Quirky Question

I was laid off by my Montana employer and I have decided to help my brother with his start up business. I will be a 50% owner but we are not going to take a salary until revenue is substantial. An accountant friend tells me that my work for free for the start-up may disqualify me for the unemployment benefits I am currently receiving. This cannot be right. I have paid into the unemployment system for years and I am not receiving any wages.

Dorsey’s Response

Your friend is correct – a corporate officer working full time for a corporation who is not being paid wages is not eligible for unemployment benefits in Montana. This issue was directly addressed in Sayler v. Montana Department of Labor and Industry, 2014 MT 255 (September 23, 2014). Sayler and his wife owned Big Sky Bikes. When there was a downturn in business, Sayler stopped taking a salary and applied for unemployment benefits. He continued to work 50 hours per week hoping to keep the business afloat until the economy turned around. For each week Sayler claimed unemployment benefits, Sayler reported he received zero hours and zero wages. After the first few months, the business was able to pay him a few small bonuses and he correctly reported those amounts which in turn disqualified him for unemployment benefits during the weeks in which the bonus was paid.

The court held that Montana law requires that a person be “totally unemployed” to receive unemployment benefits which means that on a weekly basis he performs no work and does not earn any wages for employment. Because Sayler was a corporate officer working without pay to protect his potential investment in the business he was performing “work in employment”. Thus, he was required to repay to the State the benefits he had received and required to pay an administrative penalty of 33% for a first offense for making false representations to obtain unemployment benefits.

You will need to accurately report all hours of work even though you are receiving no pay. Since you are working on a project by project basis, you may still qualify for unemployment in those weeks whether you perform little or no work.