As a Maine business lawyer, I’ve been getting questions from friends and clients (they tend to overlap for me) about their own eligibility for unemployment benefits, as well as the eligibility of any family members who may work in their business.
The Maine Bureau of Unemployment Compensation has a good website you can check out. But we noticed a few questions that didn’t appear to be answered. Here are a few thoughts:
Question 1: Can my spouse or child, who works in my business, apply for unemployment?
Answer: Yes, if you’ve been paying unemployment insurance on him or her all along. Otherwise, no.
Source: 26 M.R.S. s. 1043(9)(F)(7): “The term ’employment’ does not include…Service performed by an individual in the employ of that individual’s son, daughter or spouse and service performed by a child who is under 18 years of age in the employ of that child’s father or mother, except for periods of such service for which unemployment contributions are paid.”
Question 2: Where does it say that the owner of a business can’t collect unemployment? What if the owner draws a salary as an employee of an S corporation, for example? I thought you lawyers told me that the corporation is a separate legal person?
Answer: For liability reasons, the corporation is a separate person if you follow the rules like no mixing of funds, signing documents in your official capacity, etc.. However, for unemployment purposes, this distinction is ignored. If it did not, the reasoning goes, someone could ditch their unemployment insurance payments, or setup multiple entities to escape their obligations. That’s why the owner is personally liable for those unemployment insurance payments. And it also means you can’t collect yourself.While the state website says the “self-employed” are disqualified, it’s hard to match that language up to the statute or the regulations, as I feel a lawyer must do in seeing for him or herself what the authority is. If you look at the unemployment statute, you won’t find something that just puts it as simply as “the sole shareholder of a corporation is ineligible for unemployment.” That would be too easy. Instead, to address the various public policies adapted over time, the statutory definition of an eligible employer has evolved to a complicated list of factors.
For our purposes, but here’s how it goes:
The statutory definition of an “employer” in the Maine unemployment statute includes the term “employing unit.” An individual and an “employing unit” can be one and the same for purposes of the unemployment system if “owned or controlled, by legally enforceable means or otherwise, directly or indirectly, but the same interests.” 26 M.R.S. s. 1043(9)(D). What does this mean?
Source: 26 M.R.S. s. 1043(9):
Employer means . . . [among other things]
A-1. Any employing unit which:
(1) During any calendar quarter in either the current or preceding calendar year paid wages of $1,500 or more; or
(2) For some portion of a day in each of 20 different weeks, whether or not such weeks were consecutive, within either the current or the preceding calendar year, has or had in employment one or more individuals, irrespective of whether the same individual was employed in each such day;
B. Any individual or employing unit which acquired the organization, trade or business, or substantially all the assets thereof, of another which at the time of such acquisition was an employer subject to this chapter;
C. Any individual or employing unit which acquired the organization, trade or business, or substantially all the assets thereof, of another employing unit not an employer subject to this chapter and which, if subsequent to such acquisition it were treated as a single unit with such other employing unit, would be an employer under paragraphs A, A-1 or H;
D. Any employing unit which together with one or more other employing units is owned or controlled, by legally enforceable means or otherwise, directly or indirectly by the same interests, or which owns or controls one or more other employing units, by legally enforceable means or otherwise, and which, if treated as a single unit with such other employing unit, or interests, or both, would be an employer under paragraph A-1, H or J;
So, since you as the shareholder of your business, whether a shareholder of a corporation or a member of an LLC, indirectly own the assets of the business, you are an “employing unit” regardless of the fact that the assets are legally held through a business organization.
In a 1940 Maine case, Maine’s highest court said:
“While it is true that a corporation is a separate entity from its stockholders, yet it is apparent that the legislature, when it enacted this statute [the unemployment statute], intended to go behind the corporate veil and discover actuality and if it were found that the company, through a corporation, were one so controlled, compel contribution.”
The unemployment statute “regards corporate organization objectively and realistically, unencumbered by fictions of corporate identity, and thus, brushing aside form, deals with substance.”
Maine Unemployment Compensation Commission v. Androscoggin Junior, Inc. 16 A.2d 252 (Me. 1940).
Therefore, individual owners are one and the same with their corporation (or LLC) for unemployment purposes. They are both personally liable for unemployment contributions of their company, and they are ineligible to recoup benefits themselves.
Hope this helps.