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STARINIERI UNEMPLOYMENT COMPENSATION CASE (04/20/72)

decided: April 20, 1972.

STARINIERI UNEMPLOYMENT COMPENSATION CASE


Appeal from order of Superior Court, Oct. T., 1969, No. 1063, affirming decision of Unemployment Compensation Board of Review, No. B-103857, in re claim of Nicholas Starinieri.

COUNSEL

A. A. Guarino, for appellant.

Sydney Reuben, Assistant Attorney General, with him William C. Sennett, Attorney General, for Unemployment Compensation Board of Review, appellee.

Jones, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Chief Justice Jones. The former Mr. Chief Justice Bell and the former Mr. Justice Barbieri took no part in the consideration or decision of this case. Dissenting Opinion by Mr. Justice Pomeroy.

Author: Jones

[ 447 Pa. Page 257]

The issue presented by this appeal is whether one who is a shareholder, director and officer of a closely held corporation is eligible for unemployment compensation benefits upon the cessation of business by that corporation due to voluntary bankruptcy proceedings. The Bureau of Employment Security held not, and so denied benefits to claimant-appellant. This disposition was affirmed in successive appeals to a referee, the Unemployment Compensation Board of Review and the Superior Court. Starinieri Unemployment Compensation Case, 216 Pa. Superior Ct. 798, 261 A.2d 116 (1970). We granted allocatur.

The undisputed facts are as follows: Delaware Valley Electronic Supply Company was a Pennsylvania

[ 447 Pa. Page 258]

    corporation having outstanding a total of forty shares of capital stock. At the time it ceased doing business, appellant owned fifteen shares; the other twenty-five shares were owned by three persons not related to appellant.*fn1 Each of the shareholders was a director of the corporation. Burton Seller, owner of sixteen shares, was President. Appellant was the Secretary-Treasurer and acted as the executive manager of the company. His salary was $140 per week. The termination of appellant's employment with Delaware Valley was a result of a voluntary petition in bankruptcy filed by the company, precipitated when a creditor (the ex-wife of the President) obtained a $30,000 judgment against the company and had the doors padlocked.

Section 402 of the Unemployment Compensation Law, Act of December 5, 1936, Second Ex. Sess., P. L. (1937) 2897, § 402, as amended, 43 P.S. § 802, provides, "[A]n employee shall be ineligible for compensation for any week -- (h) In which he is engaged in self-employment. . . ." Thus, a self-employed person who becomes an "unemployed businessman" is ineligible to receive unemployment compensation. E.g., Freas Unemployment Compensation Case, 201 Pa. Superior Ct. 150, 191 A.2d 740 (1963). See, also, Annot., 65 A.L.R. 2d 1182 (1959). The Unemployment Compensation Law was not enacted to compensate individuals who fail in their business ventures and become unemployed businessmen. Dawkins Unemployment Compensation Case, 358 Pa. 224, 56 A.2d 254 (1948). The Board concluded that appellant was a self-employed "businessman," as opposed to a "worker" and, therefore, declared him ineligible for benefits. Majority ownership of the

[ 447 Pa. Page 259]

    stock, it held, was not a prerequisite to the status of "businessman"; one who through ownership of stock and his position in the corporation exercises a "substantial degree of control" over its operation qualifies as such.

While recognizing a series of Superior Court decisions, following Dawkins, which denied benefits to claimants in a control position,*fn2 the appellant correctly notes that each of those claimants had greater than 50% control in the failing company. However, benefits were denied in Freas Unemployment Compensation Case, 201 Pa. Superior Ct. 150, 191 A.2d 740 (1963), and Roccograndi Unemployment Compensation Case, 197 Pa. Superior Ct. 372, 178 A.2d 786 (1962), even though each claimant owned less than 50% of the stock in the failing company. Basing his argument on Section 4(x) (10) of the Unemployment Compensation Law, Act of December 5, 1936, Second Ex. Sess., ...


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