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Gould v. City of Stamford

Supreme Court of Connecticut

April 2, 2019

PETER GOULD
v.
CITY OF STAMFORD ET AL.

          Argued April 5, 2018

         Procedural History

         Appeal from the decision of the Workers' Compensation Commissioner for the Seventh District denying and dismissing the plaintiff's claim for certain additional workers' compensation benefits, brought to the Compensation Review Board, which affirmed the commissioner's decision, and the plaintiff appealed. Reversed; judgment directed.

          John J. Morgan, for the appellant (plaintiff).

          Kenneth H. Kennedy, Jr., assistant attorney general, with whom, on the brief, were George Jepsen, former attorney general, and Philip M. Schulz, assistant attorney general, for the appellee (defendant Second Injury Fund).

          Palmer, Mullins, Kahn, Vertefeuille and Ecker, Js. [*]

          OPINION

          PALMER, J.

         The issue that we must resolve in this appeal is whether the plaintiff, Peter Gould, the sole member of a single-member limited liability company, Intervale Group, LLC (Intervale), qualifies as Intervale's employee for purposes of the Workers' Compensation Act (act), General Statutes § 31-275 et seq., and is therefore eligible for concurrent compensation benefits from the defendant Second Injury Fund (fund) pursuant to General Statutes § 31-310.[1] The plaintiff was apart-time employee of the named defendant, the city of Stamford (city), [2" name="FN2" id="FN2">2] and, according to him, was concurrently employed by Intervale. After the plaintiff was injured while working for the city, he filed a claim, pursuant to the act, seeking compensation based on the earnings that he received from both the city and Intervale. The city accepted the compensability of the injury and paid its indemnity obligations to the plaintiff but, pursuant to § 31-310, transferred the concurrent compensation obligation to the fund. The fund denied the claim for benefits on the ground that the plaintiff was not Intervale's employee. The plaintiff sought review of this ruling by the Workers' Compensation Commission (commission). After a hearing, the Workers' Compensation Commissioner for the Seventh District (commissioner) determined that the plaintiff was not an employee of Intervale for purposes of the act and, therefore, did not qualify for compensation benefits based on his allegedly concurrent employment. The plaintiff appealed from the decision of the commissioner to the Compensation Review Board (board), which affirmed that decision. This appeal followed.[3] We conclude that the plaintiff qualifies as Intervale's employee for purposes of the act and, therefore, is eligible for concurrent employment benefits pursuant to § 31-310. Accordingly, we reverse the decision of the board.

         The record reveals the following procedural history and facts that were found by the commissioner or that are undisputed. In 2000, the plaintiff formed Intervale, a limited liability company of which he is the sole member. Intervale provided various video production services to corporations. Intervale occasionally hired independent contractors, but the plaintiff was otherwise solely responsible for completing the company's projects, which included field production work. He reported to no one other than Intervale's clients.

         Intervale did not pay the plaintiff a fixed salary. Rather, when Intervale received a payment from a customer, the plaintiff would deposit the payment in Intervale's bank account and then withdraw funds as needed. In 2012 and 2013, the plaintiff reported his income from Intervale for federal tax purposes on schedule C of Internal Revenue Service Form 1040, which is the form used to report "Profit or Loss From Business (Sole Proprietorship)."

         In 2012, a shopping mall in Massachusetts hired Intervale to shoot a video at the mall. As a condition of the engagement, the mall required Intervale to obtain workers' compensation insurance. The premium for the policy that Intervale purchased was based on an estimated annual employee remuneration of $12, 750, which was the figure that the insurance company recommended for small businesses with an undetermined payroll. The plaintiffs gross earnings from Intervale were $43, 600 in 2012 and $97, 496 in 2013. Thereafter, Intervale purchased a workers' compensation insurance policy for the period from April 4, 2013, to April 4, 2014.

