Court Opinion

ID: 4258134
Source: CourtListenerOpinion
Date Created: 2018-03-26 13:49:49.575032+00
Date Added: 2024-06-11T12:12:04.980554
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

John M. Thompson,                               :
                Petitioner                      :
                                                :
                v.                              :
                                                :
Unemployment Compensation                       :
Board of Review,                                :    No. 1266 C.D. 2017
                 Respondent                     :    Submitted: January 19, 2018

BEFORE:         HONORABLE ROBERT SIMPSON, Judge
                HONORABLE CHRISTINE FIZZANO CANNON, Judge
                HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE FIZZANO CANNON                              FILED: March 26, 2018

                John M. Thompson (Claimant) petitions for review pro se from the
August 10, 2017 Order of the Unemployment Compensation Board of Review
(Board), which affirmed the decision of the Referee concluding that he was
ineligible for unemployment compensation benefits because Claimant was a self-
employed businessperson pursuant to Section 402(h) of the Unemployment
Compensation Law (Law).1 Upon review, we vacate and remand.
                Claimant was employed full time as Chief Operating Officer (COO) for
Behavior Matrix LLC (Employer) from February 29, 2016, through November 11,
2016.       Referee’s Findings of Fact (F.F.) No. 1.             As COO, Claimant earned
approximately $90,000 a year for managing the daily operations of the accounting,

        1
              Section 402(h) of the Unemployment Compensation Law provides that “[a]n employe
shall be ineligible for compensation for any week-- . . . In which he is engaged in self-employment
. . . .” Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. § 802(h).
human resources and finance departments of the company. F.F. Nos. 1, 9. Claimant
reported to the Chief Executive Officer (CEO). F.F. No. 8.
              Prior to working at the company, Claimant bought approximately 9.6%
of the company stock. See F.F. Nos. 3, 5. The company has approximately twenty
stockholders and employs 18 to 20 people. F.F. Nos. 6, 7. On February 29, 2016,
Claimant was hired by his brother, who was CEO at the time of hiring. F.F. No. 2;
Internet Initial Claims form at 2, Question 2. Claimant has another family member
employed at the company in human resources. F.F. No. 10. In April 2016, the
company hired a new CEO, and, thereafter, terminated Claimant’s employment on
November 11, 2016. F.F. No. 11; Internet Initial Claims form at 2, Question 3.
              The Indiana Unemployment Compensation Service Center denied
Claimant’s request for unemployment compensation benefits explaining that “a
corporate officer who owns stock in the corporation and has a substantial degree of
control (or has the right to have a substantial degree of control) over the daily
operation of the corporation is ineligible for benefits under Section 402(h).”2 Notice
of Determination at 1.
              Claimant appealed this decision to the Referee, who found Claimant to
be ineligible for benefits because the “claimant had substantial control, or the right
to control, the business.” Referee’s Decision/Order, 3/22/17, at 3. To support this
conclusion, the Referee relied on “the claimant’s stock ownership of 9.6%, his
position as Chief Operating Officer, his initial investment in the business and his
familial relationship with top management and other shareholders.” Id. at 2-3.

       2
          Employer is a limited liability company, rather than a corporation. Our decision,
however, uses the term corporation when that was the term used by the source we are quoting or
when we discuss case law that involved corporations. This distinction is immaterial to the issue
before us.
                                               2
               Claimant appealed the Referee’s decision and the Board affirmed. The
Board adopted and incorporated the Referee’s findings and conclusions into its
Order. In addition, the Board explained:

               In his Internet Initial Claims [form], the claimant
               acknowledged that he had the right to hire and fire
               employees, had financial responsibility, oversaw the daily
               operations, had an active involvement in problem solving,
               and exercised, or had the right to exercise, a substantial
               degree of control over the day-to-day operations of the
               corporation. The Board rejects the claimant’s testimony
               to the extent it conflicts with his initial answers.
See Board’s Order, 8/10/17 (emphasis added). Claimant filed a petition for review
with this Court.3
               On appeal, Claimant asserts that the Board erred as a matter of law by
concluding that he was self-employed, as he did not have substantial control over
the management and policies of the company as a whole. The Claimant asserts that
the Board did not consider all the facts and that the Referee placed too much
emphasis on his 9.6% stock ownership.4
               The question of whether an unemployment compensation claimant is
self-employed and, therefore, not entitled to benefits, is a question of law subject to
review by this Court. Baer v. Unemployment Comp. Bd. of Review, 739 A.2d 216,

