Opinion
C.A. No. 09A-08-005 DCS.
Submitted: February 18, 2010.
Decided: May 26, 2010.
Appeal of a Decision of the Unemployment Insurance Appeal Board Decision AFFIRMED IN PART and REVERSED IN PART.
William Bachman, Pro Se Litigant.
Philip G. Johnson, Deputy Attorney General, Wilmington Delaware Attorney for Appellee Unemployment Insurance Appeal Board.
MEMORANDUM OPINION
Factual and Procedural Background
Claimant William Bachman, ("Bachman"), was president and 50 percent owner of Bachman Associates, Inc., (the "Corporation"), a custom decorating business incorporated in 1965 that has closed due to the economic downturn of recent times. Bachman also managed the day-to-day operations of the Corporation and collected a salary. The Corporation operated at a loss in 2007, and stopped operating in March 2009. The facility closed, and a business telephone no longer exists. On March 8, 2009, Bachman filed a claim for unemployment insurance benefits with the Department of Labor, Division of Unemployment. Since the business closed, Bachman has been spending approximately two hours per week as a corporate trustee wrapping up corporate business, but he receives no compensation. Bachman provided personal guarantees for loans to the Corporation and is now in personal bankruptcy. He is currently seeking employment.
R35.
R 23-25.
R 16, 35, 59.
R 24, 59.
R 35, 58.
R 16, 35, 59.
R 35.
On May 5, 2009, a referee denied Bachman's claim based on the grounds that Bachman was disqualified for unemployment benefits because he voluntarily left his employment without good cause.
Bachman appealed the referee's decision, and a hearing before the Unemployment Insurance Appeal Board (the "Board") was held on July 1, 2009.
On July 29, 2009, the Board affirmed and modified the referee's decision and denied benefits to Bachman because he was ineligible (rather than disqualified for leaving his employment without good cause). The Board found the referee's decision to be factually and legally erroneous. Nevertheless, the Board held that although Bachman's job ceased to exist, Bachman was ineligible because he did not meet the definition of an unemployed individual. The Board reasoned that although the decision to cease operating was objectively reasonable, Bachman's business was not officially closed because the corporation has not been legally dissolved. Hence, any services performed by Bachman in the capacity of corporate trustee, albeit without pay, for a business that had not legally dissolved meant that he was still employed.
The Board further found that Bachman would not become eligible until he provided a copy of a Certificate of Dissolution issued by the Secretary of State along with an affidavit stating that he no longer has responsibilities associated with the Corporation and that the Corporation is not party to current or pending litigation.
Bachman has timely appealed the Board's decision to this Court and filed an opening brief. The Board responded with its answering brief, and Bachman has filed a reply brief. The matter is now ripe for decision.
Contentions of the Parties
Appellant Bachman contends that the Board's finding, that he is ineligible because he is not currently unemployed, based on his current unpaid service two hours per week as a corporate trustee in wrapping up the business, is legal error. Bachman also asserts that the Board's requirements that he produce a Certificate of Dissolution and an affidavit in order to receive unemployment benefits go above and beyond what the law requires and what the Board has historically required of others.
The Board argues that Bachman does not meet the statutory definition of an unemployed individual because he is performing services for the Employer without pay. Furthermore, the Board contends that its actions in requiring that Bachman submit a Certificate of Dissolution and an affidavit are part of its duty to ensure that the Unemployment Compensation Trust Fund monies are spent for legally authorized purposes. The Board additionally asserts that Bachman is not eligible for benefits because his services as a corporate trustee prevent him from being available for and actively seeking work.
Standard of Review
An aggrieved party "may secure judicial review [of a decision of the Unemployment Insurance Appeal Board] by commencing an action in the
Superior Court. . . ." The Court reviews the Board's decision to determine if substantial evidence exists in the record to support the Board's findings of fact and to determine if the Board erred in its application of the law.
19 Del.C. § 3323.
Unemployment Ins. Appeal Bd. v. Martin, 431 A.2d 1265, 1266 (Del. 1981); Hubble v. Delmarva Temporary Staffing, Inc., 2003 WL 1980811, *2 (Del. Super.).
Factual findings of the Board are deemed conclusive where such facts are supported by substantial evidence and upon the absence of any fraud. Substantial evidence consists of "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." The Court, in considering an appeal of the Board's decision, does not weigh any evidence or make any factual findings but only determines if substantial evidence exists upon which the Board's findings can be legally supported.
