JAMES R CURTIS, Employee

JVC INC, Employer

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 by the Department of Workforce Development.

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:

The claimant worked for over three years as a sales agent and office manager for the employer, a business which sold time and attendance systems. At the time of his hire, he was given 25 percent of the corporate shares of the business, but he did not hold any corporate office. The president of the corporation held the remaining 75 percent of the corporate shares. The claimant's last day of work was April 11, 2008 (week 15).

The president of the corporation decided to sell the business, effective April 28, 2008 (week 18). On April 11, 2008 (week 15), the president notified the claimant that the business was being sold, and his services would no longer be needed after April 11, 2008 (week 12). He did not work for the employer thereafter.

The entity which purchased the employer's business contested the claimant's eligibility for unemployment benefits by informing the department that the claimant was the president of the corporation and that he made the decision to sell the business.

The issue to be decided is whether the claimant worked for a corporation or partnership owned or controlled by the claimant thereby limiting his benefit entitlement. Wis. Stat. § 108.04(1)(g) provides, in relevant parts:

(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 that employment under s. 108.05 (1):

* * *
3. Except where subd. 2. applies, employment by a corporation or limited liability company that is treated as a corporation under this chapter, if one-fourth or more of the ownership interest, however designated or evidenced, in the corporation or limited liability company is or during such employment was owned or controlled, directly or indirectly, by the individual.

The president of the corporation, who owned the majority of the shares, made the decision to sell the business. The claimant was a sales agent and the office manager only. He was not in fact involved in the decision to sell, and had no influence on that decision. However, the employee owned one-fourth of the corporate shares of the business. Notwithstanding whether he had a voice in the decision to sell the business, his 25 percent ownership interest limits his benefits to 10 times his weekly benefit rate, unless par. (gm) applies. Wis. Stat. § 108.04(1)(gm)provides:

(gm) Paragraph (g) does not apply if the department determines that the individual whose base period wages are being computed was employed by an employer which is a family corporation and the individual's employment was terminated by the employer because of involuntary cessation of business of the family corporation under one or more of the following circumstances:

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

2. Filing of a petition in bankruptcy by the family corporation;

3. Filing of a petition in bankruptcy by all owners who are personally liable for any of the debts of the family corporation; or

4. Disposition of a total of 75% or more of the assets of the family 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. It is presumed unless shown to the contrary that a sale, in whole or in part, to a spouse, parent or child of an individual who owned or controlled the family corporation, or to any combination of 2 or more of them, is a sale to substantially the same interests that owned or controlled the family corporation

There was no evidence presented at the hearing that the employee's employment was terminated by the employer because of the involuntary cessation of business under one or more of the circumstances set forth in Wis. Stat. § 108.04(1)(gm).

The commission therefore finds that the employee was employed by a corporation of which one-fourth or more of the ownership interest was owned or controlled, directly or indirectly, by the employee within the meaning of Wis. Stat. § 108.04(1)(g).

The commission further finds that the employee was paid benefits in the amount of $3,195.00 for weeks 23 through 31 of 2008, for which the employee was not eligible and to which the employee was not entitled, within the meaning of Wis. Stat. § 108.03(1).

The final issue to be decided is whether recovery of overpaid benefits must be waived. Wis. Stat. § 108.22(8)(c), provides that the department shall waive the recovery of overpaid benefits if the overpayment was the result of departmental error, and the overpayment did not result from the fault of the employee. Under Wis. Stat. § 108.02(10e)(a) and (b), departmental error is defined as an error made by the department in computing or paying benefits which results from a mathematical mistake, miscalculation, misapplication or misinterpretation of the law or mistake of evidentiary fact, by commission or omission, or from misinformation provided to a claimant by the department, on which the claimant relied.

The overpayment in this case results from the ALJ's failure to apply the correct applicable statutory provision. The ALJ found the employee did not own one-half or more of the ownership interest under Wis. Stat. § 108.04(1)(g), which is correct. However, the ALJ did not apply subsection 3. which limits eligibility based on a one-fourth or more ownership interest. The overpayment of benefits was due to departmental error.

The commission further finds that waiver of benefit recovery is required under Wis. Stat. § 108.22(8)(c), because the overpayment did not result from the fault of the employee as provided in Wis. Stat. § 108.04(13)(f), and the overpayment was the result of departmental error. See Wis. Stat. § 108.22(8)(c)2.

The decision of the administrative law judge is reversed. Accordingly, the employee's base period wages shall be limited to a maximum of ten times the weekly benefit rate based solely on employment with this employer. The employee is not required to repay overpaid benefits.

Dated and mailed September 3, 2008
curtija . urr : 132 : 1 : ET 491 : BR 335.01

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

cc: JVC, Inc. (Menomonee Falls, WI)
Attorney Daniel J. Larocque

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uploaded 2008/09/26