A Minnesota appeals court ruled that a painter whose employer encouraged her to resign and form an LLC without disclosing that she would lose unemployment-benefit eligibility had good cause to quit, reversing the judge's denial of benefits.
Outcome: Reversed for relator.
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(as of 9/30/2026)
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What happened
The facts of the case, in plain language.
Rowan worked for Dream It, a licensed general contractor, for more than four years, from September 2006 until November 2010, primarily as a painter; after a temporary layoff in January 2009 she received unemployment benefits.
After her hours were reduced, Rowan formed her own LLC on November 9, 2010, at the suggestion of her supervisor Jim Herman and with the approval of vice president and co-owner Jeff Boehm, and her pay changed from hourly wages to a calculation based on square footage of areas painted.
At Dream It's request, Rowan signed a letter of resignation on November 9, 2010, while continuing to perform the same work; she worked approximately four more weeks, refused a job on December 9, 2010 over a payment-calculation dispute, and received no further offers of work.
On reconsideration, the ULJ ruled that neither Rowan nor her LLC was an employee of Dream It, reset the resignation date from December 9, 2010 to November 9, 2010, found she did not quit for good reason caused by the employer, and ordered repayment of $5,544 in benefits.
The court concluded Rowan had good reason to quit caused by Dream It because the idea to form the LLC originated with Dream It, which did not inform her that resigning would cost her unemployment-benefit eligibility, and an average reasonable employee facing reduced hours would have felt compelled to do the same.
What the court decided
Heather Rowan painted for Dream It, Inc., a licensed general contractor, for more than four years before her hours were reduced. At her supervisor's suggestion, with company approval, she resigned on November 9, 2010, formed her own LLC, and continued performing the same work as an independent contractor paid by square footage rather than hours. An unemployment-law judge initially found her eligible for benefits, but on reconsideration ruled that she ceased to be an employee once the LLC was formed, that she quit voluntarily to earn more while working less, and ordered repayment of $5,544 in benefits. The court of appeals reversed. Applying Minn.Stat. § 268.095, subd. 3(a), it reasoned that the idea to form the LLC originated with Dream It, that quitting cost Rowan her employee status, job certainty, and benefit eligibility, and that an average reasonable employee facing reduced hours would likewise resign under those circumstances.
- An employee whom the employer encourages to resign and form an LLC in order to continue the same work as an independent contractor has good reason to quit caused by the employer, and qualifies for unemployment benefits, when the idea originated with the employer, the employer did not disclose that resigning would forfeit unemployment-benefit eligibility, and an average reasonable employee facing reduced hours would have felt compelled to do the same. (*885)
- An LLC is not an employee of another entity under the statutory scheme governing construction workers, so a worker who resigns and forms an LLC while continuing the same work ceases to be an employee of the contracting entity as of the LLC's formation. (*882)
- A determination that a worker ceased to be an employee upon forming an LLC changes the effective date of resignation but does not mandate a finding that the worker lacked good cause to quit; the good-cause inquiry under Minn.Stat. § 268.095, subd. 3(a) remains independent of the employee-status conclusion. (*883)
How the court reached its decision
The court's reasoning, step by step.
Whether Rowan quit her employment for good reason caused by Dream It under Minn.Stat. § 268.095, subd. 3(a) when she resigned at the employer's encouragement to form her own LLC. The idea for Rowan to resign and form an LLC originated with Dream It, whose supervisor and co-owner encouraged it after reducing her hours; her reasons for quitting were directly related to her employment and Dream It was responsible because it never disclosed that resignation would end her unemployment-benefit eligibility and the assurance of offered work. Losing employee status, certainty of work, and benefit eligibility—consequences especially acute in seasonal construction work—was adverse to Rowan, and an average reasonable employee whose hours were reduced and who was urged by her employer to resign without disclosure of these negative consequences would feel compelled to quit. Rowan had good reason to quit caused by Dream It on November 9, 2010, is qualified to receive unemployment benefits under Minn.Stat. § 268.095, subd. 1(1), and the ULJ's decision upon reconsideration is reversed.