19 Del.C. § 3323; Hubble, 2003 WL 1980811 at *2.
Hubble, 2003 WL 1980811 at *2 (quoting from Gorrell v. Division of Vocational Rehab. and Unemployment Ins. Appeal Bd., Del. Super., C.A. No. 96A-01-001, Graves, J. (July 31, 1996) Letter Op. at 4.).
Hubble, 2003 WL 1980811 at *2 (citing McManus v. Christina Service Co., Del. Super., C.A. No. 96A-06-013, Silverman, J. (Jan. 31, 1997) Op. and Order at 4).
Furthermore, where a claimant is a pro se litigant, the Court may construe the written submissions and arguments of such a claimant as a challenge to the factual findings and legal conclusions of the Board.
Witcher v. Delaware Park, 2002 WL 499431, *2 (Del. Super. 2002).
Discussion
In this matter, the Court must determine whether the Board's finding, that a corporate officer's two-hour per week unpaid assistance in wrapping up a corporation that has closed but not filed a Certificate of Dissolution (and had not provided other documents) is not currently unemployed, is supported by substantial evidence and free from legal error.
The Corporate Officer Employee
The service of corporate officers is included in the definition of employment and, as such, corporate officer employees are eligible for unemployment benefits. Furthermore, their claims should be decided by the same standard as that of any other employee. In contrast, "self-employment acts as a bar to unemployment benefits" because the legislature has not authorized unemployment benefits for the purpose of supporting start-up of a new business. Here, it is undisputed that Bachman was an employee and is not self-employed.
Unemployment Ins. Appeal Bd. v. Division of Unemployment Ins., 803 A.2d 931, 935 (Del. 2002); 19 Del.C. § 3302(10)(A)(i).
Unemployment Ins. Appeal Bd., 803 A.2d at 935.
Weeraratne v. Unemployment Ins. Appeal Bd., 1995 WL 840722, *2 (Del. Super. 1995) (citing O'Brien v. Unemployment Ins. Appeals Bd., 1993 WL 603363, *3 (Del. Super. 1993).
The Unemployed Corporate Officer Employee
Bachman was a corporate officer employee who received wages from the Corporation for administering the day-to-day operations. The services of a corporate officer employee are included in the statutory definition of employment. Thus, while the Corporation operated, Bachman was employed by the Corporation. When the Corporation ceased operating, Bachman became unemployed. "[W]hen the Corporation ceases to exist, the job that the officer in question performed disappears just as surely as the job of a line worker at General Motors when that factory closed."
Unemployment Ins. Appeal Bd., 803 A.2d at 935 (quoting from Del. Code Ann. tit. 19, § 3302(10)(A)(i) (1995) where the work of corporate officer employees is included in the definition of covered employment after December 31, 1995).
R 35.
Bachman's case differs from McEachern v. South Carolina Employment Security Commission which involved a corporate officer who continued to work at least sixty hours per week performing services for the business so that expenses and payroll could be paid. In McEachern, the Court of Appeals of South Carolina denied benefits because the officer was deemed to be employed even though he received no salary. There, the Court found that the statute made no provision for a corporate officer to continue working his customary number of hours but simply give up his salary so as to receive unemployment benefits during an unprofitable period.
McEachern v. South Carolina Employment Security Com'n., 635 S.E.2d 644, 648 (S.C. App. 2006).
McEachern, 635 S.E.2d at 648.
McEachern, 635 S.E.2d at 648.
Here, since Bachman's performance of minimal services to the Corporation in wrapping up the business as corporate trustee is not akin to being self-employed, starting-up a new business, continued operations of the business, or giving up a salary to pay expenses during an unprofitable period, and he has not started up any new business, Bachman is unemployed.
Furthermore, the Delaware Unemployment Compensation Law was ". . . enacted for the benefit of persons unemployed through no fault of their own." A claimant is considered disqualified from receiving unemployment insurance benefits if the claimant voluntarily left a job for "good cause attributable to such work." Good cause for voluntarily leaving a job is cause that would justify an individual to leave a job and become unemployed. Such "voluntary relinquishment of employment for good cause must be for reasons connected with the work and those reasons must be objectively reasonable."
