IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR SUSSEX COUNTY

Transcription

1 IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR SUSSEX COUNTY DIVISION OF UNEMPLOYMENT : C.A. No. 01A INSURANCE, : : Appellant, : : v. : : GEORGETTE SCHAEFER, : PATRICIA WHITTIER, and : UNEMPLOYMENT INSURANCE : APPEAL BOARD, : : Appellee. : DECISION ON APPEAL FROM UNEMPLOYMENT INSURANCE APPEAL BOARD DATE SUBMITTED: September 24, 2001 DATE DECIDED: December 19, 2001 Thomas H. Ellis, Esquire, Department of Justice, 820 N. French Street, Wilmington, DE Georgette Schaefer, Astrangia Ave., Little Torch Key, FL Patricia Whittier, Astrangia Ave., Little Torch Key, FL Stephanie Ballard, Esquire, Department of Justice, 820 N. French Street, Wilmington, DE Graves, J.

2 Pending before the Court is an appeal which the State of Delaware, Division of Unemployment Insurance ("the Division") has filed seeking review of a decision of the Unemployment Insurance Appeal Board ("Board") awarding unemployment benefits to Georgette Schaefer ("Schaefer") and Patricia Whittier ("Whittier") (collectively referred to as "claimants"). This constitutes my decision reversing the Board and ruling that Schaefer and Whittier are not entitled to benefits. PROCEDURAL OVERVIEW Schaefer and Whittier are officers and shareholders of a corporation, whose business is a restaurant in Rehoboth Beach, Delaware. Schaefer and Whittier also work as employees of the corporation. On September 30, 2000, claimants closed the business for a six month period when not as many tourists were in Rehoboth Beach as during the other six months (referred to as "the slow period"). They thereafter filed claims for unemployment insurance benefits. The Claims Deputy referred the matter to the Appeals Referee to make an initial determination as to whether claimants were eligible to obtain benefits. The Referee, after taking evidence, concluded they were. The Division filed an appeal from that decision. The Board consolidated Schaefer and Whittier's cases and heard further evidence. The Board also concluded they were entitled to benefits. The Division appealed to this Court, where the cases also have been consolidated. 1

3 FACTS The facts, as developed at the hearing before the Appeals Referee and the Board, are undisputed. They are as follows. Schaefer and Whittier formed Bad Girls, Incorporated, and the corporation's business is a restaurant known as Plumb Loco, located in Rehoboth Beach, Delaware. Schaefer is President of the corporation and owns fifty percent of the stock. Whittier is Vice- President and owns fifty percent of the stock. Besides being officers and shareholders of the corporation, Schaefer and Whittier work in the restaurant as employees. The employers/employees paid into the unemployment insurance fund as employer and recipient employees. The restaurant opened in May, The first year, claimants operated it year round. The corporation lost money during this year. Beginning the next year, claimants started closing the restaurant for periods of time. Schaefer and Whittier closed the restaurant on September 30, 2000, and planned to reopen it again on April 1, They closed the restaurant to avoid losing money. As Whittier explained at the hearing before the Appeals Referee: And then we started taking a better look at this thing we said that it was really you know six months that's where you're really jamming making your money. It's the time to be open. Appeal Record at

4 It costs the business $6, to be closed and $11, to be open during the slow period. The $6, consists of rent. The savings result from the elimination of costs of electric, cable, equipment, and payments to employees and the bookkeeper. During the time that the business was closed, claimants were picking up the mail and paying the bills. Schaefer and Whittier did not intend to declare bankruptcy. Whittier reported wages as follows for 2000: no wages for the first quarter; $7, for the second quarter; and $22, for the third quarter. Schaefer reported wages as follows for 2000: no wages for the first quarter; $5, for the second quarter; and $13, for the third quarter. Testimony was to the effect that the salary jumps during the third quarter were due to the increased hours claimants worked during that quarter. Whittier thinks the net profit for 2000 was $20, The Appeals Referee concluded that claimants had good cause to close the business during the winter because they closed it, not for personal reasons, but for financial ones, i.e., to avoid financial losses to their business and to enable it to remain profitable. The Board agreed with the Appeals Referee that claimants made a sound business decision to close their business for the winter due to financial unprofitablility and, as such, left work for good cause attributable to the work. The Board noted "that `employment' for purposes of eligibility includes services performed by `any officer of a corporation after December 31, 1995.' 19 Del. C. 3

