May 5, 2010

Given today’s difficult economic landscape, questions regarding the payment of unemployment benefits promise to be frequently at issue. In Lake v. Board of Review, Department of Labor, the Appellate Division recently addressed such an issue, and found that an individual who owned and operated a cleaning service as a sole proprietorship was not entitled to unemployment benefits when she was fired from a contract she held with a non-profit affordable housing agency. More specifically, two years after Lake established her cleaning company, a client referred her to the Housing and Community Development Network of New Jersey, which is a non-profit affordable housing agency.

Over approximately a three year period from 2003 to 2006 Lake performed cleaning services for the Housing and Community Development Network two times per week at the rate of $140 per week. The agency’s tax records revealed that, during the time Lake held her contract, it paid plaintiff between $7,420 and $9,272 per year for cleaning services. In October 2007, plaintiff’s contract with the agency was terminated and a different cleaning service was hired.

Following her termination, plaintiff sought unemployment benefits. However, her claim was denied because she was found to lack sufficient base weeks and base yearly wages to establish a valid claim. After two appeals, additional testimony was ordered to determine whether the plaintiff was self employed or whether she was an employee of the housing agency.

After the necessary discovery was taken, the Appellate Division denied Lake’s claim for benefits. In so concluding, the critical finding by the appellate court was that plaintiff was not “employed” by the housing agency. The key evidence in this regard was that: the cleaning service employed individuals other than the plaintiff; the service could seek clients other than the housing agency while it provided services to the housing agency and thereafter; and the cleaning service was completely unrelated to the housing agency. Furthermore, the nature of the relationship between the agency and the cleaning service was completely contractual in nature and the claimant was completely free from control of the agency. As such, plaintiff’s claim for benefits was denied.

Cherlyee O. Judson is an associate of Hill Wallack LLP in the Princeton office where she is a member of the Litigation Division and Trial & Insurance Practice Group.