Holly Care Center v. State, Dept. of Employment, 15710

• Decision Date: 31 January 1986
• Docket Number: No. 15710,15710
• Citation: 110 Idaho 76,714 P.2d 45
• Parties: HOLLY CARE CENTER, Employer Account # 1175920, Employer-Appellant, v. STATE of Idaho, DEPARTMENT OF EMPLOYMENT, Respondent.
• Court: Idaho Supreme Court

Page 45

714 P.2d 45

110 Idaho 76

HOLLY CARE CENTER, Employer Account # 1175920, Employer-Appellant, v. STATE of Idaho, DEPARTMENT OF EMPLOYMENT, Respondent.

No. 15710.

Supreme Court of Idaho.

Jan. 31, 1986.

William J. Brauner, Caldwell, for employer-appellant.

Jim Jones, Atty. Gen., and Roger T. Martindale (argued), Deputy Atty. Gen., Boise, for respondent.

BISTLINE, Justice.

Holly Care Center is required under Idaho's Employment Security Law to make contributions to Idaho's employment security fund based upon taxable wages it pays each calendar year. Prior to the second quarter of 1983, Holly Care's contribution rate was 1.1 percent. The legislature increased that rate to 1.7 percent beginning the second quarter of 1983. 1983 Session Laws, ch. 146, §§ 4, 5, and 9.

Holly Care's 1983 second quarter report was due July 31, 1983. That report and the accompanying check covering its contribution were not, however, received by the Department of Employment until September 12, 1983. Not only were the report and the tax payment delinquent, but the tax payment failed to include the .6 percent tax rate increase that became applicable that quarter. This added amount is $356.33.

Holly Care claims that it never knew of the tax increase, and that it never was notified of its delinquency. The Department introduced testimony that it mailed notices to Holly Care's last known address, which is its present address, and that no notices were ever returned by the post office as undeliverable.

Holly Care failed to make up the $356.33 difference until December 1983. Holly Care claims that it thought it was paid up in its tax account when it delivered its check to a Department tax representative on September 12. September 30, 1983 was the cutoff date by which Holly Care should have made up the difference if it wanted to continue to operate under the 1.7 percent tax rate. I.C. § 72-1317. Up to the time it was delinquent on its account, Holly Care had been classified as an "eligible employer." I.C. § 72-1319. ¹ This entitled it to a 1.7 percent tax rate. As a result of the delinquency, however, the Department ruled that Holly Care was no longer an "eligible employer" but a "standard-rated employer," and therefore subject to the higher 4.1 percent tax rate.

Holly Care appeals, arguing, in essence, that the Department arbitrarily determined that its delinquency was a "major" one thereby subjecting it to a higher tax rate. The issue focuses around (1) I.C. § 72-1319, which, as quoted in the footnote 1, states that a "minor" delinquency will not preclude an employer from being classified as an "eligible employer" and entitled to the lower 1.7 percent tax rate, and (2) Idaho Department of Employment Rules 09.35.062 and .063, which define a "minor" delinquency as an unpaid unemployment insurance contribution totaling less than $20. The Department, pursuant to its rules and § 72-1319, ruled that Holly Care was no longer an "eligible employer" because its delinquency after September 30, 1983 was in excess of $20. Therefore, the Department ruled that Holly Care should now be required to pay the higher tax rate. The Industrial Commission affirmed the Department's ruling. We reverse and remand.

I. STANDARD OF REVIEW

The thrust of Holly Care's appeal is that Department of Employment Rules 09.35.062 and .063--which define "major" delinquencies as all those involving amounts greater than $20--are arbitrary and capricious, and therefore invalid. We agree with Holly Care that the rules are invalid, but do so because the rules in question conflict with controlling statutory law.

We begin by noting that there is no serious question about the authority the Department of Employment has in promulgating rules relating to Idaho's Employment Security Law. I.C. § 72-1333 states, in pertinent part, the following:

(a) It shall be the duty of the director to administer this act. The director shall have the power and authority to employ such persons, make such expenditures, require such reports, make such investigations, perform such travel pursuant to the provisions of this act, and take such other actions as he deems necessary or suitable to that end....

(b) The director shall have the power and authority to adopt, amend, or rescind such rules and regulations as may be necessary for the proper administration of this act, subject, however, to prior approval by the governor of the proposed action. (Emphasis added.)

