ALFREDPETIT-CLAIR, JR v. BOARD OF TRUSTEES, PUBLIC EMPLOYEES' RETIREMENT SYSTEM -

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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2048-16T2

ALFRED PETIT-CLAIR, JR.,

Petitioner-Appellant,

BOARD OF TRUSTEES, PUBLIC
EMPLOYEES' RETIREMENT SYSTEM,

Respondent-Respondent.
__________________________________

Argued January 8, 2018 – Decided March 1, 2018

Before Judges Sabatino, Ostrer and Whipple.

On appeal from the Board of Trustees of the
Public Employees' Retirement System,
Department of Treasury, Docket No. 2-882337.

Alfred Petit-Clair, Jr., appellant, argued the
cause pro se.

Jeff S. Ignatowitz, Deputy Attorney General,
argued the cause for respondent (Christopher
S. Porrino, Attorney General, attorney;
Melissa H. Raksa, Assistant Attorney General,
of counsel; Jeff S. Ignatowitz, on the brief).

PER CURIAM

Alfred Petit-Clair, Jr. appeals from a final agency decision

of the Board of Trustees (the Board) of the Public Employees'
Retirement System (PERS) denying him pension service credit

retroactive to January 1, 2008, for his service as attorney to the

Zoning Board of Adjustment (ZBA) of the City of Perth Amboy (the

City). The Board's decision was based on
N.J.S.A. 43:15A-7.2(b),

enacted in 2007,1 which prospectively denies pension service credit

to a person who performs professional services for a political

subdivision as an independent contractor and not an employee,

according to Internal Revenue Service (IRS) regulations or policy.

Having considered the parties' arguments in light of the record

and applicable principles of law, we remand the Board's decision

for further findings of fact and conclusions of law.

Petitioner, a New Jersey attorney, has maintained his own law

practice since 1972, and has served as the ZBA attorney since

1990. Petitioner originally obtained his job through the mayor

at the time, but the ZBA, in compliance with the Municipal Land

Use Law,
N.J.S.A. 40:55D-71(b), formally appointed petitioner and

did so for successive one-year terms throughout his service. The

1 See L. 2007, c. 92, § 20. The Board and Administrative Law Judge
(ALJ) use "Chapter 92" to refer generally to section 7.2's
limitation on a professional service provider's pension
eligibility. We will do so as well.

2 A-2048-16T2
City enrolled petitioner in PERS as a permanent part-time employee,

and provided him health insurance coverage.

Petitioner had served briefly as the ZBA attorney in 1986,

but quit because he did not want to forgo clients to comply with

conflicts rules. In 1990, petitioner was willing to tolerate

those restrictions (and relinquish fifteen percent of his

caseload), because the ZBA position included health insurance,

which petitioner needed after a divorce. Petitioner said the

mayor assured him he would also be eligible for health insurance

in retirement. Four years later, the City formally adopted a

resolution pursuant to
N.J.S.A. 40A:10-23, opting to provide

health insurance coverage to all its retired employees provided

they served the City for twenty-five years, or fifteen years and

were sixty-two.

In 2009, the City adopted an ordinance withdrawing retiree

health insurance coverage for retired part-time employees. The

ordinance was one of numerous austerity measures the City adopted

to cope with a fiscal crisis. Petitioner was unaware of the

resolution until 2011, when he proposed to retire and was informed

that he was ineligible for retiree health insurance. Petitioner

opted to continue working, assured by the mayor (a different one)

that it would be worked out. But, it was not.

3 A-2048-16T2
The City also concluded petitioner was ineligible for pension

credits. In 2012, based on an outside counsel's investigation,

which was prompted by a State Comptroller's report on statewide

non-compliance with Chapter 92,2 the City's administrator informed

petitioner that the City considered him an independent contractor

and not an employee. Consequently, the City intended to remove

him from PERS effective January 1, 2008. Petitioner retained his

service credits for the period ending December 31, 2007, and would

receive a pension based thereon. The administrator also informed

petitioner that the City would remove him from the City's health

insurance plan, because it was only open to employees.

Furthermore, as the City's outside counsel noted, the 2009

ordinance made him ineligible to receive retiree health coverage.

Petitioner contested the City's pension decision before the

Board. After it rendered an unfavorable decision, he obtained a

contested hearing before the ALJ, who reached the same conclusion.

The Board then adopted the ALJ's decision as its own in the final

order that is the subject of this appeal.3

2
A. Boxer, State of New Jersey Office of the State Comptroller,
Improper Participation by Professional Service Providers in the
State Pension System (2012) (Comptroller Report).
3
Petitioner waged a multi-front legal battle to preserve his
benefits. In a lawsuit against the City in Superior Court, he

