Carpet Remnant Warehouse, Inc. v. New Jersey Dept. of Labor

• Decision Date: 06 August 1991
• Citation: 593 A.2d 1177,125 N.J. 567
• Parties: CARPET REMNANT WAREHOUSE, INC., Petitioner-Appellant, v. NEW JERSEY DEPARTMENT OF LABOR, Respondent-Respondent.
• Court: New Jersey Supreme Court

Page 567

125 N.J. 567

593 A.2d 1177

CARPET REMNANT WAREHOUSE, INC., Petitioner-Appellant, v. NEW JERSEY DEPARTMENT OF LABOR, Respondent-Respondent.

Supreme Court of New Jersey.

Argued March 11, 1991.

Decided Aug. 6, 1991.

Steven E. Angstreich, for petitioner-appellant (Levy, Angstreich, Finney, Mann & Burkett, attorneys, Philadelphia, Pa., Frederick W. Hardt, on the brief, Moorestown).

Lewis A. Scheindlin, Deputy Atty. Gen., for respondent-respondent (Robert J. Del Tufo, Atty. Gen. of N.J.).

The opinion of the Court was delivered by

STEIN, J.

The issue in this appeal is whether carpet installers who provided services for Carpet Remnant Warehouse, Inc. (CRW) are employees or independent contractors for purposes of the Unemployment Compensation Law, N.J.S.A. 43:21-1 to -24.4 (UCL). Pursuant to the UCL, the carpet installers are deemed employees unless they are able to satisfy the criteria of the so-called "ABC test," N.J.S.A. 43:21-19(i)(6)(A), (B), (C). If the installers are unable to meet the ABC test's criteria, then CRW is liable for unpaid unemployment compensation and temporary-disability contributions attributable to those installers. Although the Office of Administrative Law (OAL) determined that the installers are independent contractors, the Commissioner of the New Jersey Department of Labor (Commissioner) ruled that the installers did not satisfy the ABC test and therefore are employees. The Appellate Division affirmed in an unreported opinion. We granted certification,--- N.J. ---- (19 ), and now reverse.

I

In July 1986, the New Jersey Department of Labor (Department) conducted a "routine, periodic test audit" of CRW. The Department auditor, Dudley Wilson, reviewed CRW's individual wage records, periodic payroll records, cash disbursements, tax returns, and related bookkeeping records for the calendar years 1982, 1983, 1984, 1985, and the first quarter of 1986. In the course of the audit, the auditor interviewed Raymond Schienholtz, CRW's president; Norman Cohen, CRW's accountant; and Wayne Neill, one of the carpet installers who provided services to CRW. The Department concluded that thirty-nine of the carpet installers who had provided services to CRW for the audit period were "non-bonafide independent contractors" or, more precisely, employees pursuant to the UCL. Accordingly, the Department demanded that CRW pay an assessment of $16,276.50 plus interest for delinquent unemployment and disability contributions due for the audit period and attributable to those installers. Ordinarily, both the employer and the employee make contributions to the Unemployment Compensation Fund, the employee's share being deducted from his wages. N.J.S.A. 43:21-7. However, if the employer fails to deduct the employee's share of contributions, the employer alone is liable for those contributions. N.J.S.A. 43:21-7(d)(1)(D).

CRW disputed the assessment, and the Department referred the matter to the OAL for disposition as a contested case. At the OAL hearing in January 1988, CRW attempted to prove that the carpet installers were independent contractors under the ABC test, which provides:

(6) Services performed by an individual for remuneration shall be deemed to be employment subject to this chapter (R.S. 43:21-1 et seq.) unless and until it is shown to the satisfaction of the division that:

(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

(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).]

Most of the relevant facts elicited from testimony at the hearing before the Administrative Law Judge (ALJ) are undisputed. At the time of the hearing, CRW had been in business for twenty years and had two retail locations, one in Burlington and one in Haddon Heights. During that twenty-year period, no installer had filed a claim for either unemployment or disability benefits. Both stores use the name Burlington Carpet and sell carpeting and area rugs. In its advertisements, CRW quotes both installed and uninstalled prices for its carpeting. Approximately sixty percent of its carpet sales include installation.

