U.S. DEPARTMENT OF LABOR
SECRETARY OF LABOR

WASHINGTON, D.C.

DATE: December 16, 1988
CASE NO: 88-UIA-9
IN THE MATTER OF
MINNESOTA CONFORMITY
BEFORE: THE SECRETARY OF LABOR

DECISION

    Pursuant to a Notice of Hearing issued on September 21, 1988, proceedings were instituted

with respect to the conformity of the State of Minnesota with those requirements of the

Federal Unemployment Tax Act (FUTA) codified at section 3304(a)(4) of the Internal Revenue

Code of 1986, 26 U.S.C. §3304(a)(4) (Supp. IV 1983-1987), and the requirements of section

303(a)(1) of the Social Security Act (SSA), 42 U.S.C. §503(a)(1) (1982 & Supp. IV 1983-1987)

and of section 303(a)(5) of the SSA, 42 U.S.C. §503(a)(5) (Supp. IV 1983-1987).  This notice

established the rules of procedure for and the date of a hearing on the issues raised in the

notice.  By subsequent agreement of the parties, however, the hearing was cancelled, a

stipulated record was filed, and the case was submitted on briefs.  On November 14, 1988,

Administrative Law Judge (ALJ) Edward Terhune Miller issued a Recommended Decision (R.D.)

finding that the Minnesota unemployment compensation law is not in conformity with applicable

Federal law.  The State of Minnesota has filed exceptions to the ALJ's recommended finding,

and the Associate Solicitor for Employment and Training Legal Services of the United States

Department of Labor (Associate Solicitor) has filed a response to Minnesota's exceptions.  The

matter is now before me for decision for purposes of certification under section 3304(c) of

FUTA and section 303(b) of SSA.

    Specifically before me is whether Minnesota's recoupment provision, section 268.165 of the

Minnesota employment compensation law, Minn. Stat. Ann. §268.165 (West 1988 Supp.), meets the

requirements of section 3304(a)(4) of FUTA and the requirements of section 303(a)(1) and

(a)(5) of the SSA.  Under section 3304(a)(4) of FUTA and under section 303(a)(5) of SSA, all

money withdrawn from the unemployment fund must be used in payment of unemployment

compensation.  Compensation is defined in section 3306(h) of FUTA as "cash benefits payable to

individuals with respect to their unemployment." 26 U.S.C. §3306(h).  Section 303(a)(1) of

the SSA requires that a state unemployment compensation law provide for such methods of

administration as will ensure full payment of unemployment compensation when due.  Certain

exceptions to the requirement that funds be used exclusively in the payment of unemployment

compensation are statutorily provided for but none of these are applicable here.1/

    Subdivision 1 of section 268.165 of the Minnesota law permits the deduction and

withholding of up to 50 percent of an individual's unemployment compensation payment for

unpaid contributions, interest, penalties and costs for which the individual has been

determined to be liable.  Thus, an unemployed claimant would not receive in hand the full

amount of his or her cash benefits if the claimant owed contributions to the unemployment fund

from a prior period when the claimant had been an employer.  The question, therefore, arises

whether the reduction in the claimant's cash benefits for the purpose of recouping

contributions owed conforms to the Federal statutory prescriptions as to use of unemployment

fund monies.

    The ALJ's recommendation, that I find Minnesota's recoupment provision in nonconformity

with Federal law, is based on the ALJ's analysis of the applicable FUTA and SSA provisions.

Specifically, the ALJ concluded that the statutory language is clear and unambiguous, and that

the legislative history and historical application of the FUTA and SSA provisions support the

limiting of the use of unemployment fund monies to cash benefits for unemployed claimants or

to certain other specifically stated expenditures.  The ALJ then found that Minnesota's

recoupment provision involves the constructive withdrawal of funds for a purpose other than

permitted by law and resulted in the unemployed claimant failing to receive full benefits when

due.

    Upon review of the entire record in this case, I agree with the analysis and conclusions

of the administrative law judge.  I thus adopt, and append hereto, the ALJ's decision but with

certain technical corrections requested by the Assotiate Solicitor.  See U.S. Department of

Labor's Response to Minnesota's Statement of Exceptions at 8-9.  These corrections are:

    1. At page 2, line thirteen is changed to read: "payment of grant monies under §303(b) of

SSA, and with"

    2. At page 10, the first sentence of the first full paragraph is changed to read:

"Sections 3303(b) and 3304(c) of FUTA require that the State laws conform to Federal

requirements governing the use of unemployment funds in order for employers to receive normal

and additional tax credits with respect to their rates of contributions."

