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November 3, 2014


Submitted October 22, 2014 Decided

Before Judges Alvarez and Carroll.

On appeal from the Board of Review, Department of Labor, Docket No. 416,587.

Mashel Law, L.L.C., attorney for appellant (Anthony S. Almeida, on the briefs).

John J. Hoffman, Acting Attorney General, attorney for respondent Board of Review (Lewis A. Scheindlin, Assistant Attorney General, of counsel; Christopher M. Kurek, Deputy Attorney General, on the brief).

Respondent Nextgen Web LLC has not filed a brief.


Claimant Sameer Dhawan appeals from the June 10, 2013 final agency decision of the Board of Review (the Board), which affirmed the April 1, 2013 decision of the Appeal Tribunal (the Tribunal) finding that claimant was ineligible for unemployment compensation, and directing him to refund $5619 in benefits that he had received. We affirm.

We discern the following facts from the record. Defendant was the sole member and employee of Nextgen Web, LLC (Nextgen). Nextgen was engaged in the information technology business, and provided computer consulting services on site to various third-party vendors such as CitiBank, Horizon Blue Cross, and J.P. Morgan/Chase. Although Nextgen was formed in California, it registered to do business in New Jersey because most of its services were rendered here.

As a limited liability company consisting of one member, Nextgen was classified as a sole proprietorship for tax purposes. Accordingly claimant reported his earnings from Nextgen on Schedule C of his personal 1040 tax return. Nextgen's payroll was administered by Bank of America, which issued claimant paychecks and paid unemployment taxes as reflected on claimant's Internal Revenue Service (IRS) W-2 forms.

Nextgen apparently had periods of inactivity when it was between contracts with its third-party vendors, effectively leaving claimant without work. Consequently, he filed a claim for unemployment benefits dated October 9, 2011 (the first claim), for which he received unemployment benefits of $5619 for the weeks ending October 15, 2011 through October 29, 2011, and for the weeks ending May 5, 2012 through June 16, 2012. Claimant later filed a second claim for benefits dated October 7, 2012.

On October 16, 2012, the Deputy Director of the Division of Employment Insurance (the Deputy) notified claimant that both claims were invalid because he "did not establish sufficient base weeks and wages in covered employment."1 On the same date, the Director requested a refund of the benefits paid on the first claim.2 Claimant appealed to the Tribunal.

On March 28, 2013, the Tribunal conducted a telephonic hearing at which claimant, represented by counsel, was the sole witness to testify. The Tribunal upheld the decision of the Deputy, finding both claims for unemployment benefits invalid under N.J.S.A. 43:21-4(e) and N.J.A.C. 12:16-11.2.3 The Tribunal also affirmed the Director's refund request, based on N.J.S.A. 43:21-16(d), which authorizes the collection of refunds when, for any reason, conditions for request of benefits were not fulfilled. On June 10, 2013, the Board affirmed on the record, and this appeal followed.

On appeal, claimant argues that the Board acted arbitrarily and capriciously in denying his claim for unemployment benefits. He contends that the Tribunal misconstrued the Unemployment Compensation Law (UCL), N.J.S.A. 43:21-1 to -24.30, in concluding that he was not an employee within the meaning of the UCL and regulations. Alternatively, claimant seeks a refund of all unemployment insurance payments made by Nextgen on his behalf.

Our scope of review is limited. Brady v. Bd. of Review, 152 N.J. 197, 210 (1997). In challenging an agency conclusion, the claimant carries a substantial burden of persuasion, while the determination of the administrative agency carries a presumption of correctness. Gloucester Cnty. Welfare Bd. v. N.J. Civil Serv. Comm'n, 93 N.J. 384, 390-91 (1983).

Further, "[w]e are obliged to defer to the Board when its factual findings are based on sufficient credible evidence in the record." Lourdes Med. Ctr. of Burlington Cnty. v. Bd. of Review, 197 N.J. 339, 367 (2009) (internal quotation marks and citations omitted). We also accord substantial deference to the agency's interpretation of a statute it is charged with enforcing. Bd. of Educ. of Neptune v. Neptune Twp. Educ. Ass'n, 144 N.J. 16, 31 (1996). We overturn an agency determination only if it is arbitrary, capricious, unreasonable, unsupported by substantial credible evidence as a whole, or inconsistent with the enabling statute or legislative policy. Barry v. Arrow Pontiac, Inc., 100 N.J. 57, 71 (1985) (citing Gloucester Cnty. Welfare Bd., supra, 93 N.J. at 391).

The facts regarding Nextgen's status as an LLC having claimant as its sole member and employee are undisputed, as is Nextgen's classification as a sole proprietorship. Based thereon, we discern no error in the Board's decision to affirm the determination of ineligibility.