Whether the determination that Rowan ceased to be an employee upon forming her LLC required the ULJ to find that she lacked good cause to quit. The ULJ relied on Nelson to reset Rowan's resignation date to November 9, 2010, and asserted that Nelson rendered his earlier good-cause finding legally incorrect and mandated reversal; the court disagreed, concluding that Nelson affected only Rowan's status as an employee and the resignation date, not the evaluation of good cause. Nelson's employee-status holding is not determinative of good cause; the court independently evaluated whether Rowan quit for good reason caused by Dream It and found that she did.
Key quotes from the opinion
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Cases the court relied on
Earlier decisions the court cited as authority for its ruling.
Minnesota statutes cited
Sections of the Minnesota Statutes this opinion cites.
Cases that cite this one
24 later published cases cite this decision.
- Benson Giwa, Relator v. Wal-Mart Associates, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2014)
- Anthony Browne, Relator v. M. A. Mortenson Company, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2017)
- Crystal Longtin, Relator v. EEG, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Brent D. Griffith, Relator v. Minnesota Department of Human Services, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Lee Xiong, Relator v. Water Gremlin Co. (Corp.), Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Orin Vann, Relator v. Texas Roadhouse Holdings LLC - Texas Roadhouse, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Roger Stoltz, Relator v. SMSC Gaming Enterprises - Mystic Lake Casino, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Sharon Anderson, Relator v. YUM Design, LLC, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Velma Ostman, Relator v. Range Center, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Patti L. Davies, Relator v. Donaldson Company, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Nikol Dowls, Relator v. Select Comfort Retail Corporation, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Yitagesu Wolde, Relator v. Minnesota Department of Veterans Affairs, Department of Employment and Economic Development (Minn. Ct. App. 2016)
- Robert S. Paxton, Relator v. Ind. School District 047, Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Michael Mudek, Relator v. Redtail Management, Inc. � Billy�s Bar & Grill at Breezy Point, Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Kennedy N. Mogere, Relator v. Minnesota Masonic Home Northridge (Corp.), Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Lorraine Rosenthal, Relator v. Cardinal of Minnesota, Ltd., Department of Employment & Economic Development (Minn. Ct. App. 2015)
- Wajiha Shirin Shah, Relator v. IMI's MN, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Mary D. Isaacson, Relator v. The Anthem Companies, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Angela Watson, Relator v. St. Stephen's Human Services, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2015)
- Lamont P. Mays, Relator v. Rosenbauer Motors, LLC, Department of Employment and Economic Development (Minn. Ct. App. 2015)
- John L. Corrigan, Relator v. North Metro Harness Initiative, LLC, Department of Employment and Economic Development (Minn. Ct. App. 2015)
- In the Matter of the Estate of Glen A. Waterman, Jingles Ti-Okay Waterman (Iowa 2014)
- John Matheson, Relator v. Progressive Action - Minnesota, Department of Employment and Economic Development (Minn. Ct. App. 2014)
- Jami Sternquist, Relator v. PAL Management, Inc., Department of Employment and Economic Development (Minn. Ct. App. 2014)
This list shows which later cases cite this one. It does not say how they treated it, and no review of that has been done. Not a substitute for Shepard’s or KeyCite — verify before relying.
Full opinion
The complete text of the court's opinion as published.
Opinion of the Court
Relator Heather Rowan appeals the decision issued by an unemployment-law judge (ULJ) determining that she is ineligible for unemployment benefits and finding overpayment of benefits in the amount of $5,544. Rowan argues that she was given good cause to quit her job because respondent-employer Dream It, Inc. encouraged her to form her own limited liability company (LLC), without informing her of the negative consequences of giving up her employment status. We reverse.