    3. At page 14, line 8 is changed to read: "certification under section 303(b) of SSA and

section 3304(c) of FUTA, regardless of."

    4. At page 18, line 16, "§3306(b)" is changed to read: "§3306(h)."

    5. At page 18, paragraph 10, from line 5 "§§3302(a), 3302(b), and" are omitted, and from

line 6 "or certified as provided in §3303(b) of FUTA" are omitted.

    6. All references to "unemployment compensation fund" are changed to "unemployment fund."

    I, therefore, find that the Minnesota unemployment compensation law no longer contains the

provisions specified in sections 3304(a)(4) of FUTA and in sections 303(a)(1) and (a)(5) of

SSA, and that the State of Minnesota has failed to substantially comply with such sections.

Accordingly, the state of Minnesota will not be included in the listing of those states

which will be certified by me to the Secretary of Treasury for the year ending October 31,

1988, in accordance with section 3304(c) of FUTA, and, furthermore, certification in

accordance with section 303(b) of SSA is withheld.

Ann McLaughlin
Secretary of Labor
Washington, D.C.
 

1See R.D. at 7-8 and 11-12 for exceptions.



 

U.S. Department of Labor        Office of Administrative Law Judges
                                      1111 20th Street, N.W.
                                      Washington, D.C. 20036
 

IN THE MATTER OF     )
                     )
MINNESOTA CONFORMITY ) Case No. 88-UIA-9
                     )
_____________________)

Gary E. Bernstecker, Esquire,
    Counsel for the Secretary of Labor

Donald E. Notvik, Esquire,
    Counsel for Minnesota

BEFORE: EDWARD TERHUNE MILLER
        Administrative Law Judge

RECOMMENDED DECISION

Statement of the Case

    This controversy involves a claim by the Secretary of Labor ("the Secretary") that the State of Minnesota ("Minnesota") has amended its unemployment compensation law so that it does not conform in certain respects to the requirements of the Social Security Act, 42 U.S.C. §§501 et seq. (1988)("SSA") and the Federal Unemployment Tax Act, 26 U.S.C. §§3301 et seq. (1988)("FUTA").

    The Secretary has notified the Governor of Minnesota that Minnesota may not be certified as eligible for certain Federal assistance because she has reason to believe that Minn. Stat. §268.165 (1987 Supp.)("the recoupment amendment") causes the Minnesota unemployment compensation law not to conform to the requirements of §§303(a)(1) and 303(a)(5) of SSA and §§3304(a)(4) of FUTA.  The basis for such notice is that Minnesota law provides for withholding unemployment benefits from otherwise eligible claimants to satisfy indebtedness for unpaid contributions to the State's unemployment compensation fund.  Notice of hearing was also sent by the Secretary to the Minnesota Department of Jobs and Training in conformity, with 20 C.F.R. §601(5)(d).

    In response to that notice, Minnesota filed a timely request for a hearing.  Jurisdiction is assumed under 26 U.S.C. §3304(c)(1988), 42 U.S.C. §503(b)(1988), and 20 C.F.R. §601.5(a).  Pursuant to the request of the parties and Order dated September 30, 1988, a stipulated record was timely filed by the parties on October 13, 1988, and the oral hearing scheduled by the Notice of Hearing for October 4, 1988, was canceled.  The parties filed timely briefs and reply briefs in conformity with the Notice of Hearing and the Order dated September 30, 1988.  There has been no request to participate as intervenor or amicus curiae.

    This Determination is based upon the stipulated record, and applicable law and regulations, taking due consideration of the contentions of the parties as set forth in their respective briefs and reply briefs.1

Issue

    The question presented for resolution in this proceeding is whether, with respect to certification for payment of grant moneys under §302(a) of SSA, and with respect to certification of States on October 31, 1988, under §3304(c) of FUTA, the law of Minnesota has been amended so that it no longer includes the provisions required by §§303(a)(1) and 303(a)(5) of SSA and §3304(a)(4) of FUTA relating to the State's provision of unemployment compensation.  The parties agree that the issue to be decided is one of statutory construction and that the facts are not in dispute.

The Secretary's Brief

    The Secretary contends that §303(a)(5) of SSA and §3304(a)(4) of FUTA require the Minnesota unemployment compensation law to provide that all money withdrawn from the unemployment fund of the State be used solely in the payment of unemployment compensation.  The only exceptions to this general requirement are authorized or required by statute as encted by Congress.  The Secretary has no discretion to grant exceptions to this general requirement.  States are also without authority to enact exceptions to the requirement.  The Minnesota recoupment amendment, by its provisions and method of administration, impermissibly deprives a claimant of the full payment when due of unemployment compensation to which he or she is entitled with respect to his or her unemployment, and, in effect, withdraws such funds not paid to the claimant from the fund for the purpose of paying unpaid contributions, interest, penalties, and costs owed by the claimant, but which relate to when the claimant was an employer.

