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

ANN J EAGANS, Employee

A NEW BEGINNING DAYCARE, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 09608612MW


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 for approximately five years as both the owner and an employee of the employer, a child daycare facility. The employer was organized as a limited liability company, of which the employee was the only member.

On July 15, 2008, the employee was notified by the State of Wisconsin that the license for her daycare facility was being revoked due to a violation in the way attendance was taken for children whose tuition was being subsidized by the state. The employee appealed the decision. On March 9, 2009, her last appeal was exhausted, and the facility's license remained revoked.

The revocation of the facility's license did not require that the facility immediately cease doing business, because even though the revocation meant that no new children could be enrolled, under the law the facility was permitted to continue operating in order to provide care for children who were currently enrolled.

The facility continued doing business, providing care for children who were currently enrolled. By July, 2009, there were only three children remaining enrolled, and the employer was having difficulty meeting financial obligations. For this reason, the employee decided that the employer would cease doing business, and the facility was closed on July 12, 2009. As a result, the employee's employment with the employer ended.

The Unemployment Insurance Act provides, in Wis. Stat. § 108.04, as follows:

(7) VOLUNTARY TERMINATION OF WORK. (a) If an employee terminates work with an employing unit, the employee is ineligible to receive benefits until 4 weeks have elapsed since the end of the week in which the termination occurs and the employee earns wages after the week in which the termination occurs equal to at least 4 times the employee's weekly benefit rate under                 s. 108.05(1) in employment or other work covered by the unemployment insurance law of any state or the federal government...

The first issue to be decided is whether the employee's employment with the employer ended because of a voluntary termination of work within the meaning of this provision.

The employee's employment ended because she, as sole owner of the employer, made the decision to shut down the business as of July 12, 2009. The closing of the business at that time was not legally required by the fact that the employer's license had been revoked. The employee could have continued to operate her business notwithstanding the revocation of her license, because under the law she was allowed to continue operating in order to provide care to children who were already enrolled. The reason that the employee shut her business down when she did, was that it was no longer economically viable given the low number of children involved.

The courts and the commission have long held that an employee-owner's decision to cease doing business for economic reasons is a voluntary termination of employment within the meaning of Wis. Stat. § 108.04(7)(a). See, Fischer v. Same (LIRC, October 9, 2009), and cases cited therein.

The UI Act provides some exceptions to the disqualifying effect of a voluntary termination of employment. The only one which could apply to an employee-owner's decision to cease doing business for economic reasons, is Wis. Stat. § 108.04(7)(r), which relates to involuntary cessation of business by a "family corporation." That exception provides that the benefit disqualification for voluntary termination:

(r) . . . 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 employer in this case not a corporation, but a limited liability company.(1) However, pursuant to both this provision, and to § 108.02(15m) to which it refers, a limited liability company may be considered to fall within the definition of a "family corporation", if it is a limited liability company "that is treated as a corporation under [the UI Act]".

The question of whether a limited liability company is one that "is treated as a corporation under [the UI Act]", is governed by Wis. Stat. § 108.068. That provision requires, in effect, that in order to be "treated as a corporation" under the UI Act a limited liability company must have (1) filed an election with the IRS to be treated as a corporation, and (2) filed proof with DWD that the IRS has agreed to treat the company as a corporation for such purposes. See, Pipping v. Carey Frame Works LLC (LIRC, March 27, 2008). There is no evidence in the record in this case, that either of these things happened. Therefore, the employer cannot be considered to be "a limited liability company that is treated as a corporation under this chapter," and for that reason the exception from benefit disqualification found in 108.04(7)(r) is not applicable.

The commission therefore finds that the employee voluntarily terminated her employment, within the meaning of Wis. Stat. § 108.04(7)(a), and that her voluntary termination of her employment was not within any of the exceptions stated in Wis. Stat. § 108.04(7) which would allow payment of benefits.

DECISION

The decision of the administrative law judge is modified to conform with the foregoing and, as modified, is affirmed. Accordingly, the employee is ineligible for benefits beginning in week 29 of 2009, and until four weeks have elapsed since the end of the week of quitting and the employee has earned wages in covered employment performed after the week of quitting equaling at least four times the employee's weekly benefit rate which would have been paid had the quitting not occurred.

Dated and mailed March 9, 2010
eagansa . urr : 110 : VL 1007.01 VL 1054.03 PC 714.06

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

NOTE: On November 14, 2009, the day after the ALJ's decision was issued in this matter, the employee faxed a large quantity of documents to the Milwaukee Hearing Office of the Unemployment Insurance Division. In addition, the employee submitted copies of a number of documents with her petition for commission review which she mailed to the Milwaukee Hearing Office a few days later.

The commission also notes that further down in the file which the Unemployment Insurance Division transmitted to the commission after the petition for commission review was filed, was a large quantity of documents which did not originate with the Unemployment Insurance Division. These documents were presumably filed with the Unemployment Insurance Division by the employee at some time during the Unemployment Insurance Division's investigation of this claim. Some of these documents appear to be the same as some of the documents most recently filed by the employee.

The commission is required by law to conduct its review and make its decision "on the basis of the evidence previously submitted," Wis. Stat. § 108.09(6)(d). The commission construes this requirement as referring to evidence, either testimonial or documentary, submitted and received into the record at the hearing before the ALJ. None of the documents submitted by the employee as described here had been received into the record as exhibits at the hearing in this matter. Similarly, none of the documents which were apparently previously submitted to and retained in the file by the Unemployment Insurance Division, were received into the record as exhibits at the hearing. Therefore, although these documents are physically present in the file, the commission cannot consider them as part of its review of the ALJ's decision, and it has not done so.


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uploaded 2010/04/30


Footnotes:

(1)( Back ) The ALJ found that the employer was a "limited liability corporation." There is no such entity. Limited liability companies (Wis. Stat. Ch. 183) are distinct from business corporations (Wis. Stat. Ch. 180) and non-business corporations (Wis. Stat. Ch. 181).