The opinion of the court was delivered by: Judge Butler
BEFORE: HONORABLE DORIS A. SMITH-RIBNER, Judge, HONORABLE JOHNNY J. BUTLER, Judge, HONORABLE JIM FLAHERTY, Senior Judge.
Reese Teleservices, Inc. (RTI) petitions for review of the October 11, 2007 order of the Department of Labor and Industry (Department) denying a review and redetermination of RTI's 2003, 2004 and 2005 compensation contribution rates, and affirming the Office of Unemployment Compensation Tax Services' (OUCTS) mandatory transfer of Reese Brothers, Inc.'s (RBI) experience record and reserve account balance to RTI under the Unemployment Compensation Law (Law).*fn1 RTI argues that it is entitled to new employer status when calculating its contribution rates, that it was entitled to the transfer of RBI's experience record following the sale of RTI's stock in April of 2005, and that it should have received notices of claims for unemployment compensation benefits by former RBI employees between January 1, 2003 and June of 2004. For the reasons set forth below, we disagree.
RBI, a Pennsylvania corporation that provides outbound telemarketing services, was formed in 1989 by Barry Reese (50% shareholder, president and treasurer) and Ralph Reese (50% shareholder, vice-president and secretary). Due to the significant growth of the company, RBI hired the following individuals to run RBI's day-to-day operations: James Epstein for strategic development, Christopher Ungarino for management ranging from sales to operations, and David Farr as chief financial officer. Due to some difficult financial situations, an outside consultant, Charles O'Hanlon, suggested that RBI be sold to its employees. Mr. Ungarino agreed to purchase RBI.
On October 24, 2002, Articles of Incorporation were filed for RTI identifying Mr. Ungarino as the sole incorporator and 100% owner of the company. Before closing the deal, however, Mr. Ungarino approached Barry Reese and requested that he help with the business transition, in order to provide assurance for its customers, and continuity for its employees. Mr. Reese agreed, but did not wish to be involved in the day-to-day operations of the company. Since neither Mr. Reese nor Mr. Ungarino wanted to own a majority interest in RTI, Mr. Reese was given 49% of the stock, Mr. Ungarino was given 47% of the stock, and they offered 4% of the stock to Mr. O'Hanlon, who would act as a tie-breaker if they disagreed on an issue. The three gentlemen were appointed to RTI's board of directors; each had one vote.
Mr. Reese actively served as chairman, secretary, and treasurer of RTI. Pursuant to Section 5.07 of RTI's bylaws, in the role of chairman, Mr. Reese was to preside at board and shareholder meetings and perform such other duties as may, from time to time, be requested by the board of directors. In his role as RTI's secretary, under Section 5.09 of its bylaws, Mr. Reese was responsible for attending meetings, recording votes and minutes, sending and filing notices, maintaining custody of records and executing all documents, except for setting the agenda. In his role as RTI's treasurer, under Section 5.10 of RTI's bylaws, Mr. Reese was responsible for the company's fiscal functions. Mr. Ungarino was RTI's president and, per Section 5.08 of its bylaws, generally supervised RTI's business and operations. He hired and fired employees, saw clients, signed checks, and sought advice from Mr. Reese. Mr. Reese claims to have been nothing more than a figurehead having no authority to bind the company, nor any influence over Mr. Ungarino or Mr. O'Hanlon. Section 4.10(a) of RTI's bylaws provides that actions of a quorum at a meeting shall be the acts of the board of directors.
RBI's assets were sold to RTI effective January 1, 2003. RTI first paid wages as an employer subject to theLawon January 10, 2003. The Pennsylvania Enterprise Registration Form (Form PA-100), filed by RTI on January 30, 2003, indicated that RBI was the predecessor to RTI, but that no owner, officer, shareholder or director of RTI was also an owner, officer, shareholder or director of RBI. As a result, the Department granted RTI new employer status, and closed RBI's account. RTI did not receive notices from the Department of RBI employee unemployment compensation claims filed between January of 2003 and June of 2004, despite RTI's requests to the Department. Following an inquiry by the Department, on September 24, 2003, Mr. Ungarino again submitted the Form PA-100, but without reviewing it for accuracy. On December 22, 2003, Mr. Ungarino was contacted relative to RTI's actual ownership. On July 25, 2004, the Department modified RTI's contribution rates for 2003, 2004 and 2005, basing them upon the transfer of the experience record and reserve account balance from RBI. RTI appealed the modification. On December 31, 2004, the Department revised RTI's 2005 contribution rate, and RTI appealed the revision.