Furthermore, properly promulgated administrative rules have the force and effect of statutory law. Higginson v. Westergard, 100 Idaho 687, 690, 604 P.2d 51, 54 (1979). Nevertheless, it is also the law that administrative rules are invalid which do not carry into effect the legislature's intent as revealed by existing statutory law, and which are not reasonably related to the purposes of the enabling legislation. Halford v. City of Topeka, 234 Kan. 934, 677 P.2d 975, 980-81 (1984); Ferguson v. Arizona Department of Economic Security, 122 Ariz. 290, 594 P.2d 544, 546 (1979); Kelly v. Zamarello, 486 P.2d 906, 911 (Alaska 1971).

In Howard v. Missman, 81 Idaho 82, 88, 337 P.2d 592, 595 (1959), this Court stated that traffic rules and regulations, "lawfully adopted and placed by administrative authority, and which are not merely arbitrary or capricious, have the force and effect of law...." That statement is equally applicable to other types of administrative acts, including, as we have here, rulemaking.

Thus, our inquiry is whether the rules here in question are consonant with I.C. § 72-1319--the legislature's expressed intent on determining major and minor tax delinquencies--and whether the rules are reasonably related to that section. Because we hold that the rules fail on both accounts, we reverse the Industrial Commission's decision.

II. THE STANDARD APPLIED

It is necessary to reread I.C. § 72-1319. It states in pertinent part:

For the purposes of this section, delinquencies of a minor nature may be disregarded if showing is made to the satisfaction of the director that such covered employer has acted in good faith and that forfeiture of a reduced contribution rate because of such minor delinquency would be inequitable.

It is evident that the legislature intended a distinction to be made between employers with major tax delinquencies and employers with minor tax delinquencies. It is further evident that those employers with minor delinquencies may be excused by the director of employment from their errors and allowed to continue in the favorable tax bracket where there is a showing that they have acted in good faith and that removing the favorable tax status would be inequitable. We were told at oral argument, however, that the Department has initiated no procedure for the director to hear equitable petitions under § 72-1319.

Administratively determining that any delinquency over twenty dollars is "major" delinquency renders virtually meaningless the statutory distinction the legislature intended; it takes little business acumen to know that in this day of increasing tax rates, higher wage scales and larger numbers of employees per employer, the possibility of even one minor accounting error, entirely accidental and unnoticed, could all too frequently still result in a tax delinquency exceeding twenty dollars. To declare by rule that all tax delinquencies in excess of twenty dollars are major tax delinquencies is incompatible with I.C. § 72-1319.

To accommodate the legislature's intent, as spelled out by I.C. § 72-1319, the Department of Employment must allow a procedure for the director to consider the employer's explanation for becoming delinquent. What is a "major" delinquency to one employer may be a "minor" delinquency to another. ² Furthermore, for those delinquencies that are minor, the Department must further decide if the employer has acted in good faith and if removal of the employer's favorable tax status would be inequitable. That is the legislature's command to the Department--not this Court's--and that is what I.C. § 72-1319 obligates the Department to do.

Defining away into oblivion that which constitutes a "minor" delinquency was not a viable option made available to the Department by the legislature. We therefore hold that Department of Employment Rules 09.35.062 and .063 are invalid because they contravene statutory law by erasing, for all practical purposes, distinctions that were legislatively created and mandated.

III. A.

The Department argues that the rules in question are not in conflict with the intent of the legislature, and cites to I.C. § 67-5218 as support for this position. That section must be read in conjunction with I.C. § 67-5217. Together the two sections detail an attempt on the legislature's part to review, change, modify, or reject rules promulgated by various state administrative agencies. The two sections state in pertinent part the following:

67-5217. Transmittal of rules for legislative action--Referral to appropriate legislative committee.--All rules heretofore or hereafter authorized or promulgated by any state agency, including all rules kept and maintained by the state law library, as provided in chapter 52, title 67, Idaho Code, shall be transmitted to the secretary of the senate and the chief clerk of the house of representatives by the law librarian of the state law library before the first day of the regular session of the legislature next following the promulgation or publication thereof. A statement, separate from the rules, shall be prepared by the promulgating agency and shall accompany each new rule or amendment to an existing rule adopted during the preceding year. The statement shall include: (a) the full text of the rule prepared so as to indicate words added or deleted from the presently effective text, if any; (b) an explanation of each change made and the effect thereof; (c) the date of adoption; (d) whether the rule was adopted as an emergency rule; and (e)...