A New York City Administrative Law Judge has found that a floor clerk working for a broker-dealer at the American Stock Exchange in 2005 was an employee, not an independent contractor, and therefore was not required to pay the City Unincorporated Business Tax (“UBT”). Matter of Timothy J. Young, TAT(H) 12-19 (UB) (N.Y.C Tax App. Trib., Admin. Law Judge Div., Feb. 4, 2015).

Facts. Mr. Young began working for William J. Buckley Associates, Inc. (“Associates”) in 2002 as a wire clerk, and during 2005 he held the position of floor clerk. Associates was a broker-dealer member of the American Stock Exchange (“Exchange”). It executed stock and option orders for broker-dealer clients through floor brokerage but did not deal directly with the public nor trade for its own account. Mr. William J. Buckley, Associates’ sole principal, was a broker, and he employed several individuals as clerks who took orders that he executed.

Mr. Young worked on the Exchange weekdays from 8:30 a.m. until 4:00 p.m. Associates had obtained a floor clerk badge from the Exchange for him, paid the Floor Clerk Fee, and provided him with a clerk’s jacket identifying him as an employee of the firm. Mr. Young worked at the booth that Associates leased from the Exchange, which was equipped with telephones and computers purchased by the firm, which also subscribed to financial data and news services available to Associates’ employees at the booth. Pursuant to Supervisory Procedures established by Associates, Mr. Young attested that he was an employee subject to supervision by Mr. Buckley.

Mr. Young’s responsibilities included receiving telephone orders from Associates’ clients, recording the orders and transmitting them to Mr. Buckley by headset or telephone; Mr. Buckley then executed the orders on the Exchange floor. Mr. Young also entered some orders himself, but he was not permitted to work on the Exchange floor without Mr. Buckley’s permission.

Associates also employed two assistants to Mr. Young, who primarily answered telephone calls and occasionally called in orders to Mr. Buckley. Summer interns were also hired to perform administrative work. Associates purchased health insurance for Mr. Young, paid workers’ compensation for him, and provided him with a paid vacation.

During 2005, Mr. Young began looking toward a future partnership with Mr. Buckley. He established a limited liability company, TJY Brokerage LLC (“TJY”), and entered into arrangements with two unrelated corporations, with Mr. Buckley’s approval. He performed no services for one of them, and he earned a minor amount of dividends from an account he set up with the other. He created a home office and deducted expenses from business income for this office, as well as for meals and entertainment of clients, on Schedule C, and these expenses were not reimbursed by Associates. During 2005, Mr. Young’s method of compensation changed, from a fixed salary, payable directly to him, to payment of commissions, made to TJY, for work done for Associates.

Legal Standard. Under the UBT Rules, 19 RCNY § 28-02(e)(3), the standard to be applied in determining whether an individual is an employee is “[w]hether there is sufficient direction and control which results in the relationship of employer and employee…” An independent contractor, unlike an employee, is subject to control only with regard to the results to be accomplished and not to the “‘means and methods for accomplishing the result.’” 19 RCNY 28-02(e)(2)(ii). The relevant factors include whether the individual is required to work stated times, is provided equipment and furnished a worksite, is covered by unemployment insurance, receives fringe benefits, and has income tax withheld. 19 RCNY 28-02(e)(2)(i) and (3).

In this case, the City was arguing that, in 2005, Mr. Young was an independent contractor engaged in the securities business, and that the business income he earned was subject to the UBT.

ALJ Decision. The ALJ decided that Mr. Young was an employee and not subject to the UBT. She concluded that Mr. Buckley controlled the Exchange worksite and provided Mr. Young with the necessary equipment to perform his responsibilities. Mr. Young was required to be at the Exchange daily for specified hours, needed Mr. Buckley’s permission to conduct any unrelated business, and actually performed very little such unrelated activity. All of Mr. Young’s 2005 income was attributable to his work for Associates, and he did not hold himself out to the public as an independent broker. Although his method of compensation changed in 2005 from a fixed salary to commission payments, the ALJ found that Mr. Young’s duties and responsibilities were no different thereafter. Therefore, under the UBT Rules, which requires an examination of all the facts and circumstances, the ALJ held that Mr. Young was an employee and not an independent contractor subject to UBT.

Additional Insights

Disputes over whether individuals are employees or independent contractors more commonly arise in the context of workers’ compensation issues or unemployment compensation claims, with individuals arguing that they were employees entitled to various benefits under state law. Here, the issue was treatment as an independent contractor for purposes of subjecting the individual’s income to an additional tax under New York City’s unincorporated business tax. Although the facts did include some minor elements favorable to the argument that Mr. Young was subject to UBT – such as the creation of an LLC and work, although minimal, for others – the facts as reviewed by the ALJ appear to lean strongly in favor of finding Mr. Young an employee.

No appeal has been filed by the City.