On April 6, 2005, pursuant to a stock purchase agreement, RTI sold substantially all of its stock to The Resource Group International, Ltd. (RGIL). Mr. Reese and Mr. O'Hanlon resigned their positions with RTI. Mr. Ungarino remained as RGIL's president, chief executive officer and 20% shareholder. Hasnain Aslam became chairman of the board, and Nadeem Elahi and Tanvir Hussain became directors. RTI sought another review of its 2005 contribution rate following this sale.
On May 31, 2005, the OUCTS denied RTI's appeals of its 2003, 2004 and 2005 contribution rates. RTI requested a review by the Department, and a hearing was held on July 13, 2006 before a presiding officer for the Department. On October 11, 2007, the Department issued its final decision and order affirming the OUCTS decision and denying RTI's appeal. On November 13, 2007, RTI filed its appeal to this Court.*fn2
Pennsylvania employers are required to make certain contributions to the Unemployment Compensation Fund.*fn3 Section 301(a)(4) of the Law, 43 P.S. § 781(a)(4), provides that new businesses are entitled to a reduced rate of contribution. To prevent employers from transferring their businesses or creating new entities in order to obtain lower rates of contribution, Section 301(d)(1)(B) of the Law, 43 P.S. § 781(d)(1)(B), provides that where predecessor and successor employers are owned or controlled, either directly or indirectly, by legally enforceable means or otherwise, by the same interests, then the accumulated experience record and reserve account balance of the predecessor employer must be assigned to the successor employer.
RTI argues that neither the law nor the evidence supports the Department's determination that Mr. Reese had the ability to exercise a substantial degree of control in RTI, since he was not a majority shareholder, he did not control the board of directors, he merely attended board meetings, and he did not actually handle financial matters. RTI claims that, since Mr. Reese did not exercise control over RTI, RTI cannot be considered a successor-in-interest to RBI for purposes of unemployment contribution rates.
In Univ. City Hous. Co. v. Unemployment Comp. Bd. of Review, 539 A.2d 489 (Pa. Cmwlth. 1988), this Court described factors to be considered in determining whether a person exercises control in a corporation, including: the percentage of stock owned by claimant; whether claimant is an officer; the characterization given the employment relationship by laypersons; and, claimant's title. Moreover, this Court has held in experience record transfer cases like this, that it is "the ability to control the business, not actual control, [that] is determinative . . . ." Zotis Enters., Inc. v. Dep't of Labor and Indus., 635 A.2d 698, 700 (Pa. Cmwlth. 1993).
Here, Mr. Reese, a 50% shareholder of the predecessor corporation, also held nearly half of the stock of what RTI deems the "new" corporation. Reproduced Record (R.R.) at 38a-39a, 49a-50a, 73a, 211a, 279a, 280a. The record is clear that, as chairman of the board of directors, Mr. Reese participated in monthly meetings, and he regularly discussed and lent his expertise regarding ongoing issues regarding RTI. R.R. at 38a, 42a, 51a-52a, 78a, 103a-104a, 136a. Further, decisions for RTI required votes of a quorum, which consisted of Mr. Reese and Mr. Ungarino. R.R. at 300a. Since these two gentlemen always agreed, Mr. O'Hanlon's tie-breaker vote was not necessary. R.R. at 74a, 83a, 102a, 125a. According to RTI's bylaws, unanimous votes of the entire board were only necessary for: a transfer of substantially all of RTI's assets; modifying the license, non-compete or employment agreements; or for early termination of the license agreement. R.R. at 80a-81a, 300a. As secretary, although RTI claims that Mr. Reese merely attended meetings, RTI's bylaws authorized him to attend all meetings and record votes and minutes, send and file notices, ...