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Rudbart v. Board of Review

339 N.J. Super. 118, 770 A.2d 1273 (App. Div. 2001)

UNEMPLOYMENT COMPENSATION—The Unemployment Appeals Tribunal is required to consider evidence that an applicant resigned his or her corporate positions and yielded his or her shareholdings in a corporation prior to applying for benefits.

An employee of a manufacturing company applied for unemployment compensation benefits after the company “ceased operations.” The employee was an officer of the company and held twenty-five percent of the company’s stock. After the company ceased doing business, the employee “traded” his stock back to the company but apparently received no payment for the stock. The employee did, however, receive $5,000 from the company “after some bills were paid.” The unemployment compensation board denied benefits on the basis that “the employer was not in bankruptcy or dissolved, and, consequently [the employee] did not meet the statutory definition of being ‘unemployed’ since he was a corporate officer, and the corporation had been neither dissolved nor in bankruptcy.” The Appeal Tribunal affirmed the decision of the unemployment compensation board “for the reasons set forth therein except that the Opinion should reflect that [the employee] held a 25 percent equity share of the corporation rather than a corporate officer.” The employee appealed on the basis that the company had ceased doing business despite the fact that the company had not been dissolved nor placed in bankruptcy. The employee relied on Nota v. Board of Review, 231 N.J. Super. 341 (App. Div. 1989) which held that “in the absence of regulation, . . . the agency could not deny benefits by determining that the corporation must be dissolved before it can be considered to have permanently ceased doing business.” However, after Nota, the Department of Labor promulgated N.J.A.C. 12:17-12.1(a) which provides: “An officer of a corporation and/or a person who has more than five percent equitable or debt interest in the corporation, whose claim for benefits is based on wages with that corporation, shall not be considered unemployed in any week during the individual’s term of office or ownership in the corporation and the claim shall be determined invalid.” Here, the employee contended that the reason the corporation was not dissolved was to shield the shareholder’s from personal liability for potential environmental claims. The Court rejected this contention on the basis that the corporation was legally still a viable entity because it had not been dissolved or placed in bankruptcy. The employee then contended that he was entitled to benefits because he was no longer a shareholder or officer of the company. The Court recognized its limited role in the scope of appellate review, but it was “troubled by the failure of the Appeal Tribunal and the Board of Review to consider [the employee’s] contention that he had divested himself of the stock interest in the employer. Our review of the record leaves us with the sense that the Appeal Examiner did not understand the concept of treasury stock.” On this basis, the court reversed the decision of the Appeal Tribunal and remanded the matter because the failure of it to address whether the employee was no longer an officer or shareholder was “‘an obvious overlooking or under evaluation of crucial evidence’ so important [so as to] deny the agency decision the deference to which it ordinarily is entitled.”


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