5 3302(1)(A)(i)." 1 The Board found that claimants were corporate officers and employees who had paid assessments into the unemployment fund and reported wages for themselves as employees. The Board looked to the law allowing claimants who have held temporary or short-term positions to qualify for benefits in certain situations. It stated: The Delaware Supreme Court has held that, in making this determination, one must consider the totality of the circumstances with the critical factor being whether the employee assumed the employment "with the intention to remain as permanently as the job allows." City of Wilmington v. UIAB and Wisher, Del. Supr., 516 A.2d 166, (1986)... As guidance, the court in Wisher set a "bright line" standard that an employee must work a minimum of 130 working days or approximately six months to be considered for benefits following "temporary" employment. Id. The law provides that "An individual who becomes unemployed solely as the result of completing a period of employment that was of a seasonal, durational, temporary or casual duration will not be considered as a matter of law to have left work without good cause attributable to such work solely on the basis of the duration of such employment." 19 Del. C. 3315(1). The Board found that claimants closed the business because they could not make a profit during the slow period and they intended to reopen in the spring. The Board also found that the totality of the circumstances indicate that claimants, in opening and operating their business, had a "good-faith undertaking of actual and regular employment for an indefinite period." Wisher at 168. Furthermore, in working for six months and closing the 1 The predecessor statute did not allow an individual who owned one-fourth or more of the ownership interest in the corporation during the employment to collect benefits. Horack v. Unemployment Ins. App. Bd., Del. Super., C.A. No. 96A , Toliver, J. (November 15, 1996) at 2 n.2. 4

6 business for six months (October through March), claimants meet the minimum time frame set forth in Wisher, particularly since a restaurant business is apt to have more than 130 working days within a six month period. The Board noted that claimants were not self-employed since they are employee/officers of a corporation for which they performed services. The Board found and concluded that claimants acted in good faith, they paid into the fund, and they should be entitled to collect just like any other employee of the business. It affirmed the Referee's decision and awarded benefits. DISCUSSION The issue on appeal is one of law. The Court reviews questions of law de novo. Hubbard v. Hibbard Brown & Co., Del. Supr., 633 A.2d 345, 348 (1993); State of Delaware Department of Natural Resources and Environmental Control v. Murphy, Del. Super., C.A. No. 00A , Babiarz, J. (March 19, 2001). The question here is whether shareholders/officers/employees of a corporation, who have the ability to control their salary draws and who continue to be responsible for the running of the business, can collect unemployment benefits when they shut down a business to insure the corporation will remain profitable. Other courts, in cases located which have faced the issue which I consider to be identical to that at hand, have concluded that such a claimant is not entitled to unemployment benefits. In Moloney v. Administrator, Unemployment Compensation Act, 5

7 Conn. Super., 334 A.2d 925 (1974), the Connecticut Superior Court affirmed a decision of the unemployment commissioner concluding a shareholder/officer/employee of a pool service business who was unemployed during the slack season was not entitled to benefits. It was significant that he could have kept himself on the payroll and drawn his salary in twelve equal monthly installments instead of the eight or nine installments which he drew. The commissioner questioned whether he genuinely was out of work or just decided not to pay himself during the period when the corporation was not doing any business. The commissioner concluded, and the court affirmed, that by not putting himself back on the payroll when he could have done so, the claimant was restricting his availability to work contrary to the purpose of the fund, which was to provide benefits to those unemployed through no act or cause of their own. In New York, where shareholders/officers/employees of construction companies have sought benefits for unemployment during the slow times, those benefits have been denied where the claimants continued to perform some duties for the corporation, had the power to arbitrarily fix salaries, and could increase their normal draws during a busy season to compensate for lack of earnings during a slow period. In the Matter of Lodico, N.Y. App. Div., 203 N.Y.S.2d 492 (1960); In the Matter of D'Angelo, N.Y. App. Div., 202 N.Y.S.2d 817 (1960). In the case of Child v. Bd. of Review of the Industrial 6

8 Commission of the State of Utah, Utah Supr., 332 P.2d 928, 929 (1958), the Utah Supreme Court, addressing the claim of an officer/employee of a construction corporation, concluded: A president of a corporation who is also manager, who has year-round responsibility to operate the business of the corporation and does so, cannot by purportedly laying himself off as manager in those periods when there may be no actual business activity, but when his corporate duties and management activity persist in the pursuit of further or continued business of the company, obtain unemployment benefits. He is much in the same position as a man working on a deferred commission payment basis who certainly cannot be said to be unemployed during the time the commission actually is not paid, but earned. Here, there are three important factors in this Court reaching its decision that claimants are not entitled to benefits. First, as executive workers, they had year-round duties and responsibilities from which they could not detach themselves except by resignation. Claimants continued performing corporate responsibilities even though the business was shut down. Second, claimants' business is not truly seasonal. The change in seasons did not mandate it shutting down; numerous restaurants and businesses in Rehoboth Beach stay open year-round. Third, claimants' respective states of unemployment are matters over which the claimants had control and result from a deliberate decision to tailor the terms of employment, and particularly, compensation, in such a way as to avail themselves of unemployment compensation benefits. Claimants had the ability to continue drawing their salaries year-round; instead, they drew them during the two quarters when the restaurant 7

9 was busiest. Claimants, knowing that there would be a slow time, should have allocated for the slow time in their salary and profit draws. The reason for the unemployment compensation fund is not to insure that a corporation obtains a certain amount of profit each year. It is to compensate employees who are unemployed through no fault of their own. These claimants do not fall in that category; they controlled their employment status. They are not entitled to unemployment insurance benefits. CONCLUSION For the foregoing reasons, the Court reverses the decision of the Board and rules that claimants are not entitled to unemployment insurance benefits. IT IS SO ORDERED. 8