STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

THOMAS M SNIDER, Employee

AC ASPHALT MAINTENANCE & SEAL COATING, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 99402604AP


An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter.

Pursuant to the authority granted in Wis. Stat. § 108.09(6)(c), the Labor and Industry Review Commission, on its own motion, orders that the appeal tribunal decision of February 18, 2000, relating to the above claim for benefits, be set aside and that the following decision be substituted therefor:

The commission has considered the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The employee worked as a sales representative and vice president for the employer, an asphalt paving and seal coating business. The employee's last day of work in 1999 was November 5, 1999. He initiated a claim for unemployment benefits in week 46.

From 1996 until fall of 1999, the employee and his wife each owned 12 percent of the employer corporation. His father owned 76 percent of the business and was the president of the corporation. The father became seriously ill in mid-1999 and the three shareholders of the corporation held a meeting on September 16, 1999, transferring the father's interest equally to his four grandchildren. The employee's two sons and his two step children each received 19 percent of the shares.

The employee's base period for this benefit year includes the last two quarters of 1998 and the first two quarters of 1999. From mid-September 1999, until the employee initiated his claim for benefits, the employee, his wife and his two children owned a combined 62 percent of the outstanding shares of the corporation.

The issue to be decided is whether the employee worked for a corporation or partnership owned or controlled by the employee and/or the employee's family.

The relevant statute, Wis. Stat. § 108.04(1)(g)2., provides:

(g) Except as provided in par. (gm), the base period wages utilized to compute total benefits payable to an individual under s. 108.06(1) as a result of the following employment shall not exceed 10 times the individual's weekly benefit rate based solely on the employment under s. 108.05(1):

2. Employment by a corporation, if one-half or more of the ownership interest, however designated or evidenced, in the corporation is or during such employment was owned or controlled, directly or indirectly, by the individual or by the individual's spouse or child, or by the individual's parent if the individual is under age 18, or by a combination of 2 or more of them.

The ALJ found that the stock transfer did not occur during the employee's base period, she therefore limited her analysis to the employee's ownership alone and resolved the issue under Wis. Stat. § 108.04(1)(g)3. Since the employee owned less than 25 percent of the interest in the corporation during that period, she concluded that the employee's benefit entitlement needn't be reduced. However, the statute requires not only looking at ownership interest during the base period but also during the period between the end of the base period and the initiation of the benefit claim. In this case, from the time of the stock transfer in mid-September until November 5, 1999 when he initiated his claim, the employee, his spouse and his two natural children owned 62 percent of the corporation. This is in excess of the 50 percent ownership threshold under Wis. Stat. § 108.04(1)(g)2., and therefore the benefit reduction applies.

The commission has previously held that the inquiry into corporate ownership is not limited solely to the base period but also includes the period immediately prior to when the claim is initiated. In Wegman v. Wegman Construction, UI Dec. Hearing No. 00000109 (LIRC Mar. 14, 2000), the commission affirmed a decision which found the reduction applied to the employee's entire benefit year despite the fact that the stock transfer triggering the reduction occurred in the last two weeks of the base period. By using the language "is or during such employment was owned or controlled," the statute clearly contemplates analyzing both the base period and the period immediately preceding the benefit claim. There are good public policy reasons for this since significant ownership or control at the time of the benefit claim implies some control over the fact of one's unemployment. Applying this principle to the employee's 1999 benefit claim, the employee's benefit entitlement must be reduced because he or his immediate family members owned more than 50 percent of the corporation when he initiated his claim.

The commission therefore finds that as of week 46 of 1999, the employee was employed by a corporation of which one-half or more of the ownership interest was owned or controlled, directly or indirectly, by a combination of the employee, his spouse and his children within the meaning of Wis. Stat. § 108.04(1)(g).

The commission further finds that the employee was paid $6,269 in benefits for weeks 50 of 1999 through week 18 of 2000, for which the employee was not eligible and to which the employee was not entitled, within the meaning of Wis. Stat. § 108.03(1).

Wis. Stat. § 108.22(8)(c), provides that the department shall waive recovery of benefits that were erroneously paid if the overpayment was a result of departmental error, and the overpayment did not result from the fault of the claimant. Departmental error is defined in Wis. Stat. § 108.02(10e), as a mathematical mistake, miscalculation, misapplication or misinterpretation of the law or mistake of evidentiary fact, whether by commission or omission.

In its petition for commission review, the department argues that the commission should set aside the appeal tribunal decision due to mistake, presumably misapplication of law. In so doing, it concedes department error by the ALJ. Since there was no showing of employee fault in the commission of this error, waiver of the recovery of the overpaid benefits is appropriate.

The commission further finds that the department is required to waive recovery of $6,269 in unemployment insurance benefits erroneously paid to the employee within the meaning of Wis. Stat. § 108.22(8)(c).

DECISION

The decision of the administrative law judge is set aside and the initial determination is affirmed. Accordingly, the employee's base period wages shall be limited to a maximum of ten times the weekly benefit rate based solely on employment by this employer. The employee is not required to repay the sum of $ 6,269 to the Unemployment Reserve Fund.

Dated and mailed November 12, 2001
snideth . urr : 178 :  ET 491  BR 335.01

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

MEMORANDUM OPINION


The commission did not confer with the appeal tribunal regarding witness credibility and demeanor. The commission's reversal is as a matter of law.

In its brief to the commission, the department argues that the ALJ's decision should be set side on the grounds of legal mistake in failing to apply the appropriate statutory section, as well as the principle enunciated in the Wegman case that the statute requires a lack of ownership both during the base period and at the time of the claim. The commission agrees that the statute clearly contemplates an analysis of the employee's ownership both during the base period and at the time of the benefit claim. The commission further agrees that the employee, his spouse and his children owned more that 50 percent of the corporation at the time of the benefit claim.

The department would have the commission go beyond finding a 62 percent ownership interest and find the employee owned or controlled 100% of the business through his spouse, children and stepchildren. In support of this argument it states that it follows the general rule that step children are "children" for purposes of this statute. This may become an issue in future benefit years however the commission does not find it necessary to make such a conclusion in deciding this case. There is a genuine issue as to whether the word 'children' in Wis. Stat. § 108.04(1)(g)2. is intended to include stepchildren. In the Wisconsin statutes generally, 'children' seems to be limited to natural and adopted children except in cases where the statute expressly defines it to include stepchildren or foster children as in the FMLA statute.

The department also argues that the statute requires not only an inquiry into ownership but also into the actual control of the corporation. Again the commission need not decide that issue to resolve this case. However, if the department believes in future cases that ownership interest is being manipulated to avoid the effect of the family corporation reduction in cases such as this one, then that record needs to be developed at the hearing in order for an appropriate finding to be made.

cc: Gregory A. Frigo


[ Search UC Decisions ] - [ UC Digest - Main Index ] - [ UC Legal Resources ] - [ LIRC Home Page ]


uploaded 2001/11/16