-

 



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

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TURL

ISSUE DATE

September 16, 1977

RESCISSIONS

 

EXPIRATION DATE

 

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 50-77

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

LAWRENCE W. ROGERS
Acting Administrator
Field Operations

 

SUBJECT

:

Recent Supreme Court Decisions

 

  1. Purpose. To inform the States of two Supreme Court decisions: (a) affirming the right of a State to legislate labor dispute disqualifications, and (b) terminating benefits without prior evidentiary hearings.

  2. Background of Case Involving Labor Dispute Disqualifications. In Ohio Bureau of Employment Services v. Hodory, the Supreme Court affirms Ohio's right to impose a disqualification from benefits for unemployment due to a labor dispute, finding the statute in question rational and legitimately in the State's interest. The issue before the court was whether Ohio Rev. Code 4141.29(D)(1)(a), which disqualifies claimants unemployed because of a "labor dispute . . . at any factory owned or operated by the employer" violated the Supremacy Clause or the Due Process Clause of the Fourteenth Amendment.

    Leonard Hodory was employed by U.S. Steel when workers in the coal mines owned by U.S. Steel went on strike. Because the coal was used to fuel Hodory's plant, the strike had the effect of reducing the fuel supply to the plant and eventually forced it to shut down. When Hodory applied for benefits, he was disqualified under the provision cited above. He filed a complaint in the U.S. District Court for the Northern District of Ohio, asserting that the State may not deny benefits to individuals who are unemployed through no fault of their own. The District Court held that the statute violated the Equal Protection and Due Process Clauses of the Fourteenth Amendment. The Ohio Bureau of Employment Services appealed to the Supreme Court.

    Hodory asserted that the Ohio provision was preempted by the Social Security Act and the Federal Unemployment tax Act, and also that it violated the Fourteenth Amendment. He cited the statement of the Committee on Economic Security in 1935 that "to serve its purposes, unemployment compensation must be paid only to workers involuntarily unemployed" to support his claim that "involuntariness" is the key to eligibility. He also asserted that FUTA 26 USC 3301-3311 showed congressional intent to preempt the State, particularly with respect to the scope of inclusiveness in the unemployment program. The court disagreed with Hodory on both these issues of preemption, finding that the sentence cited from the Committee on Economic Security was only meant to prevent funds from being disbursed too freely, and that neither the Social Security Act nor the Federal Unemployment Tax Act could be interpreted as restricting the States' freedom to legislate labor dispute disqualifications.

  3. Decision. The test of constitutionality was determined to rest in the rationality of the statute, and in its relationship to legitimate State interest. Hodory claimed that the statute must be considered irrational in that it was so broad that it could require disqualification of an individual regardless of geographic remoteness from the dispute or whether or not he was interested in or participating in the dispute itself.

    The Supreme Court held that, in considering the statute's rationality, its effect on employers and the fiscal integrity of the fund must be taken into account, as well as its effect on employees. Under those circumstances, the costs to the employer incurred by paying benefits could become a lever pressuring him to settle the strike and thus place him at an unfair disadvantage in negotiations with the union. Further, it is clearly the State's legitimate interest to be concerned with the fiscal integrity of the fund.

    The Supreme Court thus overturned the District Court's decision, leaving the Ohio labor dispute disqualification as it was.1

  4. Background of the Case Involving Pretermination Hearings. In Graves et al v. Meystrik et al, the Supreme Court affirmed the decision of a District Court in Missouri that neither the Social Security Act nor the Due Process Clause of the Fourteenth Amendment requires a full evidentiary hearing before benefits are terminated.

    The issue before the court was whether the termination of benefits without notice of opportunity for a prior evidentiary hearing violated the Due Process Clause of the Fourteenth Amendment, and 42 USC 503(a)(1) of the Social Security Act which mandates that benefits must be paid when due.

    While collecting benefits, Mary Graves and Gary Morris were each notified that there were some doubts regarding their eligibility. Both reported for interviews with a deputy, and were given the opportunity to explain or add any facts relating to their eligibility. After the interviews, each was found to be unavailable for work and, accordingly, disqualified. Both Graves and Morris appealed; the determination regarding Graves was reversed, while Morris' determination was upheld. At the time of trial, Morris had a further appeal pending. Both brought suit in the District Court on behalf of themselves and all persons in Missouri who have been or will be denied benefits without notice or opportunity for a hearing. Graves and Morris rested their case primarily on a previous decision, Goldberg v. Kelly, in which the Supreme Court held that welfare benefits could not be denied without prior evidentiary hearing. They also cited the decision in the Java case.

  5. Decision. The court applied three distinct factors in judging whether administrative procedures meet due process requirements, as set forth by the Supreme Court in Mathews v. Eldridge:

    The court concluded that Goldberg did not apply in this case, since the termination of unemployment benefits--unlike the termination of welfare--would not deprive a claimant of the very means by which to live. Eligibility for unemployment benefits is not based on need, and the potential deprivation in this case is likely to be less than that of a welfare recipient. It also found that "the risk of erroneous deprivation of benefits is minimized by the notice and interview procedure which affords the claimant an immediate opportunity to correct an erroneous denial of benefits," and that the procedure by which a claimant is allowed to appeal the termination of his benefits is both fair and reliable. Moreover, the court found that the additional cost imposed on the State of Missouri by full evidentiary pretermination hearings would be substantial in both administrative and financial terms.

  6. Action Required. Distribution of this letter to all interested persons.

  7. Inquiries. Inquiries should be directed to your ETA regional office.

 

1  The Ohio provision was amended after the case was filed; in the new provision, disqualification will not apply if the employment was at a plant other than the one in which the dispute existed, as long as the claimant is not financing, participating in, or directly interested in the dispute.