JOHN KAISHIAN, Applicant

CRYSTAL RIDGE, Employer

TRAVELERS INSURANCE COMPANY, Insurer

The applicant filed an application for hearing in December 2001, seeking compensation for an injury in February 2000. The applicant sought temporary disability compensation for various periods from the date of injury through June 4, 2002, and permanent partial disability at seven percent compared to permanent total disability. For its part, the employer and its insurer (collectively, the respondent) denied the occurrence of a compensable injury, asserting that the relationship of employee and employer did not exist between the employer and the applicant.

An administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development heard the matter on February 20, 2003. He issued his decision awarding compensation to the applicant on March 20, 2003. The respondent filed a timely petition for review.

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:

1. Facts.

The applicant was born in 1934. He is the sole shareholder and president of the employer, Crystal Ridge, Inc., (Crystal Ridge) a corporation that operates a ski hill which employs a number of workers. The applicant also owns other businesses not at issue here.

In his capacity as president of Crystal Hill, the applicant was present at the ski hill to get it ready to open, to hire personnel, to maintain and check the equipment, to oversee the managers, and to do manual work in grooming the ski hill. He worked 18 hours a day during ski season, and 8 hours a day in the off season.

The applicant was badly injured at the ski hill on February 1, 2000, when he was working on SnowCat machine, and was taken to an emergency room. Dr. Karen Brasel eventually treated him for internal injuries and Dr. Carol Vetter treated him for a right shoulder injury. Treatment included surgeries for the right rotator cuff and a hernia. Dr. Brasel indicates that the applicant's abdominal injuries have not caused permanent disability. Dr. Vetter indicates the applicant has sustained a permanent disability of seven percent to the right shoulder. (1)   Both doctors have released the applicant to return to work.

The applicant received no salary from Crystal Ridge during the year in which he was injured. Indeed, the applicant admitted he may not have received a salary from Crystal Ridge since 1996. Whether the applicant received a salary depended on whether Crystal Ridge made a profit, and exhibit E indicates that Crystal Ridge operated at a loss during the fiscal year that included the applicant's injury. However, the applicant's vocational expert, Beth Hoynik, opined that the various jobs the applicant did at Crystal Hill normally paid average hourly wages between $11.51 and $16.50 per hour. Exhibit D, page 6.

2. Discussion.

Crystal Ridge and its insurer (collectively, the respondent) do not dispute causation, or the nature and extent of disability. Rather, the respondent contests its liability for compensation generally, claiming the applicant was not its "employee" when injured, as he was not "providing services under a contract of hire" as required under Wis. Stat. § 102.07(4)(a). The respondent alternatively argues that if the applicant is an "employee," his average weekly wage was less than that set by the ALJ.

a. In the service of another?

Wisconsin Stat. § 102.07 provides:

102.07 Employee defined. "Employee" as used in this chapter means:

(4) (a) Every person in the service of another under any contract of hire, express or implied, all helpers and assistants of employees, whether paid by the employer or employee, if employed with the knowledge, actual or constructive, of the employer...

The first question is whether the applicant, as sole shareholder of Crystal Ridge, was actually "in the service of another" when injured. This question, of course, implicates the legal fiction that a corporation is a separate "person" from its owners. This issue has been discussed on numerous occasions by the supreme court in connection with workers compensation, and the precedents are summarized at length in Marlin Electric Co. v. Industrial Commission, 33 Wis. 2d 651 (1966).

In two cases, Leigh Atkinson, Inc. v. Industrial Commission, 188 Wis. 218 (1925) and Duvick v. Industrial Commission, 22 Wis. 2d 155 (1963), the court held the injured workers were not "employees" of the corporation of which they were principal shareholders.  In both cases, the court emphasized that the injured parties were responsible to no one, and fixed their own salaries and duties. Leigh Atkinson, at 288 Wis. 221, 222; Duvick, at 22 Wis. 2d 162. The Duvick court, citing the Atkinson decision, explained:

"A corporation is an artificial person existing in the contemplation of the law and qualifies as an employer. In certain circumstances the corporation, although still a corporate entity, and the alleged employee may for the purposes of the act be one and the same. In that case the employer-to-employee relationship does not exist.

