Matter of Herbert Strauss, Inc., 41 N.Y.2d 1082 (1977)
Parties cannot, by agreement, expand the scope of the Unemployment Insurance Law to create coverage where it would not otherwise exist based on the actual relationship between the parties.
Summary
Herbert Strauss, Inc. contested assessments for unemployment insurance contributions, arguing that musicians engaged under American Federation of Musicians’ Form B contracts were not their employees. The New York Court of Appeals affirmed the lower court’s decision upholding the assessment based on the contract’s provision granting the owner complete supervision over the musicians. However, the dissent argued that uncontroverted evidence showed the control provision was a fiction, designed solely to create artificial unemployment insurance coverage, and that parties cannot expand the scope of unemployment insurance law by agreement.
Facts
Herbert Strauss, Inc., and other establishments engaged musicians under the American Federation of Musicians’ Form B contract. This contract included a provision that seemingly vested “complete supervision, direction and control” over the musicians’ services with the owner of the establishment. However, the owners testified that they did not exercise any actual control over the musicians’ performances, selection of music, dress code, or any other aspect of their work. Furthermore, the owners did not withhold income taxes, issue W-2 forms, provide worker’s compensation coverage, or collect Social Security taxes for the musicians. The dissent emphasized that the contract provision was a fiction to create unemployment insurance coverage.
Procedural History
The Unemployment Insurance Appeal Board determined that an employer-employee relationship existed, leading to assessments against the establishments. The Appellate Division affirmed. The New York Court of Appeals affirmed the order.
Issue(s)
Whether an employer-employee relationship exists between establishments and musicians engaged under the American Federation of Musicians’ Form B contract, when the contractual provision granting control to the establishment is alleged to be a fiction designed solely to create unemployment insurance coverage.
Holding
The majority affirmed that the owner had the right to supervise and control the services of the musicians. The dissent argued that “No, because parties to an occupational relationship cannot by agreement extend the scope of the Unemployment Insurance Law,” especially when the contractual control provision is a proven fiction intended to create artificial coverage.
Court’s Reasoning
The majority’s reasoning is not explicitly stated in the memorandum opinion; however, the affirmation suggests reliance on the contractual provision granting control to the owner. The dissent, however, argued that the finding of an employer-employee relationship was solely based on the contractual provision, which was proven to be a fiction. The dissent emphasized that “parties to an occupational relationship cannot by agreement extend the scope of the Unemployment Insurance Law.” They noted the uncontroverted proof that the owners did not exercise actual control and that the contract provision was an intentional fabrication designed to create artificial unemployment insurance coverage. The dissent cited Matter of Basin St. (Lubin), 6 NY2d 276, 278, noting that in the present case there was uncontroverted proof that actual control neither rested in nor was exercised by the owners and that the triggering provision of the contract was a calculated fabrication.