286 A.D. 684 | N.Y. App. Div. | 1955
This case brings up for review the unfortunate conflict which has developed between the Federal and State authorities with respect to liability for unemployment insurance contributions upon the compensation paid to members of so-called“ name ’’bands.
The proprietor of a public dance hall or ballroom customarily enters into a contract with the leader of the orchestra under a standard form contract prescribed by the American Federation of Musicians known as form B. This contract was promulgated by the union after the Federal courts had held that, under the form of contract theretofore used, the leader of the band was the employer and was liable for social security taxes on the salaries paid to the members of the band (Spillson v. Smith, 147 F. 2d 727; Williams v. United States, 126 F. 2d 129; Biltgen v. Reynolds, 58 F. Supp. 909; Los Angeles Athletic Club v. United States, 54 F. Supp. 702; Aberdeen Aerie No. 24 F. O. E. v. United States, 50 F. Supp. 734; Matter of Ten Eyck Co., 41 F. Supp. 375). The form B contract was concededly designed to make it appear that the dance hall or ballroom operator was the employer, so that he would be the one held liable for social security taxes and unemployment insurance contributions. The contract applied the designation of11 employer ’ ’ to the operator and it contained the provision that “ The employer shall at all times have complete control of the services which the employees will render under the specifications of this contract ”.
The actual realities of the situation were, however, as shown by the record in this case and by the record in Bartels v. Birmingham (332 U. S. 126, infra), that the leader was the owner of
After the adoption of the form B contract, the Commissioner of Internal Revenue issued interpretive rulings in 1944 holding that, under the contract, the ballroom operator was to be regarded as the employer for Federal social security and unemployment insurance tax purposes (Internal Revenue Bulletin [Cum. Bulletin, 1944], pp. 547, 548). However, on June 23,1947, the United States Supreme Court held that these rulings were erroneous and that, notwithstanding the terms of the contract, the orchestra leader was not the employee of the operator but was an independent contractor and that he was the actual employer of the members of the band. The court held that the leader was liable for Federal social security and unemployment insurance taxes and that the parties could not by contract shift the tax liability from the leader to the ballroom operator (Bartels v. Birmingham, supra).
In the meantime, the question of liability for unemployment insurance contributions under the New York Unemployment Insurance Law (Labor Law, art. 18) had arisen in New York State. The New York Unemployment Insurance Appeal Board had held, even under the contracts used before the adoption of the form B contract, that, since the contracts had incorporated by reference the union by-laws which designated the operator as the employer and the leader as his agent, the operator was liable for unemployment insurance contributions under the New York law. The courts sustained these decisions of the board
The first case to reach the courts under the form B contract was Matter of Hotels Statler Co. [Corsi] (279 App. Div. 814 [Jan. 1952]; motion for leave to appeal denied 304 N. Y. 987). That case arose after the decision by the United States Supreme Court in the Bartels case. The referee in the Statler case held that, notwithstanding the decision by the Supreme Court, the contract provision vesting the right to control in the operator, designated in the contract as the employer, was sufficient in and of itself to make the operator liable for unemployment insurance contributions. He declined to follow the Supreme Court’s decision upon the ground that the question was one of State law and that the Supreme Court’s decision had no binding force. The appeal board affirmed the referee’s decision but added a finding that the hotel had, in fact, exercised control over the performance by the musicians during the period of the contract. Upon appeal to this court, the court did not approve the broad position taken by the referee (and affirmed by the board) but it nevertheless affirmed the board’s decision upon the ground that it was “ within the realm of fact The decision of the appeal board was “ final on all questions of fact ” (Labor Law, § 623) and, if the decision was supported by substantial evidence, the court was powerless to disturb it. The court pointed out that “ There is some evidence of rather trifling acts of control on the part of the management of the hotels where the orchestras played ”. The court noted that the board had not “ made any attempt realistically to appraise the relationship in the light of common-law principles, as was done in the case of Bartels v. Birmingham (332 U. S. 126) ” but it nevertheless held that the board had the power to decide as a matter of fact that the operator was the employer and that the leader and the members of the band were its employees.
After the decision of the Bartels case in 1947, the union, representing the orchestra leaders, sought to find a way to protect them against the liability resulting from that decision. As appears from the proof in the present case, in 1949, the union prepared two riders designated riders A and B, respectively, one of which was to be affixed to the union’s form B contract in accordance with the choice made by the operator.
..................................
Purchaser of the Music
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Leader ”
In the present case, the Savoy Ballroom Corp., the appellant, elected to take the form B rider and throughout the period from January 1, 1950, to June 30, 1951, which is in controversy here, it entered into various form B contracts with orchestra leaders with rider B attached.
The Statler case had been decided against the hotel by the unemployment insurance referee on March 3, 1949, prior to the promulgation of the riders. Of course, the form B contracts which were involved in the Statler case did not have any rider attached to them. No decision had as yet been made by the board or by the courts in the Statler case at the time that the riders were promulgated by the union.
Under rider B, an additional 7% of the contract price was to be paid by the operator to the leader. Out of this, the latter was expected to pay 1%% for social security taxes to the Federal Government, 2.7% to the State of New York for unemployment insurance contributions and 3/10th of 1% to the Federal Government for unemployment insurance taxes (the Federal tax of 3% less credit for 2.7% paid to the State). The balance of 2%% was to be retained by the leader as reimbursement for the cost of bookkeeping and accounting.
