Mahoney v. Nitro Form Co., A--263

Decision Date10 June 1955
Docket NumberNo. A--263,A--263
Citation114 A.2d 863,36 N.J.Super. 116
PartiesDorothy W. MAHONEY, Petitioner-Respondent, v. NITROFORM COMPANY, Inc., Respondent-Appellant. . Appellate Division
CourtNew Jersey Superior Court — Appellate Division

Isidor Kalisch, Newark, for respondent-appellant.

Alexander Avidan, Newark, for petitioner-respondent (Avidan & Avidan, Newark, attorneys).


The opinion of the court was delivered by


This is a review of concurring conclusions of the Essex County Court and the Division of Workmen's Compensation awarding compensation to petitioner in respect to a fatal accident which befell her husband, Richard W. Mahoney, allegedly while in the employ of respondent corporation. There are mooted on this appeal issues as to the asserted employment relationship and with respect to the rate of compensation applicable. Our conclusions on the question first stated will be dispositive of this proceeding.

Petitioner's principal witness was Thomas J. Tully, whose regular occupation is as an associate professor of chemistry at the Newark College of Engineering. He and three others, including the decedent, were incorporators of respondent on June 26, 1952, and equal holders of its shares of stock. He was vice-president in charge of research, Mahoney was president, one Edwin C. Kraemer was secretary and treasurer, and Leon J. Ross was vice-president in charge of sales. At all times here material decedent was a full time, five-days-a-week working chemist in the employ of Merck & Co. at Rahway. Kraemer also had another regular full time employment. The record is silent as to Ross' activities in or out of the respondent company. From the time of incorporation until February 21, 1953 respondent manufactured chemicals at rented premises in Newark. Production was primarily by decedent, who devoted evenings and most of his week-ends and holidays to the enterprise, allegedly averaging some 20 hours per week. Kraemer assisted Mahoney, presumably during similar periods, and also had charge of the records and general administration of the company. There was a caretaker and several other miscellaneous employees. On February 21, 1953 there was an explosion and fire at the plant and both Mahoney and Kraemer were fatally injured while at work. Respondent thereupon discontinued its operations.

Up to the time of the accident none of the four incorporators had drawn any money from the company, whether as salary, wages, dividends or otherwise. There was $1,087.73 in the bank and an unspecified amount of accounts receivable. The books and records were not available, having allegedly been destroyed in the fire or seized by the authorities investigating the explosion. Respondent's position is that none of the organizers, including decedent, was in an employment relationship with the company at the time of the accident, but that they were contributing their spare time efforts in developing its operations in the interest of their proprietorship of the business and in the hope that eventually they would all have full time employment in the operation of their own business. Petitioner says that it was understood between the incorporators that such work as was performed by any of the men was to be paid for on a reasonable basis, in the case of the decedent at the rate of his earnings at Merck, payable when the company should have sufficient funds available for the purpose, and that the company was able so to pay when the accident occurred. Before inspecting the testimonial support offered for this thesis in the Division it will be useful to consider the law.

The elective compensation provisions of the act arise out of the agreement, express or implied, between 'employer and employee' to accept its scheduled rates of payment. R.S. 34:15--7, N.J.S.A. Under N.J.S.A. 34:15--36, N.J.S.A.:

"Employer' is declared to be synonymous with master, and includes natural persons, partnerships, and corporations; 'employee' is synonymous with servant, and includes all natural persons who perform service for another for financial consideration, * * *.'

The requisite statutory relationship is non-existent unless it arises from a contract of hire, express or implied in fact, Bendler v. Bendler,3 N.J. 161, 167, 69 A.2d 302 (1949); See Vogt v. Borough of Belmar, 14 N.J. 195, 206, 101 A.2d 849 (1954). It has long been considered that there is required a showing of a 'valid contract of service.' Rojeski v. Pennington Dairy Farms, Inc., 118 N.J.L. 335, 337, 192 A. 746, 748 (Sup.Ct.1937); Brower v. Township of Franklin, 119 N.J.L. 417, 197 A. 367 (Sup.Ct.1938). While the 'financial consideration' specified in the statute must flow between the parties sought to be implicated in the operative relationship, Hughes v. Dugan Bros., 128 N.J.L. 279, 280, 25 A.2d 502 (Sup.Ct.1942), the fact that the precise basis of emolument has not been fixed at the time of the accident does not preclude the application of the statute if it is fairly determinable. Essbee Amusement Corp. v. Greenhaus, 114 N.J.L. 492, 494, 177 A. 562 (Sup.Ct.1935). The rendition of service by one person to another at the latter's request, and under circumstances which negative the idea that it is gratuitous, entitles the person who renders the service to compensation therefor in the amount of its reasonable worth as a matter of agreement implied from the request to render it. Colloty v. Schuman, 76 N.J.L. 502, 504, 70 A. 190 (E. & A.1908). The citation of the Colloty case, which was an action in contract, in the Essbee case, supra, a compensation suit, as well as the rationale of the Bendler decision, supra, wherein it was held that a husband could not be a compensable employee of his wife because of the common law interdiction of any contractual relationship between spouses, reinforces the concept expressed in the Rojeski and Brower decisions, supra, that it takes a Valid contract of service to support the employment relationship requisite for invocation of the elective compensation schedules. A determinative inquiry in the matter Sub judice, accordingly, is whether the proofs here arrayed by petitioner establish a valid agreement of hire between decedent and respondent as of the date of his death.

