hourly rate with MKI's clients, and according to

MKI's contracts,

            the client is prohibited from changing the "Assigned
            Contractor's" job duties without MKI's "express prior
            written approval" and contains a "non-compet[e] and
            non-solicitation" clause, . . . that prohibits the client
            from employing any MKI therapist without first
            entering into a "buyout agreement" with MKI or after
            [one] year has passed from the last date on which the
            therapist performed services for the client on
            assignment from MKI.

      The Commissioner concluded the terms of the contracts clearly showed

MKI exerted or reserved the right to exert control over the therapists it placed ,

prevented the therapists from being involved with a competitor, and the ALJ

incorrectly characterized these provisions as immaterial.      According to the

Commissioner, these clauses were contained in the staffing contracts presented

by MKI to its clients and in the independent contractor consulting agreements

presented by MKI to its therapists as a condition of engaging their services.

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      As to prong B, the Commissioner found the therapists' services were

neither outside MKI's usual course of business, nor performed outside of MKI's

places of business. He concluded MKI's course of business was providing

therapeutic services and the facilities where the therapists worked were locations

where MKI conducted an integral part of its business, namely, providing

therapeutic services pursuant to the staffing contracts MKI maintained with its

clients.

      The Commissioner also found the Department failed to satisfy prong C.

He concluded Trauma Nurses, Inc. v. N.J. Dep't. of Labor, 242 N.J. Super. 135

(App. Div. 1990), upon which the ALJ relied in reversing the Department's

decision, was distinguishable. He noted MKI provided replacement staff in the

event one of its therapists was unable to work and established the hourly rate

and the rate the facility would pay, rather than the therapists themselves

negotiating their hourly rates. Unlike Trauma Nurses, the contracts between

MKI, its clients, and its therapists contained non-compete and non-solicitation

clauses, which governed the manner of the therapists' work while under contract

with MKI and up to one year after its termination.

      The Commissioner concluded MKI failed to establish each therapist was

engaged in a viable, independently-established business at the time he or she

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rendered the services to MKI. MKI failed to address the duration and strength

of each therapist's business, the number of customers and the volume of business

of each therapist, the extent of each therapist's business resources, and the

remuneration each therapist received from MKI compared to other sources. By

contrast, the Department auditor testified all of the documentary evidence she

obtained in the form of Federal Form 1040 Schedule C's showed all of the

business income of those individuals derived from services rendered for MKI.

                                        I.

      We "have 'a limited role' in the review of [agency] decisions." In re

Stallworth, 208 N.J. 182, 194 (2011) (quoting Henry v. Rahway State Prison, 81
N.J. 571, 579 (1980)). "[A] 'strong presumption of reasonableness attaches to

[an agency decision].'" In re Carroll, 339 N.J. Super. 429, 437 (App. Div. 2001)

(quoting In re Vey, 272 N.J. Super. 199, 205 (App. Div. 1993)). "In order to

reverse an agency's judgment, [we] must find the agency's decision to be

'arbitrary, capricious, or unreasonable, or . . . not supported by substantial

credible evidence in the record as a whole.'" Stallworth, 208 N.J. at 194 (quoting

Henry, 81 N.J. at 579-80). The burden of proving an agency action is "arbitrary,

capricious, or unreasonable" is on the challenger. Bueno v. Bd. of Trs., 422 N.J.

Super. 227, 234 (App. Div. 2011) (quoting Henry, 81 N.J. at 579-80).

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      We "may not substitute [our] own judgment for the agency's, even though

[we] might have reached a different result." Stallworth, 208 N.J. at 194 (quoting

In re Carter, 191 N.J. 474, 483 (2007)). "It is settled that '[a]n administrative

agency's interpretation of statutes and regulations within its implementing and

enforcing responsibility is ordinarily entitled to our deference.'" E.S. v. Div. of

Med. Assistance & Health Servs., 412 N.J. Super. 340, 355 (App. Div. 2010)

(alteration in original) (quoting Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J.

Super. 52, 56 (App. Div. 2001)).