4 A-2048-16T2
II.

In the contested hearing before the Office of Administrative

Law (OAL), petitioner and the Board presented evidence relevant

to factual questions set forth in an Employee/Independent

Contractor Checklist (Checklist), which the Division of Pensions

and Benefits issued, as an attachment to its Fact Sheet #84. See

N.J. Div. of Pensions and Benefits, Fact Sheet #84, Professional

Services Contracts, Independent Contractors, and Pension

Enrollment (2013) (Fact Sheet #84).4 The Checklist was designed

to help a public employer distinguish between employees and

independent contractors.5 It consists of twenty-nine questions,

unsuccessfully sought to enjoin the termination of his health
insurance coverage and future denial of retiree health benefits.
That decision is the subject of a separate appeal. Petitioner
also filed unsuccessful federal litigation against the City. See
Petit-Clair v. New Jersey, Civ. No. 2:14-07082 (WJM), 2
016 U.S.
Dist. LEXIS 51738 (D.N.J. Apr. 18, 2016); Petit-Clair v. New
Jersey, Civ. No. 2:14-07082 (WJM), 2
016 U.S. Dist. LEXIS 51736
(D.N.J. Apr. 18, 2016); Petit-Clair v. New Jersey, Civ. No. 2:14-
07082 (WJM), 2
015 U.S. Dist. LEXIS 101624 (D.N.J. Aug. 4, 2015).
4
We note that the fact sheet has been updated. See N.J. Div. of
Pensions and Benefits, Fact Sheet #84, Professional Services
Contracts, Independent Contractors, and Pension Enrollment (2015).
5
The State Comptroller recommended the adoption of a checklist to
assist local government officials. Comptroller Report at 34.
Although the Division did not promulgate the checklist through
formal rulemaking, petitioner has not challenged it on that basis,
and we do not address the issue. See Metromedia Inc. v. Dir. Div.
of Taxation,
97 N.J. 313, 331-32 (1984). As we discuss in further

5 A-2048-16T2
allocated to three categories: Behavioral Control, Financial

Control, and Relationship to the Parties. The first category

pertains to "whether the location has a right to direct and control

how the work is performed." The second pertains to "whether the

location controls the financial aspects of the individual's

services, the method of payment and whether services are offered

to the public." The last category includes "factors [that]

illustrate how the entity and individual perceive their

relationship" including whether "there [is] a continuing, ongoing

relationship understood between the parties as one of employer and

employee."6

detail below, we conclude the Board erred in relying on the
Checklist because it does not fully incorporate IRS "regulations
or policy," which the Legislature declared must determine a
person's status as employee or independent contractor. See

N.J.S.A. 43:15A-7.2(b).
6
In its initial decision, the Board relied in part on the Checklist
answers that Jill Goldy, the City's chief financial officer,
provided with help from the City's interim business administrator,
Gregory Fehrenbach. The Board stated that the Division developed
the Checklist "to certify the PERS eligibility of employees and
exclude . . . ineligible professional service providers and
independent contractors." The Board also considered petitioner's
responses to a questionnaire that the Board stated "identifies the
20 factors used by the IRS to aid in the determination of employee
status." However, the questionnaire consisted of questions that
overlapped, but varied from those identified as the "twenty factor
test." Compare Rev. Rul. 87-41, 1987-
1 C.B. 296, 1987-
23 I.R.B. 7 (Rev. Rul. 87-41); Stevens v. Bd. of Trs. of Pub. Employees'
Ret. Sys.,
294 N.J. Super. 643, 653 n.1 (App. Div. 1996) (quoting

6 A-2048-16T2
Goldy, Fehrenbach, and former assistant zoning officer Jaime

Rios testified for the Board. Petit-Clair was the sole witness

on his own behalf. The hearing testimony and the ALJ's subsequent

decision focused on the Checklist. Regarding behavioral control,

the ALJ found the following factors weighed slightly in favor of

petitioner's employee status: he was not hired based on a request

for proposals (RFP) (A-3)7; he was required to attend meetings the

ZBA arranged (A-5), at hours the ZBA set (A-7); and he performed

most of his work at the City Council Chambers where the ZBA met,

as opposed to in his law office (A-12).

However, the ALJ concluded these facts did not outweigh the

numerous factors establishing that the City did not have behavioral

control over petitioner and that he was an independent contractor.

The City did not have "the right to control, supervise or direct

[petitioner]" in how he performed his tasks and the results

obtained (A-1), nor did it instruct or direct him as to the tasks

to perform (A-9), nor did it direct the order or sequence in which

topics of twenty-factor test). A side-by-side comparison of the
Board's so-called "IRS 20-Factor Questionnaire" and the twenty
factors in the IRS's revenue ruling is provided at the end of this
opinion. The Board also identified three IRS publications, two
of which we discuss below.
7
We refer to the related question number in the Checklist, the
text of which is set forth in full in an appendix to this opinion.

7 A-2048-16T2
he performed his duties, other than requiring him to abide by the

ZBA's meeting agendas (A-15). Also, petitioner was appointed

annually by the ZBA, not an administrator, and there was no written

job description (A-2). Petitioner was permitted to send substitute

personnel in his absence (A-4), and was not precluded from hiring

others at his expense to help him perform his duties (A-6),

notwithstanding he did neither.

Additionally, the ZBA did not conduct performance evaluations

(although the City did not uniformly perform evaluations of its

workforce) (A-8), nor did the ZBA require petitioner to prepare

regular reports (A-16). He was not required to report to any

particular person or account for his attendance (A-10), nor did

the ZBA keep track of his time (A-11). With the exception of one

land use seminar in the beginning of his service, petitioner was

not required to receive training, particularly training in "sexual

harassment [and] ethics" (A-13), and the ZBA did not provide him

with a permanent workspace or support staff, notwithstanding he

was able to work in the City Council Chambers, use the ZBA's

letterhead, and was provided a land use treatise (A-14).

The ALJ found that financial control factors "militate[d]

toward employee status," but, on the whole, they were entitled to

"less weight" because the City and petitioner intentionally

8 A-2048-16T2
fashioned their financial relationship with the goal to qualify

him for pension and health benefits. The ALJ made the following

findings favoring employee status: the governing body established

petitioner's compensation by ordinance or resolution (B-6); and,

rather than require vouchers for payment (B-1), the City included

petitioner on the payroll and paid him semi-monthly along with

other employees (B-2), deducted state and federal taxes from his

paycheck, and submitted employer-side taxes (B-4). The ALJ

determined the following demonstrated independent contractor

status: the ZBA did not reimburse petitioner for travel or business

expenses (B-3); and, although the ZBA provided him health benefits,

it did not provide paid vacation or sick leave (although that was

true of all part-time employees) (B-5).