Id., at 22 Wis. 2d 161.

However, as later noted by the supreme court in Marlin Electric, other cases, particularly Continental Casualty Co. v. Industrial Commission, 26 Wis. 2d 470 (1965), Fruit Boat Market v. Industrial Commission, 264 Wis. 304 (1953), and Milwaukee Toy Co. v. Industrial Commission, 203 Wis. 493 (1931), reach a contrary result. The Marlin Electric court pointed out that the claimant-shareholder in Fruit Boat "was not under the directional control of any superior officer," while in Continental Casualty "ultimate authority was vested solely in the [claimant- shareholder]." Marlin Electric, at 33 Wis. 2d 659. Nonetheless, in both cases, the supreme court found the claimant-shareholders to be employees of the corporation for worker's compensation purposes.

Further, the Marlin Electric court noted although one owns all the stock of a corporation, he or she does not thereby become the corporation. The court continued:

"A corporation is by legal fiction a person and of course is 'another' under the terms of the workmen's compensation statute. By legal fiction the corporation is a separate entity and is treated as such under all ordinary circumstances. Circumstances occasionally arise where it appears that a person 'is simply dealing with his own property through a corporate agency as absolutely as he might deal with it as an individual,'... If in such case applying the corporate fiction would accomplish some fraudulent purpose, operate as a constructive fraud, or defeat some strong equitable claim, the fiction is disregarded and the transaction is considered as one of the individual himself or of the corporation, whichever will prevent the inequitable result..."

Marlin Electric, at 33 Wis. 2d 658, quoting Milwaukee Toy, at 203 Wis. 495.

The Marlin Electric court went on to hold:

"it is evident that this court recognizes and respects the fiction of the corporate entity, and normally when one can qualify as being under a contract of hire, he usually can qualify as an employee, regardless of his ownership rights in the employer corporation."

Marlin Electric, at 33 Wis. 2d 658.

Marlin Electric appears to be the appellate courts' last word on this issue. The commission reads that case to hold that ordinarily, if a claimant-shareholder is under a contract of hire with the alleged corporate-employer, he or she is an employee. However, the corporate-shareholder may be found not to be an employee if (a) he or she is dealing with the corporate property as though he or she held the property as an individual, and (b) applying the corporate fiction would "accomplish some fraudulent purpose, operate as a constructive fraud, or defeat some strong equitable claim."

In this case, while the applicant testified "I am Crystal Hill," there is little other evidence that he dealt with the corporate property as his own. Nor would recognizing him as an employee of Crystal Hill under these facts amount to a fraud or constructive fraud. On this point, the commission notes that the work the applicant was performing when injured was the type of work one might expect to have been normally performed by an employee. Further, as the commission reads the briefs, the respondent does not seriously contend that Crystal Ridge is merely the alter ego of the applicant and not separate person, (2)  or that recognizing the corporate fiction in this case defeats a strong equitable claim. The commission thus concludes that the applicant was "in the service of another," specifically Crystal Ridge, at the time of his injury, despite his status as sole shareholder.

b. Under a contract of hire?

The question of whether the applicant is an "employee" of the corporation also implicates Wis. Stat. § 102.076. (3)   That section provides that under certain circumstances a corporate officer may elect not to be subject to Wis. Stat. ch. 102. (4)   As president of Crystal Ridge, of course, the applicant is an officer of the employer in addition to its sole shareholder. Since the applicant never elected to be not covered, it could be argued that he is necessarily an employee of the corporation.

The respondent asserts it is not that simple, however. Wisconsin Stat. § 102.076 does not say that corporate officers are automatically employees or are defined as "employees" by virtue of their status as corporate officer. Rather, the respondent asserts, Wis. Stat. § 102.076 allows corporate officers who otherwise meet the definition of "employee" under Wis. Stat. § 102.07 to opt out of coverage under the workers compensation act if they so choose. But, the respondent asserts, the officer must still meet the general definition of "employee" to be an employee in the first place.

