Grace Lutheran Church v. North Dakota Employment Sec. Bureau

• Citation: 294 N.W.2d 767
• Decision Date: 20 June 1980
• Docket Number: No. 9719,9719
• Parties: GRACE LUTHERAN CHURCH, a corporation (Grace Lutheran School), Petitioner and Appellee, v. NORTH DAKOTA EMPLOYMENT SECURITY BUREAU and North Dakota UnemploymentCompensation Division, Respondents and Appellants. Civ.
• Court: United States State Supreme Court of North Dakota

Page 767

294 N.W.2d 767

GRACE LUTHERAN CHURCH, a corporation (Grace Lutheran School), Petitioner and Appellee, v. NORTH DAKOTA EMPLOYMENT SECURITY BUREAU and North Dakota UnemploymentCompensation Division, Respondents and Appellants.

Civ. No. 9719.

Supreme Court of North Dakota.

June 20, 1980.

Nilles, Hansen, Selbo, Magill & Davies, Fargo, for petitioner and appellee; argued by J. Gerald Nilles, Fargo.

Michael J. Wilma, Sp. Asst. Atty. Gen., Bismarck, for respondents and appellants.

PEDERSON, Justice.

This is an appeal by the Unemployment Compensation Division of the North Dakota Employment Security Bureau ¹ from the decision of the district court that Grace Lutheran School, a division of Grace Lutheran Church, is not subject to the provisions of the North Dakota Unemployment Compensation Law. We affirm the judgment of the district court (§ 28-32-21, NDCC) and reverse the determination of the North Dakota Employment Security Bureau (§ 28-32-19, NDCC).

This case stems from changes made in the federal and state unemployment compensation laws. Briefly, an exemption for employees of elementary and secondary schools was repealed and a directive from the Secretary of Labor was issued that the new coverage included employees of church -related schools. Grace Lutheran School was notified that it was subject to the unemployment compensation tax. Because this case revolves around several sections of the Unemployment Compensation Laws, a brief overview of unemployment compensation legislation follows. ²

Unemployment compensation had its beginning in the depression of the 1930's with its concurrent high levels of unemployment. Congress enacted the Social Security Act of 1935 to encourage states to adopt unemployment compensation statutes to alleviate some of the hardships caused by the depression. Title IX of the Act levied an unemployment wage tax on "for profit" employers with eight or more employees, ³ but allowed covered employers a credit against this federal tax liability for up to 90% of the employer's contributions to certified state unemployment funds. ⁴ All states enacted unemployment compensation legislation by 1937. In order to meet the requirements for federal certification, state enactments were, what has been called, "mirror images" of the federal legislation. Four years after the passage of the Social Security Act, Title IX was reenacted as the Federal Unemployment Tax Act (FUTA).

From the mid-1950's to the present, a steady expansion of unemployment compensation coverage has occurred. ⁵ For purposes of this case, the more significant expansion started in 1970 when the states were required to extend coverage to employees of non-profit organizations. ⁶ However, § 3309(b) of FUTA continued to permit the states to exclude from coverage, services performed:

"(1) in the employ of

(A) a church or convention or association of churches, or

(B) an organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches;

(2) by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order;

(3) in the employ of a school which is not an institution of higher education."

In 1976, Congress amended § 3309 by deleting subsection (b)(3), thus eliminating FUTA's general exclusion for elementary and secondary schools. In response to this amendment, the North Dakota Legislature made a number of changes to conform the state unemployment law to the federal law. Subsection (3) of § 52-01-01(13)(h), NDCC, the "mirror image" of subsection (3) above, was deleted. ⁷ Section 52-01-01(13)(h)(1) and (2) remains unchanged and remains identical to the federal statute § 3309(b)(1) and (2) quoted above.

It was not until 1978 that the United States Secretary of Labor issued an opinion letter ⁸ officially stating for the first time that church -related elementary and secondary schools were covered by FUTA. ⁹ In response to this opinion letter, a directive was issued to all state employment agencies requiring the state agencies to assess unemployment compensation taxes against church schools.