The ALJ found that the "Relationship to the Parties" factors

favored independent contractor status, notwithstanding the

following pro-employee factors: petitioner was not employed or

associated with another entity that provided services to the City

by contract, retainer, or other agreement (C-1); petitioner did

not offer his services to another board of adjustment (although

he was free to do so) (C-5); and petitioner could quit at any time

(C-7). Favoring independent contractor status, the ALJ found that

petitioner was not in a continuing, ongoing relationship with the

9 A-2048-16T2
City, since he was appointed to single one-year-terms (C-2); he

was not covered by a union contract (C-3); he offered legal

services to the public at his private law firm (C-4); and the ZBA

could not fire him at will (C-6). After weighing and balancing

her findings as to the various Checklist questions, the ALJ

concluded that petitioner was an independent contractor.

Upon receiving petitioner's exceptions and opposition, the

Board adopted the ALJ's decision and affirmed its initial finding

that petitioner was not entitled to pension service credits because

he was an independent contractor.

III.

On appeal, petitioner contends the ALJ erred in utilizing the

Checklist, and in assigning to petitioner the burden to establish

he was an eligible employee.8 Petitioner argues the so-called

"ABC Test" should have determined his status. But, assuming for

argument's sake that the Checklist applied, petitioner contends

the Board's decision was arbitrary and capricious, and against the

weight of the evidence.

We reject petitioner's contentions. First, the Board

properly allocated to petitioner the burden to establish he was

8
Although petitioner directs his contentions to the ALJ, we review
the decision of the Board, which adopted the ALJ's reasoning.

10 A-2048-16T2
an employee eligible for a pension. "[W]hile a person 'eligible

for benefits' is entitled to a liberal interpretation of the

pension statute, 'eligibility [itself] is not to be liberally

permitted.'" Francois v. Bd. of Trs.,
415 N.J. Super. 335, 350

(App. Div. 2010) (quoting Krayniak v. Bd. of Trs.,
412 N.J. Super.
232, 242 (App. Div. 2010)). With respect to other retirement

benefits, our courts have placed the burden on the applicant to

demonstrate eligibility. See Patterson v. Bd. of Trs., State

Police Ret. Sys.,
194 N.J. 29, 50-51 (2008) (imposing burden on

applicant to prove eligibility for disability retirement

benefits); Bueno v. Bd. of Trs., Teachers' Pension & Annuity Fund,

404 N.J. Super. 119, 126 (App. Div. 2008).

The same principle should apply here, particularly given

petitioner's greater access than the Board's to proofs about the

nature of his own position. See J.E. ex rel. G.E. v. State,
131 N.J. 552, 569-70 (1993) (recognizing that the burdens of persuasion

and production are generally imposed "on the party best able to

satisfy [them]," noting the importance of "access to relevant

information"); Romano v. Kimmelman,
96 N.J. 66, 89 (1984) (citing

"the access of the parties to proof" as a factor in allocating

burden).

11 A-2048-16T2
We also discern no error in the Board's factual findings,

which were adequately supported by substantial evidence in the

record. See Hemsey v. Bd. of Trs., Police and Firemen's Ret.

Sys.,
198 N.J. 215, 223-24 (2009) ("[A]n administrative agency's

final quasi-judicial decision will be sustained unless there is a

clear showing that it is arbitrary, capricious, or unreasonable,

or that it lacks fair support in the record." (quoting In re

Herrmann,
192 N.J. 19, 27-28 (2007)). We reject petitioner's

contention that the Board's reliance on Jill Goldy's testimony was

arbitrary and capricious because she admittedly lacked direct

contact with the ZBA or petitioner. She testified based on

information she received from other City officials, her

familiarity with the City's financial management and processes,

and her general understanding of zoning boards of adjustment.

Furthermore, we reject petitioner's contention that the Board

was obliged to apply the ABC Test. "ABC" refers to the three

subparagraphs – (a), (b), and (c) – in
N.J.S.A. 43:21-19(i)(6),

which defines "employment" for purposes of the Unemployment

Compensation Law. See Carpet Remnant Warehouse, Inc. v. N.J.

Dep't of Labor,
125 N.J. 567, 580-87 (1991) (applying the ABC test

to determine employment and eligibility for unemployment

compensation). The same standard applies to determining whether

12 A-2048-16T2
a person is an employee for purposes of the Wage Payment Law.

Hargrove v. Sleepy's, LLC,
220 N.J. 289, 301 (2015). However,

Chapter 92 expressly directs the Board elsewhere to determine

whether a person is an employee. The Board shall apply "the

definition of independent contractor as set forth in regulation

or policy of the federal [IRS] for the purposes of the Internal

Revenue Code [(IRC)]."
N.J.S.A. 43:15A-7.2(b).

Nonetheless, we are constrained to remand because we are not

satisfied that the ALJ and the Board applied a standard consistent

with Chapter 92's command. We are "in no way bound by the agency's

interpretation of a statute or its determination of a strictly

legal issue." Mayflower Sec. Co. v. Bureau of Sec.,
64 N.J. 85,

93 (1973); see also Hemsey,
198 N.J. at 224. We may reverse an

agency's decision if it "violate[s] express or implied legislative

policies . . . ." In re Eastwick Coll. LPN-to-RN Bridge Program,

225 N.J. 533, 541 (2016) (quoting Univ. Cottage Club of Princeton

N.J. Corp. v. N.J. Dep't of Env'l Prot.,
191 N.J. 38, 48 (2007)).

