Worker misclassification issues in New York are in the spotlight again, thanks to a recent decision from the state’s highest court in Matter of Empire State Towing and Recovery Association, No. 160 (N.Y. Oct 26, 2010). This unemployment insurance case grew out of an audit of Empire by the New York Department of Labor ("DOL"), which concluded that Empire’s executive director, who also happened to be Empire's outside attorney, had been misclassified by Empire as an independent contractor rather than as an employee. The DOL assessed Empire $617.53 in additional unemployment contributions.

Empire contested the determination and lost at every step -- at a hearing before an administrative law judge and then on appeal, first to the Unemployment Insurance Appeal Board and then to the Appellate Division of the New York State Supreme Court (3d Dep’t) -- until the New York Court of Appeals reviewed the case and reversed, holding that Empire had properly classified the attorney as an independent contractor.

Will the Empire decision have any impact on the significant (and previously reported) attention that the DOL and the state’s other agencies are giving to issues of worker misclassification? It should, as the Court further confirmed that many of the factors that these agencies consider to determine employee status -- such as limits on authority, approval over work product, and required reports and attendance at meetings -- are sound business practices that apply just the same when a business engages an employee or an independent contractor.

But will it really have an impact? Not likely, as the Court also reaffirmed that the DOL Appeal Board’s fact-intensive, case-by-case determinations of employee status are beyond judicial review if supported by substantial evidence in the record. This means that while the Court has provided some potentially meaningful guidance on the applicable tests, it has effectively sent the DOL back to the trenches, fully armed to do battle on the next fact-specific case it chooses to pursue. As Empire’s experience reflects, for New York businesses that engage independent contractors (especially those within the grayer areas of the applicable tests) and are met with an unfavorable misclassification decision from any state agency, any shot at vindication may require a run all the way to the Court of Appeals.