This leads back to the question of whether a corporate officer is "under a contract of hire" under Wis. Stat. § 102.07(4). As noted above, the Marlin Electric court indicated that this was a particularly relevant question with respect to corporate shareholders as well. In this case, the respondent contends that because the applicant did not pay himself a salary, at least not for several years, he was a "volunteer" rather than an employee serving "under a contract of hire".

The respondent's argument is based on Klusendorf Chevrolet Buick, Inc., v. LIRC, 110 Wis. 2d 328 (Ct. App 1982). That case arose from a fatal accident involving a former employee (Klosterman) of Klusendorf Chevrolet. Klosterman volunteered to drive a car to another city for Klusendorf Chevrolet in the hope he would be re-employed. No wages were ever discussed. After he was killed, Klosterman's family filed for worker's compensation death benefits, claiming that Klosterman's agreement to provide services for Klusendorf Chevrolet created an implied employment relationship. The commission agreed, and awarded compensation. The court of appeals reversed, holding that Klosterman was not an employee.

Wages are a necessary part of an employment relationship, the court of appeals held, and Klosterman received none. Klusendorf, at 110 Wis. 2d 334-35. The court found Klosterman's unfulfilled hope of reemployment was not a substitute for wages, nor was the benefit Klosterman's services conferred on Klusendorf Chevrolet.

The court quoted from Professor Larson's treatise for the proposition that "while the performance and acceptance of valuable service normally raises an implication that payment for the services is expected, this implication does not arise when the circumstances negative such an expectation." Klusendorf, at 110 Wis. 2d 333-34, quoting 1C Larson, Workmen's Compensation Law § 47.41 (1980). The court noted that Professor Larson recognized three situations that negate the expectation of wages, including "patriotic or charitable duties." (5)

It may seem difficult to characterize what Klosterman did in Klusendorf, or what the applicant has done for the employer in this case, as "patriotic or charitable duties." However, the court of appeals noted that an earlier Wisconsin supreme court case involving charitable duties "strongly suggests that wages are a requirement of the 'contract of hire.'" Klusendorf, at 110 Wis. 2d 324, citing Kress Packing Co. v. Kottwitz, 61 Wis. 2d, 175, 182 (Ct. App. 1973). This led the court of appeals to conclude that there would be no contract of hire whenever wages were neither paid nor expected to be paid. Id., at 110 Wis. 2d 336.

In this case, then, the respondent asserts it is unreasonable to find that the applicant expected wages to be paid for his services. Since the applicant himself controlled whether the wages would be paid and he was receiving none, the respondent asserts he could not have had an expectation of wages.

However, the commission cannot agree. Professor Larson's treatise suggests that the situation here -- one in which a stockholder performs services with the expectation that he or she will be paid when the business becomes profitable -- is sufficient to show a contract of hire. Larson's treatise states:

[The kind of case] in which the expectation of pay is uncertain, in the sense of being left in doubt by the evidence, should not be confused with the kind of case in which the expectation of pay is uncertain in the sense of being conditional on the prosperity of the enterprise. Two New Jersey cases hold, quite properly, that this kind of conditional character of remuneration is not inconsistent with a contract of hire. In the one case, stockholders in a closely held corporation work on the understanding that if the business flourished, they would eventually receive pay retroactively out of funds accumulated in the corporate treasury. In the other, a wife performed services for her husband's business under the expectation that, if and when the enterprise could afford it, she would be paid. [Citations omitted.]