         In 2013, in addition to his work in connection with Intervale, the plaintiff worked part-time for the city as a park police officer. On July 28, 2013, the plaintiff injured his back and legs during the course of his employment with the city. Thereafter, he filed a claim for compensation under the act based on both his earnings from the city and his earnings from Intervale. The city paid its indemnity obligation to the plaintiff and transferred the claim for compensation to the fund pursuant to § 31-310 based on the plaintiffs allegedly concurrent employment with Intervale. The fund denied the plaintiffs claim for concurrent employment benefits on the grounds that (1) there was no employer-employee relationship between the plaintiff and Intervale, and (2) members of single-member limited liability companies are presumptively excluded from the act pursuant to a memorandum issued by the chairman of the commission in 2003. See John A. Mastropietro, Chairman, Workers' Compensation Commission, State of Connecticut, Memorandum No. 2003-02, "WCC Limited Liability Companies & Revised Forms Memorandum-April 17, 2003" (2003 memorandum), available at https://wcc.state.ct.us/memos/2003/2003-02.htm (last visited March 26, 2019). The 2003 memorandum provides in relevant part: "After carefully considering this matter, we have determined that members of [limited liability companies (LLCs)] that contain only one member (single-member LLCs) should be presumed to be excluded from the [a]ct unless they have elected to be covered, [whereas] members of multiple-member LLCs should be presumed to be covered under the [a]ct unless they have elected to be excluded. In order to clarify this policy, we have amended our Form 6B and . . . Form 75[4] accordingly, and direct all members of LLCs to use such forms in the future." (Emphasis in original.) The 2003 memorandum thus analogized single-member limited liability companies to sole proprietors, who are excluded from the provisions of the act pursuant to General Statutes § 31-275 (10)[5] unless they elect to accept its provisions, and analogized members of multiple-member limited liability companies to the partners of a partnership, who, under the same statute, are deemed to have accepted the provisions of the act with respect to themselves unless they elect to be excluded.

         The plaintiff thereafter sought the commission's review of the fund's denial of his claim for concurrent employment benefits. In his proposed finding and award, the plaintiff contended that there was "no serious dispute that [he was] an employee of [Intervale]" and that the rule promulgated by the 2003 memorandum, namely, that the member of a single-member limited liability company is presumed not to be an employee of the company, is inconsistent with the definition of "employer" set forth in § 31-275 (10), which includes limited liability companies. In its proposed finding and dismissal, the fund contended that, because the plaintiff was the sole member of Intervale, he was a sole proprietor. Accordingly, the fund argued, under both the provision of § 31-275 (10) requiring sole proprietorships to elect to accept the provisions of the act and the 2003 memorandum, the plaintiff was required to elect coverage by filing a Form 75 before he would be entitled to compensation based on his work for Intervale. The fund also summarily stated that "[t]here is no employer-employee relationship between the [plaintiff] and [Intervale]."

         After conducting an evidentiary hearing, the commissioner concluded that the plaintiff was not an employee of Intervale because he controlled "the means and meth-od[s] of the services [that] he performed on behalf of [Intervale]," he lacked a fixed salary, he reported to no one, he treated Intervale as a sole proprietorship for tax purposes, and it was "questionable . . . whether the [plaintiff] intended to cover himself as an employee when [Intervale] procured [workers' compensation coverage] . . . ." The commissioner also observed that Intervale had not elected to accept the provisions of the act pursuant to § 31-275 (10) by filing a Form 75 with the commission, as required by the 2003 memorandum. The commissioner concluded, however, that, irrespective of whether Intervale had filed Form 75, he was not Intervale's employee and, therefore, was not entitled to concurrent employment benefits pursuant to § 31-310.

         The plaintiff then appealed from the commissioner's decision to the board. In his brief to the board, the plaintiff asserted that, because the definition of "employer" set forth in § 31-275 (10) expressly includes limited liability companies, the commission chairman had no authority to require single-member limited liability companies to elect to accept the provisions of the act pursuant to § 31-275 (10) before the single member would be covered, as the chairman had done in the 2003 memorandum. The fund maintained in its brief to the board that the commissioner had correctly determined that, because the plaintiff controlled the means and methods of the services that he performed for Intervale, had no fixed salary but, rather, withdrew money from Intervale's bank account as needed, and reported his earnings from Intervale as earnings from self- employment, the plaintiff was not Intervale's employee. The fund also claimed that the commissioner correctly had determined that, because the plaintiffs gross earnings from Intervale were far in excess of the $12, 750 reflected in the workers' compensation insurance policy that the plaintiff had purchased, it was doubtful that he intended to be covered by the policy. Finally, the fund argued that, contrary to the plaintiffs contention, the 2003 memorandum did not require single-member limited liability companies to elect to accept the provisions of the act before their members would be covered but, instead, merely created a rebuttable presumption that such members are not covered.