E. I DuPont De Nemours Co. v. Dale, 271 A.2d 35, 36 (Del. 1970).
19 Del.C. § 3314(1); City of Wilmington v. Hamilton, 2001 WL 1265840, *1 (Del. Super 2001).
Hamilton, 2001 WL 1265840 at *2. "[A]n employee does not have good cause to quit merely because there is an undesirable or unsafe situation connected with his employment. He must do something akin to exhausting his administrative remedies by, for example, seeking to have the situation corrected by proper notice to his employer." O'Neal's Bus Service, Inc. v. Employment Sec. Commission, 269 A.2d 247, 249 (Del. Super. 1970).
Unemployment Ins. Appeal Bd., 803 A.2d at 934-936.
In Unemployment Insurance Appeal Board, the Delaware Supreme Court found that corporate officer employees who made a responsible business decision to close their beach restaurant during winter months for economic reasons had voluntarily relinquished their employment for "good cause attributable to such work" on a temporary basis. That Court upheld the Board's findings that the corporate officer employees "acted in good faith and were motivated by adverse economic factors beyond their control." Accordingly, they were not disqualified from receiving unemployment benefits.
Unemployment Ins. Appeal Bd., 803 A.2d at 937.
Unemployment Ins. Appeal Bd., 803 A.2d at 937.
Unemployment Ins. Appeal Bd., 803 A.2d at 937.
Here, the business closure in the instant case is permanent whereas the corporate officer employees in Unemployment Insurance Appeal Board closed a beach restaurant only during the winter season due to adverse economic factors. Bachman permanently closed his long-standing business during the recent recession due to economic factors beyond his control. There is no possibility that it will reopen during a later, more favorable, season. Thus, he voluntarily and permanently relinquished his employment for good cause due to economic factors beyond his control. Bachman, as a corporate officer, is entitled under Delaware law to have his unemployment benefits claim decided by the same objective manner as any other employee. His decision to voluntarily leave his employment (close the business) has been determined by the Board to be objectively reasonable.
Appellant is not disqualified from receiving benefits. In this regard, the Board's decision is affirmed.
The Eligibility of the Corporate Officer Who Continues to Provide a Service
The Department of Labor referee did not address the issue of eligibility of a corporate officer who provides minimal assistance to a defunct corporation. On appeal, however, the Board found Bachman ineligible for benefits asserting that he did not meet the statutory definition of an unemployed individual.
19 Del.C. § 3302(17) states that unemployment exists where:
an individual is unemployed in any week during which the individual performs no services and with respect to which no wages are payable to the individual, or in any week of less than full-time work if the wages payable to the individual with respect to such week are less than the individual's weekly benefit amount plus whichever is the greater of $10 or 50% of the individual's weekly benefit amount. (emphasis added)
The Board posits that "performing no services" and "no wages are payable" are two requirements and both requirements must be met. The Board then found Bachman to be ineligible because he was still providing minimal services to the Corporation.
While it is correct that both requirements must be met, they are not independent of each other. Rather, the phrase "with respect to which" (no wages are payable) modifies the services being considered; they are interdependent. Here, Appellant performed no services for which wages were payable; his services were unpaid. Bachman was essentially volunteering two hours per week in wrapping up corporate business (when, arguably, he could have completely abandoned the business).
The Delaware statute is similar to the Illinois Unemployment Insurance Act that provides for unemployment benefits for corporate officers. In Garland v. Department of Labor, the Illinois Supreme Court found that since the statute did not contain a provision disallowing unemployment benefits for corporate officers, the Court could not add such a provision. In that case, the Department of Labor contended that since the claimants were corporate officers and had control over the terms of their own employment they were ineligible for unemployment benefits even though they performed no services or received no wages during the period for which they applied. Yet, the Garland Court determined that this assertion was founded "on the tenuous theory that, as corporate officers, the claimants were in a position to continue rendering valuable services to the corporations" and that such an assertion was supplied by implication instead of being supported by evidence. The Illinois Supreme Court went on to state that any efforts to correct or enlarge the Illinois Unemployment Insurance Act should be directed to the legislature.
Garland v. Dept. of Labor, 472 N.E.2d 434, 436-437 (Ill. 1984).
472 N.E.2d at 436-437 (Ill. 1984).
Garland, 472 N.E.2d at 436.
Garland, 472 N.E.2d at 436.
Garland, 472 N.E.2d at 437.
