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Synthetic Technologies Corporation v. Employment Relations Division Uninsured Employers' Fund

Court of Workers Compensation of Montana

September 1, 1999

SYNTHETIC TECHNOLOGIES CORPORATION AND WEATHERGUARD CORPORATION Appellants
v.
EMPLOYMENT RELATIONS DIVISION UNINSURED EMPLOYERS' FUND Respondent.

          Date Submitted: June 7, 1999

          DECISION ON APPEAL

          MIKE McCARTER, JUDGE

         Summary: After a DOL decision finding two appellant corporations were "uninsured employers," penalties were assessed against those corporations. On appeal to the WCC, the corporations argued that the workers in question were not employees within section 39-71-401, MCA (1995) because they owned 20% of the shares of stock of the corporation.

         Held: The exemption invoked by appellants requires that the workers own 20% of the shares of the corporation's stock. A necessary incident of ownership is the right to use or dispose of the property in any lawful way which does not infringe on the rights of others. Here, the workers did not have the right to dispose of the stock where other stockholders could divest them of shares without compensation and where one individual collected "irrevocable proxies" from the would-be shareholder-workers.

         Topics:

Constitutions, Statutes, Regulations and Rules: 39-71-401, MCA (1995). WCC affirmed DOL decision that corporations employing "shareholders" were uninsured and liable for penalties. Exemption under section 39-71-401, MCA (1995) for 20% shareholders did not apply because "shareholders" did not in fact own stock where they could be divested of ownership by others without compensation and one person had obtained "irrevocable proxy" for all shares.
Employment: Employee. WCC affirmed DOL decision that corporations employing "shareholders" were uninsured and liable for penalties. Exemption under section 39-71 -401, MCA (1995) for 20% shareholders did not apply because "shareholders" did not in fact own stock where they could be divested of ownership by others without compensation and one person had obtained "irrevocable proxy" for all shares.
Penalties: Uninsured Employers. WCC affirmed DOL decision that corporations employing "shareholders" were uninsured and liable for penalties. Exemption under section 39-71-401, MCA (1995) for 20% shareholders did not apply because "shareholders" did not in fact own stock where they could be divested of ownership by others without compensation and one person had obtained "irrevocable proxy" for all shares.

         ¶1 This is an appeal from a Department of Labor and Industry decision finding that the two appellant corporations were "uninsured employers." Penalties of $40, 145.56 were imposed upon appellant Weatherguard Corporation, and $24, 525.13 upon appellant Synthetic Technologies.

         ¶2 Weatherguard and Synthetic are both duly organized Montana corporations. Neither company carried workers' compensation insurance coverage even though they had workers. Both claim that all of their employees were shareholders each owning 20% of corporate stock and were therefore exempt from workers' compensation coverage requirements, § 39-71 -401(2)(q)(iii), MCA. At the hearing below, the Department's hearing officer found that the employees did not in fact own shares. This appeal followed.

         Issues on Appeal

         ¶3 The appellant corporations state the issue on appeal as follows:

Whether person [sic] working for Weatherguard Corporation or Synthetic Technologies Corporation are employees or officers of the corporation exempt from ...

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