    In allowing such reductions in payments and withdrawals from the Minnesota unemployment compensation fund, the recoupment amendment contravenes §303(a)(1) of SSA, which requires that the Minnesota unemployment compensation law provide methods of administration which will reasonably insure full payment of unemployment compensation when due.  The legislative history of the applicable Federal laws confirms the strict and fundamental statutory mandate that moneys withdrawn from the state's unemployment fund must be expended, with limited exceptions, for the payment of unemployment compensation to which claimants are entitled as a matter of right by reason of their unemployment, without regard to criteria unrelated to such unemployment.  The purpose of the legislation, as established by its pertinent legislative history, is to provide temporarily for the immediate basic necessities of persons who have become unemployed.

    These principles of interpretation have been consistently applied by the Secretary of Labor throughout the history of the unemployment compensation program.  Since exceptions to the application of these principles in the Federal laws are established by Federal statute only, the policy justifications advanced by Minnesota in support of its recoupment amendment are irrelevant.
 

    A reduction of a claimant's benefits for reasons unrelated to the individual's unemployment is deemed tantamount to an impermissible withdrawal of moneys from the State's unemployment compensation fund.  Prior erroneous payments of benefits, however, are tantamount to advance payment of benefits related to the individual's perceived unemployment.  On the other hand, collecting unpaid tax contributions, interest, penalties, and costs by a reduction of cash benefits as provided by the recoupment amendment is related to a claimant's prior status as an
employer, and not to his or her unemployment.  To the extent that Brewer v.Cantre112 implies that some physical withdrawal of moneys from the fund is required to establish a violation of Federal requirements, the Brewer Court's interpretation of the withdrawal standard is deemed erroneous.

Minnesota's Brief

    Minnesota contends that the Secretary's interpretation of the applicable provisions of SSA and FUTA is not dispositive, and that the recoupment amendment does not render the law nonconforming to SSA or FUTA.  Moneys in the Minnesota unemployment compensation fund are, and would be, used for payment of cash benefits when due, in accordance with applicable requirements for timeliness, as required by SSA and FUTA.

    Minnesota contends further that the recoupment amendment merely treats persons who have failed to contribute to the state's unemployment compensation fund as required by law in the same manner as those persons who have been overpaid benefits from the fund.  Such treatment avoids the anomalous situation which allows employers to retain contributions required by the fund to provide benefits to their employees, but to receive benefits from that fund regardless of personal indebtedness to the fund incurred while the claimant was an employer.  The recoupment amendment is patterned after and analogous to the exception to SSA and FUTA under §3304(a)(4)(D), which provides that amounts may be deducted from unemployment benefits and used to repay overpayments as allowed by §303(g) of SSA.  The Minnesota recoupment provision merely reduces the benefits payable to a Claimant liable for delinquent contributions up to fifty percent of the benefits to which he or she would otherwise be entitled, but does not require that amount to be withdrawn from the fund.  This critical distinction prevents the Minnesota law from being nonconforming.

    To refute the Secretary's assertion that she does not have discretion to approve the recoupment amendment as an exception to established Federal requirements, Minnesota cites the Secretary's authorization of the use of compensating bank balances and the use of interest on fund deposits for administrative expenses as an exercise of discretion affecting the use of moneys in an unemployment compensation fund under the applicable Federal laws.  Minnesota also contends that the recoupment amendment was carefully developed with the assistance of representative interests of the state, and that its implementation has enabled, and will in the future enable, the State to recover substantial sums from delinquent claimants who have personal liability for unpaid employers' contributions.  The recoupment amendment is also consistent with the intent of Congress regarding the expenditure of moneys in the unemployment compensation fund.  Such recent exceptions as the application of benefits to recovery of overissuance of food stamps and for child-support payments reflects a liberal Congressional attitude toward the basic restrictions on expenditures of moneys in the fund.
 
 

Findings of Fact

    1.  On June 2, 1987 the State of Minnesota enacted the recoupment amendment, designated §268.165 of the Minnesota unemployment compensation law, Minn. Stat. §268.165 (1987 Supp.), which became effective August 1, 1987.

    2.  Minn. Stat. §268.165 provides:

Subdivision 1.  Withholding of unemployment benefits.  Notwithstanding section 268.17, the commissioner may deduct and withhold up to 50 percent of each unemployment compensation payment payable to an individual under this chapter for unpaid contributions, interest, penalties, and costs which the individual has been determined liable to pay.

