Gottlieb v. Arrow Door Co.

Annotate this Case

364 Mich. 450 (1961)

110 N.W.2d 767


Docket No. 5, Calendar No. 48,970.

Supreme Court of Michigan.

Decided September 23, 1961.

Charfoos & Charfoos (Samuel Charfoos, of counsel), for plaintiff.


Louis Gottlieb, the plaintiff and appellee, claims workmen's compensation on account *452 of an injury.[1] There is no dispute as to the injury itself (amputations) or the causal connection. He was feeding wood into a wood-shaping machine when he was injured.[2] Rather, objection is made upon conceptual grounds, namely, that the cannot be his own employee, both master and servant.

The argument made arises from the circumstance that the claimant was the sole incorporator and the sole stockholder of Arrow Door Company, a Michigan corporation, and its president and treasurer. He was, defendants argue, in "complete control" of the corporation (which, we are told, was the claimant himself), and he may not be his own employee.

The argument made would require us to deny the corporate entity, and solely because of its size. There is, however, no requirement in Michigan law today that for valid corporate existence there must be a specified, or a minimum, number of stockholders. Nor do we find allegations or proofs of fraud, sham, or other improper use of the corporate form justifying our "piercing the veil" of corporate existence.[3] The one-man corporation, so-called, is no stranger to the law. That a corporation is under the domination of a principal stockholder who may be entitled to all of its profits violates no requirement of our statute law, is not opposed to public policy, and constitutes no fraud on creditors. Bourne v. Muskegon Circuit Judge, 327 Mich 175. It is our conclusion that the corporate entity was valid and that it might properly enter into a contractual relationship with the claimant.

In the early days of compensation law much difficulty was experienced with the corporate employee-executive *453 cases, particularly those where (as here) the corporation was small and largely under the control of its principal stockholder.[4] In a series of decisions, compensation was denied upon the theory, in effect, that the compensation act was intended to protect workmen and their dependents, not corporation executives.[5] The principal difficulty with the easy distinction was its lack of harmony with the objectives of the act. The compensation laws arose from the conviction of our people that the burden of industrial injuries should be borne not exclusively by the victim and his family, but in part "by those who profit by the industry." See the messages of President Theodore Roosevelt to the Congress, reported in 41 Cong Rec 22, 26; 42 Cong Rec 68, 72, 1347. Since all who work in the industry are necessary to the supply of the article, the injuries of all, in the words of Judge Learned Hand, "are part of the cost of producing that supply, and compensation for them is within the scheme,"[6] unless, of course, otherwise excluded by the terms of the act. Yet, in these cases, many were denied compensation, for injuries otherwise compensable, merely because of their asserted corporate status, oftentimes amounting to no more than their enjoyment of the title of "executive." The verbiage thus prevailed over the substance. But this atrophy of common sense was relatively short lived. The doctrine of `dual capacity" was developed by the courts, according to which the corporation "executive" was not to be denied compensation if, at the time of the injury he was acting in another capacity, that is, not acting as an executive (however an executive may act) but *454 was running a lathe, or supervising production.[7] The distinction, however laudable as a step towards reality, is artificial.[8] In the smaller corporations the line between manager and workman is blurred, and in the one-man corporation of the most limited type impossible to draw. Yet in these enterprises, we find the very persons who are in need of the protection of the act, since the hazards of production are shared personally by them, just as they are by those on the assembly lines of the large corporations.

Faced with the difficulties above suggested, the legislatures of this and other States have undertaken clarification.[9] In this State the term "employee" is defined, generally, as "every person in the service of another, under any contract of hire, express or implied."[10] That the claimant was in the service of "another" (the corporation) upon these facts cannot be denied. The act then continues, by way of specific inclusions with respect to certain occupations theretofore controversial, in the following terms:

"including aliens,

"including wives * * *, working members of partnerships, * * *

"including [and this is the clause governing the case before us] any person insured for whom and to the extent premiums are paid based on wages, earnings or profits."

The claimant comes squarely within the language last above quoted. As the appeal board properly held:

"The defendant company carried workmen's compensation insurance with the defendant insurer and *455 paid premiums to the insurer on the salary of the plaintiff to the extent of $5,600. Section 7 of part I of the act defining the term, `employee' provides in part as follows:

"`including any person insured for whom and to the extent premiums are paid based on wages, earnings or profits,'

"The above-quoted language [`including any person insured', et cetera] was put into the statute in a 1949 amendment. Its purpose was to prevent just such shenanigans as we have in this case. Prior to 1949 it was quite common for an insurance carrier to sell a policy, collect premiums upon the earnings of a particular individual, and then deny compensation when that individual was injured upon the claim that he was not an employee. This policy of `heads I win, tails you lose' could have been expected to produce remedial legislation, and did."

The cases of Kramer v. Charlevoix Beach Hotel, 342 Mich 715 (8 NCCA3d 133), and Scott v. Alsar Company, 336 Mich 532, the one involving a partner, the other an independent contractor, do not control the case before us.[11]

Affirmed. Costs to appellee.


DETHMERS, C.J., concurred in result.


[1] See PA 1912 (1st Ex Sess), No 10, as amended (CL 1948, § 411.1 et seq., as amended [Stat Ann 1950 Rev and Stat Ann 1959 Cum Supp § 17.141 et seq.]), REPORTER.

[2] September 13, 1958.

[3] See repudiation of a similar argument in Gledhill v. Fisher & Co., 272 Mich 353 (102 ALR 1042).

[4] For the abandonment of the control test of employment in Michigan law, see Tata v. Muskovitz, 354 Mich 695.

[5] E.g., Bowne v. S.W. Bowne Co. (1917), 221 NY 28 (116 NE 364).

[6] Grain Handling Co. v. Sweeney (CCA 2), 102 F2d 464, 466.

[7] See 99 CJS Workmen's Compensation § 82.

[8] Mine Service Co. v. Green (Ky), 265 SW2d 944.

[9] E.g., NC Gen Stat 1958 Replacement and 1959 Supp § 97-2, subd (2).

[10] CLS 1956, § 411.7, subd (2) (Stat Ann 1960 Rev § 17.147, subd [2]).

[11] See the discussion of the Kramer Case in John C.H. Wu, Cases and Materials on Jurisprudence, p 545.