So, too, in Taylor v. Employment Division, where the Oregon statute defining "unemployment" mirrors our own, the Supreme Court of Oregon found that the term "services" in the first part of the definition of unemployment refers to services for compensation and, therefore, a claimant's uncompensated corporate services would not prevent him from being deemed unemployed for purposes of receiving benefits. In Taylor, a corporate officer employee, who worked for wages as a timber cutter (and was then terminated as a timber cutter), was not ineligible for unemployment benefits even though he spent one day per week performing corporate duties for no compensation. There, the Court found that to construe the terms "performs no services" and "no wages" as a two-part requirement would not be consistent with the second part of the sentence defining unemployment as "any week of less than full-time work if the wages . . . are less than [the] weekly benefit amount. . . ." The Taylor Court further stated that if the corporate services are uncompensated, then "zero wages are obviously less than the weekly benefit amount." Thus, that Court found that based on the construction of the statute as whole, the legislature intended for "services" to mean "services for compensation."
597 P.2d 780, 784 (Ore. 1979).
Taylor, 597 P.2d at 781, 784.
Taylor, 597 P.2d at 784.
Taylor, 597 P.2d at 784.
Taylor, 597 P.2d at 784.
Furthermore, unlike the statutes enacted in some other states, Delaware law does not consider a corporate officer's percentage of equitable interest in the corporation or whether the corporation has entered bankruptcy in order to determine eligibility. Examples of restrictive state statutes include New Jersey (where a corporate officer with more than a five percent equitable interest in a corporation is not eligible for unemployment benefits unless the corporation has either dissolved or declared bankruptcy if that officer either continues to hold such a position or still has a stock interest) and Pennsylvania (where corporate officers, otherwise ineligible, may receive unemployment benefits only if the corporation enters involuntary bankruptcy.)
Rudbart v. Board of Review, 770 A.2d 1273, 1276-1277 (N.J. Super. A.D. 2001); Fagan v. Board of Review, 2009 WL 2568050, *2 (N.J. Super. A.D.) (citing N.J.S.A. 43:21-19(m)(1)(A) and N.J.A.C. 12:17-12.1(a)).
Rossi v. Unemployment Compensation Bd. of Review, 675 A.2d 390, 391 (Pa. Cmwlth. 1996) (citing 43 P.S. § 802.4(a)).
Here, Bachman's corporate trustee services in wrapping up are minimal, are not the same services for which he had been compensated, and are not services for compensation. In view of the fact that the Unemployment Compensation Law of Delaware provides for unemployment benefits for corporate officers and does not contain restrictive provisions, Bachman is eligible for benefits.
See 19 Del.C. § 3302(10)(A)(i).
Next, the Board addresses the second clause in 19 Del.C. § 3302(17). It argues that Bachman is not a partially unemployed individual as defined in the statute because he is working less than full-time hours due to the closing of the business rather than due to a lack of work.
19 Del.C. § 3302(17) (stating that one is unemployed "in any week of less than full-time work if the wages payable . . . are less than the individual's weekly benefit amount. . . .").
The Board defines "partially unemployed individual" according to 19 DE ADC 1200-UNEMP 15(1)(a) where it states that "[a] partially unemployed individual is one who, during a particular week (I) earned less than his weekly benefit amount plus two dollars, (II) was employed by a regular employee [sic], (III) worked less than his normal customary full-time hours for such regular employer because of lack of full-time work."
Bachman, however, is performing minimal services to the Corporation to wrap up an already closed business. The business had previously closed due to the poor economy. Said closing precipitated Bachman's lack of work.
Therefore, to construe the Delaware statute to mean that Bachman's minimal, uncompensated efforts to wrap up the business are services that make him ineligible for unemployment compensation would be akin to creating an inconsistency between the first and second clauses of 19 Del.C. § 3302(17). Since the second part of the definition states that less than full-time work for less than the weekly benefit amount is unemployment, then Bachman's minimal services for zero wages would also be unemployment.
Bachman's case is similar to Unemployment Insurance Appeal Board. In that case, the Board held that corporate officer employees, with seasonal needs, were not disqualified for benefits (and the Department of Labor had not disputed their eligibility). Although Unemployment Insurance Appeal Board involved a restaurant business that was only temporarily closed and did not completely cease operating, the reasons for the two closings are the same — unfavorable economic factors led to a lack of work. To find that Bachman is not eligible for benefits because his business closed permanently due to the economy when the corporate officers in Unemployment Insurance Appeal Board were found to be eligible for benefits because their business closed only temporarily is not a determination this Court will make.
