Excludes from definition of "employee" such services rendered by various independent contractors who service the harness racing industry

The legislative proposal focuses on (1) the employment status of harness race drivers; (2) the legal relationship between grooms and/or caretakers and designated and/or "temporary" substituted trainers (hereafter "Designated Trainers"); and (3) the independent contractor status of shippers, farriers and veterinarians that provide services to harness race horses. It is a response to concerns throughout the industry about the escalating costs of Workers' Compensation insurance, the lack of uniformity in the audit practice, and recent decisions by the Workers' Compensation Law Judges that are contrary both to custom and practice in the industry and the law. The proposal seeks to bring uniformity and certainty to these particular employment relationships based on time-honored law.

The relevant law

The legal determination of whether an employer/employee relationship exists focuses on the issue of control. In general, under New York law an employee is a person who contracts to work for an employer and is under the employer's control with respect to "the results produced ... or the means used to achieve the results." See, e.g., In re Cornelia St., Inc., 56 N.Y.2d 895,897,453 N.Y.S.2d 402,403 (1982). The principal consideration is the employer's control over the individual's work. In the case of the employee, that control is present. In the case of the independent contractor, it is absent. See, e.g., O'Brian v. Spitzer, 7 N.Y.3d 239, 242, 818 N.Y.S.2d 844 (2006) ("Broadly speaking an 'employee' is someone who works for another subject to substantial control, not only over the results produced but also over the means used to produce the results. A person who works for another subject to less extensive control is an 'independent contractor.")

While there is no litmus test to establish a presence or absence of control, many well-recognized and fairly typical factors are considered in determining this legal issue, including the following that are most relevant to the accompanying legislative proposal:

(1) The extent to which an employer controls a worker's activities by such means as requiring full-time services, stipulating the hours of work, requiring attendance at meetings and/or training programs, or requiring prior permission for absence from work. See, e.g., In re Claim of Bourk, 165 A.D.2d 969,561 N.Y.S.2d 858 (3d Dep't 1990)

(worker who was required to report daily to company's office, attend training programs and received commissions determined by company only after company approved the underlying sale, deemed an employee).

(2) The employer's control over the time, place and method of the worker's performance. See, e.g., In re Bakal, 192 A.D.2d 817, 596 N.Y.S.2d 543 (3d Dep't 1993) (telephone interviewer deemed employee where employer dictated hours during which interviews could be conducted, provided instructions on how to conduct interview, established deadlines for completion of work and unilaterally determined geographic area where general interviews would be conducted).

(3) Whether the employer furnishes necessary, equipment, tools or supplies used by the worker in the performance of his/her work. See, e.g., In re Claim of Murelio, 108 A.D.2d 974, 484 N.Y.S.2d 959 (3d Dep't 1985) (worker deemed an employee where employer provided individual premises, materials and specific instructions).

(4) Whether the worker receives a salary from the employer and whether the employer withholds taxes or merely pays commissions, without any withholding. See, e.g., In re Ted's Back Corp., 64 N.Y.2d 725, 485 N.Y.S.2d 742 (1984).

(5) Whether the employer reimburses the worker's expenses. See, e.g., In re Home, 188 A.D.2d 922,591 N.Y.S.2d 880 (3d Dep't 1992) (worker reimbursed for cab fare, dry cleaning and promotional items deemed an employee).

(6) Whether the employer sets the worker's wage rate. See, e.g., In re Claim of Chopik; 145 A.D.2d 747,535 N.Y.S.2d 268 (3d Dep't 1988) (employer-employee relationship existed between Modeling Agency and model where agency and its client set hourly rate for model's services, agency was responsible for all billing and collection of fees, and model was paid after first deducting agency commission); and

(7) Whether the employer restricts the worker's performance of services for others. Compare In re Duffy, 172 A.D.2d 914,568 N.Y.S.2d 201 (3d Dep't 1991) (worker who was permitted to work for other carriers subject to company's authorization deemed an employee) with In re Kearsh, 186 A.D.2d 970,589 N.Y.S.2d 114 (3d Dep't 1992) (cable installers who were free to provide similar services to others deemed independent contractors).

The proposed exemptions

The proposal also follows the format of the "employee" exclusions set forth in §2(4) of the Workers' Compensation Law. Like those statutory exclusions, each of the proposed exemptions require that the worker's exempt status be supported by proof establishing the absence of control in the underlying relationship between the worker and the employer. Notably, as demonstrated below, each of the proposed exemptions require evidentiary showings satisfying the standard factors that provide a legal basis that the relevant relationship falls outside of the legal employer-employee relationship.

(i) The Harness Race Driver Exemption

Section 1 of the proposed legislation excludes from the term "employee" the services of a harness race driver upon proof that effectively establishes his/her independent contractor status. There is some controversy in the industry concerning the employment status of the harness race driver. The proposed legislation makes clear that upon proof demonstrating the absence of control of owners and/or trainers over the harness race driver's performance, his/her employment status is not that of an employee. The proposal looks to factors evidencing the extensive independence the harness race driver has over the means and manner of his/her performance. For example, while the harness race driver is selected by the owner and trainer of a horse to participate in a certain race, he/she is free to decline to participate or to select a different horse to drive. The harness race driver chooses where and when he/she will appear for work and is free to terminate his/her services at any time, including immediately before the race he/she is to drive in. The driver furnishes his/her own equipment goggles, colors, helmet, whip, racebike/sulky and is responsible for his/her own expenses.

