THE COUNTY OF UNION v. EMPLOYEES RETIREMENT SYSTEM (2013)

This matter involves the arrangement appellant Joseph Sharp (Sharp) had with the County of Union (County) to continue as the administrator for Runnells Specialized Hospital of Union County (Runnells) following his July 1, 2003 retirement and receipt of pension benefits from respondent Public Employees' Retirement System (PERS).   In a March 20, 2012 initial decision, Administrative Law Judge Walter M. Braswell (ALJ Braswell) determined that:  Sharp was an employee of the County, not an independent contractor, who returned to a PERS-covered position following his retirement in violation of N.J.S.A. 43:15A–57.2;  his retirement was not bona fide pursuant to N.J.A.C. 17:2–6.2;  and he had to re-enroll in PERS, pay pension contributions for that enrollment, and repay all retirement benefits he received between August 1, 2003 and October 2009.   On April 20, 2012, PERS issued a final decision adopting ALJ Braswell's initial decision.   We affirm.

Sharp is a licensed nursing home administrator (LNHA).   From 1984 to June 30, 2003, he was employed at Runnells as the administrator, a PERS-covered position.   According to the County's Administrative Code (County Code), the administrator was directly responsible for “[o]rganizing, directing and supervising the overall activities of [Runnells] to ensure an effective and efficient operating organization[,]” among other duties.   The County Code also required the administrator to perform “such other duties as may be required by the County Manager.”

Sharp claimed that he decided to retire in 2003 for health reasons.   The County issued a Request for Proposal (RFP), requesting proposals from qualified individuals “for the position of hospital/long term care administrator and for the management of all aspects of ․ Runnells[.]”  Section 2 of the RFP required the administrator to report directly to the County Manager and contained an extensive list of the administrator's duties and responsibilities, including patient care, human resources, finance, physical environment, and leadership and management.   Section 3 required the administrator to be a LNHA.

Prior to his retirement, Sharp formed Aruspex, LLC, a New Jersey limited liability company, and became its president and sole employee.   On June 22, 2003, Aruspex submitted a proposal to the County to “serve as [Runnells's] administrator and LNHA.” The proposal provided as follows:

Aruspex will be administratively responsible for all aspects of [Runnell's] operations as required by N.J.A.C. 8:39–9.2(a) and as otherwise required by the [County's RFP].

Aruspex will ensure the efficient and economical operation of [Runnells, comply] with all Federal, State and local regulations and will perform all tasks required to carry out the strategic plan as approved by the Union County Board of Chosen Freeholders and will report directly to the Union County Manager and/or his designee(s).

The contracted Administrator will manage the day-to-day operations of [Runnells] in accordance with the ․ [County] Code and will address any and all contingencies promptly.   The Administrator will meet all requirements of the Nature/Scope of Services, Section 2 of the RFP. The primary goal of this relationship is to manage the assets of [Runnells] so as to uphold its traditional high standard of care while working with staff to reduce costs and increase revenue.

Aruspex's proposal requested that the County include the LNHA's professional liability insurance in the County's standard insurance program at standard amounts and coverage.

Sharp, as Aruspex's president, signed a contract with the County to provide a LNHA to Runnells for payment not to exceed $95,000 per year.   The contract, which was renewed annually, required the LNHA to be “administratively responsible for all aspects of [Runnells] as required by [N.J.A.C.] 8:39–9.2(a) in accordance with [Aruspex's] proposal submitted on June 22, 2010 incorporated herein as part of this contract.” ¹  The contract identified Aruspex and its employees as independent contractors not entitled to overtime, retirement benefits, workers' compensation benefits and injury or other leave.

Sharp retired under the PERS Early Retirement Program and began receiving a pension on July 1, 2003.   On August 1, 2003, he returned to work at Runnells as the Aruspex-designated LNHA. He received monthly payments for his services, which the County reported as Form 1099 income.

