Pitts v. Perluss

• Decision Date: 12 December 1962
• Docket Number: P,CALIFORNIA-WESTERN,AFL-CI
• Citation: 377 P.2d 83,58 Cal.2d 824,27 Cal.Rptr. 19
• Parties: , 377 P.2d 83 Thos. L. PITTS, Individually and as Secretary-Treasurer of the California Labor Federation,etitioner, v. Irving H. PERLUSS, as Director of the Department of Employment, Respondent,STATES LIFE INSURANCE COMPANY et al., Real Parties in Interest. Sac. 7410.
• Court: California Supreme Court

Page 19

27 Cal.Rptr. 19

58 Cal.2d 824, 377 P.2d 83

Thos. L. PITTS, Individually and as Secretary-Treasurer of the California Labor Federation, AFL-CIO, Petitioner, v. Irving H. PERLUSS, as Director of the Department of Employment, Respondent CALIFORNIA-WESTERN STATES LIFE INSURANCE COMPANY et al., Real Parties in Interest.

Sac. 7410.

Supreme Court of California, In Bank.

Dec. 12, 1962.

Charles P. Scully, San Francisco, for petitioner.

Stanley Mosk, Atty. Gen., Walter J. Wiesner, Deputy Atty. Gen., Maurice P. McCaffrey and Charles M. Root, Sacramento, for respondent.

Howard L. Jeske, Downey, Brand, Seymour & Rohwer, Sacramento, Allan, Miller, Groezinger, Keesling & Martin, Pillsbury, Madison & Sutro, San Francisco, and John F. Downey, Sacramento, for real parties in interest.

TOBRINER, Justice.

We apply to the resolution of the complex subject matter of this case relatively simple rules. We undertake a lengthy examination of the history, as well as the content, of the attacked regulation of the Director of the Department of Employment to show that he did not violate the precept that he must not act arbitrarily, capriciously or without evidentiary support. We explain, too, why the director properly applied the regulation to existing plans of disability insurance, and in so doing did not effectuate an unlawful retroactivity.

The attacked action of the director comprises two regulations (Cal.Admin.Code, tit. 22, §§ 3254(i)-1, 3254(i)-2) which he adopted pursuant to Unemployment Insurance Code sections 3254, subdivision i, and 3270 to prevent private insurance companies from substnatially selecting risks for unemployment compensation disability insurance that would adversely affect the State Disability Fund. Some of those companies brought an action in the Superior Court of Sacramento County for declaratory relief to determine the validity of the regulations and to enjoin their enforcement. The court issued a preliminary injunction enjoining the director from enforcing the regulations pending a determination of the action.

Thos. L. Pitts, individually and as secretary-treasurer of the California Labor Federation, AFL-CIO, then commenced this proceeding by filing a petition for a writ of mandate with the District Court of Appeal, Third District, seeking to compel the director to enforce his regulations. After that court denied the petition, without opinion, petitioner requested this court for a hearing, alleging that the director has not, and will not, enforce his regulations so long as the superior court's preliminary injunction remains in effect. Petitioner asserts an interest in the enforcement of the regulations because a substantial number of members affiliated with the labor federation pay contributions to, and receive benefits from, the State Disability Fund. In a letter filed with this court the director stated that he did not oppose the petition for the writ but that the private insurance companies would do so. Through their counsel these companies informed us by letter that, if the case were an appropriate one, they had no objection to this court's assuming jurisdiction, although they urged that the matter could be more satisfactorily determined by the superior court.

We granted a hearing, issued an alternative writ of mandamus ordering respondent to place the regulations into full force pending the determination of their validity, and stayed the proceedings in the superior court, including the enforcement of the preliminary injunction. We did so because of compelling reasons based on public interest. (See Perry v. Jordan (1949), 34 cal.2d 87, 90-91, 207 P.2d 47.)

In his letter to this court respondent asserted that if substantial adverse selection by the private insurance companies did not terminate on January 1, 1963, the State Disability Fund would suffer additional losses of several million dollars, and, unless the Legislature increased the mandatory statutory contributions required of the workers, the fund would be unable to pay benefits in April, 1965. Other reasons persuading us to assume jurisdiction rested upon the Legislature's direction to the director that he adopt regulations to be effective January 1, 1962 (Stats. 1961, ch. 2154, p. 4458, § 24), which date has, of course, passed. We were likewise influenced by the fact that the parties stipulated that no new evidence would be introduced before the superior court. ¹ Finally, we concluded that petitioner could properly assert his standing to maintain this action since he is a citizen with a substantial interest in the enforcement of the director's public duty. (Hollman v. Warren (1948), 32 Cal.2d 351, 357, 196 P.2d 562.)

