Fenwick v. U.C.C. of N.J.
133 N.J.L. 295, 44 A.2d 172 (1945)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A partnership is an association of two or more persons to carry on as co-owners a business for profit. Merely labeling a relationship as a partnership and sharing profits is insufficient to prove its existence when other essential elements, such as shared control, management, and liability for losses, are absent.
Facts:
- John R. Fenwick owned and operated the United Beauty Shoppe, employing Arline Chesire as a cashier and receptionist.
- In December 1938, Chesire requested a pay increase.
- Fenwick, wishing to retain Chesire but unable to guarantee a higher fixed salary, proposed a new arrangement.
- On January 1, 1939, Fenwick and Chesire entered into a written agreement labeling their relationship a 'partnership.'
- The agreement stipulated that Chesire would make no capital investment and Fenwick would retain exclusive control and management of the business.
- Under the agreement, Chesire would continue her same duties for a salary of $15 per week plus 20% of the net profits, while Fenwick was solely liable for all business debts.
- After the agreement, Chesire's duties and the business operations continued without change.
- The relationship ended on January 1, 1942, when Chesire voluntarily resigned from her position to stay home with her child.
Procedural Posture:
- The Unemployment Compensation Commission determined that Arline Chesire was an employee, making John R. Fenwick subject to unemployment compensation contributions.
- Fenwick appealed the Commission's determination to the New Jersey Supreme Court (acting as an intermediate appellate court).
- The Supreme Court reversed the Commission's decision, holding that the relationship was a partnership.
- The Unemployment Compensation Commission, as appellant, appealed the Supreme Court's judgment to the Court of Errors and Appeals of New Jersey, the state's highest court at the time.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an agreement that labels the parties as partners and provides for profit sharing create a legal partnership when one party retains sole control, ownership of assets, and liability for losses, and the other party's role remains substantively that of an employee?
Opinions:
Majority - Unspecified
No, the agreement did not create a legal partnership but was merely a contract for compensation of an employee. To determine whether a partnership exists, courts must look beyond the labels used by the parties to the substance of the relationship. The court analyzed several factors and found that the indicia of a partnership were overwhelmingly absent. The true intent of the parties, evidenced by Fenwick's testimony, was to create a new compensation structure, not to form a co-owned business. While the agreement provided for profit sharing, this factor is not conclusive, as sharing profits can be a method of paying wages under the Uniform Partnership Act. Critically, Chesire lacked fundamental rights of a partner: she had no obligation to share in losses, she had no ownership interest in the business assets, and she was excluded from any control over business management, which was reserved entirely to Fenwick. Furthermore, her rights upon dissolution were identical to those of an employee quitting a job, not a partner withdrawing from a business. The essential element of co-ownership was missing, making the relationship one of employer-employee.
Analysis:
This case provides a foundational framework for distinguishing a partnership from an employment relationship, establishing that the substance of an agreement prevails over its form. The court's multi-factor analysis demonstrates that no single element, including profit-sharing or the parties' own terminology, is dispositive. The decision emphasizes that shared control over the business (community of power in administration) and shared liability for losses are critical indicators of a true partnership. This precedent is crucial for future cases involving business formation, liability, and regulatory compliance, as it prevents parties from avoiding legal obligations, such as paying unemployment contributions, simply by re-labeling an employee as a 'partner' without granting them genuine ownership and control.
Unlock the full brief for Fenwick v. U.C.C. of N.J.