In 2007, the Division of Pension and Benefits (Division) discovered that Sharp had continued working full-time as Runnells's administrator following his retirement.   The Division began an investigation to determine Sharp's employment relationship with the County.   Sharp maintained he was an independent contractor, not an employee of the County, from and after August 2003.

The Division utilizes the Internal Revenue Service (IRS) common law “control test” to determine whether a worker is an employee or an independent contractor.²  Stevens v. Bd. of Trs., Pub. Emps.' Ret. Sys., 309 N.J.Super. 300, 304 (App.Div.1998).   The IRS generally considers an employer-employee relationship to exist where the employer has the right to direct and control how the worker performs the services for which he or she was hired.   Rev. Rul. 87–41, 1987–1 C.B. 296.  “In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed;  it is sufficient if the employer has the right to do so.”   Ibid.

The IRS identifies twenty factors in three categories, behavioral control, financial control and relationship of the parties, to be used to determine if there is sufficient control present to establish an employer-employee relationship:

1. Instructions. A worker who is required to comply with other persons' instructions about when, where, and how he or she is to work is ordinarily an employee.   This control factor is present if the person or persons for whom the services are performed have the right to require compliance with instructions.

2. Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner.

3. Integration. Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control.   When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business.

4. Services Rendered Personally.   If the services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results.

5. Hiring, Supervising, and Paying Assistants.   If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job.   However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.

6. Continuing Relationship.   A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists.   A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.

7. Set Hours of Work. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control.

8. Full Time Required.   If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work.   An independent contractor on the other hand, is free to work when and for whom he or she chooses.

9. Doing Work on Employer's Premises.   If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere.   Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control.   However, this fact by itself does not mean that the worker is not an employee.   The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer's premises.   Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required.

10. Order or Sequence Set. If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker's own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed.   Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently.   It is sufficient to show control, however, if such person or persons retain the right to do so.

11. Oral or Written Reports.   A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control.

12. Payment by Hour, Week, Month.   Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job.   Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.

13. Payment of Business and/or Traveling Expenses.   If the person or persons for whom the services are performed ordinarily pay the worker's business and/or traveling expenses, the worker is ordinarily an employee.   An employer, to be able to control expenses, generally retains the right to regulate and direct the worker's business activities.

14. Furnishing of Tools and Materials.   The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.

15. Significant Investment.   If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor.   On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.   Special scrutiny is required with respect to certain types of facilities, such as home offices.

16. Realization of Profit or Loss. A worker who can realize a profit or suffer a loss as a result of the worker's service (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee.   For example, if the worker is subject to a real risk of economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor.   The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.

17. Working for More than One Firm at a Time. If a worker performs more than de minimus services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor.   However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.

18. Making Service Available to General Public.   The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.

19. Right to Discharge.   The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer.   An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions.   An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.

20. Right to Terminate.   If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship.

[Ibid. (citations omitted).]

After analyzing the twenty IRS factors, the Division concluded that because the County had the right to control and direct the performance of Sharp's services, there was a bona fide employer-employee relationship beginning August 1, 2003.   The Division found the following behavioral control factors:  Sharp had a continuing relationship with the County as Runnells's administrator with substantially the same duties and responsibilities as his pre-retirement position;  he was administratively responsible for all aspects of Runnells as required by N.J.A.C. 8:39–9.2(a);  his services were integrated into Runnells's day-to-day business operations and he rendered them personally;  the continuation of Runnells's depended upon his performance of those services;  he devoted full-time to Runnells's business and did not provide his services to any other public employer or advertise his services to the general public;  his employment was governed by N.J.S.A. 26:2H–1 to –26, N.J.A.C. 8:34–1.3, the County Code and the RFP;  he reported directly to the County manager;  he presented resolutions as Runnells's LNHA for adoption by the County's Board of Chosen Freeholders;  the County Manager and Runnells's Board of Directors required his attendance when the expertise of a LNHA was required;  and the County required him to be available 24/7 as needed.