      Under the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -15, "[i]n

reviewing the decision of an administrative law judge, the agency head may

reject or modify findings of fact, conclusions of law or interpretations of agency

policy in the decision, but shall state clearly the reasons for doing so." N.J.S.A.

52:14B-10(c).

                                        II.

      Pursuant to N.J.S.A. 43:21-19(i)(6), "[s]ervices performed by an

individual for remuneration shall be deemed to be employment" unless the

putative employer proves each of three prongs:

            (A) Such individual has been and will continue to be
            free from control or direction over the performance of
            such service, both under his contract of service and in
            fact; and

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            (B) Such service is either outside the usual course of
            the business for which such service is performed, or
            that such service is performed outside of all the places
            of business of the enterprise for which such service is
            performed; and

            (C) Such individual is customarily engaged in an
            independently established trade, occupation, profession
            or business.

            [N.J.S.A. 43:21-19(i)(6)(A)-(C).]

If each element is not met, then the claimant is an employee, not an independent

contractor. Hargrove v. Sleepy's, LLC, 220 N.J. 289, 305 (2015).

      In Hargrove, the Court explained the considerations under each part as

follows:

                   In order to satisfy part A of the "ABC" test, the
            employer must show that it neither exercised control
            over the worker, nor had the ability to exercise control
            in terms of the completion of the work. In establishing
            control for purposes of part A of the test, it is not
            necessary that the employer control every aspect of the
            worker's trade; rather, some level of control may be
            sufficient.

                   Part B of the statute requires the employer to
            show that the services provided were "either outside the
            usual course of the business . . . or that such service is
            performed outside of all the places of business of the
            enterprise." N.J.S.A. 43:21-19(i)(6)(B). While the
            common law recognizes part B as a factor to consider,
            it is not outcome determinative within the confines of
            the "right to control" test.

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                                       11
                   Part C of the statute is also derived from the
            common law. This part of the test "calls for an
            enterprise that exists and can continue to exist
            independently of and apart from the particular service
            relationship. The enterprise must be one that is stable
            and lasting—one that will survive the termination of the
            relationship." Therefore, part C of the "ABC" test is
            satisfied when an individual has a profession that will
            plainly persist despite the termination of the challenged
            relationship. When the relationship ends and the
            individual joins "the ranks of the unemployed," this
            element of the test is not satisfied.

            [220 N.J. at 305-06 (citations omitted).]

      The ABC test's analysis is not limited to the terms of the contract between

the parties. Whether an individual is an employee "should not be determined

under the [a]greement alone, but rather on all facts surrounding [the individual's]

relationship with [the employer], including the [a]greement."                Phila.

Newspapers, Inc. v. Bd. of Review, 397 N.J. Super. 309, 321 (App. Div. 2007).

      On appeal, MKI challenges the Commissioner's findings under all three

prongs of the ABC test. Under prong A, MKI argues it did not exercise control

over its therapists and the Commissioner ignored the weight of the evidence and

the relevant case law. MKI argues prong B was met because it had no offices

and operated outside of the Iulas's residence, where no therapy was provided. It

argues pursuant to Trauma Nurses, prong C was met because the therapists could

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choose the facilities and hours they worked, and had worked at other facilities

outside of any contractual obligation to MKI.

                                       A.

      Prong A requires a company to establish not only that it "has not exercised

control in fact, but also that the employer has not reserved the right to control

the individual's performance." Carpet Remnant Warehouse, Inc. v. N.J. Dep't

of Labor, 125 N.J. 567, 582 (1991). Characteristics of control include: "whether

the worker is required to work any set hours or jobs, whether the enterprise has

the right to control the details and the means by which the services are

performed, and whether the services must be rendered personally."          Phila.

Newspapers, 397 N.J. Super. at 321 (quoting Carpet Remnant Warehouse, 125
N.J. at 590).

      MKI's arguments are unpersuasive. Its consultant agreements and staffing

contracts contained provisions reserving MKI's right to control the place and

manner in which the therapists conducted their business. The means of control

were expressly set forth in the non-compete and non-solicitation clauses, the

buy-out provision, and clauses restricting the ability of the facility and a

therapist to engage in full-time employment without MKI's written approval.