When CRW transacts a sale of carpeting that includes installation, it charges the customer an aggregate price, which includes the retail price of the carpeting and a charge for installation that is equal to or five percent greater than CRW's cost (the installer's fee). When the carpeting is available, CRW schedules the installation date with the customer. CRW then posts notice of the installation job on a calendar board in its warehouse. One of a pool of qualified installers selects that job and then installs the carpeting at the customer's residence or place of business. Although CRW has experimented with having installers on its payroll, that practice proved to be unsuccessful because of the seasonal nature of the business.

Training and experience are required before one can become a qualified carpet installer. Typically, a novice installer will apprentice with an experienced installer for three to five years. After the apprenticeship, the installer submits his qualifications and price schedule to carpet retailers that are in the market for new installers. CRW ordinarily accepts only those installers whose prices and qualifications it deems appropriate and who submit proof of insurance. CRW also maintains its own liability insurance.

Once approved, installers obtain work by selecting installation jobs from CRW's calendar board, usually on the basis of the installer's geographical preference. CRW does not guarantee any installer a set volume of work, nor are installers obligated to take specific jobs or perform a specified volume of work. Some installers devote a substantial percentage of their time to installations for CRW, but none works for CRW exclusively. On average, installers provide services for three to five different carpet retailers.

After an installer selects a job, he generally has no contact with the customer until the date of installation other than to call the customer to confirm the appointment. On the designated day, the installer picks up the carpeting from CRW's warehouse, transports it to the designated place of delivery, and performs the installation. The installer provides at his own expense all the equipment and supplies required for installation, including a vehicle, adhesive glue, staple-guns, rollers, tape, a power stretcher, and nails. On occasion, the customer will ask the installer to perform extra work. In those instances, the customer pays the installer directly for the incremental services. Otherwise, the customer pays CRW the total cost of the carpeting and installation.

Although installers negotiate their fees with CRW, the rates they charge do not vary significantly. The cost of a job usually is determined by multiplying the number of square yards by the installer's rate. An added charge may be assessed for custom work. Installers submit invoices directly to CRW, and CRW pays the installer even if the customer fails to pay CRW. Approximately seventy-five percent of the installers use CRW's standard invoice form, which CRW provides at its expense in order to facilitate its record-keeping. CRW does not withhold any taxes from the installers' fee.

CRW guarantees the carpeting and installation for one year. Customers generally complain to CRW directly about any problems with an installation. After receiving a complaint, CRW contacts the installer who performed the work, and that installer is then obligated to repair any defects at his own expense. If the installer disputes the veracity of the complaint, then CRW or the installer communicates with A & M Inspection, an independent company that investigates complaints and prepares reports detailing any defects. In the event that the customer does not wish the original installer to perform the necessary repairs, CRW sends out a different installer and subtracts the cost of repair from the first installer's payment. If the first installer is insolvent or no longer available, CRW bears the cost of repair.

Two installers, Jerry Forcellini and Thomas Johnston, testified at the hearing. Forcellini is the sole or majority stockholder of Jerry Forcellini Carpet Company, Inc., the entity through which he operates his carpet-installation business. He testified that his company employs three helpers, paying the necessary taxes and insurance for those employees. He owns two trucks, each with the name of his company displayed on it. According to Forcellini he is well-known and does little advertising. Forcellini testified that he had been a carpet installer for thirty years and had served as an apprentice for four years. His company installs, services, repairs, and sells carpeting, and approximately twenty percent of its income is derived from sales of carpeting. The percentage of Forcellini's business that is derived from CRW installations varies from year to year. In 1982, the company received approximately $50,000 from installation for CRW, which constituted approximately thirty to forty percent of its gross revenue for that year. Forcellini installs carpeting for four or five carpet retailers other than CRW.

Johnston, who has been an installer for seventeen years, operates as a sole proprietorship under the name Johnston's Carpeting Service. In addition to installing carpeting for CRW, Johnston installs carpeting for several other carpet retailers, decorators, and individual consumers. He occasionally sells carpeting. Johnston testified that he employs a helper, for whom he pays...