The Division found the following financial control factors:  the County included Sharp's professional liability insurance in the County's standard insurance program;  the County provided him with a Blackberry for communication purposes;  there was no evidence that there was a possibility of loss as a result of his services to the County;  the contract permitted the County to terminate with or without cause.   As for the relationship of the parties, the Division found that the contract's annual renewal indicated a sense of permanency and continuing relationship;  the County awarded the contract to Sharp without competitive bidding because the field required considerable training and specialized study;  he, not Aruspex, was the principal participant and the County relied on his years of experience and expertise gained in his pre-retirement position as Runnells's administrator.

The Division concluded that Sharp had returned to PERS-covered employment in violation of N.J.S.A. 43:15A–57.2 and must re-enroll in PERS, effective August 1, 2003, pay pension contributions for that enrollment, and repay all retirement benefits received during the period of his re-employment.   In addition, Sharp and the County had to satisfy the pension contributions due for the period of re-enrollment effective August 1, 2003, in accordance with N.J.S.A. 43:15A–7.1.

Sharp appealed to PERS. PERS conducted an independent review and accepted the Division's findings and conclusions.   PERS concluded that Sharp had returned to PERS-covered employment in violation of N.J.S.A. 43:15A–57.2 and must re-enroll in PERS, effective August 1, 2003, pay pension contributions for that enrollment pursuant to N.J.S.A. 43:15A–7.1, and repay all retirement benefits he received between August 1, 2003, and October 2009.

Sharp appealed.   The matter was transferred to the Office of Administrative Law for a hearing.   Following a hearing, in an initial decision, ALJ Braswell made detailed factual findings as to each of the twenty IRS factors:

1.  Instructions. The RFP and the Union [County Code] stated that the LNHA is “required to perform” an extensive scope of services, report to the County manager, and perform any other work the County manager requires.   Even if the County did not instruct [Sharp], it retained the right to do so.

2. Training. [Sharp] held a high-level position and had ample training and experience from his twenty-plus years as the facility's LNHA. Thus, the training or lack thereof is not significant in this case, as [Sharp] did not need training.   The reason [Sharp] was hired for this position after retirement was that he had the experience and training.

3. Integration. This category determines whether the entity could continue without [Sharp] as the LNHA. The fact that [Sharp] was charged with overseeing the entire operation establishes that he was integrated into the operation.   This factor indicates that an employee-employer relationship existed.   Tellingly, once [Sharp] returned to work, no other LNHA was hired.

4. Services rendered personally.   The “services” [Sharp] performed were identical to those he had performed for twenty-plus years as an employee.   The fact that services had to be rendered personally indicates an employer-employee relationship.   At no time did “Aruspex” hire any other employees, and, thus, [Sharp] had to perform these services.

5. & 6. Hiring, supervising, and paying assistants.   A continuing relationship between the worker and the entity for whom the services are performed indicates that an employer-employee relationship exists.   In this case, [Sharp] had an exclusive arrangement with Union County that started in July 2003 and continued, uninterrupted, until 2010.   The fact that the contracts were renewed and renegotiated for higher salaries on a year-to-year basis indicates an employer-employee relationship.

7. Set hours of work.   Although [Sharp] testified that he did not have set hours of work, he admitted he was available to Union County on a full-time basis.

8. Full time required.  [Sharp] acknowledged that he was available “24/7,” and he conceded that he would often work more than 100 hours in a week;  [Sharp] also testified that he rarely took a vacation, stating that the hours he worked depended on what tasks he needed to accomplish.   Even though [Sharp] testified that he was not a “full-time employee,” under N.J.A.C. 8:39–9.2(a) 2, facilities with 100 beds or more, like Runnells, are required to have a “full-time” LNHA. Thus, [Sharp] was required by state regulation to work full time, which is indicative of an employer-employee relationship.   Part-time was simply not an option.

9. Doing work on employer's premises.   Regarding [Sharp's] work performed at Runnells, the facility required [Sharp's] license to be displayed in accordance with N.J.A.C. 8:34–6.4. [Sharp] could not calculate how often he worked at the hospital versus how often he worked at home.   However, this fact is belied by [Sharp's] own testimony wherein he conceded that he did not list his home office as an expense, and his tax returns reflect very little in the way of home-office expenses.