Subd. 2.  Effect of payments.  Any amounts deducted and withheld under this section shall be treated as if paid to the individual as benefits and paid by the individual to the department in satisfaction of the individual's delinquent contributions, interest, penalties, and costs.

Subd. 3.  Priority of withholding.  Any amounts deducted and withheld under this section have priority over any other levy, garnishment, attachment, execution, or setoff, except for the recoupment of benefit overpayments allowed under section 268.18.

    3. At the same time, Minn. Stat. §268.18 (1986) was amended to limit to 50% the amount withheld from unemployment compensation benefit payments to repay benefit overpayments (EX. 11).

    4. Minnesota has recovered substantial amounts of delinquent employers' contributions since enactment of the recoupment amendment (EX. 12).

    5. §3304(a)(4) of FUTA provides in relevant part:

The Secretary of Labor shall approve any State law . . . which he finds provides that . . . all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation, exclusive of expenses of administration . . . [with certain specified exceptions].

§3304(c) of FUTA provides in relevant part:

On October 31 of each taxable year the Secretary of Labor shall certify to the Secretary of the Treasury each State whose law he has previously approved, except that he shall not certify any State which, after reasonable notice and opportunity for hearing to the State agency, the Secretary of Labor finds has amended its law so that it no longer contains the provisions specified in subsection (a) or has with respect to the 12-month period ending on such October 31 failed to comply substantially with any such provision in such subsection . . .

§3306(h) of FUTA provides in relevant part:

For purposes of this chapter, the term "compensation" means cash benefits payable to individuals with respect to their unemployment.

§302(a) of SSA provides in relevant part:

The Secretary of Labor shall from time to time certify to the Secretary of the Treasury for payment to each State which has an unemployment compensation law approved by the Secretary of Labor under the Federal Unemployment Tax Act such amounts as the Secretary of Labor determines to be necessary for the proper and efficient administration of such law . . . .

§303(a) of SSA provides in relevant part:

The Secretary of Labor shall make no certification for payment to any State unless he finds that the law of such State, approved by the Secretary of Labor under the Federal Unemployment Tax Act, includes provision for . . . (1) such methods of administration . . . as are found by the Secretary of Labor to be reasonably calculated to insure full payment of unemployment compensation when due; and . . . (5) Expenditure of all money withdrawn from an unemployment fund of such State, in the payment of unemployment compensation, exclusive of expenses of administration. . . [and for certain refunds, and subject to certain provisos].

    6. Congress has enacted several exceptions to the withdrawal standard established by §303(a)(5) of the SSA and §3304(a)(4) of FUTA.  These statutory exceptions are payment of disability benefits pursuant to §303(a)(5) of SSA and §3304(a)(4)(A) of FUTA; payment of health insurance pursuant to, §303(a)(5) of SSA and §3304(a)(4)(C) of FUTA; repayment of overpayments of benefits pursuant to §303(a)(5) and (g) of SSA and §3304(a)(4)(D) of FUTA; repayment of food stamps overissuances pursuant to §303(d)(2)(B) of SSA; payment of child support obligations pursuant to §303(e)(2)(A) of SSA; and self-employment allowances pursuant to §9152(e)(1), Pub. L. 100-203 (1987).

    7. On May 27, 1987, prior to the enactment of the recoupment amendment, the the Acting Regional Administrator, on behalf of the Secretary, informed Minnesota that the proposed Minnesota recoupment amendment conflicted with the Federal requirements of §§303(a)(1) and 303(a)(5) of the SSA, and §3304(a)(4) of FUTA (EX. 8).  The Commissioner of the Minnesota Department of Jobs and Training provided an explanatory response dated November 23, 1987.  The response sought to justify the recoupment amendment and stated that for technical reasons there would be no future recoveries under the recoupment amendment of penalties, interest, or costs due from benefits payable to unemployed claimants (EX. 7).

    8. On July 13, 1988, the Acting Assistant Secretary informed Minnesota that, unless Minnesota took action to resolve the conflict with the Federal requirements, he would recommend that the Secretary initiate a conformity proceeding (EX. 6).