3 Larson, Worker's Compensation Law § 65.02[1] (LEXIS-NEXIS 2003).

In this case, the applicant, who credibly testified he expected to receive wages when Crystal Hill became more profitable, has proven a sufficient expectation of wages to establish a "contract of hire." Had the applicant received wages while Crystal Hill was losing money, he would essentially have been paying himself from his own capital investment. The commission believes this situation may be validly distinguished from the facts of Klusendorf where Mr. Klosterman did not expect wages for the service he performed when killed, but at most hoped for re-employment at a later date. The applicant has thus established he was not performing services for Crystal Hill as a volunteer, but was in the service of another under a contract of hire. In other words, he was the employee of Crystal Hill when injured, and Crystal Hill and its insurer are liable for his injury under Wis. Stat. § 102.03(1).

c. Average weekly wages

The last issue is the amount to be used as the applicant's average weekly wage in the absence of an actual figure. The ALJ calculated wages based on Wis. Stat. § 102.11(1)(c) (6),   which states that for workers performing services without fixed earnings, the wage is based on the usual going earnings for similar services on a normal full-time basis in the same or similar employment. Specifically, the ALJ set the average weekly wage at the low end of the range hypothecated for similar services by the applicant's vocational expert (exhibit D, report of Hoynik, page 7). The ALJ thus adopted an $11.51 per hour wage, which he then expanded to full time at 40 hours to $460.40 per week.

On appeal, the respondent points out that the applicant's tax records show he spent 50 percent of his time on the ski hill business, while he testified he worked eight hours a day at the business in the off season, and 18 hours a day during ski season. Due to this inconsistency, the respondent argues that it is impossible to determine an average weekly wage at all, or alternatively, that the average weekly wage must be cut in half based on 50 percent estimate on the tax forms.

However, in most cases, wages from part-time, seasonal, or irregular employment are expanded to a normal full time wage for the calculation of a benefit rate. This is because many part-time workers do not actually limit their availability to part- time, and in fact may have more than one part-time job. Yet an injury at a part- time job can cause the worker to lose wages or wage-earning ability with other current part-time employers or potentially with future full time employers. In other words, because a compensation rate based solely on actual wages from part- time employment (or seasonal or irregular employment) may not fairly reflect the actual wage loss caused by an injury, the statutes generally require an expansion to a full time rate. See Wis. Stat. § § 102.11(1)(a)2 and 102.11(1)(c).

The statutes recognize two exceptions to the expansion rule for part-time wages in the cases of (1) workers who are part of a "regularly scheduled class of part-time employees" (Wis. Stat. § 102.11(1)(am)); and (2) workers who are not really interested in full time work (Wis. Stat. § 102.11(1)(f)2.) Neither of those sections applies here, as the applicant is not part of a class and if he is only working 50 percent of his time with Crystal Ridge he is necessarily working elsewhere. In other words, even if the applicant in fact only worked half time with Crystal Ridge, his average weekly wage would still be based on a full time work week.
Thus, the ALJ properly concluded that because the applicant was "performing services without fixed earnings" his wage should be based on the "usual going earnings for similar services on a normal full-time basis" under Wis. Stat. § 102.11(1)(c). Beyond that, of course, the commission credits the applicant's hearing testimony that he worked at least full time at Crystal Hill anyway.

3. Award

As noted above, the periods of temporary disability, and the amount of permanent partial disability on a functional basis are not in dispute. Like the ALJ, the commission concludes the applicant was temporarily disabled during the periods opined by the doctors, and that he has sustained permanent partial disability at seven percent at the shoulder.

Accordingly, the applicant is entitled to compensation for temporary total disability from February 1 to December 8, 2000, a period of 44 weeks and two days at the weekly rate of $306.94 (two-thirds his average weekly wage of $460.04), or $13,607.67; from March 3 to July 15, 2001, a period of 19 weeks at the weekly rate of $306.94, or $5,831.86; and from March 21, 2002 to June 5, 2002, a period of ten weeks and three days at the weekly rate of $361.72, or $3,798.06. In addition, the applicant is entitled to permanent partial disability at the right shoulder, or thirty-five weeks at the weekly rate of $184, totaling $6,440.

In total, the award for disability compensation is $29,677.59, of which the respondent has previously paid $5,666.78, leaving the net amount of $24,010.81 due. The applicant has agreed to the reservation of an attorney fee set under Wis. Stat. § 102.26 at 20 percent of the net award, or $4,802.16, which shall be paid to the applicant's attorney within 21 days. The remainder due the applicant within 21 days is $19,208.65.

