S055231, Opinion — Necanicum Investment Co. v. Employment Dept.

138
Argued and submitted March 7, decision of Court of Appeals reversed; order of
Office of Administrative Hearings reversed, and case remanded to Employment
Department for further proceedings July 24, 2008
NECANICUM INVESTMENT CO.,
Petitioner on Review,
v.
EMPLOYMENT DEPARTMENT,
Respondent on Review.
(Agency No. T70772; CA A131207; SC S055231)
190P3d368

Cite as 345 Or 138
CJS, Social Security and Public Welfare§ 166.
En Banc
On review from the Court of Appeals.*
Joseph D. McDonald, Smith, McDonald & Vaught, LLP,
Portland, argued the cause and filed the brief for petitioner
on review.
Rolf C. Moan, Assistant Attorney General, Salem, argued
the cause for respondent on review. With him on the brief
were Hardy Myers, Attorney General, and Mary H. Williams,
Solicitor General.
DE MUNIZ, C. J.
The decision of the Court of Appeals is reversed. The order
of the Office of Administrative Hearings is reversed, and the
case is remanded to the Employment Department for further
proceedings.
* Appeal from Office of Administrative Hearings for Employment Depart-
ment. 214 Or App 385, 164 P3d 1197 (2007).

140 	Necanicum Investment Co. v. Employment Dept.
DE MUNIZ, C. J.
Petitioner Necanicum Investment Company seeks
review of a final 	order of the Employment Department
(department), concluding that petitioner's payments to mem-
bers of its board of directors for directors' fees constitute
wages that are subject to state unemployment taxes. The
Court of Appeals affirmed the order, concluding that corpo-
rate directors, by setting corporate policy and providing gov-
ernance, were in effect "employed" by petitioner and, thus,
the payments constituted wages subject to state unemploy-
ment taxes. Necanicum Investment Co. u. Employment Dept.,
214 Or App 385, 164 P3d 1197 (2007). Petitioner sought
review in this court, arguing that corporate directors are not
"employees" of a corporation, that fees paid to corporate
directors therefore are not wages, and that those fees thus
are not subject to unemployment tax. We allowed review and
now reverse the decision of the Court of Appeals and the
department's order, and remand the case to the Employment
Department for further proceedings.
The facts are undisputed. Petitioner is a property
management corporation headquartered in Portland. It is
governed by a board of directors, which meets regularly, sets
policy, and provides governance and direction to the corpo-
ration. In the third quarter of 2003, petitioner paid $6,000 in
directors' fees to each of its three board members. It did not
report those payments as part of its payroll and it did not pay
unemployment tax on them. In 2005, the department's tax
section conducted an audit of petitioner and determined that
the $18,000 paid as directors' fees constituted part of peti-
tioner's 2003 taxable payroll. The department issued a notice
of tax assessment for approximately $700.
Petitioner sought review of the unemployment tax
assessment before an administrative law judge (ALJ) from
the Office of Administrative Hearings (OAH). Petitioner con-
tended that the fees paid to its board of directors were not
wages because directors control the corporation and are not
employees. The ALJ determined that the directors' fees met
the statutory definitions of "wages" for "employment," set out
below. The ALJ also noted that petitioner could not point to a

Cite as 345 Or 138
specific exclusion in the statutes for directors' fees and there-
fore had failed to carry its burden to prove that the assess-
ment was incorrect. 1 The ALJ issued an order affirming the
tax assessment.
Petitioner appealed and, as noted, the Court of
Appeals affirmed. That court agreed with the AL.J's applica-
tion of the statutory definitions of "wages" and "employ-
ment," Necanicum Investment Co., 214 Or App at 387, and
determined that the directors engaged in "employment" for
petitioner when they met to set policy and provided gover-
nance and direction for the corporation. According to the
court, because the legislature had not provided an explicit
exception for such employment, the directors' fees consti-
tuted wages subject to unemployment tax. Id. at 392. The
court therefore concluded that the ALJ did not err in affirm-
ing the tax assessment. Id. at 393.
On review, petitioner asserts that fees paid to direc-
tors of corporations are not "wages" under ORS 657.505, 2
because "wages," as defined by ORS 657.105, 3 are remunera-
tion for "employment," and directors are not employees of the
corporation. According to petitioner, directors are the alter
ego of a corporation, are elected by and serve at the pleasure
of the shareholders, not the corporation, and do not take
direction from any officer or agent of the corporation. Direc-
tors, petitioner asserts, provide service to the corporation, not
for the corporation, and thus are not employees of the corpo-
ration engaged in "employment."
1 ORS 657 .683(4} provides, in part:
"At any hearing held as provided in ORS 657.480, 657.679, 657.681 or657.682,
the determination or assessment of the director or authorized representative
shall be prima facie correct and the burden shall be upon the protesting
employing unit to prove that it is incorrect."
2 ORS 657 .505(2} provides:
"An employer shall be liable for taxes on all wages paid for services per-
formed on or after the first day of a calendar quarter."
3 ORS 657 .105(1} provides:
"As used in this chapter, unless the context requires otherwise, and subject
to ORS 657.115 to 657.140, 'wages' means all remuneration for employment,
including the cash value, as determined by the Director of the Employment
Department under the regulations of the director, of all remuneration paid in
any medium other than cash."

