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

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TEURL

ISSUE DATE

March 25, 1985

RESCISSIONS

None

EXPIRATION DATE

March 31, 1987

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 12-85

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

ROBERT LEWIS
Administrator
for Regional Management

 

SUBJECT

:

Under Secretary's Decision in the 1984 Minnesota Conformity Proceedings

 

  1. Purpose. To announce the Under Secretary's Decision in the 1984 Minnesota Conformity Proceedings and its implications.

  2. References. Section 3303(a)(1), FUTA; UIPL 15-84; Under Secretary's Decision in Case No. 84-CCP-1, dated October 29, 1984.

  3. Background. A recent decision by the Under Secretary of Labor ruled on three issues involving the interpretation of Section 3303(a)(1), FUTA.

    The first issue involved a section of Minnesota law which provides that employers with an experience ratio of less than one-tenth of one percent shall pay contributions on only the first $8,000 in wages paid to an individual during each calendar year. Other.employers in Minnesota must pay contributions on a higher wage base. The Department of Labor contended that this Minnesota law provision is inconsistent with Section 3303(a)(1), FUTA, because it creates two classes of employers and the lower taxable wage base for one class of employers is not a factor "bearing a direct relation to unemployment risk." The administrative law judge concluded that the lower wage base is directly related to unemployment risk because it is directly related to the employer's experience ratio. Consequently, the administrative law judge's recommended decision found this provision of Minnesota law to be in conformity with Section 3303(a)(1), FUTA. The administrative law judge's recommended decision was adopted in the Under Secretary's Final Decision, made on October 29, 1984.

    The second and third issues involved a section of Minnesota law which provides for certain limitations on contribution rate increases or decreases. Minnesota has a benefit ratio experience rating system. These rate increase or decrease limitations were also ruled on in the recent Under Secretary's decision. The administrative law judge concluded that the limitation on contribution rate increases or decreases for all employers is not in conformity with Section 3303(a)(1), FUTA. He reasoned that this provision of Minnesota law can result in two employers with identical experience ratios in the same year paying contributions at different rates, thus allowing one employer to pay a reduced rate based on a factor not related to unemployment risk. He also concluded that the additional limitations permitted for a "small business employer" are not in conformity with Section 3303(a)(1), FUTA. His reasoning was the same with regard to this limitation as it was with the general rate limitation. In addition, he reasoned that the size of a business is not a factor bearing a relationship to unemployment risk. The exception for small employers merely adds another improper factor to determining contribution rates. The administrative law judge's recommended decision on these two issues was also adopted in the Under Secretary's Final Decision.

    The ruling on the rate limitation issues confirms previous interpretations concerning rate limitations in benefit ratio experience rating systems. Minnesota has decided not to appeal the Secretary's Final Decision. On December 21, 1984, the Minnesota Attorney General issued an opinion stating that the Minnesota section found out of conformity no longer has the force and effect of law. On January 18, 1985, Under Secretary of Labor Ford B. Ford, issued a Decision that he would sign the 1984 certification for the State of Minnesota.

  4. Revised Interpretation. The Under Secretary's Decision requires a modification the position stated in paragraphs 1 and 2 on page 2 and paragraph 5 on page 3 of UIPL No. 15-84, dated February 17, 1984. These parts indicated that employer contribution rates under an experience rating plan must be applied to a single taxable wage base during the same period, such as a tax year.

    As a result of the Under Secretary's Decision, this interpretation is no longer absolute. It is not inconsistent to have more than one taxable wage base if the different wage bases are directly related to unemployment risk as determined by an employer's experience ratio.

  5. Action Required. Administrators are requested to provide the above information to appropriate staff.

  6. Attachments. 

    1. Recommended Decision of Administrative Law Judge, dated August 24, 1984

    2. Final Decision of Under Secretary of Labor, dated October 29, 1984