In addition, the respondents are liable for any unpaid medical bills relating to abdominal and shoulder treatment. Because of the nature of the applicant's abdominal and shoulder condition, and because of the injuries which where not ripe for hearing, jurisdiction shall be reserved.

NOW, THEREFORE, the Labor and Industry Review Commission makes this

The findings and order of the administrative law judge are modified to conform to the foregoing and, as modified, are affirmed.

Within 30 days from the date of this order, the employer and its insurer shall pay all of the following:

1. To the applicant, the sum of Nineteen thousand two hundred eight dollars and sixty-five cents ($19,208.65) in disability compensation.

2. To the applicant's attorney, C. Michael Hausman, the sum of Four thousand eight hundred two dollars and sixteen cents ($4,802.16) in fees.

The employer and its insurer are also liable for unpaid medical bills relating to the applicant's abdominal and shoulder injuries.

Jurisdiction is reserved for further findings and awards, as may be warranted.

Dated and mailed March 31, 2004
kasianj . wrr : 101 : 3   ND § 2.19  § 4.8  § 4.9 

/s/ David B. Falstad, Chairman

/s/ James T. Flynn, Commissioner

/s/ Robert Glaser, Commissioner

The commission agrees with the analysis of the ALJ in his decision. It issued its own findings of fact, rather than simply adopting his, mainly to address the issues raised by the parties on appeal.

cc: 
Attorney C. Michael Hausman
Attorney Nick G. Kotsonis

Appealed to Circuit Court.  Affirmed February 7, 2005.

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(1)( Back ) The applicant also claims some right knee and hip problems. The issues posed by those injuries were not ripe at the time of the hearing, and the ALJ did not address them, nor does the commission.

(2)( Back ) For example, the respondent notes on page 4 of its reply brief: 

"On page 11 of his brief the Applicant admits that Crystal Ridge, Inc, 'has a separate identity from Mr. Kashian.'  Given this admission, the legal conclusion of ALJ Krueger (that a benefit to the corporation is a benefit to the applicant) must be rejected." 

and states at page 6: 

"In fact, the Marlin Electric case actually supports the Respondents arguments in this case because the court indicated, in part, that although one individual owns all the stock he does not thereby become the corporation."

(3)( Back ) Wis. Stat. § 102.076 provides in relevant part: 

102.076 Election by corporate officer. (1) Not more than 2 officers of a corporation having not more than 10 stockholders may elect not to be subject to this chapter. If the corporation has been issued a policy of worker's compensation insurance, an officer of the corporation may elect not to be subject to this chapter and not to be covered under the policy at any time during the period of the policy. Except as provided in sub. (2), the election shall be made by an endorsement, on the policy of worker's compensation insurance issued to that corporation, naming each officer who has so elected. The election is effective for the period of the policy and may not be reversed during the period of the policy. An officer who so elects is an employee for the purpose of determining whether the corporation is an employer under s. 102.04 (1) (b).

(4)( Back ) It is notable that corporate officers are treated differently than sole proprietors, partners, and members of limited liability companies, who must "opt in" in order to be covered. See Wis. Stat. 102.075. The distinction is consistent with the respect given the legal fiction of a separate corporate identity -- even for closely held corporations -- under Milwaukee Toy and Marlin discussed above. In other words, while an individual who is a partner or sole proprietor is himself the owner and employer, in the case of a corporation the stockholders are the owners but the corporation is the employer.

(5)( Back ) Two other situations negating the expectation of wages in the Larson treatise are helping family members and "advancing ones own interests" such as where a truck driver might help move a stalled vehicle owned by another employer so he can continue his duties.

(6)( Back ) 102.11(1)(c) provides: 102.11(1) (c) In the case of persons performing service without fixed earnings, or where normal full-time days or weeks are not maintained by the employer in the employment in which the employee worked when injured, or where, for other reason, earnings cannot be determined under the methods prescribed by par. (a) or (b), the earnings of the injured person shall, for the purpose of calculating compensation payable under this chapter, be taken to be the usual going earnings paid for similar services on a normal full-time basis in the same or similar employment in which earnings can be determined under the methods set out in par. (a) or (b).

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