Nebraska Small Business Owner Entitled to $49 Weekly Benefit in Spite of Profits of $200,000 Per Year

Stressing that net profits from the operation of a principal’s subchapter S corporation are not the equivalent of wages earned, the Supreme Court of Nebraska affirmed a determination by the state’s Court of Appeals that the 2013 “wages” of the owner of a family business, which had some 15 employees and net annual income that year of almost $200,000, was a mere $ $3,950, entitling the principal to only the minimum income benefit of $49 per week under Neb. Rev. Stat. § 48-121.01, based on the evidence adduced in the case [Bortolotti v. Universal Terrazzo & Tile Co., 304 Neb. 219, 2019 Neb. LEXIS 151 (Oct. 11, 2019)]. Agreeing with the Court of Appeals that the compensation court erred in setting the owner’s average weekly wage (AWW) at $1,399.45—entitling him to the maximum compensation rate of $728 per week—the Supreme Court, quoting Larson’s Workers’ Compensation Law, § 93.01, held the owner’s AWW must be based upon the owner’s wages received as a corporate employee, not the owner’s share of the profits.

Background

Bortolotti worked in a family business, Universal Terrazzo and Tile Company (Universal), for more than 30 years as an installer of terrazzo tile and fabricator and installer of granite. In 2011, he became the sole stockholder and the president of Universal—a subchapter S corporation. Universal had at least 15 employees. As president, Bortolotti spent 60 percent of his time performing office and managerial work as opposed to physical labor.

Bortolotti sustained a work-related injury in June 2013. His operative petition for workers’ compensation benefits alleged weekly earnings of $3,625 at the time of the injury. The insurer contested Bartolotti’s AWW. At a hearing, the compensation court had difficulty determining Bortolotti’s AWW due to a lack of exhibits. Based on an allegation in a superseded pleading, the court held that the AWW was $1,399.45, entitling Bortolotti to the maximum compensation rate of $728 per week.

Court of Appeals

The Court of Appeals concluded that the compensation court erred in determining Bortolotti’s AWW from the allegations in his petition, noting that Universal denied the allegations. Because Universal adduced evidence that Bortolotti’s 2013 wages were $3,950, the Court of Appeals determined that Bortolotti should have been awarded the minimum income benefit of $49 per week. Bortolotti appealed.

Supreme Court’s Decision

Noting that as to Bortolotti’s “wages,” the record contained only a copy of his “Schedule E,” filed with the IRS. On that form, Bortolotti showed self-employment wages of $3,950 and “qualified production activities income” of $186,873. The Court also observed that in Bortolotti’s testimony, he indicated he did not receive a salary, that he considered his wage to be whatever tax returns showed the corporation’s net amount to be. Bortolotti also testified that he took a weekly draw of $3,625 from the corporation’s income of $198,873.

Burden of Establishing AWW

The Court stressed that it was Bortolotti’s burden to establish his AWW. It stressed also that no evidence supported the compensation court’s AWW. Turning to the definition of “wages” found in Neb. Rev. Stat. § 48-126 (Reissue 2010), the Supreme Court said it could not read “wages” so as to include net profit for an employee of an S corporation. Under § 48-126, wages are compensation for the recipient’s activities as a corporate employee.

Competent evidence supported the Court of Appeals’ determination of the AWW. It based its decision based upon evidence offered by the insurer that Bortolotti earned $3,950 in wages in 2013. Bortolotti had the burden to establish his average weekly wage from this S corporation. Thus, he was required to provide evidence differentiating his wages as a corporate employee from his profits as a corporate shareholder. He failed to do so, and the insurer presented competent evidence respecting this distinction. Accordingly, the Supreme Court affirmed the Court of Appeals’ determination that Bortolotti’s average weekly wage benefit was $49.