Furthermore, his/her compensation relates solely to the performance of the horse he/she drives and is not controlled or varied by the owner or trainer. More specifically, pursuant to the New York State Racing and Wagering Board Rules NYCRR 9 Exec E 41, harness race drivers are entitled to a fixed rate of five percent (5%) of the total purse earned by any horse successfully driven by him/her. This sum of money is deducted from the purse otherwise payable to the horse's owner and directly and automatically paid to the driver by the relevant racetrack pursuant to regulation. Accordingly, as a practical matter, the harness race driver is treated as an independent contractor and a 1099 worker in all respects.

The proposed legislation addresses each of the considerations set forth above. While it provides that a harness race driver shall be excluded from "employee" status, like the other exemptions under Workers' Compensation Law §2(4), this proposed exemption is afforded only upon the required submission of proof that the harness race driver is an independent contractor, it requires proof that the harness race driver's (i) compensation is determined by his/her success in performance as opposed to the hours worked and that he/she is not treated as an employee for federal or state tax purposes (see Proposed Legislation, Section 1(a) & (h)); (ii) he/she is free to accept or decline requests to drive horses and to unilaterally terminate his/her services at anytime (id. at Section l(c), (d) & (g)), and (iii) that he/she is personally responsible for furnishing his/her own equipment and paying his/her own expenses (Id. at Section l(c)). In short, this proposed legislation provides certainty as to the harness race driver's employment status upon proof establishing his/her independent contractor status under traditional legal analysis.

(ii) Groom/Caretaker and Designated Trainer Exemption

Section 2 of the Proposed Legislation confirms that the relationship between the grooms and/or caretakers of harness race horses and Designated Trainers typically will not constitute an employer/employee relationship. Again, to qualify for the exemption, proof must be submitted demonstrating that the Designated Trainer asserts no meaningful

control over the services being provided by the groom and/or caretaker. By way of background, the Designated Trainer of a harness race horse usually assumes that role on an ad hoc, temporary basis necessitated by the absence of the harness race horse's regular trainer. The Designated Trainer, in practice, has no financial or meaningful employment relationship with the grooms and/or caretakers of that harness race horse and is nothing more than a "stand-in" for the harness race horse's trainer. The Designated Trainer's interaction with the groom and/or caretaker is de minimus and he/she provides no compensation to the groom and/or caretaker.

Recognizing the practical realities surrounding the nature of the relationship between the groom and/or caretaker of a harness race horse and the Designated Trainer or "temporary" substitute trainer of that horse, the second proposed exemption provides that upon the submission of proof establishing the lack of control of a groom and/or caretaker by the Designated Trainer, no employer/employee relationship shall be deemed to exist between them. This proposed exclusion again follows the exemption format set forth in Subdivision 4 of Section 2 of the Workers' Compensation Law and is again predicated on the well-recognized factors used to determine employment status that are outlined above. Under this recommended provision, the employer/employee exclusion would be applied where the proof establishes that (i) the Designated Trainer exerts no control over the performance of services by the groom and/or caretaker (see Proposed Legislation, Section 2(b)); (ii) the groom and/or caretaker is free to provide his or her services to trainers other than the Designated Trainer (Id. at Section 2(c)); (iii) the Designated Trainer provides no equipment or supplies to the groom and/or caretaker and does not reimburse the groom and/or caretaker for h is or her expenses (id. At Section 2(d) & (e)); and (iv) the compensation of the groom and/or caretaker is not paid by the Designated Trainer and he/she is not treated as an employee for tax purposes by the Designated Trainer (Id. at Section 2(a) & (f)).

(iii) The Shipper, Farrier and Veterinarian Exemptions

Sections 3 through 5 of the Proposed Legislation address the independent contractor status of the shipper or transporter of a harness race horse (Section 3), the farrier who renders services to a harness race horse (Section 4), and the veterinarian retained to treat a harness race horse (Section 5). Once again this legislation follows the format of the "employee" exclusion set forth in §2(4) of the Workers' Compensation Law and requires that the entity's exempt status be supported by proof establishing that the entity providing services is not subject to the control of its customers. The non-employee status of each of these entities is demonstrated by proof that each entity itself controls the means and manner of the services it renders. Each exemption requires evidence that the relevant entity is compensated for its services pursuant to a negotiated fee or by a fee set by the entity and that such fee is not related to actual hours worked (see, e.g., Sections 3(a), 4(a) and Sea)). The other various areas of proof outlined by each of these proposed exemptions are based on the well-recognized legal factors, discussed in Section B above, that are considered with respect to the issue of control in determining whether an employer/employee relation- ship exists. These include (1) that each entity is free

to provide its services to customers of its choice (Sections 3(b), 4(b) and S(b)); (ii) that each entity may unilaterally determine when and where it will perform such services (Sections 3(c), 4(c) and 5(c); (iii) that each entity is responsible for its own expenses and furnishing its own equipment (Sections 3(d) and (e), 4(d) and (e), 5(d) and (e)); (iv) that each entity is free to terminate its services at any time (Sections 3(f), 4(f) and 5(f)); and (v) that the party that retains each entity does not treat it as an employee for federal or state tax purposes (Sections 3(g), 4(g) and 5(g)). In short, these proposed exemptions focus on the essential aspects of each entity that confirm the true independence exercised by that entity in performing its services.

Justification

In sum, the accompanying proposal seeks to provide critical guidance and clarity in an area of increasing uncertainty. Most importantly, this legislative proposal not only is in full conformance with well-established legal precepts that have historically defined the scope of employer/employee relationships, but it also will protect owners and trainers from being unduly exposed to unwarranted exposure to liability under the Workers' Compensation Laws. By requiring that each exemption be supported by proof negating the employer-employee relationship, the proposed legislation is designed to ensure that liability under the Workers' Compensation Law is allocated in a consistent and responsible manner.

Legislative history

A.10309 of 2010: Referred to Assembly Labor Committee

Fiscal implications

None.

Effective date

This act shall take effect immediately.