FACTS
Rowan was an employee of Dream It, a licensed general contractor, for more than four years, from September 2006 until November 2010. She worked primarily as a painter, handling interior and exterior painting and staining, but she also helped with various other projects. In January of 2009, Rowan was temporarily laid off and received unemployment benefits. On November 9, 2010, Rowan formed her own LLC and continued to work for Dream It as an independent contractor.
Rowan formed her LLC at the suggestion and encouragement of Jim Herman, her immediate supervisor, and with the approval of Jeff Boehm, the vice president and co-owner of Dream It, after her hours had been reduced. One advantage of forming an LLC that Rowan discussed with Dream It was a change in how her pay would be calculated. As an independent contractor, her pay would be calculated by the square footage of the areas she painted rather than by the hours she spent
Rowan submitted her self-supplied insurance forms to Dream It, as required by all subcontractors working for Dream It, on November 9, 2010. Dream It then wanted Rowan to sign a letter of resignation, although she would continue to come in to work each day and do the exact same work she had done previously, and Rowan complied.
Rowan applied for unemployment benefits and the Department of Employment and Economic Development (DEED) determined that she is ineligible.
The ULJ determined that Rowan quit because Dream It offered her only $180 worth of work for the week of December 9, 2010, which was a 60% reduction in her weekly earnings. In applying Minn.Stat. § 268.095, subd. 3(a), the ULJ found that Rowan’s weekly earnings were directly related to her employment with Dream It; that Dream It was responsible for finding enough work for Rowan to make sufficient weekly earnings; and that the decrease in earnings was adverse to Rowan. As a result, the ULJ found that an average reasonable employee would quit in that situation, and therefore Rowan quit for good reason caused by her employer.
Dream It appealed the decision and filed a request for reconsideration. The ULJ issued a decision upon reconsideration, determining that Rowan is ineligible for unemployment benefits and finding an overpayment of benefits amounting to $5,544. The ULJ reversed the previous finding that Rowan was an employee and ruled instead that neither she nor the LLC she had formed was an employee of Dream It. In addition, the ULJ affirmed the previous finding that Rowan quit, but changed the resignation date from December 9, 2010, to November 9, 2010, the day Rowan signed her resignation letter and incorporated her LLC. The ULJ then reevaluated whether Rowan quit for good reason caused by Dream It on November 9, 2010.
Despite his previous findings, the ULJ determined on reconsideration that Rowan did not quit for good reason caused by
ISSUE
Did the ULJ err when he determined that Rowan had not quit her employment for good reason caused by Dream It?
ANALYSIS
“This court may reverse or modify the ULJ’s decision if the substantial rights of a petitioner may have been prejudiced because, among other things, the decision is affected by an error of law or is unsupported by substantial evidence in view of the entire record as submitted.” Nelson v. Levy, 796 N.W.2d 386, 339 (Minn.App. 2011). “We view the ULJ’s factual findings in the light most favorable to the decision, giving deference to the credibility determinations made by the ULJ. In doing so, we will not disturb the ULJ’s factual findings when the evidence substantially sustains them.” Skarhus v. Davanni’s Inc., 721 N.W.2d 340, 344 (Minn.App. 2006) (citations omitted).
The Minnesota unemployment insurance program
is remedial in nature and must be applied in favor of awarding unemployment benefits. Any legal conclusion that results in an applicant being ineligible for unemployment benefits must be fully supported by the facts. In determining eligibility or ineligibility for benefits, any statutory provision that would preclude an applicant from receiving benefits must be narrowly construed.
Minn.Stat. § 268.031, subd. 2 (2010).
Rowan was an employee of Dream It from September 2006 until November 2010. She signed a letter of resignation at the request of her employer on November 9, 2010, incorporated her LLC, and continued working for Dream It doing the same work but no longer as an employee. The ULJ determined that Rowan ceased being an employee of Dream It beginning on November 9, 2010. In doing so, the ULJ relied on the holding in Nelson, 796 N.W.2d at 336. In that case, this court determined that “[ujnder the current statutory scheme for determining whether a construction worker is an employee or an independent contractor, we conclude that an LLC is not an employee of another entity.” Id. at 343. The court based its reasoning on the language of MinmStat. § 181.723, subds. 1(d), 3 (2010), which specifies that only an individual, defined as a human being, can be considered an employee.
