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

GARY A DEMROW, Employee

DEMROW TRUCKING INC, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No.  97002180MD


The Department of Workforce Development (department) issued an initial determination on February 20, 1997 finding that the claimant worked for a corporation in which at least one-fourth of the ownership interest is, or during such employment was, owned or controlled, directly, or indirectly by the claimant.  It therefore found that the claimant's base period wage amount would be limited to ten times his benefit rate.  The employe appealed and a hearing was held on April 23, 1997, before an administrative law judge. 

On April 25, 1997 the administrative law judge issued her appeal tribunal decision, reversing in part and affirming in part the department's initial determination.  The administrative law judge found that as of week 12 of 1997 that the base period wages should be computed as set forth in section 108.05 (1) and 108.06 (1), rather than limited under Wis.  Stat.  § 108. 04 (1)(g). 

On July 17, 1997 the department filed a request for the commission to act on its own motion and exercise its authority under Wis.  Stat.  § 108.09 (6)(c) and (d) to reverse the administrative law judge's appeal tribunal decision as a matter of law.  Pursuant to Wis.  Stat.  § 108.09 (6)(c), the commission reopens the matter on its own authority to address the issue of mistake of law.  Based on the record, evidence and the law the commission reaches the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The employe worked as a truck driver approximately four years for the employer, a corporation which was owned in equal shares by the employe and his spouse.  The employe's last day at work for that corporation as a truck driver was on or about February 7, 1997 (week 6).  On February 13, 1997 (week 7) the employe initiated a claim for unemployment insurance benefits.  The employe was paid benefits for weeks 7, 8, 9 and 10 of 1997. 

Because the employe's corporation was no longer viable, the corporation sold the primary asset of its business, a dump truck.  That sale became final during week 12 of 1997, the calendar week ending March 22. 

The initial inquiry is whether the employe worked for a corporation or a partnership owned or controlled by the employe and/or the employe's family.  The commission agrees with the administrative law judge that the employe worked for a corporation that was owned or controlled by his family.  The remaining inquiry is whether the employe's base period wages for the purposes of calculating his total benefit payment should be limited to ten times his benefit rate under Wis. Stat.  § 108.04(1)(g). 

Base period wages are not limited to ten times the employe's weekly benefit rate when an individual's employment is terminated by the employer because of an involuntary family business cessation.  Wis. Stat.  § 108.04(1)(gm), provides that base period wages will not be limited under the following circumstances:

1.  Dissolution of the corporation, due to economic inviability, under ch. 180 or the analogous applicable laws of the jurisdiction in which the corporation is incorporated;

2.  Filing for corporate bankruptcy;

3.  Filing for personal bankruptcy by all owners who are personally liable for any of the debts of the corporation; or

4.  Disposition of a total of 75% or more of the assets of the corporation using one or more of the following methods:

a.  Assignment for the benefit of creditors. 

b.  Surrender to one or more secured creditors or lienholders. 

c.  Sale, due to economic inviability, if the sale does not result in ownership or control by substantially the same interests that owned or controlled the family corporation. 

The relevant fact here is the sale of the business' sole asset, the dump truck.  The administrative law judge found that, although the employe initially informed the department that he was self-employed as of week 7 of 1997, at that time he was actively negotiating with the corporation's lending institution and had determined that he would be unable to successfully refinance the company's major asset, its dump truck.  This information, along with the general failure of the business, persuaded the employe to liquidate all assets of the corporation and dissolve the business.  The employe was unable to formally dissolve the corporation because his accountant advised him that the corporation was continuing to exist on paper until after its tax returns were filed the following year.  Accordingly, the administrative law judge found that as a practical matter the business involuntarily ceased in week 7 of 1997 even though the sale of the truck was not completed until week 12 of 1997. 

The commission however believes that Wis. Stat.  § 108.04(1)(gm) applies only when the requirements of that section are met at the time the claimant files for unemployment compensation.  Thus when the employe initiated his claim for benefits none of the specified conditions under Wis. Stat.  § 108.04 1)(gm)4.c.  were met even though the employe's employment had ended and he had filed his claim for benefits. Rather the employe's employment ended before the family corporation involuntarily ceased business due to its economic inviability.  The commission therefore concludes that Wis. Stat.  § 108.04(1)(g) applies to the facts rather than Wis. Stat.  § 108.04(1)(gm) and that this mistake of law provides the commission with authority under Wis. Stat.  § 108.09(6)(c) to act. 

The commission therefore reverses the appeal tribunal decision's finding that as of week 12 of 1997 the base period wages utilized to compute total benefits payable to the employe were not subject to the limit of ten times his weekly benefit rate as set forth in Wis. Stat.  § 108.04(1)(g).  Rather, the commission finds that the employe's amount of earnings used to calculate his benefit eligibility must be reduced due to his ownership or controlling interest in a corporation within the meaning of Wis. Stat.  § 108.04(1)(g) as of week 7 of 1997. 

Although the commission notes that no overpayment has been assessed as a result of this partial reversal, the commission concludes that should any overpayment result from this appeal, waiver of benefit recovery is required under Wis.  Stat.  § 108. 22 (8) (c) as a result of departmental error and no employe fault. 

DECISION

The appeal tribunal decision is affirmed in part and reversed in part.  The employe 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 employe and his spouse, within the meaning of Wis. Stat.  § 108.04 (1)(g).  Accordingly, the employe's base period wages utilized to compute his total benefits payable shall not exceed ten times his weekly benefit rate based solely on his employment with the employer under Wis. Stat.  § 108.05(1). 

Dated and mailed September 25, 1997
demroga . urr : 135 : 1    VL 1054.09

/s/ Pamela I. Anderson, Chairman

/s/ David B. Falstad, Commissioner

NOTE: The issue for hearing and upon review by the commission is whether the employe's wages shall be limited to ten times his weekly benefit rate from his employment with the employer within the meaning of Wis. Stat.  § 108.04(1)(g) .  The commission specifically does not address the department's request regarding the employe's eligibility on the related corporate quit issue under Wis. Stat.  108.04(7)(r).  That issue was not noticed for hearing before the administrative law judge and the commission therefore cannot address it since it is not part of the record it reviewed pursuant to the department's request. 


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