Ibarra v. Texas Employment Com'n

• Citation: 823 F.2d 873
• Decision Date: 06 August 1987
• Docket Number: No. 86-2762,86-2762
• Parties: Fidel B. IBARRA, Jr., et al., Plaintiffs-Appellees, v. TEXAS EMPLOYMENT COMMISSION, Defendant-Appellant, v. UNITED STATES DEPARTMENT OF LABOR and United States Immigration and Naturalization Service, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 873

823 F.2d 873

Fidel B. IBARRA, Jr., et al., Plaintiffs-Appellees, v. TEXAS EMPLOYMENT COMMISSION, Defendant-Appellant, v. UNITED STATES DEPARTMENT OF LABOR and United States

Immigration and Naturalization Service,

Defendants-Appellees.

No. 86-2762.

United States Court of Appeals, Fifth Circuit.

Aug. 6, 1987.

Jim Mattox, Atty. Gen., Lou Bright, Suzanne Formby, J. Patrick Wisemen, Asst. Attys. Gen., Austin, Tex., for defendant-appellant.

John F. Cordes, Dept. of Justice, Washington, D.C., Katherine S. Gruenheck, East Texas Legal Services, Inc., Nacogdoches, Tex., Farmworker Justice Fund, Inc., Kristine A. Poplawski, Washington, D.C., Richard S. Fischer, Nacogdoches, Tex., for U.S. Dept. of Labor & U.S. INS.

Appeal from the United States District Court for the Eastern District of Texas.

Before CLARK, Chief Judge, RANDALL, and DAVIS, Circuit Judges.

CLARK, Chief Judge:

The Texas Employment Commission (TEC) entered into a consent decree with plaintiff class of aliens defining what categories of aliens are "permanently residing in the United States under color of law" and thus eligible to receive unemployment compensation from TEC. See 26 U.S.C. Sec. 3304(a)(14)(A); Tex.Rev.Civ.Stat.Ann. art. 5221b-1(h)(1) (Vernon 1987). Before the district court gave final approval to the decree, the Department of Labor (DOL) informed TEC that it considered the consent decree inconsistent with federal law and warned that it might institute compliance proceedings. TEC sought to withdraw from the consent decree, but the district court refused and gave final approval to the decree. We conclude that the district court abused its discretion in approving the consent decree and reverse.

I.

Unemployed workers receive compensation through a cooperative federal-state scheme. Wimberly v. Labor & Indus. Relations Comm'n, --- U.S. ----, 107 S.Ct. 821, 824, 93 L.Ed.2d 909 (1987). The Federal Unemployment Tax Act (FUTA), 26 U.S.C. Secs. 3301-3311, does not mandate state participation; rather, by providing federal grants and tax credits FUTA creates incentives for states to adopt employment security programs that comply with minimum federal standards. New Hampshire Dep't of Employment Sec. v. Marshall, 616 F.2d 240, 241 (1st Cir.), cert. denied, 449 U.S. 806, 101 S.Ct. 53, 66 L.Ed.2d 10 (1980). Through its tax the scheme derives funds used principally to defray administrative expenses. Through its incentives, the scheme makes it advantageous for states to impose taxes which create funds for compensation payments to employees.

FUTA imposes an excise tax on total wages paid by employers. 26 U.S.C. Sec. 3301. The Act also provides that employers are entitled to a credit of up to 90% of their FUTA tax liability for contributions to a certified state unemployment compensation program. Id. Sec. 3302. An amount equal to the proceeds from the FUTA tax is deposited in the employment security administration account of the federal Unemployment Trust Fund. 42 U.S.C. Sec. 1101(b); see id. Sec. 1104(a). The Trust Fund then makes this money available to assist certified states in administering their unemployment compensation programs. Id. Secs. 501, 1101(c)(1)(A).

To be certified, a state law must comply with the requirements of 26 U.S.C. Sec. 3304(a). ¹ The two specific provisions of section 3304 involved in this case require the state law to provide that

(4) all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation, exclusive of expenses of administration [subject to exceptions not at issue here];

* * * [and] (14)(A) compensation shall not be payable on the basis of services performed by an alien unless such alien is an individual who was lawfully admitted for permanent residence at the time such services were performed, was lawfully present for purposes of performing such services, or was permanently residing in the United States under color of law at the time such services were performed (including an alien who was lawfully present in the United States as a result of the application of the provisions of section 203(a)(7) or section 212(d)(5) of the Immigration and Nationality Act)....

DOL must approve a complying state law within 30 days of a state's request for approval. Id. Sec. 3304(a).