As just noted,
N.J.S.A. 43:15A-7.2(b) incorporates by

reference IRS "regulation or policy," without further citation.

See also N.J.A.C. 17:2-2.3(a)(15) (repeating statutory language).

To understand what that means, we must look first to IRS

regulations. Three virtually identical regulations define who is

13 A-2048-16T2
an employee for purposes of the Federal Insurance Contributions

Act, 26 C.F.R. § 31.3121(d)-1; the Federal Unemployment Tax Act,

26 C.F.R. § 31.3306(i)-1; and for purposes of collecting income

tax at the source, 26 C.F.R. § 31.3401(c)-1. Consistent with the

IRC,9 the federal regulations adopt a common law control test.

Generally the relationship of employer and
employee exists when the person for whom
services are performed has the right to
control and direct the individual who performs
the services, not only as to the result to be
accomplished by the work but also as to the
details and means by which that result is
accomplished. That is, an employee is subject
to the will and control of the employer not
only as to what shall be done but how it shall
be done. 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 he has the
right to do so.

[26 C.F.R. § 31.3121(d)-1(c)(2); 26 C.F.R. §
31.3306(i)-1(b); 26 C.F.R. § 31.3401(c)-1(b).]

The regulations identify other relevant factors, such as the

right to discharge, and the provision of tools:

The right to discharge is also an important
factor indicating that the person possessing
that right is an employer. Other factors
characteristic of an employer, but not
necessarily present in every case, are the
furnishing of tools and the furnishing of a

9 See 26 U.S.C. § 3121(d)(2) (defining an employees as "any
individual who, under the usual common law rules applicable in
determining the employer-employee relationship, has the status of
an employee").

14 A-2048-16T2
place to work to the individual who performs
the services. In general, if an individual
is subject to the control or direction of
another merely as to the result to be
accomplished by the work and not as to the
means and methods for accomplishing the
result, he is not an employee.

[26 C.F.R. § 31.3121(d)-1(c)(2); 26 C.F.R. §
31.3306(i)-1(b); 26 C.F.R. § 31.3401(c)-1(b).]

The determination is fact-sensitive in "doubtful cases." 26

C.F.R. § 31.3401(c)-1(d). The parties' self-description of their

relationship is "immaterial." 26 C.F.R. § 31.3401(c)-1(e).

The IRS regulations expressly discuss attorneys and other

professionals. The section on collecting income tax at the source

states, "Generally, physicians, lawyers, dentists, veterinarians,

contractors, subcontractors, public stenographers, auctioneers,

and others who follow an independent trade, business, or

profession, in which they offer their services to the public, are

not employees." 26 C.F.R. § 31.3401(c)-1(c).10 On the other hand,

"[t]he threshold level of control necessary to find employee status

is generally lower when applied to professional services than when

applied to nonprofessional services." Weber v. Commissioner,
60 F.3d 1104, 1111 (4th Cir. 1995).

10
Notably, the qualifier "generally" is absent from the other
regulations' discussion of lawyers and other professionals. 26
C.F.R. § 3121(d)-1(c)(2); 26 C.F.R. § 31.3306(i)-1(b).

15 A-2048-16T2
The Legislature also directs the Board to consider IRS policy,

clearly referring to something distinct from regulations. As for

the source of such "policy," the statute provides no guidance, nor

does the legislative history.11 But, we conclude with some

confidence that we may look to revenue rulings as expressions of

IRS policy, inasmuch as they represent the IRS's generally

applicable interpretations of law. See Davis v. United States,

495 U.S. 472, 484 (1990) (stating that Court will give weight to

revenue rulings as agency's legal interpretations, although they

lack "the force and effect of regulations"); Foil v. Comm'r,
920 F.2d 1196, 1201 (5th Cir. 1990) (stating that revenue rulings

"express[ ] the studied view of the agency whose duty it is to

carry out the statute"); 26 C.F.R. § 601.601(d)(2)(i)(a) (stating

"[a] 'Revenue Ruling' is an official interpretation by the

Service"); 26 C.F.R. § 601.601.(d)(2)(b)(v)(d) (stating "Revenue

11
The incorporation of IRS regulation or policy was substituted
by the Assembly. See S. 17 § 20(b) (Jan. 29, 2007) (first reprint).
The original bill disqualified any professional serving as a part-
time officer or employee of a political subdivision who was
"concurrently the sole proprietor, owner, partner, associate,
officer or employee of a business entity," or owned over one
percent of a corporation, that was "primarily engaged on a full-
time basis in providing professional services of substantially the
same type or nature" to other public or private entities. See S.
17 § 20(b) (Jan. 22, 2007) (bill introduction). Under that
unenacted test, petitioner would have unquestionably been
disqualified.

16 A-2048-16T2
Rulings . . . are published to provide precedents to be used in

the disposition of other cases"). The IRS cautions the public

against applying revenue rulings to facts that are inapposite to

those the ruling addresses. 26 C.F.R. § 601.601(d)(2)(b)(v)(e).

We note that long before passage of Chapter 92, our courts

looked to the particular revenue ruling that established the

"twenty-factor test" to determine whether a person was an employee

for purposes of pension eligibility. See Stevens,
294 N.J. Super.

at 653 n.1 (quoting topics of twenty-factor test set forth in Rev.

