B. F. Goodrich Co. v. Director of Division of Employment Sec.

Decision Date11 January 1979
Citation385 N.E.2d 262,6 Mass.App.Ct. 784
PartiesThe B. F. GOODRICH COMPANY v. DIRECTOR OF the DIVISION OF EMPLOYMENT SECURITY.
CourtAppeals Court of Massachusetts

Paul V. Power, Boston (Maxwell D. Solet, Watertown, with him), for plaintiff.

Frank J. Scharaffa, Asst. Atty. Gen., for the Director of the Division of Employment Security.

Before HALE, C. J., and GOODMAN and GRANT, JJ.

GOODMAN, Justice.

By this action the plaintiff attacks the method used by the Division of Employment Security (division) in adjusting the contributions previously paid by the plaintiff under the Employment Security Law. G.L. c. 151A. The adjustments were occasioned by payments from the Federal government to the Commonwealth as reimbursement for unemployment compensation benefits which the division had paid to the plaintiff's former employees who had also been eligible, when their jobs were terminated, for allowances under the Trade Expansion Act of 1962 (sometimes herein referred to as the Act) (Pub.L. 87-794, 76 Stat. 872 (1962), codified in 19 U.S.C. §§ 1801 et seq. (1964)), to be discussed hereafter in this opinion. The action was heard on the pleadings, a "partial stipulation of facts" (filed in two parts), and three exhibits (letters between the parties). Judgment was entered dismissing the complaint, and the plaintiff appealed; it contends that the accounting procedure followed by the division in making the adjustment was in violation of the provisions of § 323(g) of the Trade Expansion Act of 1962, 19 U.S.C. § 1942(g), which provided for such reimbursement 1 and that apart from the Act the accounting procedure as applied in this case was arbitrary and capricious in violation of the State and Federal Constitutions. We affirm the judgment.

We first outline generally the method of calculating the contributions payable by employers under the Unemployment Compensation Law during the relevant period. 2 Such contributions required of employers covered by that law (see G.L. c. 151A, § 8) are pooled in an unemployment compensation fund so that they are "available to pay benefits . . . irrespective of the source of such moneys" (G.L. c. 151A, § 48, as amended by St.1966, c. 560, § 5) and are deposited in an unemployment trust fund in the United States Treasury to the credit of the Commonwealth. See G.L. c. 151A, § 50(B ), and 42 U.S.C. § 1104. The contributions, paid quarterly by an employer during each calendar year, are a percentage of so much of his payroll as is subject to the Unemployment Compensation Law (G.L. c. 151A, § 14, first par.). The percentage (the rate of contribution) applicable during a calendar year is computed on the September 30 (the "computation date," G.L. c. 151A, § 14(A )(3), designated as 14(A )(4) prior to St.1972, c. 594, § 1) of the previous year and is determined for each employer under an experience rating system by which each employer's rate of contribution is affected (within limits) by the amount of unemployment benefits paid to his terminated employees the greater the amount of benefits paid out, the higher the rate, thus, it has been thought, giving an employer an incentive to minimize unemployment in his business. 3

The rate of contribution for each employer depends on a number of variables. In the first instance, it depends on the ratio of the total unemployment compensation fund available for benefits on the computation date to the total wages taxable under the Unemployment Compensation Law during the twelve month period immediately preceding the computation date. See G.L. c. 151A, § 14(H ), as in effect prior to St.1973, c. 829, § 2. That ratio determined which of nine categories, each containing a number of rates so called "experience rates" (also sometimes referred to as merit rates) was to be applicable during the ensuing calendar year. See G.L. c. 151A, § 14(I ), as appearing in St.1961, c. 614, § 4 4 (see now St.1977, c. 720, § 21). Generally, the higher the ratio, the lower the range of experience rates. The particular experience rate to be paid by an employer is calculated from a bookkeeping account kept for that employer called the "employer's account." G.L. c. 151A, § 14(C ). Each employer's account is credited with his contributions (G.L. c. 151A, § 14(D )(1)), and charged with payments made to his former employees (G.L. c. 151A, § 14(D )(3), as in effect prior to St.1976, c. 473, § 5). Contributions are credited as of the date they are paid, and benefit payments are charged as of the date they are made. The employer's account is also charged with refunds he receives as a result of claims for adjustments he has made (G.L. c. 151A, § 14(D )(2) 5). The ratio of the balance of the employer's account on the computation date preceding the calendar year in question to that employer's total taxable payroll during the twelve months immediately preceding the computation date is termed his "reserve percentage" (G.L. c. 151A, § 14(A )(2)) and determines which of the experience rates contained in the applicable category is to be assigned to that employer as his contribution rate. Generally, the higher the reserve percentage of an employer's account, the lower the experience rate assigned to that employer.