10. Order or sequence set.   Union County retained the right to direct [Sharp's] work and to assign him additional work.   Because the County retained this right, [Sharp] was not free to determine which tasks he would or would not perform.   This indicates an employer-employee relationship.

11. Oral or written reports.  [Sharp] testified that he was required to produce reports at regular intervals.   Thus, [Sharp] was required to report on the conditions of the facility, which indicates a strong degree of control over [Sharp].

12. Payment by hour, week, month.   Payment by hour, week or month typically points toward an employer-employee relationship;  as related by [the Division's investigator's] testimony, independent contractors are generally paid by the job or project.  [Sharp] agreed to a yearly salary and he was paid one-twelfth of that amount each month.   The payments, albeit through an invoice, were clearly a salary, as the payments had no bearing on the work performed, either in terms of quantity or quality.   In addition, [Sharp] was paid the same salary at regular intervals each month, regardless of whether he worked at [Runnells] or from home, or even if he was on vacation or out sick.   A payment arrangement that is not tied to the completion of a task, but occurring at regular intervals in identical amounts, is a salary, and this heavily favors a finding of an employer-employee relationship.

13. Payments of business and/or travel expenses.   Generally, all State employees are required to pay their regular commuting expenses.  [Sharp] is no different, as he was required to pay for his commuting expenses, and was not reimbursed for off-site meetings, as stated under the contract.   Commuting expense to the place of employment is an ordinary expense of any employee.

14. Furnishing tools and materials.  [Sharp] provided no evidence that he purchased supplies or equipment or made any significant investment in his “business.”

15. Significant investment.  [Sharp] was able to work out of his home or at the facility, which obviated the need for the expense of a rental space.   Significantly, [Sharp] was provided an office within Runnells, and for a period of time he was still using the County's email system.  [Sharp] used [Runnells'] printers, copy machines, and paper.   The lack of a significant investment and utilizing an office at the facility, as well as using the facility's equipment and supplies, indicate an employer-employee relationship.

16. Realization of profit or loss.  [Sharp] had no potential for loss, as he was paid a flat monthly fee that was one-twelfth of his yearly salary, and could not establish any overhead.   Thus, so long as [Sharp] continued to work, there was no possibility of loss.  [Sharp] was not paid by the project or task, but by a regular monthly check, all in the same amount.

17. Working for more than one client at a time.  [Sharp] did not perform even de minimis services for any other entity.

18. Making service available to the general public.  [Sharp] did not make his services available to the general public, which further indicates that the work he performed for Runnells was under an employer-employee relationship.

19. & 20.   Right to discharge and right to terminate.   Finally, the right to discharge and the right to terminate are factors which also clearly establish that [Sharp] was an employee.   Union County had the right to terminate the agreement at its sole discretion, without penalty, and [Sharp] was able to terminate the contract without penalty also.   The right to terminate and the right to “quit” are rights reserved to an employer-employee relationship.

Based on the totality of circumstances, ALJ Braswell affirmed PERS's determination that Sharp was an employee eligible for PERS membership pursuant to N.J.S.A. 43:15A–7.   ALJ Braswell found that Sharp violated N.J.S.A. 43:15A–57.2 by receiving pension benefits while continuing employment in a PERS-covered position, and his retirement was not bona fide pursuant to N.J.A.C. 17:2–6.2. The ALJ determined that

The return-to-employment arrangement devised by [Sharp] clearly violates both the letter and spirit of the pension laws.   A member cannot simply create an LLC and claim that he is impervious to the pension laws and find refuge under the guise of “independent contractor” status.   Effectively, the scheme devised by [Sharp] would allow any member to “retire,” negotiate for his or her return, and then collect both a salary and a retirement, to the detriment of both the pension funds and taxpayers.   The facts presented here are even more egregious because [Sharp] received enhanced retirement benefits granted under the Early Retirement Program, the purpose for which was to induce separation of employment through retirement.   Here, [Sharp] had no intent[ion] of discontinuing his service to Union County, essentially facilitating his return through a [straw man] transaction via an LLC. This is established by the fact that [Sharp] claimed he was retiring for “health reasons,” but simultaneously set up an LLC to continue working after retirement.