At the time of the agency's decision, N.J.S.A. 42:2B-69(b) provided:4

For all purposes of taxation on income under the laws of this State and only for those purposes, a limited liability company formed under P.L. 1993, c. 210 (C. 42:2B-1 et seq.) or qualified to do business in this State as a foreign limited liability company with one member is disregarded as an entity separate from its owner, unless classified otherwise for federal tax purposes, in which case the limited liability company will be classified in the same manner as it is classified for federal income tax purposes. For all purposes of taxation on income under the laws of this State and only for those purposes, the sole member or an assignee of all of the limited liability company interest of the sole member of a limited liability company formed under P.L. 1993, c. 210 (C.42:2B-1 et seq.) or qualified to do business in this State as a foreign limited liability company is treated as the direct owner of the underlying assets of the limited liability company and of its operations, unless the limited liability company is classified otherwise for federal income tax purposes, in which case the member or assignee of a member will have the same status as the member or assignee of a member has for federal income tax purposes.

Pertinent to the collection of employer contributions for unemployment and disability benefits, the Department of Labor has promulgated N.J.A.C. 12:16-11.2. That regulation specifically deals with limited liability companies, and in relevant part it provides

An LLC consisting of one member shall be classified as a sole proprietorship unless the LLC elected a corporate classification for Federal income tax purposes by completing IRS Form 8832; or if the member is a corporation. In the event that the member is a corporation, and where the LLC is disregarded for Federal income tax purposes, the member shall be considered the employer with regard to all individuals performing services for the LLC.

[N.J.A.C. 12:16-11.2(c).]

It is clear that when read in conjunction with each other, the statute and regulation deem an LLC's lone member to be a sole proprietor unless the LLC has opted to be treated as a corporation. Here, it is undisputed that during the relevant time periods Nextgen did not elect corporate status, and claimant reported all the income from the LLC on his individual tax returns.

The LLC's selection of the form of tax treatment is critical, since self-employed individuals are exempt from the UCL because the law does not recognize an employment relationship where the employer and employee are one and the same. A self-employed person is therefore generally ineligible for unemployment benefits. See Lazar v. Bd. of Review, 77 N.J. Super. 251, 261 (App. Div. 1962). See also 76 Am. Jur. 2d Unemployment Compensation 63 (2005) ("Self employment is not generally considered 'employment' in unemployment compensation statutes, and no benefits arise due to work performed while self-employed.").

Following the Tribunal's ruling, claimant provided the Board with documentation that Nextgen acquired IRS 8832 corporate status effective June 19, 2012. The Board found this irrelevant. We agree. Putting aside its timeliness, there is nothing in the record to suggest that claimant remained anything other than Nextgen's sole owner. While employees of ongoing corporations are eligible for unemployment benefits, officers or owners of more than five percent of the equity or debt are not. N.J.S.A. 43:21-19(m)(1)(A) (stating that officer or five-percent owner "shall not be deemed to be unemployed in any week during the individual's term of office or ownership in the corporation").5

The distinction between officers and significant owners on one hand, and other corporate employees on the other hand, is intended to prevent an officer or owner's manipulation of one's own unemployment and eligibility for benefits. Nota v. Bd. of Review, 231 N.J. Super. 341, 343-44 (App. Div. 1989). In that sense, such distinction is consistent with the general ineligibility of self-employed individuals who, like claimant, are in a similar position to in essence lay themselves off during periods of inactivity, or delay seeking or obtaining work while opting to receive unemployment benefits.

The Tribunal relied on N.J.S.A. 43:21-4(e), which requires that an unemployed individual establish at least twenty base weeks of employment to be eligible to receive benefits. Since claimant was unable to demonstrate "employment" that was covered under the UCL, the Tribunal properly held him disqualified to receive benefits.

Alternatively, claimant argues, for the first time on appeal, that if his claim is held invalid, that he should be entitled to receive a refund under N.J.S.A. 43:21-14(f) for all unemployment contributions that Nextgen erroneously made on his behalf. Since there is no evidence that claimant presented this argument to the agency, we decline to consider it. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (acknowledging that appellate courts generally will decline to consider questions or issues not properly presented to the trial court). We also question whether it is for claimant to make such a claim, or whether this claim of taxation without benefit more properly lies with Nextgen. See Lazar, supra, 77 N.J. Super. at 261. In any event, we conclude that any claim for such relief should first be presented to the Division of Employment

Insurance. We express no opinion as to the timeliness or merits of such an application.


1 The Deputy's decision was not provided in the record.

2 Although the refund request is not in the record before us, claimant testified before the Tribunal that he promptly paid the refund.

3 The Tribunal also relied on our unpublished decision in Trongone v. Bd. of Review, No. A-6135-10 (App. Div. June 12, 2012) (holding that a working member of an LLC that opted for tax treatment as a partnership is ineligible for unemployment benefits). Both parties cite extensively to Trongone in their briefs, notwithstanding that it does not constitute binding precedent. R. 1:36-3.

4 The statute was repealed by L. 2012, c. 50, 95, eff. March 1, 2014, and replaced by N.J.S.A. 42:2C-92(b), the terms of which are substantially similar and do not affect our analysis.

5 Under the statute, an officer or significant owner is eligible to receive benefits if the corporation itself is no longer viable, which is deemed to occur if it "has been dissol[ved] in accordance with the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq." Here, as the Board correctly determined, Nextgen "was not cancelled until December 28, 2012, after [] claimant had returned to work with another employer."