DOL certifies all approved states to the Department of the Treasury on October 31st of each year. Id. Sec. 3304(c). Before refusing to certify a state, DOL must hold a hearing after giving reasonable notice to the state agency. Id. At the hearing the state has the opportunity to argue and present evidence. 20 C.F.R. Sec. 601.5(d) (1987). If DOL decides to withhold certification, the state can seek judicial review. 26 U.S.C. Sec. 3310(a). Commencement of judicial review proceedings automatically stays agency action for 30 days. Id. Sec. 3310(d)(2). ²

Texas, along with the other 49 states, has chosen to participate in FUTA. St. Martin Evangelical Lutheran Church v. South Dakota, 451 U.S. 772, 775 n. 3, 101 S.Ct. 2142, 2144 n. 3, 68 L.Ed.2d 612 (1981). Texas employers are subject to a state tax on total wages paid. Tex.Rev.Civ.Stat.Ann. art. 5221b-5 (Vernon 1987). Money received by the state from the tax is deposited in the clearing account of the Texas Unemployment Compensation Fund. Id. art. 5221b-7(a), (b). Money in the clearing account is in turn deposited in Texas' account in the federal Unemployment Trust Fund. Id. art. 5221b-7(b); see 42 U.S.C. Sec. 1104(a). When Texas needs money to pay benefits, it requisitions money from its account in the Trust Fund. Tex.Rev.Civ.Stat.Ann. art. 5221b-7(c) (Vernon 1987); see 42 U.S.C. Sec. 1104(f). The money goes into the benefit account in the Texas Compensation Fund, from which it is paid out to claimants. Tex.Rev.Civ.Stat.Ann. art. 5221b-7(b), (c) (Vernon 1987).

To be eligible for unemployment benefits under Texas law, an individual must (1) register for work at and continue to report to an employment office; (2) file a claim for benefits; (3) be able to work; (4) be available for work; (5) meet statutory wage credit requirements during his or her base period, consisting of the first four completed calendar quarters within the five quarters immediately preceding the filing of a claim, Tex.Admin.Code tit. 40, Sec. 301.1 (1985); and (6) be unemployed for seven consecutive days in which the above requirements are met and in which the individual is not disqualified for benefits. Tex.Rev.Civ.Stat.Ann. art. 5221b-2 (Vernon 1987). Texas law disqualifies aliens from receiving benefits unless they are of a status permitted to receive benefits under FUTA. The Texas statute incorporates the federal language verbatim, id. art. 5221b-1(h), and adds that any modification in the federal statute is applicable under Texas law, id.

II.

Plaintiffs Fidel B. Ibarra, Jr. and Mario Esparza are citizens of Mexico whose claims for unemployment compensation were denied by TEC. On March 28, 1983, they filed a class action against TEC, its commissioners, and the manager of the Lufkin, Texas office of TEC seeking relief under 42 U.S.C. Sec. 1983 for violations of the United States Constitution and federal statutes. Plaintiffs' complaint as amended alleged that TEC orally denied claims, subjected plaintiffs to unreasonable delays in adjudicating their claims, provided inadequate English-Spanish interpreters at appeals hearings, and distributed all forms and notices exclusively in English. The complaint also asserted that TEC denied benefits to eligible aliens by improperly construing the requirement that aliens be "permanently residing in the United States under color of law" to require that aliens produce Immigration and Naturalization Service (INS) work authorization.

On August 14, 1984, at a hearing to determine whether the suit could be maintained as a class action, the parties informed the district court that they had settled all issues except the meaning of the phrase "permanently residing under color of law." The district court then certified the plaintiff class as all individuals who have been denied unemployment compensation benefits in Texas because they were unable to produce INS work authorization. Ibarra v. Texas Employment Comm'n, 598 F.Supp. 104, 110 (E.D.Tex.1984). Subsequently TEC sought to join DOL and INS as necessary parties and requested leave to file cross-claims against them. The district court sua sponte ordered joinder of DOL and INS, but then redesignated them as amici curiae and refused to allow TEC to file cross-claims.

Amici filed a brief outlining their interpretation of "permanently residing under color of law." After receiving the amicus brief, the parties reached a final settlement. The proposed final consent decree provided that TEC would define permanently residing in the United States under color of law "to include those aliens of whose presence in the United States [INS] is aware and with regard to whom there has been an affirmative case-specific or class-specific determination that allows the alien to remain in the United States for an indefinite period of time." (emphasis in original). The decree went on to list specific categories of aliens that the parties agreed met this definition. ³ This construction of alien eligibility was to apply to both wage credit and availability for work determinations by TEC. The district court gave preliminary approval to the decree.

On April 22, 1986, TEC received a letter from DOL stating that DOL believed several provisions of the consent decree to be inconsistent with federal law and warning that compliance proceedings might be instituted against TEC. DOL objected to the inclusion of several specified categories of aliens in the consent decree as contrary to its interpretation of "permanently residing in the United States under color of law." 26 U.S.C. Sec. 3304(a)(14)(A). DOL also maintained that federal law requires states to pay benefits only to aliens who had INS work...