Rul. 87-41). That revenue ruling addressed the employment status

of scientifically skilled workers – but not professionals such as

lawyers or physicians – assigned to perform tasks at companies by

a third party. Those twenty factors are set forth at length at

the end of our opinion. In summary, they pertain to the following:

(1) instructions; (2) training; (3)
integration; (4) services rendered
personally; (5) hiring, supervising, and
paying assistants; (6) continuing
relationship; (7) set hours of work; (8) full
time required; (9) doing work on employer's
premises; (10) order or sequence set; (11)
oral or written reports; (12) payment by hour,
week, month; (13) payment of business and/or
traveling expenses; (14) furnishing of tools
and materials; (15) significant investment;
(16) realization of profit or loss; (17)
working for more than one firm at a time; (18)
making service available to general public;
(19) right to discharge; (20) right to
terminate.

17 A-2048-16T2
[Rev. Rul. 87-41.]

Notably, other revenue rulings have expressly addressed the

employment status of an attorney. Compare Rev. Rul. 68-323, 1968-

1 C.B. 432 (stating that where a corporation paid an attorney a

fixed annual retainer to defend lawsuits against the company in

the course of his separate practice, the attorney was an

independent contractor), with Rev. Rul. 68-324, 1968-
1 C.B. 433

(stating that an attorney who was furnished a place to work by a

firm, required to work certain hours, paid an annual salary, and

assigned research tasks, was an employee, notwithstanding that he

handled other cases assigned by the firm for which he received

fees).

The Board may also look to IRS tax guides as a source of IRS

"policy." Although they do not have the force of law, they are

"aimed at explaining existing tax law to taxpayers . . . ." United

States v. Josephberg,
562 F.3d 478, 498 (2d Cir. 2009) (quoting

Taylor v. United States,
57 Fed. Cl. 264, 266 (2003)). Two

significant publications address the employee-independent

contractor determination. See Dep't of the Treasury Internal

Revenue Service, Publication 15-A, Employer's Supplemental Tax

Guide (Publication 15-A); Dep't of the Treasury Internal Revenue

18 A-2048-16T2
Service, Publication 963, Federal-State Reference Guide

(Publication 963).

The latter is particularly relevant because it focuses

guidance on individuals working for governmental entities. With

regard to the behavioral control of professionals, the publication

states:

The nature of the worker's occupation affects
the degree of direction and control necessary
to determine worker status. Highly-trained
professionals such as doctors, accountants,
lawyers, engineers, or computer specialists
may require very little, if any, instruction
on how to perform their specific services.

Attorneys, doctors and other professionals
can, however, be employees. In such cases,
the entity may not train the individuals or
tell them how to practice their professions,
but may retain other kinds of control, such
as requiring work to be done at government
offices, controlling scheduling, holidays,
vacations, and other conditions of employment.

[Id. at 4-3.]

The publication suggests, with reference to employees like

police officers, firefighters, and other public safety or public

health workers, that statutes or regulations may mandate training

and procedures, or other aspects of control that would support a

finding of employment. The publication returns to that topic in

reference to professionals:

19 A-2048-16T2
Again, the government entity should consult
state statutes to determine whether a
professional position is statutorily created.
On the other hand, professionals can be
engaged in an independent trade, business, or
profession in which they offer their services
to the public, including work for government
entities. In this case, they may be
independent contractors and not employees. In
analyzing the status of professional workers,
evidence of control or autonomy with respect
to the financial details is especially
important, as is evidence concerning the
relationship of the parties . . . .

[Id. at 4-3 to 4-4.]

The publication also states that facts and circumstances

relevant to the employee-independent contractor determination fall

into three categories: "1) Whether the entity has the right to

control the behavior of the worker; 2) Whether the entity has

financial control over the worker; and 3) The relationship of the

parties, including how they see their relationship." Id. at 4-2.

The IRS suggests that employee status is indicated when "[a]n

employee is generally subject to the government entity's

instructions about when, where and how to work." Id. at 4-3.

Identifying oneself as a government worker, by "[w]earing a

uniform, displaying government identification, or using forms and

stationery that indicate one is representing a government are

highly indicative of employee status." Ibid. The nature of the

occupation, which is discussed as quoted above, is also relevant.

20 A-2048-16T2
As for evaluation systems, the IRS notes that their presence does

not necessarily indicate employee status, since they are used "by

virtually all government entities to monitor the quality of work

performed." Id. at 4-4.

With regard to financial control, the IRS suggests that a key

distinction between employees and independent contractors, is that

the latter have "a genuine possibility of profit or loss."

Facts showing possibility of profit or loss
include: significant investment in equipment,
tools or facilities; unreimbursed expenses,
including the requirement to provide materials
or hiring helpers; working by the day or by
the job rather than on a continuous basis;
having fixed costs that must be paid
regardless of whether the individual works;
and payment based on contract price,
regardless of what it costs to accomplish the
job.

[Id. at 4-4.]

Work on a flat-fee basis reflects independent contractor

status, while time-based payments are generally reflective of

employee status (although the IRS recognizes that independent

contractor attorneys "usually bill by the hour"). Ibid. Whether

a person also offers services to the public, and how they do so,

may favor independent contractor status. Ibid. Also supporting

that status is the maintenance of a separate business entity.

21 A-2048-16T2
Ibid. The IRS observes that part-time status does not necessarily

tilt one way or the other. Id. at 4-5.

