Matter of Realty Res. Ctr. Corp. v. Ross, 49 N.Y.2d 895 (1980)

For unemployment insurance purposes, whether a real estate salesperson is an employee or an independent contractor depends on whether the real estate company exercises control over the results produced by the salesperson or the means used to achieve those results.

Summary

The New York Court of Appeals reversed the Appellate Division’s order, reinstating the Unemployment Insurance Administrative Law Judge’s determination. The court held that real estate salespersons associated with Realty Resources Center Corp. were independent contractors, not employees. Therefore, the company was not liable for additional unemployment insurance contributions. The court found a lack of evidence that the company controlled the results achieved by the salespersons or the methods they used, highlighting the salespersons’ autonomy in setting hours, incurring expenses, and generating leads.

Facts

Realty Resources Center Corp. (petitioner) was assessed for additional unemployment insurance contributions based on the assertion that its real estate salespersons were employees. The Unemployment Insurance Appeal Board affirmed this assessment. The company compensated salespersons through commissions on gross sales without tax deductions, and salespersons were not entitled to draw against commissions. Salespersons determined their own work hours, worked from home or the office, and could engage in outside employment. While the company provided limited facilities and supplies, the salespersons bore most of their own expenses. Attendance at sales meetings was not mandatory. Initial training was optional. The salespersons paid their own group insurance premiums, and while the company assigned leads, most leads were self-generated by the salespersons.

Procedural History

The Unemployment Insurance Appeal Board determined that the real estate salespersons were employees, leading to an assessment against Realty Resources Center Corp. for unemployment insurance contributions. The Appellate Division affirmed the Board’s determination. Realty Resources Center Corp. appealed to the New York Court of Appeals.

Issue(s)

Whether the determination of the Unemployment Insurance Appeal Board that petitioner’s real estate salespersons are “employees,” thus making the respondent liable for additional contributions for unemployment insurance, is supported by substantial evidence.

Holding

No, because the evidence does not demonstrate that Realty Resources Center Corp. exercised control over the results produced by its salespersons or the means used to achieve the results, and therefore, the salespersons should be considered independent contractors.

Court’s Reasoning

The Court of Appeals determined that the Appeal Board’s decision lacked substantial evidence. The key factor in distinguishing between an employer-employee relationship and an independent contractor relationship is the level of control exercised by the putative employer. The court emphasized that an employer-employee relationship exists only where the employer controls the results produced by the employee or the means used to achieve those results. The court listed characteristics illustrative of the nature of the relationship: commission-based pay without deductions, flexible hours, the freedom to engage in outside employment, salesperson-borne expenses, optional training, and self-generated leads. The court stated, “The only rational conclusion that can be drawn from the record on this appeal is that such control is lacking and that the salespersons are therefore appropriately to be considered independent contractors rather than employees of petitioner.” The court also addressed the argument that the Secretary of State’s regulation (19 NYCRR 175.21) regarding broker supervision necessitates a finding of employment, stating that broker supervision alone is insufficient to establish an employer-employee relationship. The court referenced previous cases such as Matter of Sullivan Co. [Miller], 289 NY 110, in support of its holding, reinforcing the principle that control is the decisive factor.