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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TURL

ISSUE DATE

April 5, 1977

RESCISSIONS

 

EXPIRATION DATE

June 30, 1977

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 24-77

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

FLOYD E. EDWARDS
Administrator
Field Operations

 

SUBJECT

:

Secretary of Labor's Decision on Experience Rating Question Raised by Oregon Law

 

  1. Purpose. To inform all State agencies on the above decision that all benefits and all employers must be charged by the same rule of charging over the same period of time.

  2. Background. The Secretary of Labor, by decision issued on October 26, 1976, held that "section 657.511 of the Oregon Employment Division Law did not conform with the requirements of section 3303(a)(1) of the Federal Unemployment Tax Act.  Consequently, the Oregon Employment Division Law was not in conformity with the Federal Unemployment Tax Act."  As a result, the Oregon agency immediately invoked a "savings clause" and declared that the provision in question "shall no longer be of any force or effect."

    Oregon amended its unemployment insurance law in 1973, effective July 1, 1974, to allow a small group of food processing employers who ship 75 percent or more of their annual production in interstate or foreign commerce to be relieved of charges for benefits paid; otherwise, these employers would have been charged under Oregon's proportional method of charging benefits.  The amount of noncharging was determined by a formula that produced results ranging from a low amount in one instance and up to 100 percent in another.  Furthermore, the noncharged benefits were, in effect, charged to all other employers collectively, resulting directly in an increase in the contribution rates of all other employers.

    The Oregon agency had been advised prior to enactment of the special noncharging provision that it was inconsistent with the experience rating requirements of the Federal Unemployment Tax Act (FUTA).  Following enactment of the provision, the Oregon agency requested a finding by the Secretary of Labor.  By letter dated June 6, 1974, the Secretary informed the agency of his finding that the noncharging provision was inconsistent with the requirements of section 3303(a)(1), FUTA.  At the request of the Oregon agency, a hearing was held on June 24, 1976, in Washington, D.C.  The issue was whether the Oregon law as amended was consistent with section 3303(a)(1), FUTA.  If a State has an acceptable unemployment insurance law, the contributions paid by an employer into the unemployment fund established under the State law may be used as a credit against a portion of the FUTA payroll tax (referred to as the "normal credit").  To qualify for "additional credit" (credit of up to 2.7 percent even though the actual rate may be less) reduced rates must be awarded under an experience rating plan that meets the requirements of section 3303(a)(1) , FUTA.

  3. Decision. Under the Oregon law, benefits paid to unemployed workers are the measure of experience of employers with the unemployment risk of their workers.  The decision upheld the Department's position that a single rule of charging the benefits paid to the base period employers, under the Oregon law, is essential to assure that the State's experience rating plan measures the "experience" of each employer relative to the experience of all other employers.  Each employer's contribution rate must be based upon "his...experience," as is required by section 3303(a)(1).

    By singling out food processors for special treatment, the Oregon provision violated the fundamental principle in section 3303(a)(1), FUTA, that all employers must be rated by the same single factor (or combination of factors) over the same period of time.

  4. Action Required. SESAs should distribute this information to appropriate staff.

  5. Inquiries. Please contact your regional office.

  6. Attachment. Copy of Secretary's Decision of October 26, 1976.