The division also maintains a single "solvency account" (G.L. c. 151A, § 14(C )) to which is credited all revenue received by the fund which is not credited to an employer's account. This includes, e. g., interest on earnings of the fund (G.L. c. 151A, § 14(E )(1)), any restitution by an employee of benefits improperly paid him (to be "credited . . . when such restitution is made," G.L. c. 151A, § 14(E )(4), as appearing in St.1953, c. 397), 6 and any balance in an employer's account if he ceases to be subject to the Unemployment Compensation Law (G.L. c. 151A, § 14(E )(2)). When such a balance is negative (i. e., the unemployment compensation payments to the employer's former employees have exceeded the employer's contributions) the negative balance is charged to the solvency account. Also charged to that account are any other disbursements from the unemployment compensation fund not chargeable to any particular employer's account (G.L. c. 151A, § 14(E )(7)), including, e. g., unemployment benefits which are paid under an extended benefits program (G.L. c. 151A, § 30A) and which, therefore, do not affect the employer's account (§ 30A(6)).

The solvency account provides a mechanism by which the disparity among employer's accounts is somewhat alleviated by keeping their reserve percentages within limits between minus three percent and plus thirteen percent under § 14(E )(5) and (6) (as in effect prior to St.1977, c. 720, §§ 18 and 19 which changed those percentages to minus nine percent and plus fifteen percent, respectively). Thus, § 14(E )(5) (as unamended) of G.L. c. 151A provided that whenever as of any computation date an employer's account had a negative balance such that its reserve percentage was below minus three percent, an amount sufficient to bring the negative balance of the account to an amount equal to minus three percent of the employer's total taxable payroll during the twelve months preceding that computation date was to be credited to the employer's account and charged to the solvency account. Similarly, § 14(E )(6) (as unamended) provided that whenever as of any computation date an employer's account had a balance such that its reserve percentage was above thirteen percent, an amount sufficient to reduce the balance of the account to thirteen percent of the employer's total taxable wages during the twelve months preceding that computation date was to be charged to the employer's account and credited to the solvency account. This yearly recomputation also tends to minimize the effect of very favorable and very unfavorable experience rates over a long period so that the current experience rate more nearly reflects recent unemployment and payroll.

Further, when as of any computation date the balance of the solvency account is less than one-half of one percent of the total taxable payrolls reported by all covered employers for the twelve months preceding that computation date all such employers must, in addition to contributing to the unemployment compensation fund in accordance with their respective experience rates, make an additional uniform contribution ranging from one tenth of one percent to one percent, depending on the state of the solvency fund. G.L. c. 151A, § 14(J ). 7

We now summarize the facts concerning the adjustment which the division made under the procedure outlined above and which the plaintiff claims was illegally computed. At the end of 1969 the plaintiff closed a plant in Watertown for the manufacture of footwear and terminated the jobs of its employees there. Many of them filed for and were paid unemployment compensation which was charged against the plaintiff's employer's account in accordance with G.L. c. 151A, § 14(D )(3). At least some of the plaintiff's former employees also applied for weekly "trade readjustment allowances" pursuant to § 322(a) of the Trade Expansion Act of 1962, 19 U.S.C. § 1941(a). 8 To the extent that these employees became entitled to such allowances, the division was reimbursed for the unemployment compensation it had paid them. See § 323(g) of the Act, 19 U.S.C. § 1942(g), set out in footnote 1, Supra. The reimbursements, which (it appears from the briefs, see footnote 19, Infra ) the division had received by September 30, 1972, totalled $591,954.11. Section 332(a), 19 U.S.C. § 1972(a) (1970), required that those reimbursements be "credited to the account of such State in the Unemployment Trust Fund . . . and shall be used only for the payment of cash benefits to individuals with respect to their unemployment . . . ."

Those reimbursements were not actually credited to the plaintiff's employer's account until June, 1973, when they were credited as of September...

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3 cases
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