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

RYAN C FISCHER, Employee

SAME, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 09603194WK


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 five months for the employer. His last day of work was March 8, 2009 (week 11). The employee was a corporate vice president, secretary and treasurer, and vice president of manufacturing. The employee also ran the printing press. The employee, who is over the age of 18, owns 20 percent of the corporate stock. The remaining 80 percent of the stock is owned by the employee's father. The employer closed its doors due to a lack of funds to continue operations. The employee and his father made the decision to close the business.

The initial issue presented is whether the employee voluntarily terminated his employment.

Wisconsin Statute § 108.04(7)(a) an employee who voluntarily terminates work is ineligible for benefits until requalifying requirements are met, unless the quitting falls within an exception to the quit disqualification.

The courts and the commission have found through the years that an employee owner's decision to cease doing business due to adverse economic conditions is a voluntary termination. See, e.g. McMullen v. Vend-1 Inc., UI Dec. Hearing No. 91608191RC (LIRC Jul. 17, 1992); Chesen v. Pell Lake Lumber Company, Inc., UI Dec. Hearing No. 90-005234JV (LIRC Mar. 27, 1991); Smith v. LIRC, No. 579-848 (Wis. Cir. Ct. Milwaukee County Dec. 21, 1982); Hanmer v. Department of Industry, Labor and Human Relations, 92 Wis. 2d 90 (1979); Fish v. White Equipment Sales and Service, Inc., 64 Wis. 2d 737 (1974).

The above principle was applied whether the employee was a 100 percent owner (Armon, Fish), 50 percent owner (Martin, McMullen, Hanmer, Fink), 33 percent owner (Chesen), or 20 percent owner (Smith).

The aforementioned cases further concluded that such a voluntary termination was not for "good cause attributable to the employing unit" or for any other reason permitting immediate benefit payment. Thus, a corporate owner who decided to cease doing business was ineligible for benefits.

1993 Wisconsin Act 373 created an exception to the quit disqualification, Wis. Stat. § 108.04(7)(r), for involuntary cessation of business by a "family corporation."

Wisconsin Statute § 108.02(15m) defines "family corporation" and provides:

(15m) Family Corporation. Except as provided in s. 108.04 (7) (r), "family corporation" means:

(a) A corporation or a limited liability company that is treated as a corporation under this chapter in which 50% or more of the ownership interest, however designated or evidenced, is or during a claimant's employment was owned or controlled, directly or indirectly, by the claimant or by the claimant's spouse or child, or by the claimant's parent if the claimant is under the age of 18, or by a combination of 2 or more of them; or

(b) Except where par. (a) applies, a corporation or a limited liability company that is treated as a corporation under this chapter in which 25% or more of ownership interest, however designated or evidenced, is or during a claimant's employment was owned or controlled, directly or indirectly, by the claimant.

A later enacted expanded definition of "family corporation" for purposes of Wis. Stat. § 108.04(7)(a) is set forth in Wis. Stat. § 108.04(7)(r) and provides:

(r) Paragraph (a) does not apply if the department determines that the employee owns or controls, directly or indirectly, an ownership interest, however designated or evidenced, in a family corporation and the employee's employment was terminated by the employer because of an involuntary cessation of the business of the corporation under one or more of the conditions specified in sub. (1) (gm). In this paragraph, "family corporation" has the meaning given in s. 108.02 (15m) and also includes a corporation or a limited liability company that is treated as a corporation under this chapter in which 50% or more of the ownership interest is or was owned or controlled, directly or indirectly, by one or more brothers or sisters of a claimant, or by a combination of one or more brothers or sisters and one or more of the persons specified in s. 108.02 (15m) (a).

The employee's ownership interest is shared only with his father so the siblings addition in (7)(r) does not apply. Wis. Stat. § 108.04(7)(15m) combines a parent and a child if the child is under 18. The employee is not under 18. Therefore his ownership interest is not combined with his father's interest. Therefore, Wis. Stat. § 108.02(15m)(a) does not apply. The employee personally does not own at least 25% of the corporation. Therefore Wis. Stat. § 108.04(15m)(b) does not apply.

The quit exception of Wis. Stat. 108.04(7)(r) applies to an employee who has an ownership interest in a "family corporation." The employee's ownership does not meet the definition of family corporation.(1) That is, because the employee owns less than 25 percent of the business, and has no siblings to meet the 50 percent threshold, he cannot avail himself of (7)(r) exception to the quit disqualification.

Subsequent to the enactment of Wis. Stat. § 108.04(7)(r), the commission continued to rely on the principle that a corporate owner's decision to cease doing business is a voluntary termination and not for any reason constituting an exception to the quit disqualification.

In Cahill v. RLI Technology, Inc., UI Dec. Hearing No. 05401420AP (LIRC Aug. 5, 2005), the employee Cahill owned only 14% of the corporation. The commission denied benefits:

. . . because [the employee] participated as a shareholder in the decision to dissolve the corporation. The commission and the courts over the last 30 years have consistently denied unemployment insurance benefits to individuals such as the employee, who are officers and shareholders in a corporation, and participate in the decision to dissolve that corporation.

The commission notes that a potential statutory exception to the quit disqualification does exist if the employee was employed by a family corporation. A family corporation is one in which the employee owns 25 percent or more of an ownership interest in the corporation, or in which 50 percent or more of the ownership interest in the corporation was owned or controlled by certain family members. The employee did not own 25 percent or more of the corporation nor did any family member set forth in Wis. Stat. § 108.04(7)(r) and Wis. Stat. § 108.02(15m), have sufficient ownership interest to constitute a family corporation. Because the employee was not employed by a family corporation, the statutory exception to the quit/disqualification does not apply to the employee.

