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. 01400004EC


An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and 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 about 11 years as a sales representative and crew foreman for the employer, an asphalt paving and seal coating business. His last day of work was November 3, 2000 (week 45). He initiated a claim for unemployment benefits on November 8, 2000 (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 stepchildren each received 19 percent of the shares.

In that year, the employee's base period included the last two quarters of 1999 and the first two quarters of 2000. At the time 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 imposed the reduction effective on the date of the transfer. The commission agrees that the reduction applies but does not limit its effect simply to the period following the transfer.

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 held that the reduction applies 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 is no provision in this language for pro-rating the reduction in instances in which the ownership or control is retained through the initiation of 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 2000 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 2000, 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).

DECISION

The decision of the administrative law judge is reversed in part and affirmed in part. 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. There is no overpayment associated with this decision.

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

/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 reversed on the grounds of misapplication of law in finding that the reduction is limited to the period after the ownership transfer regardless of the employee's ownership status at the time the claim was initiated. 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 step-children. 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 step- children 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


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uploaded 2001/11/16