UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 1126
 

TO:	ALL STATE EMPLOYMENT SECURITY AGENCIES
SUBJECT:	The Java Decision

On April 26, the United States Supreme Court issued the decision in California Department of Human Resources Development v. Java.  The Court upheld the decision of the District Court that section 1335 of the California Unemployment Insurance Code is inconsistent with the requirements of section 303(a)(1) of the Social Security Act.

Section 1335 of the California law provides that, if an appeal is taken from a determination awarding benefits, the benefits in issue are not to be paid until the appeal has been decided.

Section 303(a)(1) of the Social Security Act makes it a condition of grants to a State for administration of its unemployment insurance law that the State law shall provide for such methods of administration "as are found by the Secretary of Labor to be reasonably calculated to insure full payment of unemployment compensation when due."

Reviewing the history of the Social Security Act led the Court to "the conclusion that 'when due' was intended to mean at the earliest stage of unemployment that such payments were administratively feasible after giving both the worker and the employer an opportunity to be heard."

The Court said: "We conclude that the word 'due' in section 303(a)(1) when construed in the light of the purposes of the Act, means the time when payments are first administratively allowed as a result of a bearing of which both parties have notice and are permitted to present their respective positions; . . ." The Court decided that the California pre-determination fact finding interview in the agency's local office constitutes such a hearing even though it is informal and does not contemplate taking evidence in the traditional judicial sense. The employer, as well as the claimant, having had notice of the time and place of this interview, had an opportunity to present his position.

In concluding its opinion, the Court stressed that its reading of the statute "gives effect to the congressional objective of getting money into the pocket of the unemployed worker at the earliest point that is administratively feasible."

The decision of the Court in this case was specifically with respect to the California law and procedure. However, we consider the construction which the Supreme Court has placed upon the Federal law to be binding upon the Secretary of Labor. Accordingly, it is necessary that we re-examine the unemployment insurance laws and procedures of all States to determine whether they provide assurance of consistency with section 303(a)(1) as now interpreted by the Supreme Court.

To meet the Court's interpretation, as we view it, a State's law and procedure must provide for:

1. Paying benefits promptly, after a determination has been made in the claimant's favor, regardless of the pendency of the appeal period or of any appeal that has been taken from the determination; and

2. Providing reasonable notice to both the claimant and employer of the time and place of the pre-determination fact finding hearing.

The form of the pre-determination hearing may be a most informal interview procedure in a simple case involving, for example, a single claimant and a separation issue or a fuller type of hearing in cases involving multiple claimants and difficult issues of fact or law.⁽¹⁾ No matter how informal the procedure the claimant and the employer must be given reasonable notice thereof in order to afford them an opportunity to be heard.  Employers are not required to appear but if they choose to do so they must be given a full opportunity to furnish the claims examiner with information on the issues.  States may, and are expected to continue to, use in the determination process information obtained from claimants and employers, as in the past, by telephone and in written statements.

In developing their procedures State agencies must be mindful of the court's emphasis on the necessity for prompt payment of unemployment insurance.  "The object of Congress," said the court. "was to provide a substitute for wages lost during a period of unemployment not the fault of the employee.  Probably no program could be devised to make insurance payments available precisely on the nearest payday following the termination, but to the extent that this was administratively feasible this must be regarded as what Congress was trying to accomplish."

Since time is of the essence, we urge States to construe their laws, if possible, to accommodate to the Supreme Court's requirements.

Each State agency is requested immediately to undertake a review of its law and to advise us promptly via the regional office, and in any case no later than July 1, 1971, whether in its view the State law now provides for or permits paying benefits in accordance with a determination during the period when an appeal from that determination may be filed and during the period when such an appeal is pending.

Incorporating in State pre-determination procedures the elements of notice and opportunity to be heard that constitute the second requirement under the Court's decision does not, as we see it, require statutory amendment.  Except for North Carolina (which uses a hearing procedure in making its nonmonetary determinations), none of the States, to the best of our knowledge, now provides such notice and opportunity to both the claimant and employer before making a determination.  However, we do not believe it would be inconsistent with any State law for a State agency to modify its determination procedures to include these elements.  Some States, may, of course, wish to amend their laws to provide for such notice and opportunity to be heard so as to assure themselves of specific authority for such a procedural change.

