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Gould v. City of Stamford

Supreme Court of Connecticut
331 Conn. 289, 203 A.3d 525 (2019)
ELI5:

Sections

Rule of Law:

A sole member of a single-member limited liability company (LLC) qualifies as an employee of that company for workers' compensation purposes if the member performs services for the company and is subject to the hazards of the business, regardless of whether the member affirmatively elected coverage.


Facts:

  • In 2000, Peter Gould formed Intervale Group, LLC, a single-member limited liability company that provided video production services.
  • Gould was the sole member, controlled the means and methods of production, and was solely responsible for completing projects.
  • Rather than paying himself a fixed salary, Gould deposited client payments into a business account and withdrew funds as needed, reporting the income for tax purposes as profit from a sole proprietorship.
  • In 2012, Intervale purchased a workers' compensation insurance policy to satisfy a client requirement.
  • Concurrent with his business, Gould worked part-time as a park police officer for the City of Stamford.
  • On July 28, 2013, Gould sustained injuries to his back and legs while working for the City.
  • Gould filed a claim for workers' compensation benefits based on his earnings from both the City and his LLC.
  • The Second Injury Fund denied the portion of the claim related to the LLC, arguing no employer-employee relationship existed.

Procedural Posture:

  • The Workers' Compensation Commissioner for the Seventh District denied and dismissed the plaintiff's claim for concurrent benefits.
  • The plaintiff appealed the Commissioner's decision to the Compensation Review Board.
  • The Compensation Review Board affirmed the Commissioner's dismissal, ruling the plaintiff was not an employee.
  • The plaintiff appealed the Board's decision to the Appellate Court.
  • The appeal was transferred from the Appellate Court to the Supreme Court of Connecticut.

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Issue:

Is the sole member of a single-member limited liability company considered an employee of that company for purposes of awarding concurrent employment benefits under the Workers' Compensation Act?


Opinions:

Majority - Justice Palmer

Yes, a member of a single-member limited liability company is an employee of that company under the Act without needing to opt-in. The Court rejected the Compensation Review Board's reasoning that the LLC was merely an 'alter ego' of Gould because he took profit draws rather than wages; state law allows LLCs to distribute profits to members without losing their status as distinct legal entities. Furthermore, the Court invalidated the 2003 Workers' Compensation Commission memorandum which created a presumption that single-member LLCs are excluded from coverage unless they file a specific election form (Form 75). The Court reasoned that the legislature explicitly required sole proprietors and partners to opt-in or opt-out but remained silent on LLCs, implying that LLC members fall under the general definition of 'employee' as they work under a contract of service with a distinct legal entity. Finally, the Court determined that the traditional 'right to control' test is inappropriate for single-member LLCs because an owner always controls the entity; instead, the correct standard is whether the member provided services and faced business hazards.



Analysis:

This decision clarifies the intersection of corporate law and workers' compensation statutes in Connecticut. By distinguishing single-member LLCs from sole proprietorships, the Court reaffirmed the distinct legal existence of an LLC, even when the owner treats it informally for federal tax purposes. The ruling invalidates administrative policies that attempted to force LLC members to affirmatively 'elect' coverage, holding that coverage is automatic if the member meets the statutory definition of an employee. This shifts the analytical framework for self-employed LLC owners from a 'right to control' test—which they would almost always fail—to a functional test based on the actual performance of work and exposure to risk.

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