Hiserote Homes, Inc. v. Riedemann

• Citation: 277 N.W.2d 911
• Decision Date: 25 April 1979
• Docket Number: No. 62267,62267
• Parties: HISEROTE HOMES, INC., Appellee, v. Karen K. RIEDEMANN and Iowa Department of Job Service, Appellants.
• Court: United States State Supreme Court of Iowa

Page 911

277 N.W.2d 911

HISEROTE HOMES, INC., Appellee, v. Karen K. RIEDEMANN and Iowa Department of Job Service, Appellants.

No. 62267.

Supreme Court of Iowa.

April 25, 1979.

Walter F. Maley and Blair H. Dewey, Des Moines, Iowa Department of Job Service, for appellants.

P. L. Nymann, of Jacobs, Gaul, Nymann & Green, Sioux City, for appellee.

Considered by LeGRAND, P. J., and UHLENHOPP, HARRIS, McCORMICK and ALLBEE, JJ.

ALLBEE, Justice.

The events which have culminated in this appeal began on January 18, 1977, when claimant, Karen K. Riedemann, was terminated by her employer, Hiserote Homes, Inc. She applied to the Iowa Department of Job Service for unemployment compensation and her union filed an unfair labor practice charge with the National Labor Relations Board.

Hiserote protested payment of benefits to the claimant, alleging that she was discharged for misconduct. The representative of the Job Service Director made an initial determination on March 21 that the claim was valid and that no misconduct was shown.

On March 26, Hiserote and claimant's union signed a settlement agreement which disposed of the unfair labor practice charge. By that agreement, which was subject to NLRB approval, Hiserote reinstated Riedemann to her former position and paid her full back wages for the period she was off work. She returned to her job on March 28.

Subsequent to the settlement agreement Hiserote appealed the representative's decision that claimant was entitled to unemployment benefits. The question of whether she was guilty of misconduct was dropped, however. Instead, the employer claimed that Riedemann was ineligible for benefits because she had received a back pay award for the period involved. The argument is based on the definition of total unemployment found in section 96.19(10)(a), The Code 1977: "An individual shall be deemed 'totally unemployed' in any week with respect to which no wages are payable to him or her and during which he or she performs no services." The employer contends that the back pay provided by the settlement agreement was wages within the meaning of this section, that Riedemann was not totally unemployed and that she therefore is not entitled to compensation. The hearing officer disagreed on the basis of 370 I.A.C. § 4.13(2)(c), ¹ which defines wages to exclude such back pay, and affirmed the award in a decision rendered on May 2. The Appeal Board unanimously affirmed the hearing officer.

Hiserote then petitioned the district court for judicial review as authorized by sections 96.6(8) and 17A.19, The Code. The court reversed, expressing the opinion that the Job Service rule excluding NLRB back pay awards from wages did not comport with the legislature's intent.

Thus the question presented is whether a payment of full back pay pursuant to an NLRB approved settlement agreement is "wages" within the contemplation of the Iowa Employment Security Law, ch. 96, The Code, so that a claimant who has received such a payment is ineligible to receive unemployment compensation.

I. In order to understand the methodology used under the Iowa Administrative Procedure Act to determine whether an administrative rule is within the authority of the agency which promulgated it, examination of several of this court's recent decisions is necessary. It was recognized in Schmitt v. Iowa Department of Social Services, 263 N.W.2d 739, 743 (Iowa 1978) that rule making is "agency action" within the meaning of section 17A.2(9), The Code. The propriety of a rule is therefore subject to judicial review under section 17A.19. A rule may be abrogated for violating any of the seven criteria of section 17A.19(8). The case before us, like the cases which we now discuss, involves violations or alleged violations of section 17A.19(8)(b), action in excess of the statutory authority of the agency.

Review of a rule which dealt with the involved agency's specialized area of substantive expertise was demonstrated in Sorg v. Iowa Department of Revenue, 269 N.W.2d 129 (Iowa 1978). In Sorg, the issue was whether the Department of Revenue had accurately defined, by rule, the phrase "parking lot" as it was used in a taxing statute. ² The court first examined the delegation of rule making authority contained in the statute creating the Department. Then, while recognizing its coexisting duties to give weight to the Department's interpretation of the statutory term and to sit as final arbiter of the meaning of all Iowa statutes, the court embarked upon a search for the intent of the legislature regarding the use of the phrase. When it was determined that the meaning which the challenged rule gave to the statutory phrase "parking lot" did not comport with legislative intent, the rule was abrogated as being an action in excess of the Department's authority, a violation of section 17A.19(8)(b).