    9. The Secretary, on August 25, 1988, notified the Governor of Minnesota that she had reason to believe that the State of Minnesota might not be certified under §3304(c) of FUTA for the twelve month period ending on October 31, 1988, and that she had reason to believe that certification might not be made in the future for the payment of administrative grants to the State of Minnesota under Title III of the SSA, because of the apparent conflict of §268.165.1 of the Minnesota Jobs and Training Law with the requirements of §3304(a)(4) of FUTA, and §§303(a)(1) and 303(a)(5) of SSA.(EX. 4)

    10. The Secretary advised the Governor that "[t]hese sections of Federal law have long been interpreted as prohibiting any levy, attachment or other remedy for the collection of public or private debt, prior to the receipt by the claimant of the benefits otherwise payable." (EX. 4)

    11. The Secretary also advised the Governor that withholding such certifications would result in all employers who are subject to the Federal tax imposed by §3301 of FUTA losing all tax credits otherwise allowable pursuant to §3302 of FUTA.  She advised that withholding certification might also affect reimbursement under the Federal law of the Federal share of extended benefit expenditures made by the State.  She advised that as to the issue arising under the SSA, her findings would affect the certification of payment of grant funds to the State under Title III of the SSA, and might affect grants under the Wagner-Peyser Act, 29 U.S.C. §49d(b). (EX.4)

    12. The Secretary advised the Governor that she had offered the Minnesota Department of Jobs and Training an opportunity to participate in the proceedings which would lead to a determination of the issues in question. (EX.4)

    13. A similar notice was sent on August 25, 1988, to the Commissioner, Department of Jobs and Training, of Minnesota, advising him that with the notice, the Secretary was commencing conformity proceedings and offering the Minnesota agency an opportunity for a hearing.  The Secretary announced that the purpose of the proceedings would be to determine whether the law of Minnesota conforms to the requirements of §3304(a)(4) of FUTA, so that it can be certified for the tax credits available under §3302 of FUTA, for 1988.  The purpose would also be to determine whether the Minnesota law coforms to the requirements of §§303(a)(1) and 303(a)(5) of SSA, as a condition for receiving adminitrative grants.(EX. 5)

    14. On September 7, 1988, Minnesota requested a hearing (EX. 3).  A Notice of Hearing dated September 21, 1988, was issued pursuant to §303(b) of SSA, §3304(c) of FUTA, and 20 C.F.R. §601.5(a), and was served upon all interested parties in a timely manner (EX. 1; EX. 2).

    15. On October 13, 1988, the parties submitted the case to the Administrative Law Judge on a stipulated record, and filed briefs and reply briefs in accordance with the requirements specified in the Notice of Hearing.  This Recommended Decision is also timely filed in accordance with the requirements of that Notice of Hearing.

Discussion

Application of Strict Controls over the Use of Unemployment Compensation Funds Is Not Discretionary.

    Sections 3303(b) and 3304(c) of FUTA provide that, in order to receive specified Federal assistance related to State unemployment compensation programs and the administration of those programs, State laws must conform to the Federal requirements governing the use of unemployment compensation funds.  The Secretary must certify annually that a State's unemployment compensation laws are in conformity with, and are administered in a manner which satisfies these Federal requirements, so that the State may be eligible for the Federal benefits.  The language of the governing Federal statutes does not expressly or by implication provide any discretion to the Secretary or the to states with unemployment compensation programs in complying with the explicit Federal statutory requirements.

    The issue presented in this case is one of statutory interpretation.  Therefore, the Secretary's interpretation of the relevant statutory provisions is not dispositive.  However, the Secretary's interpretation of the statutory requirements has historically been consistently strict and uncompromising (See EX.9; EX.10).  There is insufficient basis in this record to determine, whether, as Minnesota suggests, the use of compensating balances would constitute a non-statutory exception to the general restriction that could be deemed analogous to the Minnesota recoupment amendment.  The only relevant evidence is, on its face, a proposal and solicitation for comment, not an implementing instruction or order (EX. 13).

The Statutory Language Specifying the Federal Requirements Is Plain and Unambiguous.

    The language of §303(a)(5) of SSA and §3304(a)(4) of FUTA, which govern the use of unemployment compensation funds, is plain and unambiguous in its requirement that moneys in a state's unemployment compensation fund be applied, exclusive of administrative costs, and except for certain express exceptions, exclusively to the payment of unemployment compensation benefits.  Section 3306(h) of FUTA states that the right of a claimant to payment of unemployment compensation, is the right to a cash benefit payable to the individual by reason of his unemployment. There is no provision for application of other criteria not related to his unemployment. Under the express formulation of §303(a)(1) of SSA, those benefits must be paid in full when due, that is, promptly and directly to the claimant, without deferral, as a matter of right.3

Except for Certain Statutory Exceptions, Unemployment Funds Must Be Used Exclusively for the Payment of Unemployment Compensation Benefits.

