DA 14-0035 September 23 2014
IN THE SUPREME COURT OF THE STATE OF MONTANA
2014 MT 255
ROBERT SAYLER,
Petitioner and Appellee,
v.
MONTANA DEPARTMENT OF LABOR AND
INDUSTRY, INSURANCE DIVISION,
Respondent and Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 13-237
Honorable Karen Townsend, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Patricia L. Bik, Special Assistant Attorney General; Department of Labor
and Industry; Helena, Montana
For Appellee:
Spencer T. MacDonald; MacDonald Law Office, PLLC; Missoula,
Montana
Submitted on Briefs: July 30, 2014
Decided: September 23, 2014
Filed:
Clerk
Justice Beth Baker delivered the Opinion of the Court.
¶1 When Robert Sayler, owner and president of a Montana corporation, stopped
paying himself a salary but continued working, he applied for and received
unemployment assistance. To receive benefits, Sayler reported to the State of Montana
Department of Labor and Industry (DLI) that he worked zero hours a week. DLI
eventually determined that Sayler misrepresented the hours he worked and that Sayler
was ineligible for assistance. DLI required Sayler to repay the benefits, and imposed an
administrative penalty. The Fourth Judicial District Court reversed in part, concluding
that when Sayler drew no salary he was eligible to receive unemployment benefits and
was not under a duty to report the hours he worked. DLI appeals that decision. We now
address the following issues:
¶2 1. Whether a corporate officer working full-time without pay for his corporation
is engaged in employment under Montana’s Unemployment Insurance Law and is
required to report his hours of work when seeking unemployment benefits.
¶3 2. Whether DLI correctly imposed a penalty on Sayler for misrepresenting the
amount of hours he worked.
¶4 We reverse and remand for entry of judgment in favor of DLI.
PROCEDURAL AND FACTUAL BACKGROUND
¶5 Robert Sayler owns and is president of Big Sky Bikes (BSB), a Montana
corporation located in Missoula. Sayler owns 51% of BSB and his wife owns the rest.
When BSB experienced a downturn in business in 2010, Sayler stopped taking a salary
and, in November 2010, applied for unemployment benefits. Despite no longer drawing
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a salary, Sayler continued his customary 50-hour work weeks for BSB. Sayler continued
working to keep the business going and to protect his personal investment in BSB until it
again could turn a profit.
¶6 Between November 2010 and September 2012, Sayler periodically would collect
unemployment benefits. For each week Sayler claimed benefits, the benefit application
rules required Sayler to report “all hours of insured work and gross wages for insured
work.” Sayler repeatedly reported that he worked zero hours, and repeatedly received
benefits.
¶7 BSB initiated a “bonus plan” in mid-2011. Under the “bonus plan,” Sayler
occasionally received a bonus or wage from BSB, and Sayler reported these earnings. As
the earnings disqualified him from unemployment benefits, Sayler did not receive
benefits for the weeks he reported earnings.
¶8 In September 2012, DLI audited BSB. During the audit, Sayler admitted that he
worked 50 hours a week. The auditor referred the matter to the Claims Investigation
Unit. The following month, DLI determined that Sayler had wrongfully received
benefits. DLI calculated the amount of overpaid benefits to be $28,387.00. DLI ordered
Sayler to repay these benefits, along with a $9,367.71 penalty. Sayler requested a
redetermination, but DLI affirmed its decision. Sayler appealed.
¶9 In January 2013, a Hearing Officer (Hearing Officer) issued a decision affirming
DLI’s determination. The Hearing Officer agreed that Sayler had not been “totally
unemployed” when he continued to work. The Hearing Officer also found that Sayler
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was not credible when he testified that he did not think he had to report his hours of
work.
¶10 Sayler appealed the Hearing Officer’s decision to the Board of Labor Appeals
(Board). In February 2013, the Board concluded that substantial evidence supported the
Hearing Officer’s findings and that the Hearing Officer had correctly applied the law.
The Board adopted and affirmed the Hearing Officer’s decision.
¶11 Sayler sought judicial review in the Fourth Judicial District Court. The District
Court affirmed in part, reversed in part, and remanded. The court determined that the
Board had included factual inaccuracies in its decision—specifically, the Board had
asserted that Sayler had failed to report his bonuses in 2011 when in fact Sayler had
reported the bonuses. The court also disagreed with the Board’s and the Hearing
Officer’s interpretation of the law as it applies to corporate officers. The court concluded
that Sayler was required to report his hours only during the period of time when BSB
adopted the “bonus plan” in 2011. Outside the “bonus plan” period, the court concluded
that Sayler was not working for a wage or under a contract for hire, so he did not need to
report his work and was eligible to receive benefits.
¶12 DLI appeals the District Court’s interpretation of the law.
STANDARD OF REVIEW
¶13 When a district court reviews an agency’s decision that is subject to the Montana
Administrative Procedures Act, the court reviews conclusions of law for correctness.
Briese v. Mont. Pub. Emps. Ret. Bd., 2012 MT 192, ¶ 11, 366 Mont. 148, 285 P.3d 550.
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The same standard applies for this Court’s later review of the district court decision.
Briese, ¶ 11.
DISCUSSION
¶14 1. Whether a corporate officer working full-time without pay for his corporation
is engaged in employment under Montana’s Unemployment Insurance Law and is
required to report his hours of work when seeking unemployment benefits.