Finally, we come to Davenport Community School District v. Iowa Civil Rights[2,3] Commission, 277 N.W.2d 907, 910 (Iowa 1979). The court holds, in Davenport Community School District, that section 17A.19(8)(b) should be construed to impose a "rational agency" standard on courts reviewing administrative rules. That is, a rule should be held to be within the agency's power when a rational agency could conclude that the rule is within its delegated authority. The burden is placed upon the party attacking the rule's validity to make a clear and convincing showing that it is ultra vires. This "rational agency" test is the means by which we intend, in rule review cases, to determine what weight should be given to an agency's interpretation of the statute which it administers. It is the standard by which an agency's use of its expert discretion is to be judged. The standard in Davenport Community School District thus fits into, and is an elucidation of, one step in the process developed and utilized in Sorg. ³

As demonstrated by Sorg, and recognized by Davenport Community School District, 277 N.W.2d at 910, however, the exercise of the agency's expert discretion is limited by two boundaries: the language of the enabling act, and legislative intent. It is in the light of these developments that we now consider the propriety of the rule before us.

II. The Job Service seeks to justify its rule by what we perceive to be a three-pronged argument. It first maintains that unemployment compensation is intended as support from week to week and that eligibility should not hinge on a future event. Next, it cites three cases which it reads as defining wages in similar employment security statutes to exclude back pay awards. Finally, it argues that Hiserote could have bargained to have the back pay award reduced by the amount of unemployment compensation which claimant received.

We have often, when construing a statute, found assistance in decisions from other states which have considered similar language. See, e. g., Young v. City of Des Moines, 262 N.W.2d 612, 619 (Iowa 1978); Greenstreet v. Clark, 239 N.W.2d 143, 145 (Iowa 1976); Cassady v. Wheeler, 224 N.W.2d 649, 652 (Iowa 1974). The courts of several other states have confronted the question which this case presents and have held that an NLRB settlement award or a similar back pay award rendered by an arbitrator is wages. See, e. g., In re Tonra, 258 App.Div. 835, 15 N.Y.S.2d 755, Affirmed 283 N.Y. 676, 28 N.E.2d 402 (1940) (arbitrator's award); In re Talkov, 33 App.Div.2d 1084, 307 N.Y.S.2d 809 (1970) (NLRB settlement agreement); In re Skutnik, 268 App.Div. 357, 51 N.Y.S.2d 711 (1944) (NLRB settlement agreement); McCoy v. Remington Rand, Inc., 262 App.Div. 790, 27 N.Y.S.2d 298 (1941) (NLRB settlement agreement); Griggs v. Sands, 526 S.W.2d 441, 448 (Tenn.1975) (arbitrator's award); Texas Employment Commission v. Busby, 457 S.W.2d 170 (Tex.Civ.App.1970) (arbitrator's award); Salerno v. John Oster Manufacturing Co., 37 Wis.2d 433, 439, 155 N.W.2d 66, 69 (1967) (dicta; award by state analog to NLRB).

This result is consistent with federal labor law. Back pay awards by the NLRB are intended to be compensatory. See F. W. Woolworth, 90 N.L.R.B. 289 (1950). The NLRB does not have the power to make such awards punitive. Republic Steel Corp. v. NLRB, 311 U.S. 7, 12, 61 S.Ct. 77, 79, 85 L.Ed. 6, 10 (1940). Therefore, the NLRB back pay award and unemployment compensation are essentially redundant because they both take the place of wages not earned due to the claimant's termination. This has been tacitly recognized by the Supreme Court, which has held that recoupment of unemployment compensation in a situation such as the present does not conflict with federal policy. Nash v. Florida Industrial Commission, 389 U.S. 235, 239 n. 4, 88 S.Ct. 362, 366, 19 L.Ed.2d 438, 442-43 (1967); NLRB v. Gullett Gin Co., 340 U.S. 361, 365 n. 1, 71 S.Ct. 337, 340, 95 L.Ed. 337, 342 (1951).

Two of Job Service's cases for a contrary construction are different and unpersuasive. In re Cohen, 44 App.Div.2d 286, 354 N.Y.S.2d 490 (1974), involved an arbitrator's decision that the claimant was not discharged for just cause. Back pay was awarded. The court rejected the Industrial Commissioner's attempt to recover unemployment compensation because it noted that "the arbitrator's award was determined by Reducing her earnings by the amount of unemployment benefits received . . . ." 44 App.Div.2d at 287, 354 N.Y.S.2d at 492. No such reduction was made here. ⁴

Job Service's next case, In re Greenberg, 284 App.Div. 921, 134 N.Y.S.2d 421 (1954), dealt with an entirely different question: whether a dismissal payment, or liquidated damages for unjust dismissal, was wages. And, of course, the persuasive value of these cases from the intermediate courts of New York is further limited by the decision of the New York Court of Appeals in In re Tonra, 283 N.Y. 676, 28 N.E.2d 402 (1940), which held that a back pay award was wages.

Finally, Waters v. State, 220 Md. 337, 152 A.2d 811 (1959), does lend support to the Job Service position. The case...