As for the relationship of the parties, the IRS reiterates

that the parties' own contractual designations are not

determinative. Id. at 4-5. The IRS recognizes that a government

entity's inability to discharge the worker at will may not reflect

independent contractor status, since many employees may share that

protection. Id. at 4-6. Likewise, the worker's ability to

terminate his or her own work at will is not as salient an indicator

of employment status as it once was. Ibid. "On the other hand,

a government entity's ability to refuse payment for unsatisfactory

work continues to be characteristic of an independent contractor

relationship." Ibid. While an expectation of an indefinite

relationship may tend to support employee status, "a long-term

relationship may also exist between a government entity and an

independent contractor" such as when "contracts . . . [are]

renewed regularly due to superior service, competitive costs, or

lack of alternative service providers." Ibid.

IRS policy may also be reflected in private letter rulings,

although the IRC expressly states they are not precedential. See

26 U.S.C. 6110(k)(3); Penn Mut. Life Ins. Co. v. United States,

68 F.3d 1371, 1372 (D.C. Cir. 1995) (stating that, in a private

22 A-2048-16T2
letter ruling, the IRS applies tax laws "to a specific factual

problem presented by a particular taxpayer; only that taxpayer may

then rely on the ruling"). Nonetheless, "such rulings do reveal

the interpretation put upon the statute by the agency charged with

the responsibility of administering the revenue laws." Hanover

Bank v. Comm'r,
369 U.S. 672, 686 (1962).

In one private letter ruling, the IRS found private pool

attorneys who handled cases for a public defender's office were

independent contractors because, although the attorneys

represented indigent clients assigned by the public defender, the

public defender had no control over how and when the attorneys

completed their work, the attorneys were required to furnish their

own offices and bear the related expenses, and were paid an annual

fixed rate regardless of the number of clients they were assigned.

I.R.S. Priv. Ltr. Rul. 89-16-054 (Jan. 24, 1989). By contrast, a

law student who worked as a part-time law clerk for a solo

practitioner was considered an employee, notwithstanding that the

student decided when and where to perform his legal assignments,

such as drafting documents, and performing research and writing.

I.R.S. Priv. Ltr. Rul. 96-39-001 (Jan. 20, 1996). Some factors

the IRS viewed as favoring employee status in that case were: the

law student was not engaged in his own independent enterprise in

23 A-2048-16T2
which he assumed a risk of loss; his work was integral to the solo

practitioner's practice; the firm supplied him with a computer,

office space and law books; and although the law student did not

require detailed supervision, the firm retained the right to

control the work to assure a satisfactory product. Ibid.

IV.

Without reference to IRS regulations, or the various sources

of IRS policy we have identified, the ALJ, and the Board by

adoption, determined that petitioner was an independent contractor

based on the Checklist findings. However, in light of Chapter

92's clear mandate, reliance on the Checklist is appropriate only

if it is an accurate distillation of IRS regulations or policy.

We are not satisfied that it is.

While it references the three general categories found in

Publication 963, the Checklist weighs various factors that are not

directly traceable to that publication nor, apparently, to other

IRS regulations or sources of policy. Furthermore, it omits

considerations that IRS policy documents identify.

According to the Checklist, who appointed the individual in

question – a governing body or an administrator – and how he or

she was appointed – by RFP or not – are significant questions.

Yet, we find no indication in IRS regulations or policy sources

24 A-2048-16T2
that these are significant factors. It is not self-evident that

appointment by a governing body tends to demonstrate independent

contractor status, as the Checklist presumes. Indeed, the MLUL

expressly authorizes a zoning board of adjustment to "employ, or

contract for, and fix the compensation of legal counsel . . . ."

N.J.S.A. 40:55D-71(b). Thus, the statute contemplates legal

counsel as employees or contractors. IRS policy suggests that

governmental entities "consult state statutes to determine whether

a professional position is statutorily created" and if so, what

level of control over the worker does the statute provide the

governmental entity. Publication 963 at 4-3, 4-8.

The Checklist also omits reference to government

identification – such as "displaying government identification,

or using government forms and stationery" – which the IRS considers

"highly indicative of employee status." Id. at 4-3. Notably, the

record indicates petitioner received a City employee

identification card, and used government stationery.

We find no basis in IRS policy for the conclusion that

employee status is suggested if a governing body's ordinance or

resolution sets compensation levels. As just noted, a zoning

board may fix compensation of legal counsel, whether it employs

25 A-2048-16T2
them or contracts for their services.
N.J.S.A. 40:55D-71(b).12

Rather, it is the method of payment that is particularly relevant.

See Publication 963 at 4-4 ("The method of payment must be

considered.").

Furthermore, the Checklist does not adequately capture what

IRS policy deems particularly significant: whether the individual

bears a risk of loss or the potential of profit; and whether the

individual has made an investment in his or her own office or

facilities. These are factors fifteen and sixteen in the twenty-

factor test, see Rev. Rul. 87-41, and are mentioned in Publication

963, at 4-4.13 The Checklist also does not ask whether the

individual maintains a separate corporate form. See Publication

963, at 4-4 to 4-5 (discussing "Corporate Form of Business"). All

of those factors indicate independent contractor status.

In sum, although the Checklist may be a helpful tool to gather

many facts relevant to the employee-independent contractor

determination, it does not accurately distill IRS regulation or

policy. Therefore, reliance solely on the Checklist deviates from

the statutory command that IRS regulations or policy govern the

12
We note petitioner's testimony that the City governing body, not
the ZBA, set his salary.
13
Notably, Fact Sheet #84 addresses the profit or loss factor.

26 A-2048-16T2
employee-independent contractor determination. See
N.J.S.A.

43:15A-7.2(b).

