Lindley v. Murphy

• Decision Date: 19 September 1944
• Docket Number: No. 28018.,28018.
• Citation: 387 Ill. 506,56 N.E.2d 832
• Parties: LINDLEY et al. v. MURPHY, Director of Labor.
• Court: Illinois Supreme Court

387 Ill. 506

56 N.E.2d 832

LINDLEY et al.

v.MURPHY, Director of Labor.

No. 28018.

Supreme Court of Illinois.

Sept. 19, 1944.

Certiorari by Arthur F. Lindley and others, copartners doing business as Clement Curtis & Company, against Francis B. Murphy, Director of Labor, to review the denial by defendant of plaintiffs' application for a review of a rate determination. From a judgment quashing the writ, plaintiffs appeal.

Reversed and remanded with directions.Appeal from Circuit Court, Cook County; Michael Feinberg, judge.

Moses, Kennedy, Stein & Bachrach, of Chicago (Walter Bachrach and Robert C. Kelso, both of Chicago, of counsel), for appellants.

George F. Barrett, Atty. Gen. (William C. Wines, of Chicago, of counsel), for appellee.

WILSON, Justice.

The plaintiffs, Arthur F. Lindley and five others, copartners doing business as Clement Curtis & Co., appeal from a judgment of the circuit court of Cook county quashing a writ of certiorari sued out by them to review the denial by defendant, the Director of Labor of the State, of their application for a review of the rate determination for the year 1943, under the Unemployment Compensation Act.

The questions presented for decision relate to the construction of section 18(c)(6) of the Unemployment Compensation Act, effective July 1, 1941, and in force January 1, 1943. Ill.Rev.Stat.1941, chap. 48, par. 234. So far as relevant, subsection (c) then provided: ‘For the purposes of this subsection two or more employing units which are parties to or the subject of a merger, consolidation, or other form of reorganization effecting a change in legal identity or form shall be deemed to be a single employing unit for the purpose of computing contribution rates, if the Director finds that (a) immediately after such change the employing enterprises of the predecessor employing unit or units are continued solely through a single employing unit as successor thereto, and (b) immediately after such change such successor is owned or controlled by substantially the same interests as the predecessor employing unit or units.’

Prior to 1943, all employers who were subject to the Unemployment Compensation Act were required to pay contributions at the rate of 2.7 per cent. Beginning, however, with January 1, 1943, and by virtue of section 18(c) variable rates, ranging from 0.5 to 3.6 per cent were issued to those employers who had incurred liability for the payment of contributions in each of the preceding five calendar years. This plan of contribution rates varies according to the ratio between payments out of the unemployment compensation fund in benefits to employees and payments into the fund by the employer. This ratio is characterized as the employer's employment experience and the rate based thereon is referred to as his merit rating. Employers who did not incur liability for the payment of contributions in each of the preceding five years receive the standard rate of 2.7 per cent.

Clement Curtis & Co. is a brokerage firm long engaged in the securities business in Chicago. Beginning with June 1, 1938, and to and including December 31, 1940, the partnership consisted of four members, Arthur F. Lindley, John G. Curtis, Irving E. Marcus and Arthur A. Clement. Of these, the three first named, Marcus, Lindley and Curtis, contributed eighty per cent of the capital and, pursuant to their partnership agreement, were entitled to eighty per cent of the profits, if any, and, similarly, shared losses upon the same percentage basis. Clement retired from the partnership on December 31, 1940. Thereafter, and to and including December 31, 1941, Lindley, Curtis and Marcus were the sole partners. They continued to operate the business under the same name and in the same general fashion. December 31, 1941, these three partners admitted Roy E. Bard, Lawrence Williams and James P. Doherty as partners. In this third partnership, the capital contribution of Lindley, Curtis and Marcus was eighty-seven and one-half per cent in the aggregate and of the three new partners, twelve and one-half per cent. It thus clearly appears that from 1938 to and including 1943, Lindley, Curtis and Marcus owned, for all practical purposes, eighty per cent of the first partnership, one hundred per cent of the second, and eighty-seven and one-half per cent of the third.

Upon the basis of these facts, the following initial determination was made: ‘The Director of Labor has examined the Form LE-38, ‘Questionnaire for Determination of Status under Section 18(c)(6)’ submitted by you and finds that you meet the conditions set forth in said Section 18(c)(6) of the Illinois Unemployment Compensation Act. Your employing unit and that of your prodecessor(s) will be deemed to be a single employing unit for the purpose of computing contribution rates under the Experience Rating Plan of this State.'