The employee testified that another owner with a 14 percent interest was allowed benefits. Department records do reflect that that individual was found eligible for benefits. The determination found that that individual had an ownership interest in a family corporation. The commission can only assume, as that case is not before it, that the individual either personally owned sufficient ownership interest or was related to individuals with sufficient ownership interest to constitute a family corporation.

This case does point out a seeming inequity in the law, namely, an individual such as the employee who owns less than 25 percent of a corporation, and who is not related to individuals who own 50 percent or more of the corporation is not eligible for benefits, but an individual who owns 25 percent or more of the corporation, or is related to someone who owns 50 percent or more of the corporation, may be eligible for benefits. The commission cannot change the law and must apply the law as it is written. The commission will bring this seeming inequity to the attention of the Unemployment Insurance Advisory Council which has the ability to recommend UI law changes to the Legislature.

No law change has occurred.(2) However, to continue to apply the law prior to Wis. Stat. 108.04(7)(r) to an individual who alone does not own 25% of the corporation, or with his spouse/child/siblings 50% of the corporation, would place the individual in a worse position than if he himself owned 25% or 50% with his spouse/child/siblings. Prior to Wis. Stat. 108.04(7)(r) an owner of a corporation was found to have quit and not for any reason permitting immediate benefit payment.(3) After Wis. Stat. § 108.04(7)(r), one who owns at least 25% interest in a "family corporation" has the potential to meet that statuary exception to the quit disqualification.

In addition, Wis. Stat. 108.04(1)(g) limits an individual's benefits for work performed in employment if the employee owns 25% or more or if the employee and his spouse own 50% or more to ten times the employee's weekly benefit rate based on work in that employment. Since the employee does not own 25% alone or 50% or more with his spouse, his benefits are not limited. (4)

The commission concludes that the employee with insufficient percentage of ownership in a corporation to be considered a "family corporation" did not voluntarily terminate his employment. Whether the employee voted for or against ceasing business operations he lacked sufficient ownership interest to determine whether his employment continued.

The commission therefore finds that in week 11 of 2009, the employee did not voluntarily terminate his work for the employer within the meaning of Wis. Stat. § 108.04(7)(a).

The commission further finds that in week 11 of 2009, the employer discharged the employee and not for misconduct connected with his work for the employer, within the meaning of Wis. Stat. § 108.04(5).

DECISION

The decision of the administrative law judge is reversed. Accordingly, the employee is eligible for benefits beginning in week 11 of 2009, if he is otherwise qualified.

Dated and mailed October 9, 2009
fischry : 132 : 5 : VL 1054.09 

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

MEMORANDUM OPINION

The commission agrees with the employee that the ALJ erred in combining his ownership interest with his father's interest to conclude that the employee and his father's ownership of the stock in the corporation met the definition of "family corporation." The commission did not consult with the ALJ who presided at the hearing regarding witness credibility and demeanor as the commission's reversal of the ALJ's decision did not involve credibility.

 

Note:  The following cases were cited in abbreviated form above:  Armon v. Top Care Inc., UI Dec. Hearing No. 03600226MW (August 27, 2003); Martin v. R L McCarthy Pump & Supply Inc., UI Dec. Hearing No. 03001030WK (LIRC September 17, 2003); Fink & Fink v. ILHR, Nos. 151-058 & 151-059 (Wis. Cir. Ct. Dane County June 20, 1977).


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


Footnotes:

(1)( Back ) Even if the employee met the definition, the employee's separation would not meet the conditions of Wis. Stat. 108.04(1)(gm). Wis. Stat. 108.04(1)(gm) provides: 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.

In this case, the corporation has not been officially dissolved. A sale of the assets was pending as of the time of the hearing. The assets were to be auctioned off a week and a half after the hearing. However, the commission has held that commission Wis. Stat. 108.04(1)(gm) applies only when the requirements of that section are met at the time the claimant files for unemployment insurance benefits. See Demrow v. Demrow Trucking Inc., UI Dec. Hearing No. 97002180MD (LIRC Sep. 25, 1997). Neither the employee nor the corporation filed for bankruptcy. There has been no assignment for the benefit of creditors. The employer is not being sold as a going concern. The employee and his father are personally liable for the debts of the corporation.

(2)( Back ) A portion of the Unemployment Insurance Advisory Council Minutes of May 31, 2006, states: UI Benefits staff is working on statutory language to remedy the anomalous effect that the 'corporate quit' rule has on employee-owners of corporations whose interests happen to fall below the 25% threshold contained in the "family corporations" provisions. Staff will develop language to correct the situation and bring it to the Council.

A portion of the Unemployment Insurance Advisory Council Minutes of July 19, 2006, states: Referring to the separate issue of "corporate quit", LaRocque indicates that the anomalous treatment of certain corporate owners explained at previous meetings can be rectified. The Department intends to bring that 'fix' to the Council.

(3)( Back ) The exception was Hamachek v. Sturgeon Bay IGA Food Center, UI Dec. Hearing No. 90-400272SB (LIRC Aug. 14, 1990), where the corporation's creditor took control of the business premises and locked out the employee-owner, the commission found that there was no voluntary quit.

(4)( Back ) The family corporation definition considers ownership by the employee's spouse and child but the limitation in benefits under Wis. Stat. 108.04(1)(g) only considers ownership by the employee's spouse.


uploaded 2009/01/13