Gilles v. Department of Human Resources Development

• Decision Date: 23 April 1974
• Citation: 521 P.2d 110,11 Cal.3d 313,113 Cal.Rptr. 374
• Court: California Supreme Court
• Parties: , 521 P.2d 110, 90 A.L.R.3d 970 Hubert GILLES et al., Plaintiffs and Appellants, v. DEPARTMENT OF HUMAN RESOURCES DEVELOPMENT et al., Defendants and Respondents. Sac. 7986.

Page 374

113 Cal.Rptr. 374

11 Cal.3d 313, 521 P.2d 110, 90 A.L.R.3d 970

Hubert GILLES et al., Plaintiffs and Appellants, v. DEPARTMENT OF HUMAN RESOURCES DEVELOPMENT et al., Defendants and Respondents.

Sac. 7986.

Supreme Court of California,

In Bank.

April 23, 1974.

As Modified May 22, 1974.

Stefan M. Rosenzweig, Stephen P. Berzon, Oakland, Daniel S. Brunner, San Pedro, and Jeffrey L. Kastner, Compton, for plaintiffs and appellants.

Charles P. Scully, Donald C. Carroll, San Francisco, Schwartz, Steinsapir & Dohrmann, Laurence D. Steinsapir and Paul O. Halme, Los Angeles, as amici curiae on behalf of plaintiffs and appellants.

Evelle J. Younger, Atty. Gen., Elizabeth Palmer, Asst. Atty. Gen., N. Eugene Hill, Raymond M. Momboisse, and Edmund E. White, Deputy Attys. Gen., for defendants and respondents.

TOBRINER, Justice.

Unemployment Insurance Code section 1375 permits the state to recover an overpayment of unemployment benefits from a claimant unless such 'recovery would be against equity and good conscience.' In holding plaintiffs liable for overpayments, however, the Unemployment Insurance Appeals Board has ruled that recoupment of an overpayment, rendered after the claimant has received timely notice that he might be required to return it, never violates equity and good conscience. In this case we hold that the board erroneously interpreted section 1375; the broad language of the statute requires that the board, in deciding whether to seek recoupment of an overpayment, consider not only the matter of notice to the recipient, but also the nature and cause of the overpayment, the hardship to the claimant that repayment may impose, and the effect, if any, that repayment will have upon the fulfillment of the objectives of the unemployment compensation laws.

1. A review of administrative procedures in the payment of unemployment benefits and the recovery of overpayments.

In order to frame the factual setting and legal issues raised by this appeal we summarize the statutes and administrative practices relating to the payment of unemployment benefits and the recovery of overpayments.

Unemployment compensation is an insurance program 'providing benefits for persons unemployed through no fault of their own' and designed to 'reduce involuntary unemployment and the suffering caused thereby to a minimum.' (Unemp.Ins.Code, § 100.) It is financed in part by federal grants under the Social Security Act (42 U.S.C. §§ 501--503) and in part by state taxes on employers (Unemp.Ins.Code, §§ 976--978, 1025--1032). The level of benefits depends upon the worker's earnings during a base period of four quarters as defined in sections 1275, 1280, and 1281; benefits run for 26 weeks (Unemp.Ins.Code, § 1281, subd. (a)), but may be continued for an additional 26 weeks during times of high unemployment (see Unemp.Ins.Code, div. 1, pts. 3--4). An unemployed worker, however, is not eligible for benefits if he has left work without good cause or has been discharged for misconduct. (Unemp.Ins.Code, § 1256.)

The initial determination of an applicant's eligibility for unemployment benefits is rendered by a claims interviewer, who examines documents submitted by the applicant or his former employer and discusses the matter with the applicant in a nonadversarial setting. (See California Human Resources Dept. v. Java (1971), 402 U.S. 121, 126--128, 91 S.Ct. 1347, 28 L.Ed.2d 666; Gibson v. Unemployment Ins. Appeals Bd. (1973), 9 Cal.3d 494, 499, 108 Cal.Rptr. 1, 509 P.2d 945.) A party dissatisfied with the determination of the claims interviewer may appeal to the referee. (Unemp.Ins.Code, § 1328.) Following a hearing at which the parties may be represented by counsel and may present testimonial and documentary evidence, the referee decides the issue of eligibility de novo. (Unemp.Ins.Code, § 1334.) Approximately 4 to 10 weeks elapse between the filing of the appeal from the determination of the claims interviewer and the referee's decision. ¹ The parties may further appeal the decision of the referee to the appeals board. (Unemp.Ins.Code, § 1336.) The board may decide the case on the record of the referee's hearing or take additional evidence (Unemp.Ins.Code, § 1336); it must issue its decision within 60 days from the filing of the appeal (Unemp.Ins.Code, § 1337). ²

The department's authority to recover overpayments of unemployment benefits is governed by sections 1380 and 1375. In 'double affirmance' cases--those in which both the interviewer and the referee decide in favor of the claimant, only to be ultimately reversed by the appeals board--section 1380 provides that the claimant is not liable for overpayments. ³ The present litigation, however, involves 'single affirmance' proceedings, in which the referee and the interviewer disagreed respecting the claimant's eligibility.