    The parties have cited certain specific statutory exceptions to the categorical restrictions imposed by §303(a)(5) of SSA and §3304(a)(4) of FUTA.  Those exceptions authorize withholding unemployment compensation benefit payments for the following purposes: to offset prior overpayments of benefits; to recoup overissuance of food stamps; for self-employment allowance; for application to health insurance costs; for payment of disability benefits; and for application to child support payments.4

    Some of these exceptions involve the application of moneys from the state's unemployment compensation fund to the kind of immediate necessities of the claimant and his or her family, i.e. child support or health insurance, for which the unemployment compensation program was intended to provide.  The others involve withholding benefit payments when due and crediting the amount withheld against amounts deemed to be benefit payments previously advanced in error.  In such cases a claimant is deemed to have received all payments to which he is entitled when due, and not to be deprived of benefits to which he is entitled under the established purpose of the applicable Federal statutes.  In neither case do these statutory exception's do violence to the purposes of the Federal statutory requirements.

    On the other hand, neither of these types of deductions and withholdings have purposes which are analogous to the purpose of Minnesota's recoupment amendment.  That law purports to reduce benefit payments in order to recoup amounts owed to the State's unemployment compensation fund by reason of obligations incurred while the claimant, in a prior distinguishable incarnation, was an employer.  Such a purpose is manifestly unrelated to a claimant's unemployment which entitles him to unemployment compensation.

    Congress itself has defined the only exceptions to the fundamental requirements of the legislation.  SSA and FUTA neither explicitly nor implicitly authorize either the Secretary or the individual States to modify or augment those exceptions.  The pertinent legislative history buttresses this restrictive view.  However rational or persuasive the policy considerations for creating an exception might seem, the sole source of any additional exceptions must be Federal legislation if history is considered and the essential purpose of the legislation is to be respected.  It is evident that if exceptions were permitted on convenient rationales conceived adhoc by authorities other than Congress, the strictures reflected in the statutory language and its legislative history would probably dissipate and become virtually meaningless and unenforceable.  Minnesota's attempt to justify an exception by analogizing its recoupment amendment to the authorization for recoupment of benefit overpayments under §303(a)(5) of SSA exemplifies this danger.  By making that analogy, Minnesota, in effect, concedes that its recoupment amendment constitutes a new and distinguishable exception to the existing list of statutory exceptions.  By contrast, in §303(a)(5) of SSA, Congress has specifically authorized  deductions from unemployment benefits to be used to recover overpayments of benefits, but only under strictly controlled procedures.

The Recoupment Amendment Contemplates an Unauthorized Withdrawal and Application of Moneys from Minnesota's Unemployment Compensation Fund.

    Minnesota's contention that the moneys withheld from an unemployed claimant are not actually withdrawn from the unemployment compensation fund and that their retention actually benefits the fund does not validate the recoupment amendment.  Withholding benefits in conformity with the recoupment amendment involves at least a constructive withdrawal of funds from the unemployment compensation fund for a purpose other than the payment of unemployment compensation or one allowed by existing statutory exceptions.  The violation occurs because the recoupment amendment allows the state not to pay when due all benefits to which a claimant is entitled by right because of his unemployed status.  The cause of such nonpayment is the application of criteria which purport to modify the unemployed claimant's entitlement by reason of circumstances not related to his unemployed status.  That is sufficient to disqualify the recoupment amendment for certification, under §3302(a)(1) of FUTA, regardless of whether withholding such moneys constitutes a technical withdrawal from Minnesota's unemployment compensation fund.

    However, Minnesota's assertion that withholding benefits in conformity with the recoupment amendment does not involve a withdrawal from the unemployment compensation fund cannot, in any event, be reconciled with subdivision 2 of the recoupment amendment.  That provision explicitly mandates that "[a]ny amounts deducted and withheld under this section shall be treated as if paid to the individual as benefits and paid by the individual to the department in satisfaction of the individual's delinquent contributions...." (Emphasis supplied.)  Thus, the recoupment amendment explicitly provides for a technical withdrawal from the fund for the unauthorized purpose of recovering the unpaid contributions of an employer.

The Legislative History Reinforces the Plain Meaning of the Federal Statutory Provisions.

    A strict and literal interpretation of the applicable statutory language to preclude, exceptions to the basic restriction upon use of moneys from State unemployment compensation funds for other than timely payment of unemployment compensation is, reinforced by the legislative history of the relevant unemployment legislation.  The Federal requirements at issue were enacted as a part of the Social Security Act of 1935.  The impetus for the Social Security Act was the Committee on Economic Security, established by President Franklin D. Roosevelt.  The Committee recommended a program of unemployment compensation as a "valuable first line of defense for... [a worker] ordinarily steadily employed.  Unemployment compensation should permit such a worker, who becomes unemployed, to draw a cash benefit for a limited period during which there is expectation that he will soon be reemployed.  This should be a contractual right not dependent on any means test."  Report of the Committee on Economic Security, Hearings on S.1130 Before the Senate Committee on Finance, 74th Cong., 1st Sess. 1311, 1321 (1935).