142 	Necanicum Investment Co. v. Employment Dept.
Both the ALJ and the Court of Appeals apparently
assumed that the directors were "employees" of the corpora-
tion, and therefore focused their analysis only on whether the
payments to the directors were wages subject to unemploy-
ment taxation. See, e.g., Necanicum Investment Co., 214 Or
App at 390 (listing statutes excluding certain services per-
formed by "individuals who would not ordinarily be regarded
as 'employees of [an] employer' "). However, we agree with
petitioner's assertion that the first issue to be resolved in this
case is "who is the master of the directors, i.e., for whom are
they in service."
We 	begin 	with 	the 	statutory 	definitions 	of
"employee," "employer," and "employment," that are part of
the unemployment insurance and taxation scheme. In that
regard, "employee" is defined in ORS 657.015(1), which pro-
vides, in part:
"As used in this chapter, unless the context requires
otherwise, 'employee' means any person, including aliens
and minors, employed for remuneration or under any con-
tract of hire, written or oral, express or implied, by an
employer subject to this chapter in an employment subject
to this chapter."
"Employer," in turn, is defined in ORS 657.025(1), which pro-
vides, in part:
"As used in this chapter, unless the context requires
otherwise, 'employer' means any employing unit which
employs one or more individuals in an employment subject
to this chapter[.]"
Finally, "employment" is defined in ORS 657.030, which pro-
vides, in part:
"As used in this chapter, unless the context requires
otherwise, 	* * * 	'employment' 	means 	service 	for 	an
employer, including service in interstate commerce, within
or outside of the United States, performed for remuneration
or under any contract of hire, written or oral, express or
implied."
We observe at the outset that the legislature has
included in each of the statutory definitions set out above the
phrase "unless the context requires otherwise." That phrase

Cite as 345 Or 138 	143
means that, in some cases, the circumstances of a case may
require the application of a modified definition of the perti-
nent statutory terms to carry out the legislature's intent
regarding the statutory scheme. However, even when that
phrase is present in a statutory definition, we follow our stan-
dard interpretative methodology-beginning with the statu-
tory text and context. As part of that textual analysis, we
consider whether, in light of the factual context and the
entire statutory scheme, the use of a particular statutory def-
inition would be inappropriate because the result would con-
flict with one or more aspects of the legislature's intent. See
Astleford v. SAlF, 319 Or 225, 233, 874 P2d 1329 (1994) (leg-
islature's inclusion of phrase "except where the context other-
wise requires" means that a given statutory definition does
not apply when the context-including the structure and
purpose of the statutory scheme as a whole-demonstrates
that the use of that given definition would be inappropriate,
because the result of such use would conflict with one or more
aspects of the structure or purpose of the statutory scheme).
Accordingly, if the directors fall within the definition of
"employee," set forth in ORS 657.015, in that they are
employed for remuneration by the corporation, the payments
are 	subject 	to 	unemployment 	tax, 	"unless 	the 	context
requires otherwise."
Because petitioner is an Oregon corporation, we first
examine the statutes regulating corporations and directors to
determine the legislature's definition of the nature of the
relationship between directors and a corporation. Every reg-
istered corporation in Oregon is required to have a board of
directors. ORS 60.301(1). ORS 60.301(2) provides, in part,
that "[a]ll corporate powers shall be exercised by or under the
authority of, and the business and affairs of the corporation
managed under the direction of, the board of directors[.]"
Directors are elected by the corporation's shareholders, ORS
60.307, and shareholders may remove a director with or
without cause unless the articles of incorporation provide
otherwise. ORS 60.324. A judicial proceeding in a circuit
court is the only other method by which a director may be
removed. ORS 60.327. And, unless the articles of incor-
poration or bylaws of the corporation provide otherwise, the
board of directors may fix the compensation of directors.

