UNITED STATES OF AMERICA
DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY OF LABOR

 

 

U.S. DEPARTMENT OF LABOR
v.
State of Delaware Department of Labor; State of New Jersey Department of Labor and Industry; State of New York Department of Labor
 Conformity Proceedings ETA-1 (1979)

 

DECISION OF THE SECRETARY

Pursuant to section 3304(c) of the Federal Unemployment Tax Act (FUTA), 26 U.S.C. 3304(c), hearing was held before Administrative Law Judge Robert A. Briggs to determine whether the unemployment compensation laws (including the interpretation and implementation of said laws) in the States of Delaware, New Jersey and New York are: (1) in conformity with section 3304(a)(6)(B) and section 3309(a)(2) of FUTA for the 12-month period ending October 31, 1979, and (2) in substantial compliance with said requirements of FUTA for the 12-month period ending October 31, 1979. A recommended decision was rendered by Administrative Law Judge Briggs on October 11, 1979 and served on all parties on October 12, 1979. Administrative Law Judge Briggs recommended that I find that the State laws in issue are both in conformity and in substantial compliance with sections 3304(a)(6)(B) and 3309(a)(2) of FUTA.

Pursuant to the rules of procedure governing this proceeding (see the Federal Register of July 13, 1979, 44 FR 40959-40963) the parties of record, within ten days after the recommended decision and certification was mailed to them, were permitted to file a written Statement of Exceptions with the Administrative Law Judge setting forth any exceptions they may have had to the recommended decision. Only one party to the proceedings, the U.S. Department of Labor, filed a Statement of Exceptions by the filing deadline, October 22, 1979. Pursuant to paragraph 16 of the governing rules of procedure, I am now required to render a written decision in this matter. After reviewing the entire record in this case my decision is as follows.

The States of Delaware, New Jersey and New York have enacted legislation permitting non-profit organizations and State and local governmental entities to elect the reimbursement method of financing unemployment compensation costs in lieu of the payroll tax contribution method required to be used by profit-making employers. The Department of Labor did not take issue with this. In their interpretation and implementation of their laws, however, the three States have determined that, under certain circumstances, reimbursing employers need not reimburse the unemployment compensation fund for compensation1 paid out of that fund. The States have argued that section 3309(a)(2) of FUTA requires remibursement only of compensation attributable under the State law to service with the reimbursing employer. Therefore, since their laws do not attribute to service with the employer certain compensation paid out as an overpayment due to fraud, or due to computer error or other mistakes, or paid out due to service with a subsequent employer, reimbursing employers in their States are not required by section 3305(a)(2) to reimburse such compensation.

In its Statement of Exceptions and elsewhere in the record the Department of Labor has contended, in essence, that such a procedure constitutes noncharging" of employers, and that the concept of "noncharging," while relevant to contributing employers, is not relevant to reimbursing employers, which, it has contended, are required by section 3309(a)(2) to be self-insurers. In support of this argument, the Department introduced into the record several documents and rulings, principally a 1944 ruling of the Social Security Board which authorized the States, under certain circumstances, to "noncharge" (that is, refrain from charging a contributing employer's experience rating account) so long as they retained a reasonable method of measuring the employer's unemployment experience. In further support of its argument the Department cited as legislative history, the following sentences from the Report of the Committee on Finance, U.S. Senate (Senate Report No. 91-752), to accompany H.R. 14705, Employment Security Amendments of 1970:

I agree with the contentions of the Department of Labor, as set forth in the record, that the concept of "noncharging", as it has been developed and applied in the case of contributing employers, is not applicable with respect to reimbursing employers. It does not follow, however, that reimbursing employers must therefore reimburse all compensation paid out of the unemployment fund with respect to their former employees. Whether, or under what circumstances, a contributing employer may be "noncharged" has no relevance to the issue presented in this case. The issue presented in this case concerns whether, or under what circumstances, a reimbursing employer may be relieved from reimbursing. I find, therefore, that the Administrative Law Judge was correct in his characterization of the issue in this case, and was correct in deeming irrelevant those parts of the record, such as the 1944 Social Security Board ruling, which dealt with the issue of "noncharging" contributing employers.

The Administrative Law Judge was also correct in looking first to the statutory language to determine whether, or under what circumstances, a reimbursing employer may be relieved from reimbursing. It is a basic rule of statutory construction that one looks first to the statutory language, and, only if the statutory language is ambiguous or otherwise unclear, does one proceed to investigate the legislative history. With respect to the statutory language, the recommended decision stated, in relevant part:

I agree with the above-cited passage of the recommended decision. I therefore find, as a matter of law, that (1) a reimbursing employer must always fully reimburse the State unemployment fund whenever compensation, which is attributable to service with such employer, is paid out of such fund, (2) whether the compensation paid out is attributable to service with such employer is a matter to be determined under the provisions of the unemployment compensation law of the State, which reasonably interpret and implement section 3309(a)(2) of FUTA, (3) the provisions of State law in issue in this case, whereby compensation is not considered attributable to service with the reimbursing employer when it is paid out due to service with a subsequent employer, or when it is an overpayment due to fraud, or due to computer error or other mistake, are reasonable interpretations and implementations of section 3309(a)(2) of FUTA, and (4) a reimbursing employer may be relieved from reimbursing compensation paid out of the State unemployment fund with respect to its former employees whenever it is reasonably determined under such provisions of the State unemployment compensation law that the compensation paid out was not attributable to service with the reimbursing employer.

Although I have found that resort to the legislative history is unnecessary in light of the plain language of the statute, it is appropriate to make some comments with respect to the legislative history cited by the Department in the record (see above). The concepts of reimbursement and of reimbursing employers, which, for reason of important public policy, were introduced into FUTA by the Unemployment Compensation Amendments of 1970 and 1976, were, to some extent, a conceptual departure from the broad-based "insurance" concept underlying the unemployment compensation system whereby the risks, and thus the costs, of unemployment were spread among all those employers which contributed to the unemployment fund through the payroll tax. It is in this context, therefore, that the language of the Senate Report, cited above, should be understood. In stating that "In effect, the nonprofit organizations would be allowed to adopt a form of self-insurance," the Senate Report was explaining the compatibility of the new FUTA concepts of reimbursing and reimbursing employers with the insurance concepts underlying the unemployment compensation system. To understand the Senate Report's language as interpreting section 3309(a)(2) of FUTA to require "pure self-insurance" (i.e., strict liability) of reimbursing employers is to read too much into the language of the report.

Based on the foregoing, I adopt the findings of fact and conclusions of law of the Administrative Law Judge to the extent they are compatible with the reasoning in this decision. I find that the unemployment compensation laws of the States of Delaware, New Jersey and New York (including the interpretation and implementation of said laws), with respect to the issues herein relating to reimbursing employers, are in conformity with the Federal Unemployment Tax Act (FUTA), as amended, 26 U.S.C. 3301 et seq., and in substantial compliance with the Federal Unemployment Tax Act, as amended.

 

Signed at Washington, D.C.

this 31st day of October, 1979

 

Ray Marshall
Secretary of Labor

 

 

 

1.Section 3306(h) of FUTA defines compensation as follows:

To the extent the cash benefits are paid while the State has determined the individual is entitled, these benefits are payable, and as such are allowable compensation under section 3304(a)(4) of FUTA and section 303(a)(5) of the Social Security Act (which governs the use of money withdrawn from the unemployment fund).