Consequently, Rowan cannot claim to be an employee of Dream It after November 9, 2010, because the clear language of the law as interpreted by this court in Nelson precludes such a claim. Rowan can be an employee of her LLC, but the LLC cannot be an employee of a general contractor like Dream It. However, that decision is not determinative as to whether Rowan had good cause to quit.
In his final decision, the ULJ stated that Nelson “rendered the undersigned’s previous decision in this case legally incorrect, and mandated a reversal of that decision.” We disagree. While Nelson did render the ULJ’s earlier decision incorrect as to Rowan’s status as an employee after forming the LLC and resulted in a change in the date of resignation from December 9, 2010, to November 9, 2010, it did not man
Did the ULJ err when he determined that Rowan had not quit her employment for good reason caused by Dream It?
Rowan argues that Dream It gave her good reason to quit her position when Herman encouraged her to form an LLC but failed to inform her of the consequences of giving up her employment status. The ULJ held that Rowan did not have good reason caused by her employer because she quit to earn more money and work fewer hours. The ULJ determined that Dream It was not responsible for this decision. We disagree.
“Whether an employee had good cause to quit is a question of law, which we review de novo.” Johnson v. Walch & Walch, Inc., 696 N.W.2d 799, 800 (Minn.App. 2005), review denied (Minn. July 19, 2005); see also Rootes v. Wal-Mart Assocs., Inc., 669 N.W.2d 416, 418 (Minn.App. 2003).
Good cause is defined as:
A good reason caused by the employer for quitting is a reason:
(1) that is directly related to the employment and for which the employer is responsible:
(2) that is adverse to the worker; and
(3) that would compel an average, reasonable worker to quit and become unemployed rather than remaining in the employment.
Minn.Stat. § 268.095, subd. 3(a). “The definition of a good reason caused by the employer for quitting employment provided by this subdivision is exclusive and no other definition applies.” Id., subd. 3(g) (2010). Thus, we must examine the provisions of this subdivision.
Rowan had good reason to quit caused by Dream It. The idea to have Rowan quit her employment and form an LLC originated with, and was suggested by, Dream It. Previously, when work slowed down in early 2009, Dream It had laid Rowan off and Rowan had received unemployment benefits. In November of 2010, as the work slowed down again, her supervisor, Herman, with the approval of Dream It’s co-owner, Boehm, encouraged her to form an LLC. She was advised that after forming an LLC, she would be paid by the square footage of areas she painted, rather than by the hours she worked. A letter of resignation was requested from her, and at no time was she advised of the negative consequences she would suffer in giving up her position with the company.
The reasons why Rowan quit her position with Dream It, to reduce the number of hours she worked and to maintain equivalent or greater pay, are directly related to her employment. Dream It was responsible for encouraging Rowan to form her LLC because Herman emphasized that she would not have to work as many hours to earn more money, but he
Dream It’s decisions to reduce Rowan’s hours and to shortly thereafter inform her of the advantages of forming an LLC, without discussing the disadvantages, were adverse to Rowan because they led to her quitting her job. By quitting and forming the LLC — as advised by her employer — she simultaneously lost her status as an employee, any certainty in obtaining work, and her eligibility to receive unemployment benefits, “a temporary partial wage replacement to assist the unemployed worker to become reemployed.” Minn.Stat. § 268.03, subd. 1 (2010). Because Dream It was not required to offer Rowan’s LLC jobs, she also lost the guarantee of sufficient hours. These circumstances are especially adverse in an industry such as the construction industry that experiences seasonal work shortages. The legislature has recognized the particularly adverse consequences of seasonal employment by providing that employees who report that they are laid off because of lack of work are immediately eligible for unemployment benefits, without further inquiry by DEED as to the reason for separation, provided that other requirements are met. Minn.Stat. § 268.101, subd. 1(a) (2010); see, e.g., Minn.Stat. § 268.085, subd. 1 (2010) (setting out eligibility conditions to receive unemployment benefits). In contrast, employees who report separation from employment for any other reason present an issue of ineligibility that must be first decided by DEED. Minn.Stat. § 268.101, subd. 1(a).