Accordingly, the Court finds that the Board's determination that Bachman does not fit the definition of an unemployed individual is legal error.
Availability for Work
In order to be eligible for unemployment benefits, an individual must be "able to work," "available for work," and "actively seeking work." "[S]elf-employment acts as a bar to unemployment benefits" because the Delaware legislature has not authorized unemployment benefits for the purpose of supporting start-up of a new business. When engaged in full-time self-employment, an individual is not unemployed, not available for work, or not actively seeking work outside of the self-employment and, thus, is not eligible for unemployment benefits.
19 Del.C. § 3315; Unemployment Ins. Appeal Bd., 803 A.2d at 934.
Weeraratne, 1995 WL 840722 at *2 (Del. Super. 1995) (citing O'Brien v. Unemployment Ins. Appeals Bd., 1993 WL 603363, *3 (Del. Super. 1993).
Weeraratne, 1995 WL 840722 at *2.
The bar of self-employment has been applied and unemployment benefits have been denied in the following situations where individuals became self-employed after losing their jobs: where an employee was terminated from his job and thereafter started his own global computer business at which he spent approximately 80 hours per week on the telephone providing technical support; where an associate attorney was terminated from a law firm and thereafter started his own practice as a self-employed lawyer; and where, after losing his job, an individual spent 30 to 50 hours per week on a new business and the same amount of time conducting a job search on the internet.
Miller v. Herschmann, Inc., 2007 WL 4577373, *1-2 (Del. Super. 2007).
O'Brien v. Unemployment Ins. Appeals Bd., 1993 WL 603363, *1 (Del. Super. 1993).
Jones v. Unemployment Ins. Appeals Bd., 2001 WL755379, *1 (Del. Super. 2001).
Here, the Board argues that Bachman is not available for work because he is self-employed by wrapping up corporate business. The Board further stated in its answering brief that wrapping up a corporation can take up to three years, can make significant demands on a claimant's time, and requires a business to cease operations. While that may often be the case when some corporations cease to operate, the record does not show that Bachman is spending a significant amount of time wrapping up the corporation or that it would take several years. Rather, the record reflects that Bachman is actively seeking employment and spending only two hours per week in wrapping up. Additionally, the record is devoid of any testimony that those two hours would interfere with a work schedule. Any discussion that it might take three or more years to wrap up the business is speculative and unsupported by the facts presented.
The Board's Demand for Documentation
Lastly, the Board denied unemployment to Bachman because a Certificate of Dissolution had not been filed with the Secretary of State and other documentation had not been provided (although the record clearly established that the company has permanently ceased operating). The Board represented that "any claimant applying for benefits under the enabling provisions of 19 Del.C. § 3302(10)(A)(I) and who had ongoing responsibilities under 8 Del.C. § 278 would be required to sign a sworn affidavit that, to the best of that person's knowledge, all responsibilities had been discharged and the corporation was not subject to current or pending litigation" and also that the claimant provide a Certificate of Dissolution. Although Appellant (or any other officer) did not file such documents, the Board has neither cited any established policies nor shown that it has applied these standards regarding document requirements in the past.
Delaware's General Corporation Law statute.
Appellee Unemployment Insurance Appeal Board's Answering Brief, February 4, 2010, 11-12 (emphasis added).
It should be noted that the referee in this case considered the corporation to be "dissolved due to financial hardships." R 6.
As previously stated, the Board granted benefits to corporate officer employees in Unemployment Insurance Appeal Board. There is no evidence that the Board, in that case, insisted that those claimants provide the Board with affidavits or a Certificate of Dissolution before granting benefits. Indeed, in view of the fact that their closure was temporary and seasonal, it would have been impractical for them to have filed a Certificate of Dissolution. Yet, they were found to be eligible for benefits when their business temporarily closed without the documentation demanded here. The Board has failed to show why Bachman, whose business closed permanently, should be held to a different standard than the corporate officer employees in Unemployment Insurance Appeal Board. The Board has proffered no authority to support its position.
Accordingly, Bachman is neither disqualified nor ineligible to receive unemployment benefits. The decision of the Unemployment Insurance Appeal Board is AFFIRMED in part and REVERSED in part.
It Is So ORDERED.