STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126
http://dwd.wisconsin.gov/lirc/

MATTHEW STAEBEN, Claimant

BELLBROOK LABS LLC, Petitioner

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 13002592MD


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 agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.

DECISION

The decision of the administrative law judge is affirmed. Accordingly, the claimant has base period wages usable to determine benefit entitlement based on work for Bellbrook Labs LLC, as outlined in the department's determination.

Dated and mailed September 18, 2013

BY THE COMMISSION:

/s/ Laurie R. McCallum, Chairperson

/s/ C. William Jordahl, Commissioner

/s/ David B. Falstad, Commissioner

MEMORANDUM OPINION


In its petition for commission review, Bellbrook Labs LLC (hereinafter "BBL" or "petitioner") cites Wis. Stat. § 108.068 in support of its contention that, since it is an LLC taxed as a partnership, its members are not considered employees. However, as noted by the ALJ, the applicable statute also states, at § 108.068(6):

        The department may, in the interests of justice or to prevent fraud upon the unemployment insurance program, determine that a member of a limited liability company is an employee of that company.

That provision has been interpreted by the commission, most recently in Skoien v. Bellbrook Labs LLC, UI Dec. Hearing No. 13000900MD (LIRC July 31, 2013), a case involving the petitioner and a different claimant who worked as a research scientist for BBL. In that case, the commission found that, for unemployment insurance purposes, the claimant was an employee of BBL, and the wages she earned from BBL during her base period could be used to determine her unemployment benefit entitlement. Her ownership interest of .18% was de minimus, she had no management authority to make routine decisions concerning the control and direction of the company, and she had limited voting rights. Therefore, in the interests of justice, the commission found her to be BBL's employee.

In another case, BioSystem Development LLC, UI Dec. Hearing No. S0800133MD (LIRC Jan. 20, 2010), the commission reviewed a status case, one in which the department had determined that two workers employed by the LLC should be considered employees of that business because their ownership interests in the LLC (one at 1.06% and the other at .08%) were de minimus (the .08% interest was considered infinitesimal), neither of them had management duties or rights correlative with their ownership interests, and they had no voting rights. The commission agreed that, in the interests of justice, the workers should be considered employees of the LLC.

At the hearing, the company's CEO asserted that BBL had adopted the LLC structure in part to allow its workers to share in the increased value of the business when it was sold, to give them "a piece of that pie."(1) He expressed concern that the department believed that BBL was trying to "game" the system, when in fact it was acting to reward its workers for their time with the business. He noted that BBL was appealing these matters because he believed that the business was being singled out and treated unfairly by the department.

The commission appreciates the point being made by BBL's CEO. However, the unemployment insurance program is designed to protect workers from extreme economic difficulties when they lose their jobs through no fault of their own. Accordingly, the statutory provision at issue in this case attempts to cover those workers in an LLC whose membership interest is very small and who have limited, if any, voting rights or management authority. In other words, they function more as employees than as owners in, or partners of, the business, and it would not be just to deny them unemployment benefits when they lose that employment through no fault of their own.

Although in some cases there may be company fraud that informs an analysis under this statutory section, in this case the commission has looked to "the interests of justice" as those interests relate to the claimant's eligibility for unemployment benefits. There has been no finding that BBL has tried to "game" or defraud the system.

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Footnotes:

(1)( Back ) He testified that the claimant's ownership interest in the business was valued at $197,000, based upon what the latest round of investors paid for shares in the company. However, that argument was not fully developed in the record below. More important, any such valuation is subject to market fluctuation, and it is not at all clear that the claimant could easily sell his ownership interest at that amount or on the open market, given the conditions imposed by the company's operating agreement.