Subsequently, the Director abandoned this determination and computed the rate to be 2.7 per cent upon the ground plaintiffs did not have five years of employment experience, thereby failing to combine their employment experience with that of their predecessors under section 18(c)(6). Plaintiffs applied for a review of the rate determination and requested a determination of the contribution rate based on the benefit experience of ‘this employer’ for the five years preceding January 1, 1943. This application was denied for the reasons, first, that neither the business unit, as constituted in 1943, nor its immediate predecessor unit (the second partnership) was subject to the liability provisions of the Unemployment Compensation Act throughout the calendar years 1938, 1939, 1940 and 1941, within the contemplation of section 18(c), and second, that the experience of the present unit could not be combined with any unit or units other than the second partnership for the purpose of computing contribution rates with respect to the calendar year 1943. In other words, it is the position of the Director of Labor that each time a change in the personnel of the partnership occurred, either by retirement of a partner or the admission of new partners, a new employing unit was created.Plaintiffs protested the denial of their application and petitioned for a hearing. By agreement, the issues presented upon the hearing before the Director's representative were, first, whether plaintiffs and their two immediate predecessor partnerships satisfied the requirements of section 18(c)(6), and, second, does this provision require the Director to combine the employment experience of plaintiffs with a predecessor other than the second partnership The recommendation was made that the rate determination and the order denying the application for review be affirmed. Thereafter, the Director of Labor, by his decision, overruled the objections interposed by plaintiffs and adopted the report of his representative. The circuit court of Cook county, as narrated, confirmed the decision of the Director of Labor and quashed the writ of certiorari sued out by plaintiffs. This appeal followed.

Plaintiffs contended that section 18(c)(6) required the Director of Labor to combine their employment experience with that of their two predecessor partnerships so as to entitle them to a variable rate of contributions for 1943 and, incidentally, a rate lower than 2.7 per cent. We shall first consider whether the three successive partnerships were owned by substantially the same interests within the meaning of section 18(c)(6) and, consequently, a single employing unit for the purpose of computing contribution rates. The primary purpose of the Unemployment Compensation Act, as stated in section 1, is to afford relief to those involuntarily unemployed and their families. Amelioration of economic insecurity incident to involuntary unemployment is the objective to be effectuated. The statute itself is thus an exertion of the police power of the State, the legislation is remedial, and is to be liberally construed to the end that its basic purposes may be achieved. Oak Woods Cemetery Ass'n v. Murphy, 383 Ill. 301, 50 N.E.2d 582. The statute has been liberally construed to accomplish the object of providing a degree of security for the unemployed. Toplis & Harding, Inc., v. Murphy, 384 Ill. 463, 51 N.E.2d 505;Smith v. Murphy, 384 Ill. 34, 50 N.E.2d 844;Peasley v. Murphy, 381 Ill. 187, 44 N.E.2d 876, 143 A.L.R. 414;Rozran v. Durkin, 381 Ill. 97, 45 N.E.2d 180, 144 A.L.R. 735;Miller, Inc., v. Murphy, 379 Ill. 524, 42 N.E.2d 78. The involuntary contributions required to maintain the system of unemployment compensation are not general taxes, and the statute is not a taxing statute. Zehender & Factor, Inc. v. Murphy, 386 Ill. 258, 53 N.E.2d 944. In short, the Unemployment Compensation Act is not a revenue law and there is no statutory warrant for building up unemployment compensation funds (section 23) beyond the limits necessary to satisfy the possible future demands of the beneficiaries for whom contributions are being currently made. In reality, these funds are trust funds. The construction of the statute, in so far as the liability of an employing unit is concerned, in no way affects the benefits to the unemployed but involves solely a question of rates between the employer and the State.

Determination of whether the three successive partnerships were owned by substantially the same interests must be considered in the light of the foregoing observations. In the present case, the uncontroverted facts disclose that, except for a technical construction of the law, plaintiffs would be entitled to the relief sought. To be treated as a single unit with their predecessors for the purpose of computing their contribution rate for 1943, plaintiffs must satisfy both clauses (a) and (b) of section 18(c)(6). Defendant concedes that the elements of clause (a) are present. Plaintiffs must also show that after the successive changes in personnel of the partnerships the successor was ‘owned or...