An average reasonable employee would be compelled to quit in this situation. “In order to constitute good cause, the circumstances which compel the decision to leave employment must be real, not imaginary, substantial not trifling, and reasonable, not whimsical; there must be some compulsion produced by extraneous and necessitous circumstances.” Ferguson v. Dep’t of Emp’t Servs., 311 Minn. 34, 44 n. 5, 247 N.W.2d 895, 900 n. 5 (1976) (quotation omitted).
Rowan had her hours reduced before she formed her LLC. Dream It encouraged her to form her LLC based on the reasoning that she could make more money and work fewer hours. Faced with the continued reduction of her hours, an average reasonable employee who was encouraged by her supervisor to resign and form an LLC, but who was not informed of the negative consequences of losing her employee status, would choose to resign.
Finally, Dream It was aware that Rowan’s hours were decreasing and, rather than laying off Rowan and allowing her to remain eligible for unemployment compensation as it had in the past, instead advised Rowan to quit work and form an LLC. This flies in the face of public policy, because those not classified as employees “miss out on legal protections including the Fair Labor Standards Act, Workers Compensation, and Unemployment Insurance.”
DECISION
When Dream It encouraged Rowan to resign her employment and form her own LLC, but did not inform her that she would no longer be eligible for unemployment benefits once she did so, she had good reason to quit caused by the employer. Rowan is qualified to receive unemployment benefits under Minn.Stat. § 268.095, subd. 1(1) (2010). We reverse the decision of the ULJ.
Reversed.
. Rowan testified that on November 9, Paula Boehm, the president and co-owner of Dream It, informed her that she could not work for any company other than Dream It, and she did not do so. Boehm denied that such a restriction was imposed. The ULJ made no finding on this issue.
. The original determination of ineligibility was based on the fact that Rowan’s "self-employment” in the LLC was not covered by unemployment insurance.
. The decision upon reconsideration issued by the ULJ is incomplete. The ULJ states that Rowan did not quit her employment for good reason caused by Dream It. He then proceeds to explain his reasoning, but the text of his reasoning ends in the middle of a word:
Rowan quit so that she could work under the auspices of her own LLC because she believed doing so would allow her to earn more and work less. [Dream It] was not responsible for Rowan's decision to form [her LLC], Rowan made the decision, hired the lawyer to form [her LLC], and obtai
It appears the portion missing would be further reasoning for the ULJ’s legal conclusion that Rowan did not quit for good cause. Since this court reviews de novo the legal issue of whether Rowan had good reason to quit caused by Dream It, the missing analysis does not prejudice either party.
. This reasoning is distinguishable from the situation contemplated by Minn.Stat. § 268.095, subd. 3(e) (2010), which states, “Notification of discharge in the future, including a layoff because of lack of work, is not considered a good reason caused by the employer for quitting.” Rowan did not quit based on such notification by Dream It. Her hours had been reduced because of lack of work, but Dream It never indicated that she would be discharged in the future.
. Minn. Dep’t of Labor & Indus., Advisory Task Force on Employee Misclassification Report to the 2011-2012 Biennium, 87th Legislature (May 13, 2011), http://www.doli.state.mn.
Continue your research
- Minnesota cases applying the § 268.095, subd. 3(a) good-cause test to employer-initiated resignations or conversions to independent contracting
- Later decisions citing Rowan v. Dream It on unemployment eligibility after forming an LLC
- Secondary literature on employee misclassification and loss of unemployment-insurance coverage
Case-law data current through September 30, 2026. Source: CourtListener bulk data.