¶15 Under Montana’s Unemployment Insurance Law, unemployment assistance is for
“the benefit of persons unemployed through no fault of their own.” Section 39-51-
102(3), MCA. The law accordingly requires that a person be “totally unemployed” to
receive benefits. Section 39-51-201(27), MCA. A person is “totally unemployed” when
the person meets two criteria measured on a weekly basis: (1) the person does “not
perform any work in employment,” and (2) the person does “not earn any wages for
employment.” Section 39-51-2101(1), MCA (2009).1
¶16 The legislature has provided a definition of “employment,” and, by extension,
“work in employment.” Employment includes “service . . . by an officer of a corporation
. . . performed for wages or under any contract of hire, written or oral, express or
implied.” Section 39-51-203(1), MCA. To qualify as employment, then, the service
must either be (1) for wages, (2) under an express contract, or (3) under an implied
contract. Section 39-51-203(1), MCA.
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The legislature amended the statute in 2011, but all the pertinent language remained the same
as among the two versions that applied when Sayler received benefits. Unless otherwise noted,
reference is to the 2009 version of the MCA.
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¶17 While there is no express contract in the record, DLI argues that the record evinces
an implied contract. The existence of a contract ordinarily is a question of law. Chipman
v. Nw. Healthcare Corp., 2014 MT 15, ¶ 12, 373 Mont. 360, 317 P.3d 182. A contract is
formed through the consent of identifiable parties for a lawful object, backed by
consideration. Section 28-2-102, MCA. A contract is implied when it is manifested by
the conduct rather than by the words of the contracting parties. Section 28-2-103, MCA.
¶18 The record establishes that there was an implied contract between Sayler and BSB.
Even after he stopped taking a salary, Sayler continued working 50 hours a week for
BSB. The consideration for that work becomes apparent through examining Sayler’s
relationship with BSB. Sayler was not donating 50 hours a week to a not-for-profit
entity. Rather, BSB was Sayler’s business; he owned 51% of it, and his wife the rest. By
continuing to work without a salary, Sayler increased BSB’s worth, with the expectation
that it would benefit him. In Sayler’s own words, he continued working for BSB without
pay because he had “a large personal investment [in] the business,” and intended to work
until BSB again became profitable. DLI Hr’g Tr. 83:20-24, Dec. 26, 2012.
¶19 Because Sayler was a corporate officer, performing service under an implied
contract, he was performing “work in employment.” Section 39-51-203(1), MCA. The
plain language of § 39-51-2101(1), MCA, requires that, in order to be “totally
unemployed,” a person must perform no work and receive no wages. It is thus ultimately
of no consequence to Sayler’s employment status that he received no wages for his work
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outside the “bonus plan” period. The District Court erred as a matter of law in construing
the statute otherwise.
¶20 Sayler argues nonetheless that he did nothing wrong by reporting zero hours a
week because he was required to report only “insured work.” See Admin. R. M.
24.11.443(4) (2006) (“A claimant must report all hours of insured work and gross wages
for insured work for each week claimed.”) (emphasis added). The problem with this
argument is that “insured work” means the same thing as “employment.” Admin. R. M.
24.11.204(20) (2006) (“‘Insured work’ means . . . employment, as defined in 39-51-203,
MCA . . . .”). In other words, “insured work” includes a corporate officer’s service under
an implied contract. Section 39-51-203(1), MCA. The same implied contract that
rendered Sayler ineligible for unemployment benefits also placed him under a duty to
report his weekly hours of work. We hold that Sayler was employed and under a duty to
report his hours of work, and that the abdication of that duty led to his wrongful receipt of
benefits.
¶21 2. Whether DLI correctly imposed a penalty on Sayler for misrepresenting the
amount of hours he worked.
¶22 Sayler argues that DLI incorrectly imposed an administrative penalty in addition
to requiring Sayler to repay his wrongfully received benefits.
¶23 “A person who makes a false statement or representation knowing it to be false or
who knowingly fails to disclose a material fact in order to obtain or increase any benefit”
faces certain consequences. Section 39-51-3201(1)(a), MCA. One consequence is that
the person is “required to repay . . . a sum equal to the amount wrongfully received by the
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individual, plus the department may assess a penalty not to exceed 100% of the
fraudulently obtained benefits.” Section 39-51-3201(1)(a)(ii), MCA. DLI set the penalty
for a first-time offense during the pertinent time period in this case to be equal to 33% of
the fraudulently obtained benefits. Admin. R. M. 24.11.1209 (2000).
¶24 As recounted above, Sayler’s argument before this Court has been that he
accurately represented the hours he worked because he was under no duty to report his
hours of work while not receiving a wage. We have concluded that this argument is
incorrect as a matter of law and that Sayler was under a duty to report his hours of work.
The Hearing Officer found that Sayler knowingly misrepresented his hours of work and
that Sayler’s claimed misinterpretation of “insured work” was “not credible.” Sayler
does not directly contest these factual findings, but instead relies on his argument that
DLI incorrectly applied the law. Based on our determination that DLI’s interpretation of
the law is correct, the Hearing Officer’s conclusion that there was a knowing
misrepresentation must stand.
¶25 The consequences of a knowing misrepresentation are clear under the law. The
legislature granted DLI the power to assess penalties upon individuals who make
misrepresentations. Section 39-51-3201(1)(a)(ii), MCA. DLI fixed the administrative
penalty for a first-time offense at 33% of the wrongfully received benefits. Admin. R. M.
24.11.1209 (2000). In levying a 33% penalty on Sayler for his first offense, DLI acted
according to its administrative rules and according to the law.
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CONCLUSION
¶26 The District Court’s November 19, 2013 order is reversed. We remand to the
District Court for entry of judgment in accordance with this opinion.
/S/ BETH BAKER
We concur:
/S/ JAMES JEREMIAH SHEA
/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ JIM RICE
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