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 ...