144 	Necanicum Investment Co. v. Employment Dept.
ORS 60.334. Significantly, ORS 60.001(13) provides that an
"employee" of a corporation "includes an officer but not a
director, [but that a] director may accept duties that make
the director also an employee."
The legislative recognition in the corporation stat-
utes that a director is not an employee is also present in the
unemployment insurance and taxation statutes. For exam-
ple, ORS 657.044 provides, in part:
"(1) 	As used in this chapter, 'employment' does not
include service performed for:
"(a) 	A corporation by corporate officers who are direc-
tors of the corporation, who have a substantial ownership
interest in the corporation and who are members of the
same family if the corporation elects not to provide coverage
for those individuals."
That statute establishes an unemployment tax exemption for
service performed by certain corporate officers who are also
directors. As written, the statute thus begins with the
assumption that the remuneration of directors qua directors
is not subject to taxation, and adds to that exemption a fur-
ther exemption respecting any other (nondirectoral) service
performed by a director, if the corporation so elects. 4
4 We also note that ORS 657.030, which defines "employment" as set out above,
also provides, in part:
"(2) Notwithstanding any other provisions of this chapter, 'employment'
shall include service:
"(a) Which is subject to the tax imposed by the Federal Unemployment
Tax Act[.]"
In turn, the Federal Unemployment Tax Act (FUTA) defines "employee," in part, as
"(1) any officer of a corporation; or
"(2) any individual who, under the usual common law rules applicable in
determining the employer-employee relationship, has the status of an
employee; or
"(3) any individual (other than an individual who is an employee under
paragraph (1) or (2)) who performs services for remuneration for any person[.]"
IRC § 3121(d) (2007). A treasury regulation written in accordance with that rule
provides that
"Generally, an officer of a corporation is an employee of the corporation.
* * *A director of a corporation in his capacity as such is not an employee of the
corporation."
Treas Reg§ 31.3121(d)-l(b) (1980).

Cite as 345 Or 138 	145
Informed by the legislature's description of the rela-
tionship between directors and corporations, we conclude
that on the record before us there is no employer-employee
relationship between a corporation and its directors when the
directors are performing the duties imposed on them by stat-
ute. Directors exercise "all corporate powers" and direct the
management of a corporation's business and affairs, but
directors do not take direction from any officer or agent of the
corporation. Directors cannot be hired or fired by the corpo-
ration, but are elected and may be removed by the sharehold-
ers of a corporation. A corporation may decide not to provide
remuneration for its directors at all; when it does provide
such remuneration, that action by itself does not make a
director an "employee" for purposes of the unemployment
tax. To be sure, a director may also be an employee of a cor-
poration if the director is hired to perform other services,
however, a director acting only in that capacity is not an
employee.
We hold that the legislature did not intend to include
corporate directors, serving solely as directors, within the
statutory definition of an "employee" of a corporation for pur-
poses of the unemployment tax, because directors are not
"employed by" the corporation in the same sense as other per-
sons who perform "service for an employer* * * for remuner-
ation." ORS 657.030.
Because petitioner's directors were not acting as
employees in addition to their roles as directors, the ALl and
the Court of Appeals erred when they found that the fees that
petitioner paid to the directors were wages subject to the
unemployment tax. 5
The decision of the Court of Appeals is reversed. The
order of the Office of Administrative Hearings is reversed,
and the case is remanded to the Employment Department for
further proceedings.
5 Raymond Dodge was a corporate officer as well as a director for petitioner in
2003. There is no evidence in the record that the director's fee paid to Dodge was
paid for services performed in his capacity as corporate officer rather than director,
and the department made no argument that the fee paid to Dodge should be
treated differently than the fees paid to the other directors.