Based on this conclusion, we are constrained to remand. We

may not substitute an alternative rationale, based on IRS

regulations or policy, for the Board's decision, which it based

on the Checklist. "The grounds upon which an administrative order

must be judged are those upon which the record discloses that the

action was based." In re Petition of Elizabethtown Water Co.,
107 N.J. 440, 460 (1987) (quoting Sec. and Exch. Comm'n v. Chenery

Corp.,
318 U.S. 80, 88 (1943)). To do otherwise would impinge

upon the agency's exercise of its delegated authority and

expertise. "[A] judicial judgment cannot be made to do service

for an administrative judgment. For purposes of affirming no less

than reversing its orders, an appellate court cannot intrude upon

the domain which Congress [or the Legislature] has exclusively

entrusted to an administrative agency." Chenery,
318 U.S. at 88.

We therefore remand to the Board to apply IRS regulations or

policy to determine petitioner's status, and to provide a decision

that is expressly moored to IRS authority. We leave it to the

Board to decide whether any additional evidence is needed, inasmuch

as the OAL hearing was confined to the Checklist questions.

Remanded. We do not retain jurisdiction.

27 A-2048-16T2
APPENDIX

REV. RULING 20 FACTORS DIVISION OF PENSIONS
20 FACTORS
1.Instructions. A worker who is required to 1. How did you know what services or
comply with other persons' instructions about tasks to perform? How was your work assigned?
when, where, and how he or she is to work is By whom? Did you determine when, where and
ordinarily an employee. This control factor is how the work is to be done? If not, who made the
present if the person or persons for whom the decisions? Specifically:
services are performed have the right to require State the name, address and phone
compliance with instructions. number of any contracting/employing agency
officer providing supervision or control related to
the professional services provided by you.
Also, provide the name and address of
each person who directed the manner of the
performance of your professional services.
Describe how you received your work
assignments, how new tasks/complaints were
assigned and by whom these were assigned.
2.Training. Training a worker by requiring 2. Provide proof of qualifications or
an experienced employee to work with the worker, requirements for the position. How did you meet
by corresponding with the worker, by requiring the those qualifications? Were you appointed by a
worker to attend meetings, or by using other governing body or someone else in authority?
methods, indicates that the person or persons for Provide proof of such appointment. How were you
whom the services are performed want the trained? Specifically:
services performed in a particular method or Identify any specific training and
manner. instructions provided to you by the municipality and
the dates of participation.
Describe the training.
3.Integration. Integration of the worker's 3. What role did your service play in the
services into the business operations generally overall functioning of the contracting/employing
shows that the worker is subject to direction and agency? How were you retained for the service?
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 4. Send proof of any all persons in your
services must be rendered personally, presumably employ along with their job duties. Provide proof of
the person or persons for whom the services are appointment of any of your employees by the
performed are interested in the methods used to contracting/employing agency, if applicable.
accomplish the work as well as in the results. Explain the method and send proof of payment by
the contracting/employing agency (if available) of
any and all persons in the your employ, such as
pay stubs, direct payment reimbursements and/or
W2s, etc.
Were you required to personally perform
the services for which you were
retained/employed? Did you?
Describe, by date, all absences from work
during the period of appointment(s) providing
reason for any absence. To whom were absences

28 A-2048-16T2
reported? For each absence, who substituted in
your place?
Describe how work was covered when you
were absent. Who was responsible to designate
someone to substitute for you if you were absent
and unable to perform services? If coverage was
obtained, how was that person paid?
Did any secretarial or administrative
assistance employed at your business/practice
assist you on matters you worked on for the
contracting/employing agency? If yes, identify the
date and describe the assistance provided.
5.Hiring, Supervising, and Paying 5. Provide proof of withholding of income
Assistants. If the person or persons for whom the tax or other payments (e.g., Social Security) for you
services are performed hire, supervise, and pay and any persons who are employed by you in any
assistants, that factor generally shows control over capacity.
the workers on the job. However, if one worker Were you provided with fringe benefits:
hires, supervises, and pays the other assistants sick time, vacation time, medical insurance?
pursuant to a contract under which the worker Provide proof of any benefits (e.g., health
agrees to provide materials and labor and under insurance, pension or other retirement plan)
which the worker is responsible only for the provided to you and any other person employed by
attainment of a result, this factor indicates an you in any capacity.
independent contractor status. Did the contracting/employing agency
maintain a personnel file relative to your position?
Were you provided with an Employee
Handbook?
6.Continuing Relationship. A continuing 6. How long had you received
relationship between the worker and the person or compensation of any kind from this employer,
persons for whom the services are performed regardless of whether it is claimed to be as an
indicates that an employer-employee relationship employee or independent contractor? On what
exists. A continuing relationship may exist where date will this relationship terminate?
work is performed at frequently recurring although
irregular intervals.
7.Set Hours of Work. The establishment of 7. What type of personnel did you interact
set hours of work by the person or persons for with when performing services? Were you
whom the services are performed is a factor expected to be available to other personnel during
indicating control. the regular workday or work year?
8.Full Time Required. If the worker must 8. How much time did you devote to the
devote substantially full time to the business of the effective performance of this position? What hours
person or persons for whom the services are were you required to be available to any personnel
performed, such person or persons have control of the public employer? Were you required to
over the amount of time the worker spends working attend meetings arranged by the public employer?
and impliedly restrict the worker from doing other Specifically:
gainful work. An independent contractor, on the What was your daily routine and hours?
other hand, is free to work when and for whom he Were you required to attend staff
or she chooses. meetings?
9.Doing Work on Employer's Premises. If 9. Were you required to be on the public
the work is performed on the premises of the employer's premises to perform your duties either
person or persons for whom the services are as an express requirement or practical means of
performed, that factor suggests control over the performing the duties? Where else did you perform
worker, especially if the work could be done your duties? Specifically:
elsewhere. Work done off the premises of the State the location where professional
person or persons receiving the services, such as services performed.

