Beard Land & Investment Co. v. California Employment Stabilization Commission

SCHOTTKY, J. Respondent, a California corporation engaged in various activities including transactions in real estate and in the securities of other corporations, was subject to the California Unemployment Insurance Act and also to the Federal Unemployment Tax Act (formerly title IX of the Social Security Act), during the period in question. The Department of Employment levied an assessment upon respondent in the amount of $140.66 and interest for the period of July 1, 1942, to September 30, 1944. The additional assessment was based entirely upon amounts paid to the directors of the respondent corporation. During the period involved in this action the seven directors of the respondent met on an average of once a month. At these meetings the financial statements of the respondent were discussed, matters of policy were decided, and all purchases and contracts involving expenditures in excess of a certain amount were authorized before being placed into effect. The directors each received fees of $40 per meeting. Several of the directors also served as officers of the corporation without additional compensation.

The issue of tax liability of respondent for this additional assessment was tried before the statutory referee of the Department of Employment and subsequent thereto the decision of the California Unemployment Insurance Appeals Board issued denying respondent’s claim for a refund.

Respondent then commenced an action pursuant to section 45.11, subdivision (b), of the Unemployment Insurance Act to recover the amount of the payments which were based on the fees paid to the directors of the respondent corporation for their services as directors.

The trial court concluded that the fees or compensation of $40 a month paid by respondent to its directors was not subject to assessments under the California Unemployment Insurance Act, “for the reason that they are not wages or salaries paid to employees of the plaintiff corporation, and the said directors are not employees of the said corporation; that compensation paid to the directors of a corporation for [477]services rendered to the corporation as directors thereof are not wages, as the term ‘wages’ is defined by and used in the Unemployment Insurance Act of the State of California; the services rendered by directors of a corporation as such to the corporation and for the corporation of which they are directors, for attending meetings of the boards of directors of such corporations, or in otherwise discharging the duties ordinarily and properly appertaining to the functions, duties, and authority of directors as such, are not and do not constitute employment, as the word ‘employment’ is defined and used in the Unemployment Insurance Act of the State of California; a corporation, in its relation to its directors as such, is not an employer as the word ‘employer’ is used in the Unemployment Insurance Act of the State of California; no employer contributions are required by the Unemployment Insurance Act of the State of California, of or from corporations, on account of compensation paid by such corporations to their directors for services rendered by such directors in their capacity as directors of such corporations ; and no employee contributions are required to be paid by directors of a corporation, or to be deducted from compensation paid to such directors, for services rendered by them in their capacity or in the exercise of their office or authority or the discharge of their functions or duties as directors of such corporations.”