    During the Senate debate on the passage of the Social Security Act, the original sponsor, Senator Wagner, stated that the "only important requirement (of the Social Security Act] is that the State law shall be genuinely protective, and that its revenues shall be devoted exclusively to the payment of insurance benefits."  79 Cong. Rec. 9284 (June 14, 1935); see also 79 Cong. Rec. 9271 (June 14, 1935)(remarks of Sen. Harrison).  Diversion of such payments to discharge preexisting private debts of an unemployed claimant, even to a public entity, is manifestly inconsistent with such purposes and requirements.  There is thus no basis for a broad or flexible interpretation of the Federal statutory language in issue, and the argument of Minnesota to the contrary must be rejected.
 


Conclusions of Law

    1. The Secretary has satisfied the requirements of 20 C.F.R. §601.5 for reasonable notice to the responsible state agency, the Minnesota Department of Jobs and Training, and opportunity for hearing following reasonable efforts by regional and central office representatives of the Secretary to resolve with appropriate officials of Minnesota the issues subject to determination in this proceeding.

    2. Section 303(a)(5) of SSA requires that the Minnesota unemployment compensation law, in order to be in conformity with Federal standards, provide for the "[e]xpenditure of all money withdrawn from the [the State's] unemployment fund... in the payment of unemployment compensation ...."  Similarly, §3304(a)(4) of FUTA requires that the Minnesota law, in order to be in conformity with Federal standards, provide that "all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation."  A State statute authorizing the reduction by the State of benefits otherwise due in order to apply the amount of such reduction to an independent debt of the claimant to an agency of, the State is inconsistent with these provisions.

    3. Section 303(a)(1) of SSA requires that the Minnesota law, in order to be in conformity with Federal standards, provide for "methods of administration... to be reasonably calculated to insure full payment of unemployment compensation when due."  Compensation, as defined in §3306(h) of FUTA means "cash benefits payable to individuals with respect to their unemployment."  The only exceptions to the general restriction limiting withdrawals from the unemployment fund to use only for the payment of unemployment compensation benefits are those explicitly authorized or required by Federal statute, such as the authorization for recovery of benefit overpayments pursuant to §§303(a)(5) and 303(g) of SSA.  The Minnesota recoupment amendment authorizes a method of administration which allows moneys otherwise payable from the State's unemployment compensation fund for unemployment benefits to be diverted and applied to curtail preexisting and independent obligations to the fund, a State agency.  Such administration of the fund is tantamount to allowing a levy or attachment of the claimant's unemployment benefits and is inconsistent with the standards prescribed by §§303(a)(1) and 303(a)(5) of SSA and the definition in §3306(h) of FUTA.

    4. The legislative history relating to these statutory provisions supports the Secretary's interpretation of the relevant statutes and establishes that the intent of Congress in enacting the Federal requirement was to insure that all moneys committed by the State for unemployment compensation purposes would be used, subject only to certain specifically authorized exceptions, solely for the payment of benefits and that individuals would be entitled to full payment of benefits as a matter of right after being determined to be eligible.

    5. The Federal requirements have consistently been interpreted by the Secretary to limit withdrawals from the unemployment fund to insure that such withdrawals would be expended solely for the payment of unemployment compensation benefits.  The only exceptions to this limitation which have been and are deemed valid by the Secretary have been those specifically authorized or required by Federal statute.

    6. Since the applicable provisions of the SSA and FUTA do not provide for the exercise of discretion in the application of moneys for the unemployment compensation fund to unemployment benefits by the Secretary or any other authority, only Congress has the authority to authorize or require exceptions to the general withdrawal standard by legislative action.  No Federal existing law has been cited or discovered which gives the Secretary authority to approve an attempted exercise of such authority by any state on policy grounds or otherwise create, or permit to be created, any exception to the limitations applicable to the expenditure of moneys in the state's unemployment compensation fund.

    7. In the absence of authority to create exceptions to the limitations upon the uses of moneys in Minnesota's unemployment compensation fund, the policy considerations alleged to justify the Minnesota recoupment law are irrelevant to this proceeding.