29 A-2048-16T2
at the office of the worker, indicates some freedom Were services performed at any other
from control. However, this fact by itself does not location other than the contracting/employing
mean that the worker is not an employee. The agency? If so, state the location, describe the
importance of this factor depends on the nature of tasks performed and the amount of time spent on
the service involved and the extent to which an these tasks.
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 10. How were your various tasks
must perform services in the order or sequence set assigned? How were they prioritized? Did you
by the person or persons for whom the services are need any authorization from the governing body or
performed, that factor shows that the worker is not management to perform any tasks you were
free to follow the worker's own pattern of work but providing? If so, please indicate who in the
must follow the established routines and schedules organization authorized such tasks.
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 11. How did the public employer keep track
that the worker submit regular or written reports to of your productivity and/or work accomplishments?
the person or persons for whom the services are Did you ever submit any type of report, either as
performed indicates a degree of control. tasks were completed, goals were met, or as part
of a report that was compiled on a regular basis
(e.g., weekly, monthly, per marketing period,
semiannually or annually)? Were you required to
make status presentations to the organization's
management or governing body? Specifically:
Describe the process or procedure used
by the contracting/employing agency for recording
time and attendance. Specifically identify whether
any timekeeping forms or other documents were
required, and if so to whom were the documents
submitted.
Were formal or informal performance
evaluations conducted? And if so, were they
memorialized. Please provide copies of
performance evaluations.
12.Payment by Hour, Week, Month. 12. What was your compensation for
Payment by the hour, week, or month generally performing this service? How was it determined?
points to an employer-employee relationship, What was the frequency and method of payment
provided that this method of payment is not just a for services? Provide proof payment as issued by
convenient way of paying a lump sum agreed upon the public employer and W2s or 1099s issued from
as the cost of a job. Payment made by the job or whatever source with regard to the services you
on a straight commission generally indicates that were providing.
the worker is an independent contractor.

30 A-2048-16T2
13.Payment of Business and/or Traveling 13. Who paid for your business and/or
Expenses. If the person or persons for whom the travel expenses?
services are performed ordinarily pay the worker's What type of expenses were incurred?
business and/or traveling expenses, the worker is How were they paid?
ordinarily an employee. An employer, to be able to If you paid these expense, were they
control expenses, generally retains the right to reimbursed and by whom?
regulate and direct the worker's business activities. Who paid for your mandatory Continuing
Education courses? (If applicable)
Who paid for your NJ annual licensing fee?
(If applicable)
14.Furnishing of Tools and Materials. The 14. What equipment and supplies were
fact that the person or persons for whom the you required to provide to carry out this service?
services are performed furnish significant tools, Were you reimbursed by the public employer for
materials, and other equipment tends to show the any of these supplies or equipment?
existence of an employer-employee relationship. Did the contracting/employing agency
provide you with:
A private office
 Personal secretary
 Telephone (If so, state
number)
 Computer
 E-mail
 Office supplies (Including
legal pads)
 Vehicle
 Copier
 Fax
 Postage
 Access to legal or other
research databases
 Lawyers diary or other
calendar system
15.Significant Investment. If the worker 15. Provide proof of rental, depreciation or
invests in facilities that are used by the worker in other tax deduction, maintenance costs, or other
performing services and are not typically payment for facilities in which the services are
maintained by employees (such as the performed.
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 16. Provide proof of any investments or
who can realize a profit or suffer a loss as a result liabilities incurred for the specific purpose of
of the worker's services (in addition to the profit or performing these services. Are they reimbursable?
loss ordinarily realized by employees) is generally
an independent contractor, but the worker who
cannot is an employee. For example, if the worker

31 A-2048-16T2
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 17. How many public employers did you
Time. If a worker performs more than de minimis work for while at this location? For how many other
services for a multiple of unrelated persons or firms businesses or other organizations of any type did
at the same time, that factor generally indicates you perform any duties? What types of duties?
that the worker is an independent contractor. Provide proof of payment, W2s or 1099s and copy
However, a worker who performs services for more of state and Federal Income Tax returns for all
than one person may be an employee of each of organizations in which you provided service.
the persons, especially where such persons are
part of the same service arrangement.
18.Making Service Available to General 18. Did you advertise your services to the
Public. The fact that a worker makes his or her general public on a regular basis?
services available to the general public on a regular Did you offer services to the public
and consistent basis indicates an independent between January 1, 2008 and the present while
contractor relationship. also serving the contracting/ employing agency? If
so, do you currently do so?
From January 1, 2008 to the present, did
you maintain an office for private practice while
serving with the contracting/ employing agency? If
so, do you currently maintain an office?
State the name, address, phone number
and fax number of the office or offices referenced
above.
How many hours per week do you work at
you office(s)?
19.Right to Discharge. The right to 19. Could you be fired and/or services
discharge a worker is a factor indicating that the terminated? Under what circumstances and what
worker is an employee and the person possessing procedure?
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 20. What would ensue if you had quit
the right to end his or her relationship with the performing the services prior to a set date or
person for whom the services are performed at any meeting a specific goal.
time he or she wishes without incurring liability, that
factor indicates an employer-employee
relationship.
In addition to providing responses to the
questions above, please state any facts you
believe support the assertion that the

32 A-2048-16T2
contracting/employing agency exercised
behavioral and financial control over the
performance of the services provided by you and
that an employee/employer relationship exists or
existed.

33 A-2048-16T2
34 A-2048-16T2
35 A-2048-16T2
36 A-2048-16T2

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