On April 14, 1978, Grace Lutheran School, a church school owned and operated by Grace Lutheran Church, was notified that it was subject to coverage under the North Dakota Unemployment Compensation Law and that it had the option to pay the unemployment tax on a percentage basis or on a reimbursement basis. Grace Lutheran School objected on the ground that its teachers were employees of Grace Lutheran Church. Even though this is conceded by the Bureau and should have been included in findings by the Bureau, Grace Lutheran School was nevertheless required to and did elect the reimbursement method, but appealed from the determination that it was covered. A hearing was conducted before the Unemployment Compensation's Chief Appeals Referee which resulted in a determination that Grace Lutheran School was subject to the North Dakota unemployment compensation law. This decision was appealed to the North Dakota Employment Security Bureau which affirmed the decision of the Unemployment Compensation Division.

Thereafter, Grace Lutheran Church filed a petition for judicial review of the Bureau's decision in Burleigh County District Court. On October 11, 1979, a judgment was rendered which reversed the Bureau's decision and held that the employees of Grace Lutheran School were not subject to the North Dakota Unemployment Compensation Law. The North Dakota Employment Security Bureau appealed this decision to the Supreme Court.

It is the Bureau's position that it was the intention of Congress (and the North Dakota Legislature) to cover employees of all elementary and secondary schools, including church-related schools, when § 3309(b)(3) (and § 52-01-01(13)(h)(3), NDCC) was deleted and that it is constitutionally permissible to extend unemployment compensation coverage to church-related schools.

It is Grace Lutheran Church's first contention that by deleting the subsection (3) exemption for elementary and secondary schools, public and private schools are now covered, but that employees of Grace Lutheran School are still exempt under § 3309(b)(1)(A) (and § 52-01-01(13)(h)(1)(a), NDCC), which provides an exemption for service performed in the employ of "a church or convention or association of churches." The trial court agreed with this contention. Secondly, Grace Lutheran Church contends that if Congress or the North Dakota Legislature intended that church schools be covered, the statute is an unconstitutional infringement on the church's First Amendment rights.

As a preliminary matter, we note that as this case involves an administrative agency, the Administrative Agencies Practice Act (Chapter 28-32, NDCC) applies. Section 28-32-01, NDCC, defines an administrative agency to include any bureau having statewide jurisdiction and authority to make a determination which has the force and effect of law and which by statute is subject to review by the courts. The organization of the Employment Security Bureau is set out in Title 52, NDCC. Section 52-04-17 provides that the Unemployment Compensation Division may make administrative determinations with respect to whether or not an employer is covered under the unemployment compensation laws, hence it has statewide jurisdiction and authority to make determinations having the force of law. Section 52-06-27 provides for judicial review of decisions of the Employment Security Bureau.

The judicial review provisions of Chapter 28-32, NDCC, are not exclusive. Special statutes prevail if in conflict with the more general provisions of Chapter 28-32. Evanson v. Wigen, 221 N.W.2d 648 (N.D. 1974). However, in the instant case it appears that no such conflict exists. Both § 52-06-27 and § 28-32-15 provide that an appeal is to be taken within 30 days after notice of the decision of the agency. Section 28-32-19 deals with the court's scope of review on appeal. In cases where the facts are not in issue, ¹⁰ the court is to affirm the decision of the agency unless it finds:

"1. The decision or determination is not in accordance with the law.

"2. The decision is in violation of the constitutional rights of the appellant."

Review by the supreme court is governed by this same standard. See § 28-32-21, NDCC.

Thus, the threshold questions on this appeal involve a determination of whether or not the agency's decision that church schools are covered by unemployment compensation legislation is in accordance with the law and, if so, whether or not that decision violates the constitutional rights of Grace Lutheran Church.

I. STATUTORY CONSTRUCTION

Generally, legislative intent must first be sought from the language of the statute. Apple Creek Tp. v. City of Bismarck, 271 N.W.2d 583 (N.D. 1978). "When the wording of a statute is clear and free of all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit." Section 1-02-05, NDCC. Repeals by implication are not favored. First American Bank & Trust Co. v. Ellwein, 198 N.W.2d 84, 98 (1972).

In repealing the exemption for services performed "in the employ of a school which is not an institution of higher education," it is clear that public and private (non-church) elementary and secondary schools were covered by the unemployment compensation legislation. It is contended by the Bureau that church -operated elementary and secondary schools are covered. The issue is whether or not they are covered.

First of all, it is Grace Lutheran Church's contention that by leaving intact § 3309(b)(1) when it repealed (b)(3), Congress intended that church-operated schools could still qualify for an exemption. Subsection (A) of § 3309(b)(1) exempts all services performed in the employ of a church or an association of...