In single affirmance cases, the only limitation on recovery is that set out in section 1375, which provides that 'Any person who is overpaid any amount as benefits under this part is liable for the amount overpaid unless: (a) The overpayment was not due to fraud, misrepresentation or wilful nondisclosure on the part of the recipient, and (b) The overpayment was received without fault on the part of the recipient, and Its recovery would be against equity and good conscience.' (Emphasis added.) Whenever liability for an overpayment is established under sections 1375 and 1380, the Department of Human Resources Development is authorized to recover the overpayment either by civil action or by offsetting the overpayment against future benefits to which the claimant may become entitled. (Unemp.Ins.Code, § 1379.)

The decision of the United States Supreme Court in California Human Resources Dept. v. Java (1971), 402 U.S. 121, 91 S.Ct. 1347, 28 L.Ed.2d 666 (hereafter 'Java'), mandating immediate payment of benefits following an interviewer's or referee's finding of eligibility despite an appeal by the employer, substantially increased both the number of cases in which overpayments occurred and the amount of such overpayments. The ruling at issue in the present case is, in essence, an attempt by the board to counteract this effect of Java by substituting a rule of virtual automatic recoupment of overpayments in place of its previous rule for a case-by-case determination of whether recoupment violated equity and good conscience. To aid in understanding the contentions of the parties on the validity of the board's ruling, we set forth the administrative procedures employed before and after the Java decision.

Before Java, Unemployment Insurance Code section 1335 required payment of benefits pending appeal only in double affirmance cases. Since section 1380 barred liability for overpayments in a double affirmance case, and the department paid no benefits in a single affirmance case, the issue did not arise whether the 'equity and good conscience' test of section 1375 applied to the determination of liability for overpayments attributable to reversals during administrative appeals. The board did utilize section 1375 to fix liability for overpayments in cases in which the error was discovered by the department itself, and in such instances the recovery was often waived when the claimant was not at fault. ⁴

In 1971, the Supreme Court in Java held that section 1335, by withholding benefits until the claims interviewer's award was affirmed by the referee, conflicted with the requirement of section 303(a)(1) of the Social Security Act (42 U.S.C. § 503(a)(1)) that benefits must be paid 'when due.' (402 U.S. at p. 124, 91 S.Ct. 1347.) The California Legislature amended section 1335 to conform to this decision, ⁵ and the department, accordingly, began to pay benefits promptly after the claims interviewer found a claimant eligible.

By striking down the double affirmance requirement for payment of benefits, Java, as we have noted, greatly increased both the number of cases in which a claimant would receive benefits pending appeal, and the number of weeks during which such benefits would be paid. The department responded by issuing to each claimant whose case was appealed a form notice (HRD Form DE 6315) stating that 'if you elect to be paid benefits (pending the appeal), and the referee or the Unemployment Insurance Appeals Board finds that you are not eligible, you will have to repay these benefits to the Department.' ⁶

The appeals board then, in finding plaintiff Gilles liable for an overpayment, relied on his receipt of the form notice. Its opinion states that 'In the instant case the claimant was not entitled to the benefits he received and he was put on notice that the money would have to be repaid if the case was reversed on appeal. It does not appear that he has any legal or moral right to the money. ( ) Accordingly, we find that it is not against equity and good conscience to require the claimant to repay the benefits.' (Matter of Gilles (1971) Precedent Benefit Decision 113.) The department in turn issued a new regulation which, in effect, requires recovery of overpayments in all cases in which the claimant receives timely notice of his possible liability for such overpayments. (Local Office Manual, § 1500.8.)

2. Proceedings involving the plaintiffs at bar.

At various dates during 1970 each of the six named plaintiffs were discharged by the employers for alleged misconduct. Plaintiffs applied for unemployment benefits and, following favorable decisions by either the interviewer or the referee, began receiving weekly benefits. When plaintiffs' former employers appealed those decisions, the department set plaintiffs the form notices advising them that they might be liable for an overpayment; plaintiffs nevertheless elected to continue to receive the weekly benefits. On appeal, however, each of the plaintiffs was ultimately found ineligible for unemployment benefits. The department then notified plaintiffs that they would be held liable for the sums received...