    8. Since the recoupment amendment provides that Minnesota may deduct and withhold up to 50 percent of each unemployment compensation payment to an individual for unpaid contributions, interest, penalties, and costs which the individual owed as an employer, the recoupment amendment conflicts with the requirements of §§303(a)(1) and 303(a)(5) of SSA and §3304(a)(4) of FUTA.  The legal effect of the Minnesota statute is to allow Minnesota to apply moneys from the unemployment fund, not to pay unemployment compensation benefits, but to pay unpaid contributions, interest, penalties and costs for which the individual is liable as an employer.  Thus, the unemployed claimant does not receive full payment of benefits to which the individual is entitled with respect to his unemployment at the time those benefits are due.
 

9. Minnesota's withholding of unemployment benefits to which a claimant would otherwise be entitled by reason of his unemployment, and the application of those moneys to curtail in whole or in part an alleged debt of that claimant in his individual or private capacity to the State's unemployment compensation fund, a public entity, constitutes a constructive or technical withdrawal from the fund, even though the fund retains such moneys as the ultimate recipient and beneficiary.  However, even if such an application of moneys from the fund were not deemed technically to be a withdrawal from Minnesota's unemployment compensation fund within the meaning of §303(a)(5) of SSA and §3304(a)(4) of FUTA, the recoupment amendment authorizes an expenditure from the Minnesota unemployment fund to pay other than unemployment compensation (or adminitrative costs) in violation of §303(a)(5) of SSA and §3304(a)(4) of FUTA.  It thus violates the requirement for administration insuring full payment of unemployment compensation when due within the meaning of §303(a)(1) of SSA, and it applies criteria for payment of benefits other than the claimant's unemployment contrary to the definition in §3306(b) of FUTA.  In effect, it is tantamount to a levy or attachment of unemployment benefits that a claimant would otherwise be entitled to receive in frustration of the fundamental purpose of the unemployment compensation statutes.

    10. Because of the enactment and continuing effect of the recoupment amendment, Minn. Stat. §268.165 (1987 Supp.), the Minnesota unemployment compensation law is not in conformity with applicable Federal law with respect to certificatibn pursuant to §§3302(a), 3302(b), and, 3304(c) of FUTA or certified as provided in §3303(b) of FUTA.

    11. Because of the enactment and continuing effect of the recoupment amendment, Minn. Stat. §268.165 (1987 Supp.), the Minnesota unemployment compensation law does not include certain specified provisions as required by §§303(a)(1) and 303(a)(5) of SSA, it is not in conformity with the requirements of that law with respect to certification for purposes of grants or payment of funds to Minnesota in accordance with §302(a) of SSA and 20 C.F.R. §§601.3, 601.5(a)(1) and (2).
 
 

________________________
EDWARD TERHUNE MILLER
Administrative Law Judge

DATED: November 14, 1988.
 

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1/ The stipulated record consists of thirteen documents, numbered one through thirteen.  These documents are referred to as Exhibits ("EX.") 1-13, respectively.

2/ 622 F. Supp. 1320 (D.C. Va. 1985)(State law authorizing recoupment of overpayments of unemployment compensation from subsequent benefits payments held not to violate Federal statutory scheme, due process, or equal protection).

3/ The administrative requirement for full payment of unemployment compensation "when due" is basically a requirement for timeliness.  See Fusari v. Steinberg, 419 U.S. 379 (1975).  However, the right to timely payment subsumes a threefold purpose "(1) To give prompt partial wage replacement so that the unemployed and their families would not be forced on relief; and (2) To provide security to assist the wage earners in finding work; and (3) To help stabilize industry by providing purchasing power to the unemployed when most needed (footnote omitted)" See UAW v. Michigan Employment Security Comm'n, 517 F. Supp. 12, 17 (E.D. Mich. 1980), citing California Dep't of Human Resources Dev. v. Java, 402 U.S. 121 (1971).

4/ §§303(a)(5) and (g) of SSA, §3304(a)(4)(D) of FUTA; §303(d)(2)(B) of SSA; §9152(e)(1) Pub. L. 100-203 (1987); §303(a)(5) of SSA, §3304(a)(4)(c) of FUTA; §303(a)(5) of SSA, §3304 (a)(4)(A) of FUTA; §303(e)(2)(A) of SSA.  The Secretary's Reply Brief attached as an exhibit the Departmental instructions issued to State Employment Security Agencies on the implementation of the Child Support Intercept (Withholding from Unemployment Compensation), Unemployment Insurance Program Letter No. 15-82, April 8, 1982.  The brief pointed out that, although the states had been informed in those instructions that deductions from unemployment compensation for certain spousal support payments were permitted, the Department has since concluded that there is no authority for such deductions and that the states will be so advised.  Since the document was not included in the Stipulated Record, and since counsel's representation is not evidence, the implications, if any, of these representations are not addressed.