       3
          This Court’s scope of review in this matter is limited to determining whether
constitutional rights were violated, whether an error of law was committed and whether the
findings of fact are supported by substantial evidence. Baer v. Unemployment Comp. Bd. of
Review, 739 A.2d 216, 217 (Pa. Cmwlth. 1999) (citing Kirkwood v. Unemployment Comp. Bd. of
Review, 525 A.2d 841 (Pa. Cmwlth. 1987)).
       4
          Specifically, Claimant contends that the Referee “incorrectly assumed that stock
ownership above 5 percent and in some cases 3 percent is considered significant as it relates to a
determination of control over a company.” Claimant’s Brief at 7, 15, 18. Although there was
discussion of this at the hearing, the Referee indicated in her reasoning that Claimant’s stock
ownership was only one of several factors she considered in her analysis.
                                                3
217 (Pa. Cmwlth. 1999) (citing Conrad v. Unemployment Comp. Bd. of Review, 478
A.2d 542 (Pa. Cmwlth. 1984)).
             The proper test to determine whether the claimant is a self-employed
businessperson is whether the claimant “‘exercises a substantial degree of control’
over the corporation; if so, he is a businessman and not an employee.” Starinieri v.
Unemployment Comp. Bd. of Review, 289 A.2d 726, 728 (Pa. 1972). Over the years,
this Court examined several factors to ascertain control. This Court has considered
the percentage of stock owned by a claimant, the claimant’s position as an officer
and a claimant’s title in the corporation. See Geever v. Unemployment Comp. Bd. of
Review, 442 A.2d 1227, 1229 (Pa. Cmwlth. 1982) (citing Starinieri; Rolland v.
Unemployment Comp. Bd. of Review, 418 A.2d 807 (Pa. Cmwlth. 1980); George v.
Unemployment Comp. Bd. of Review, 426 A.2d 1248 (Pa. Cmwlth. 1981)).
Consideration must be given to all of these factors and others that might be “indicia
of control.” Geever, 442 A.2d at 1229.
             In examining eligibility for benefits, this Court has held that
“substantial” control is control over the management and policies of the corporation
as a whole. See Friedman v. Unemployment Comp. Bd. of Review, 513 A.2d 560,
561 (Pa. Cmwlth. 1986). In Friedman, this Court concluded the claimant was not a
self-employed businessperson because his role was “merely managerial” where
there was “no evidence that he exercised judgmental policy powers which would
indicate that he had a controlling role” in the corporation. Id. at 561-62. Subsequent
to Friedman, this Court has affirmed that for a claimant to exercise a substantial
degree of control over a corporation, the claimant must have control over both the
management and policy-making aspects of the corporation. See Baer, 739 A.2d at

                                          4
218; see also Dunkelberger v. Unemployment Comp. Bd. of Review, 37 A.3d 34 (Pa.
Cmwlth. 2012).
              Here, the Board’s findings support the conclusion that Claimant’s role
for the company was managerial. As found by the Referee and the Board, Claimant
managed the accounting, human resources and finance departments of the company
and oversaw the daily operations of those departments. F.F. No. 9, Board’s Order.
In his capacity as a manager, Claimant hired and fired employees, had an active
involvement in problem solving, had financial responsibility and reported to the
CEO. F.F. No. 8, Board’s Order. However, in concluding that Claimant was
ineligible for benefits due to self-employment, neither the Board nor the Referee
made any specific findings as to whether Claimant had policy-making control.
              While the Board made no finding relative to Claimant’s control over
the policies of the company, there was evidence concerning policy control before
the Board.    Question G of the Internet Initial Claims form asks “Were you
responsible for making policy decisions?” Claimant responded “N[o].” At the
hearing, Claimant testified that “I didn’t really set any policy . . . [t]hat was directed
by the CEO.” Referee’s Transcript of Testimony (T.T.), 3/21/17, at 3. Claimant
stated that
              [w]hile I did own a small portion of the company’s stock,
              which is approximately 9.6 percent, this was not a
              controlling portion of the company by which I could . . .
              control the company or any company policy and direction.
              Any input I had into the direction of the company was
              purely suggestive and subject always to the leader power
              of the CEO.
Id. at 5. Claimant testified that he did not serve on the board of directors and he
could not accept budgets or spend dollars without the authorization of the CEO. Id.

                                            5
Claimant explained that the current CEO “is running the company along with some
of the . . . more major investors.” T.T. at 4.5
               The Board noted in its Order that it rejected Claimant’s testimony “to
the extent it conflicts with his initial answers.” Even if the Board rejected all of
Claimant’s testimony, Claimant’s Internet Initial Claims form itself states that
Claimant did not control the policies of the company. However, the Board made no
finding relative to whether Claimant had control over the policy-making aspects of
the company. Failure to address policy control is an error of law. As such, this
Court vacates the Board’s August 10, 2017 Order and remands the matter to the
Board for further consideration. On remand, the Board must review the record and
make specific findings as to whether Claimant had control over the management and
policy-making aspects of the company as a whole at the time of termination as
required by Dunkelberger, Baer and Friedman.

                                             __________________________________
                                             CHRISTINE FIZZANO CANNON, Judge

       5
         To the extent that the Referee and the Board relied on Claimant’s familial relationship
with his brother to support the conclusion that Claimant had substantial control over the company,
the Referee found and Claimant testified that his brother was no longer the CEO at the time of
termination. In fact, for the majority of Claimant’s nine-month tenure as COO, Claimant reported
to the new CEO rather than his brother. See F.F. Nos. 1, 11; Internet Initial Claims form at 2,
Question 3.
                                                6
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA

John M. Thompson,                          :
                Petitioner                 :
                                           :
            v.                             :
                                           :
Unemployment Compensation                  :
Board of Review,                           :   No. 1266 C.D. 2017
                 Respondent                :

                                    ORDER

            AND NOW, this 26th day of March, 2018, the August 10, 2017 Order
of the Unemployment Compensation Board of Review (Board) is VACATED and
this matter is REMANDED to the Board for disposition in accordance with the
foregoing opinion.
            Jurisdiction relinquished.

                                         __________________________________
                                         CHRISTINE FIZZANO CANNON, Judge