         The board concluded that, regardless of whether Intervale elected to accept the provisions of the act by filing Form 75, as provided by the 2003 memorandum, and regardless of whether the commission chairman correctly determined that such an election is required, the plaintiff could not prevail because the commissioner had found as a factual matter that he was not Intervale's employee, and this factual finding was supported by the evidence. Specifically, the board concluded that, because the plaintiff was not paid on the basis of the number of hours he worked for Intervale but "compensated himself for his activities . . . solely as a business owner obtaining profits from the firm," the plaintiff had commingled his personal activities with the company's activities. Thus, the board concluded, "Intervale was the alter ego of the [plaintiff] and did not maintain the appropriate corporate formalities to establish an employer-employee relationship with its principal." In addition, the board explained that the fact that the plaintiff did not receive a W-2 federal income tax form from Intervale, which is the Internal Revenue Service form for reporting wages but, instead, reported his income from Intervale as a self-employed individual, supported the determination that he was self-employed. On the basis of these considerations, the board affirmed the commissioner's decision.

         The plaintiff then filed this appeal. The plaintiff claims that, because the underlying facts are undisputed, the board should have applied plenary review to the commissioner's decision that he was not Intervale's employee instead of deferring to the commissioner's factual finding on that issue. The plaintiff also contends that, under the plain language of § 31-275 (9) (A) (i), [6]which defines "employee" for purposes of the act, he was Intervale's employee and, therefore, was eligible for concurrent employment benefits pursuant to § 31-310. Accordingly, the plaintiff contends, the commission chairman had no authority to alter the statutory provisions of the act by promulgating the rule set forth in the 2003 memorandum, which was premised on the assumption that the members of single-member limited liability companies are not employees of those companies.

         The fund responds that, under the act, there is no meaningful distinction between a sole proprietor and a member of a single-member limited liability company, and, therefore, the presumption created by the 2003 memorandum that such members are not employees- which presumption the fund contends is rebuttable- is consistent with the provision of § 31-275 (10) requiring sole proprietors to elect to accept the provisions of the act before they are covered. The fund further maintains that the commissioner's finding that the plaintiff was not Intervale's employee pursuant to the traditional "right to control" test is supported by the record. See, e.g., Doe v. Yale University, 252 Conn. 641');">252 Conn. 641, 680-81, 2d 834');">748 A.2d 834 (2000) ("[t]he right to control test determines the [relationship between a worker and a putative employer] by asking whether the putative employer has the right to control the means and methods used by the worker in the performance of his or her job" [internal quotation marks omitted]).

         Before addressing the merits of these claims, we pause to clarify what is and what is not at issue in this appeal. As we indicated, in its brief to the board, the fund argued that, for a variety of reasons, the plaintiff was not an employee of Intervale. The fund did not make the very different claim that Intervale has effectively been converted into a sole proprietorship because the plaintiff failed to observe the rules governing limited liability companies.[7] Nevertheless, the board's affirmance of the commissioner's decision was based on its determination that, because Intervale distributed its profits to the plaintiff instead of paying him an hourly rate, it "did not maintain the appropriate corporate formalities." Accordingly, the board concluded, Intervale was the plaintiffs "alter ego," and, therefore, its status as a limited liability company must be disregarded. The board cited no persuasive authority, however, for the proposition that it is somehow improper for a single-member limited liability company to distribute profits to the member rather than paying the member wages or, relatedly, that it is improper for the member to report earnings from the company as self-employment earnings rather than wages.[8] Indeed, the governing law appears to be to the contrary. See, e.g., General Statutes (Rev. to 2013) § 34-152 ("[t]he profits and losses of a limited liability company shall be allocated among the members, and among classes of members, in the manner agreed to in the operating agreement"); General Statutes (Rev. to 2013) § 34-158 ("distributions of cash or other assets of a limited liability company shall be allocated among the members . . . in the manner provided in the operating agreement"); see also Riether v. United States,2d 1140');">919 F.Supp.2d 1140, 1159 (D.N.M. 2012) (when business entity with single owner does not elect corporate style taxation pursuant to 26 C.F.R. § 301.7701-3 [a], earnings of owner are subject to taxation as self-employment earnings); 26 C.F.R. § 301.7701-3 (a) (2013) (business entity that is not classified as corporation and that has single owner can elect either to be classified as association or to be disregarded as entity separate from its owner for federal tax purposes); General Statutes (Rev. to 2013) ยง 34-113 (for purposes of state tax law, limited liability ...


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