The Legislature in 1946 enacted the Unemployment Compensation Disability, or UCD, Act. The act is now contained in Part 2 of the Unemployment Insurance Code and provides benefits for persons who are unable to work because of non-occupational illness or injury. It thus fills the gap between workmen's compensation, which provides benefits for disability incurred during employment, and unemployment insurance, which affords benefits for involuntary unemployment suffered by persons who are physically able to work. The act is financed by a 1% contribution of each worker's wages, presently limited to the first $4,100 paid to him during the calendar year. (Unemp.Ins.Code, §§ 984, 985.) It authorizes coverage under the State Disability Fund or under voluntary plans, which can be self-insured or insured by a qualified insurance company. Only a very small percentage of employees are covered by self-insured plans, but approximately 20% are presently covered by insured voluntary plans.

The act set up a number of requirements for voluntary plans upon which the director's approval depended. Thus a voluntary plan must provide greater benefits to covered employees than the Disability Fund (§ 3254, subd (a)); it must be made available to all of the employees of the employer, or to all employees working in a distinct, separate establishment of the employer (§ 3254, subd. (b)); and approval of the plan must 'not result in a substantial selection of risks adverse to the Disability Fund' (§ 3254, subd. (i)).

All of these requirements, except that as to substantial selection of adverse risks, have been in continuous operation since the enactment of the law. The adverse selection provision sought to prevent private insurers from insuring only the better risks and relegating the less desirable ones to the Disability Fund. (Report of Social Insurance Section of Interim Committee on Finance and Insurance, Assembly Interim Committee Reports, 1959-1961, Volume 15, No. 24, p. 63.) (Hereinafter referred to as the 'Report.') First by an informal procedure and later by a formal regulation, the director gave the statutory provision specific effect and required voluntary plans to include 20% females in the total number of employees covered. (Report, p. 64.)

From 1946 through 1956 the Disability Fund balance steadily increased. (Report, p. 74.) During this period, the Legislature suspended the prohibition against substantial adverse selection. (Stats. 1953, ch. 1371, p. 2951, § 11, as amended; Stats. 1955, ch. 957, p. 1855, § 6, as amended; Stats. 1957, ch. 2107, p. 3736, as amended; Stats. 1959, ch. 2155, p. 5209, § 5.) This suspension remained in effect during the calendar years 1954 to 1961 inclusive. Beginning in 1957, however, the Disability Fund balance each year showed a decrease, which resulted, in part, from the increase in statutory benefits, without a corresponding increase in employee contributions, and the suspension of the prohibition against adverse selection. (Report, pp. 73, 85.)

To meet the developing financial difficulties, the Legislature in 1961 transferred $70,000,000 from the Unemployment Trust Fund to the Disability Fund (Unemp.Ins.Code, § 3006), enacted a provision for four progressive annual increases of $500 in the wage base which would be subject to the 1% employee contribution for the years 1962 to 1965 inclusive (Unemp.Ins.Code, § 985), and provided that the adverse selection provision of section 3254, subdivision (i), would apain become operative on January 1, 1962 (Unemp.Ins.Code, § 3270). The Legislature gave the following direction, which is the crucial one in the present case: 'The Director of Employment, in determining whether the approval of a voluntary plan or group of plans under Sections 3254 or 3255 of the Unemployment Insurance Code will result in a substantial selection of risks adverse to the Disability Fund, shall implement such sections by authorized regulations to be effective January 1, 1962 prescribing a reasonable test or tests for the measurement of such adverse risks, evaluating and taking account of the sex, age, and wage distribution of the employees to be covered by the plan and the employees covered by all other plans insured by the same insurer, and such other factors as may relate to a reasonable test or tests for such purpose, when compared to the incidence or distribution of the same or similar factors with respect to employees in employment under said code.' (Stats. 1961, ch. 2154, p. 4458, § 24.)

Pursuant to this legislation, the director noticed a proposed regulation for a public hearing to be held on October 16, 1961. After the hearing the director modified and adopted the regulation. (Cal.Admin.Code, tit. 22, § 3254(i)-1.) More than 200 appeals were filed with the Unemployment Insurance Appeals Board pursuant to section 309 of the Unemployment Insurance Code. The board held five days of hearing in December 1961 and thereafter on April 6, 1962, by a two-to-one decision, approved the regulation.

Since the original regulation provided that existing plans could be cancelled only at the end of the first calendar quarter of each year, the board's ruling came too late to permit such cancellations in 1962. Consequently, the director filed and published the emergency...