The agreement must not only be valid, but it must be one of hire, rather than an understanding founded in one of a number of other known service relationships which are distinguishable from the concept of hire. Basic to a hiring, or employment, for example, is the element of control by the employer over the employee and the right to discharge him. There must be 'dominion by the company over the decedent (compensation claimant) as an individual workman' and a 'right of direction as to how his work should be done.' Wilson v. Kelleher Motor Freight Lines, Inc., 12 N.J. 261, 265, 96 A.2d 531, 533 (1953). Those essentials are absent where the person rendering the service is an independent contractor. Id.; Toner v. International Association, etc., 113 N.J.L. 29, 31, 172 A. 389 (E. & A.1934); Cappadonna v. Passaic Motors, Inc., 136 N.J.L. 299, 55 A.2d 462 (Sup.Ct.1947), affirmed 137 N.J.L. 661, 61 A.2d 282 (E. & A.1948). More significantly for present purposes, their lack is conspicuous when a purported corporate employee who is in fact an owner of the enterprise is responsible to and controlled by no one but himself. Larson, known as an exponent of the liberal viewpoint in workmen's compensation law, says, as to corporate executives:

'Moreover, the work, to qualify as employment should be done under the control of someone. If the officer is himself the ultimate wielder of control, it is difficult to see how even his performance of menial work could be termed employment.'

1 Larson, Workmen's Compensation Law (1952) § 54.21, p. 788.

Recovery of compensation was denied, partly upon the indicated philosophy, in Carville v. A. F. Bornot & Co., 288 Pa. 104, 135 A. 652, 655 (Sup.Ct.1927); Korovilas v. Bon Ton Renovating Co., 219 Minn. 294, 17 N.W.2d 502, 504 (Sup.Ct.1945); Manfield & Firman Co. v. Manfield, 95 Ind.App. 70, 182 N.E. 539, 541 (App.Ct.1932); Bowne v. S. W. Bowne Co., 221 N.Y. 28, 116 N.E. 364, 366 (Ct.App.1917); Leigh Aitchison, Inc., v. Industrial Commission, 188 Wis. 218, 205 N.W. 806, 807, 44 A.L.R. 1213 (Sup.Ct.1925). In the case last cited, dealing with a manager-owner of a corporate business from which she drew a $5,000 annual salary, the court said 'Mrs. Aitchison fixed her own salary, * * * fixed her own hours of employment, prescribed her own duties, was responsible to no one; no one had the power or authority to discharge her and she was subject to no one's direction. It would seem to require no argument to show that under those circumstances she was not an employee in the sense in which that term is used in the Workmen's Compensation Act. * * *' (At page 807 of 205 N.W.).

In New Jersey, as almost everywhere, an interest in a corporate business is not of itself a disqualification of the owner's potential status as an employee, present the required indicia of the relationship. Adam Black & Sons, Inc., v. Court of Common Pleas, 150 A. 672, 8 N.J.Misc. 442 (Sup.Ct.1930) (part owner drawing wage of $60 weekly); Strang v. Strang Electric Co., 152 A. 242, 8 N.J.Misc. 873 (Sup.Ct.1930) (stockholder, treasurer, on salary of $35 weekly); Goldmann v. Johanna Farms, Inc., 26 N.J.Super. 550, 98 A.2d 142 (Cty.Ct.1953) (part owner, manager); see Hannaford v. Central R. Co. of New Jersey, 115 N.J.L. 573, 576, 181 A. 306 (Sup.Ct.1935). There is an implication of the significance of control in the case last cited, but no consideration of that factor in the others. The contrariety of viewpoint in respect to the general matter of proprietorship or executive status is reflected in Annotations, 15 A.L.R. 1288, 81 A.L.R. 644.

Against this projection of the legal spectrum here applicable we proceed to scrutinize the supporting...

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