In order to avoid presentation to the Secretary for hearing of a question of their laws' conformity with section 303(a)(1), State agencies should take the necessary corrective actions at the earliest available opportunity.  Because States are differently situated, that has different meanings among the States.

States whose laws permit or can be interpreted to permit actions which accord with the Court's interpretation should issue appropriate interpretations and procedures to provide (1) for the necessary notice and hearing opportunity to claimants and employers prior to determinations and (2) for benefit payments in accordance with determinations in favor of claimants during appeal periods and the pendency of appeals.  These should be accomplished as quickly as possible, but not later than September 1, 1971.

States whose statutes require change and whose legislatures are in regular sessions now can act this year.  Other States, where this cannot be done this year can take action at regular sessions next year.  Still other States will require a special legislative session.  No State, however, should delay obtaining such legislative change later than March 31, 1972.  The time limitations suggested for corrective action mean that the Secretary will not take steps to withhold grants in advance of such time limitations. These time limitations are to be considered applicable unless a State demonstrates that because of special circumstances it is precluded from taking the necessary corrective action.  In such cases, a special request for an exception may be presented to the Secretary.

If suits are brought by claimants against a State agency, under the authority of the Java decision, to enjoin the State agency from withholding or suspending benefit payments during the appeal period or the pendency of an appeal, Courts may grant injunctions requiring an immediate change of the State's practice.  In a few States, class actions modeled on the Java case were already pending in Federal district courts at the time the Supreme Court decision was issued.

We will be glad to provide States with necessary technical assistance in drafting the legislative amendments that will be needed. We plan shortly to provide all States with suggested draft language for their consideration and use.

The Court's decision has other, non-legislative effects.  It gives new weight to the determination and requires a reappraisal of the determination process to assure both that it can support that new weight and that it meets reasonable norms of promptness. Accordingly, we propose to review the Secretary's standard for determinations (sections 6010-6015 of the Employment Security Manual) and undertake any revisions that may be needed.

In our view, providing that both claimants and employers are given notice of the time and place of pre-determination fact finding hearings and an opportunity to present their respective positions need not delay the determination process but does suggest the inclusion in the standard of existing norms for promptness of determination.  With respect to non-monetary determinations, that norm is: "Determinations involving separation issues are mailed or delivered within 10 days, and those involving other issues within 7 days, of the date of filing for a week of unemployment which would have been credited as a waiting week or a compensable week, except for i.e., were it not for the existence of an unresolved non-monetary determination issue."

(Management Improvement of State Unemployment Insurance Program: Self-appraisal Outline, June 1969, p. 68)

To keep to a minimum the impact of overpayments that may result from modifications or reversals of benefit determinations on appeals, attention needs to be given not only to quality at the determination level but also to expediting the processing of all appeals.  An Appeals Promptness Project is already under way; fact finding surveys have already started in a ten-State sample study.  Recommendations resulting from this study should be available in late summer or early fall of 1971.

That there are budgetary aspects to implementation of the Court's interpretation is clear but their nature and dimension are not yet adequately known.  Recently, before the Java decision was issued, the regional offices were asked to ascertain from the State agencies their estimates of the resources they would need because of the decision.  The answers, then necessarily speculative, can be given more meaningfully now that the Court's decision is available.  We will ask the regional offices to re-solicit the State agencies for their revised replies.

In this respect, we are fortunate to have available the training appropriation authorization added by section 141 of P.L. 91-373 (section 907 of the Social Security Act) with its specific reference to meeting training needs for "claims determination and adjudication."  We expect appropriations will be made pursuant to such authorization.

PAUL J. FASSER, JR.
Deputy Assistant Secretary
for Manpower and
Manpower Administrator

1. Many State laws now authorize the State agency to transfer cases involving difficult issues of fact or law and multiple claimants to the appeal tribunal or the board of review for a fair hearing before the initial determination is made.  We believe that such a procedure is consistent with the court's decision in Java and should be incorporated in all State laws.