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                                      13
      Additionally, the evidence in the record established MKI paid therapists

for the services performed at the healthcare facilities.      Therapists were not

permitted to contact or negotiate their wages directly with the facilities. Instead,

the therapists' wages were negotiated with MKI and it separately negotiated the

rates the facilities would pay. Therapists submitted timesheets to MKI, which

then paid them and guaranteed their wages.

      Contrary to MKI's argument on appeal, "it is not necessary that the

employer control every aspect of the worker's trade; rather, some level of control

may be sufficient." Hargrove, 220 N.J. at 305 (citing Schomp v. Fuller Brush

Co., 124 N.J.L. 487, 491 (Sup. Ct. 1940)).               For these reasons, the

Commissioner's prong A findings did not constitute reversible error.

                                        B.

      Prong B requires a showing that the services are outside of either the

employer's usual course of business or all of the employer's places of business.

Carpet Remnant Warehouse, 125 N.J. at 584. Our Supreme Court stated the

prong refers "only to those locations where the enterprise has a physical plant

or conducts an integral part of its business." Id. at 592.

      Contrary to MKI's argument, the facts here are distinguishable from

Trauma Nurses. In Trauma Nurses, we concluded the nature of the business was

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                                        14
not providing health care, but rather "brokering nursing personnel to hospitals."

Trauma Nurses, 242 N.J. Super. at 147. Thus, the work of providing nurses to

hospitals exceeded the usual course of the business. Id. at 147-48.

      Here, the Commissioner found "the principal part of MKI's business

enterprise is providing therapeutic services pursuant to the staffing contrac ts that

MKI maintains with its clients, the facilities where those services are performed

under the staffing contracts are locations where MKI conducts an 'integral part

of its business.'" Indeed, the fees MKI derived from the facilities formed the

sole source of its income. Moreover, as the respondent noted at oral argument,

in MKI's public bidding documents it represented it would provide workers '

compensation benefits to its employees, a benefit not conferred by a staffing

agency. Also, MKI is registered as a provider of therapy, not as a placement

agency. Therefore, unlike Trauma Nurses, MKI exclusively held itself out as a

provider of therapists to facilities as an integral part of its business.

                                         C.

                    Part C of the statute . . . "calls for an enterprise
             that exists and can continue to exist independently of
             and apart from the particular service relationship. The
             enterprise must be one that is stable and lasting—one
             that will survive the termination of the relationship."
             Gilchrist v. Div. of Emp't Sec., 48 N.J. Super. 147, 158
             (App. Div. 1957). Therefore, part C of the "ABC" test
             is satisfied when an individual has a profession that will

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           plainly persist despite the termination of the challenged
           relationship. . . . When the relationship ends and the
           individual joins "the ranks of the unemployed," this
           element of the test is not satisfied. Schomp, 124 N.J.L.
           at 491-92.

           [Hargrove, 220 N.J. at 306.]

     In Carpet Remnant Warehouse, the Supreme Court explained the

           determination should take into account various factors
           relating to the [workers'] ability to maintain an
           independent business or trade, including the duration
           and strength of the [workers'] businesses, the number
           of customers and their respective volume of business,
           the number of employees, and the extent of the
           [workers'] tools, equipment, vehicles, and similar
           resources. The Department should also consider the
           amount of remuneration each [worker] received from
           [the putative employer] compared to that received from
           other [business entities]. Those who received a small
           proportion of compensation from [the putative
           employer] are more likely to be able to withstand losing
           [the putative employer's] business.

           [Id. at 592-93]

     The Commissioner found MKI failed to address each of the factors

enumerated by the Court in Carpet Remnant Warehouse, namely, the duration

and strength of each therapist's business, the number of customers and the

volume of business of each therapist, the extent of each therapist's business

resources, and the amount of remuneration each therapist received from MKI

compared with receipts from other employers. Further, crediting the testimony

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and findings of the Department auditor, the Commissioner concluded the

objective evidence showed therapists who created LLCs received all of their

business income from MKI. These findings were supported by the substantial

credible evidence in the record and were not arbitrary, capricious, or

unreasonable.

     Affirmed.

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