ALJ Braswell concluded that Sharp was an employee, not an independent contractor, his post-retirement employment made him eligible to be a PERS member pursuant to N.J.S.A. 43:15A–57.2, and his retirement was not bona fide pursuant to N.J.A.C. 17:2–6.2 because he failed to abide by the thirty-day period prior to returning to public employment.   The ALJ also affirmed PERS's decision that Sharp must re-enroll in PERS effective August 1, 2003, pay pension contributions for that enrollment and repay all retirement benefits he received between August 1, 2003, and October 2009.

PERS reviewed the record and issued a final decision on April 20, 2012.   With two factual modifications,³ PERS adopted ALJ Braswell's factual findings, concluding they were supported by sufficient credible evidence in the record.   PERS also adopted ALJ Braswell's legal conclusions.   This appeal followed.   On appeal, Sharp argues that the record does not support PERS's findings that he was a County employee post-retirement and did not meet the criteria of an independent contractor under the IRS twenty-factor test.

Our review of an administrative agency's decision is limited.  In re Stallworth, 208 N.J. 182, 194 (2011).   We will not disturb an agency's factual findings unless the findings are not supported by substantial credible evidence.  Stevens, supra, 309 N.J.Super. at 305 (citing Gerba v. Bd. of Trs. of the Pub. Emps.' Ret. Sys., 83 N.J. 174, 189 (1980)).

We have considered Sharp's contention in view of the record and applicable legal principles and conclude there was more than sufficient credible evidence in the record as a whole supporting PERS's decision.   R. 2:11–3(e)(1)(D).  We also conclude that Sharp's arguments to the contrary are without sufficient merit to warrant discussion in a written opinion.   R. 2:11–3(e)(1)(E).   We affirm substantially for the reasons expressed by ALJ Braswell in his comprehensive and well-reasoned March 20, 2012 initial decision, which PERS adopted in its entirety in its April 20, 2012 final decision.

Affirmed.

FOOTNOTES

FN1. N.J.A.C. 8:39–9.2(a) requires that a facility such as Runnells must be directed by a LNHA who “shall be administratively responsible for all aspects of the facility.”  N.J.A.C. 8:39–9.2(a)2 requires that the administrator of a facility with 100 beds or more, such as Runnells, “shall serve full-time in an administrative capacity within the facility.”.  FN1. N.J.A.C. 8:39–9.2(a) requires that a facility such as Runnells must be directed by a LNHA who “shall be administratively responsible for all aspects of the facility.”  N.J.A.C. 8:39–9.2(a)2 requires that the administrator of a facility with 100 beds or more, such as Runnells, “shall serve full-time in an administrative capacity within the facility.”

FN2. An independent contractor, as defined by the IRS, is exempt from PERS eligibility.  N.J.A.C. 17:2–2.3(a)15..  FN2. An independent contractor, as defined by the IRS, is exempt from PERS eligibility.  N.J.A.C. 17:2–2.3(a)15.

FN3. ALJ Braswell incorrectly found that the Division began its investigation “approximately six years after Aruspex began providing services to Runnells.”   The investigation actually began in July 2007, and Sharp was notified in 2008, only four years after his retirement.   In addition, PERS noted that the ALJ failed to mention the $611,058.66 in salary Sharp received during his post-retirement employment..  FN3. ALJ Braswell incorrectly found that the Division began its investigation “approximately six years after Aruspex began providing services to Runnells.”   The investigation actually began in July 2007, and Sharp was notified in 2008, only four years after his retirement.   In addition, PERS noted that the ALJ failed to mention the $611,058.66 in salary Sharp received during his post-retirement employment.

PER CURIAM