In arriving at the 7 % additional payment, the parties apparently assumed that the Federal and State decisions would be in harmony and that the leader would be held to be the employer by both the Federal and State authorities. However, the parties contemplated the possibility that the Bartels case might be overruled by a subsequent decision or statutory amendment and that the operator might again be held to be the employer, and the rider therefore contained a provision that, in that event, the leader would transfer to the purchaser the additional moneys paid to him for taxes. This reimbursement clause turned out to be ineffective when the State and Federal authorities took different views, the State board holding that the operator was the employer, and the Federal authorities continuing to follow the Bartels case. The leader was then required to pay the full 3% Federal tax to the Federal authorities, under their holding that he was the employer, and there was nothing left in his hands to repay to the operator to discharge the operator’s State liability.
The referee held in the present case that the rider did not have any effect upon the relationship between the parties and that the operator was still liable under the State law for unemployment insurance contributions as the employer. The board
We take it that the last sentence of this opinion means not only that the referee found it unnecessary to make any finding as to whether the employer had in fact exercised supervision and control but also that he found it unnecessary to make any finding as to whether the employer in fact had any right to supervise and control the manner in which the musicians rendered their services. The referee apparently interpreted the court’s decision in the Statler case as meaning that, as a matter of law, under a form B contract, the operator was to be treated as the employer for unemployment insurance purposes, regardless of whether he was in fact the employer. Since, according to the referee’s view, the rider left the form B contract unimpaired, he held that the operator was still liable for the unemployment insurance contributions.
First of all, we believe that the referee and the board took too broad a view of the decision of this court in the Statler case. We affirmed the board’s decision in the Statler case solely upon the ground that the decision lay within the realm of fact and that, upon the record before the board in that case, there was substantial evidence to support the finding that the operator was the employer. The court did not treat the contract terms as in and of themselves controlling, as the referee and the board had done. The contract terms, under the court’s decision in the Statler case, merely constituted elements to be considered in deciding the overall question of fact as to the true nature of the relationship. In this respect, the court followed the principle laid down in Matter of Morton (Miller) (284 N. Y. 167, 175): “ no written agreement may preclude an examination to determine whether the actual relationship is such as to bring the parties within the scope of the law.” (See, also, Matter of Electrolux Corp. [Miller], 288 N. Y. 440, 444, and Matter of Realty Hotels [Corsi], 285 App. Div. 919.)
Secondly, the board in this case erred in rejecting the rider as having no significance. The rider nullified any inference that the operator was in fact the employer, which might otherwise
The rider in this case is substantially different from that before this court in the Matter of Cassetta (Corsi) (282 App. Div. 793, motion for leave to appeal denied 306 N. Y. 982). In that case, the rider simply stated that the leader “acknowledges that he conducts ‘ a name band ’ and is therefore responsible for Social Security taxes and "Unemployment taxes ”. This was held to be an invalid attempt to shift liability from the employer to one who was in fact not the employer. The rider did not purport to qualify in any way the provisions of the contract designating the operator as the employer. Furthermore, the board had made a factual finding upon the evidence that the operator was the employer and the court said. “ If, in fact, they [the musicians] are employees of the.hotel, any acknowledgment which might he construed to the contrary does not alter their status.”
Under the board’s decision, the operator’s payment to the State is computed not only upon the compensation paid to the musicians but also upon the balance of the contract price retained by the leader himself. This is, of course, improper if the leader is in fact an independent contractor and not an employee of the operator. The operator is required to pay the 2.7 % to the State in addition to the 7 % paid to the leader under the rider, supposedly in full for all State and Federal taxes. The operator thus pays a total of 9.7% of the contract price. He is worse off under this interpretation of the contract and rider than if he were held to be the employer in fact for both State and Federal purposes.
The need for harmonizing the Federal and State decisions is self-evident. The State and Federal statutes are integral parts of a single scheme. “ State and federal unemployment relief systems [are] integrated in plan, function, and purpose ” (Illinois v. United States, 328 U. S. 8, 11). If it is possible to do so, the State and Federal authorities ought to reach the same conclusion with respect to the identity of the employer so that overpayments of taxes may be avoided (Matter of Rogers, 269 App. Div. 551, affd. 296 N. Y. 676). There is no substantial difference between the State and Federal statutes which warrants different conclusions.
The decision of the Unemployment Insurance Appeal Board should be reversed and the case remitted to the board for further proceedings, without costs.
Foster, P. J., Bergan, Coon, and Zeller, JJ., concur.
Decision of the Unemployment Insurance Appeal Board reversed, and the matter remitted to the board for further proceedings, without costs.
This case involved assessments for unemployment insurance contributions for the period from January 1, 1947, to June 30, 1951, but the appeal is taken only from that part of the decision which relates to the period from January 1, 1950, to June 30, 1951, the period during which the rider B was used. The appellant has eoncéded liability with respect to the period from January 1, 1947, to December 31, .1949, so that no question as to that period is before us.
Subsequent to the decision of the Bartels case, Congress adopted an amendment to the Federal act so as to provide specifically that the term employee was not to include “ (1) any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an independent contractor (2) any individual (except the officer of a corporation) who is not an employee under such common-law rules ” (Internal Revenue Code [U. S. Code, tit. 26], § 1607, subd. [i]; § 1426, subd. [d]; as amd. by 62 U. S. Stat. 438 [June 14, 1948]). This amendment did not in any way affect
In any event, the amendment to the Federal statute now clearly makes the common-law test controlling so that the test is the same under the State and Federal law. The Federal authorities have consistently held the leader to be the employer since 1947 (Internal Revenue Bulletin [Cum. Bulletin, 1947-2], p. 177: Mimeograph Coll. No. 6187).