126th General Assembly
(As Passed by the General Assembly)
Sens. Armbruster, Hottinger, Spada, Austria, Gardner, Goodman, Harris
Reps. Schaffer, Cassell, Collier, Combs, Distel, McGregor, Miller, Seitz, Yuko, Allen, Barrett, Boccieri, Brown, Carano, Chandler, DeBose, Dolan, Domenick, C. Evans, D. Evans, Fende, Gibbs, Harwood, Perry
Effective date: September 5, 2005
ACT SUMMARY
· Establishes revised methods of determining when a trade or business is transferred to another entity and how that transfer affects unemployment compensation liabilities.
· Prohibits a person from acquiring the trade or business of an employer, or a portion thereof, solely or primarily for the purpose of obtaining a lower rate of contributions under the Unemployment Compensation Law and establishes civil and criminal penalties for knowingly violating this prohibition.
· Specifies objective factors the Director of Job and Family Services (JFS) may use in determining whether a trade or business was acquired solely or primarily for the purpose of obtaining a lower rate of contributions.
· Establishes a State Disaster Unemployment Benefit that may be paid to an individual suffering unemployment directly attributable to a major disaster declared by the President of the United States if the individual is not otherwise eligible to be paid unemployment compensation benefits for the first week of the individual's unemployment caused by the disaster and eliminates the provision allowing an individual to receive unemployment compensation benefits during the waiting week when unemployed due to such a disaster.
· Adds Indian tribes as covered, reimbursing employers under the Unemployment Compensation Law and requires them to pay for regular and extended unemployment benefits in the same fashion as state and local government employers.
· Eliminates specified conditions under which an employer's penalty contribution rate for late wage reporting can be waived, and shortens the period during which an employer may furnish wage information in order to avoid a higher penalty contribution rate from 36 months to 18 months beginning in rate year 2006.
· Allows the Director of JFS to issue a corrected determination of benefit rights if the Director finds the determination was erroneous during the 52-week period beginning on Sunday of the week an application for benefits is filed.
· Requires an appellant to file an appeal from a decision of the Unemployment Compensation Review Commission with the court of common pleas of Franklin County if the appellant is not a resident of or last employed in a county in Ohio or does not have a principal place of business in Ohio.
· Requires the Unemployment Compensation Review Commission to file a certified transcript of its record regarding a claim beyond the existing 45‑day deadline when allowed by a court, and requires the court to remand the matter to the Commission if the Commission cannot timely file the transcript.
· Specifies that if the operations of an employer involved in a labor dispute are located in only one county, the appellant must file the appeal in the court of common pleas of that county, and if the operations of an employer involved in a labor dispute are located in multiple counties, the appellant must file the appeal in the court of common pleas of the county where the largest number of claimants worked for the employer.
· Modifies provisions governing benefit reductions due to retirement pay.
· Specifies that the Director of JFS need not have the prior approval of the Unemployment Compensation Advisory Council to make payments associated with the sale of real property and requires the Director to submit an annual report regarding these payments to the Council.
· Clarifies that amounts chargeable to other states, the United States, or Canada, pursuant to agreements the Director of JFS enters into with those governments, are credited or reimbursed in accordance with those agreements.
· Makes technical corrections to the Unemployment Compensation Law.
TABLE OF CONTENTS
Former provisions regarding business transfers
Replacement provisions concerning business transfers
State disaster unemployment benefits
Payment structure change relative to Indian tribes
Coverage relative to specified jobs in education
Coverage relative to extended benefits
Penalty contribution rates for employers who fail to timely furnish
required
wage information
Corrected determination by the Director of Job and Family Services
Appealing a final decision of the Unemployment Compensation Review
Commission
CONTENT AND OPERATION
Public Law (P.L.) No. 108-295, the "SUTA Dumping Prevention Act of 2004," was signed into law on August 9, 2004, and requires states to conform their laws to prevent the practice commonly referred to as SUTA dumping. "SUTA" refers to state unemployment tax acts, but has also been said to stand for "State Unemployment Tax Avoidance." The type of practices the federal act seeks to address most frequently involve business mergers, acquisitions, or restructuring schemes, especially those involving shifting of workforce and payroll, that are completed in a manner that avoids unemployment compensation taxes. The act modifies Ohio's law to address these types of business transfers, as explained below.
Former law specified that if an employer transferred the employer's business or otherwise reorganized such business, the successor in interest assumed the resources and liabilities of such employer's account, and continued the payment of all contributions, or payments in lieu of contributions, that were due. Additionally, if an employer acquired substantially all of the assets in a trade or business of another employer, or a clearly segregable and identifiable portion of an employer's enterprise, and immediately after the acquisition employed in the employer's trade or business substantially the same individuals who immediately prior to the acquisition were employed in the trade or business or in the separate unit of such trade or business of such predecessor employer, then, upon application to the Director of Job and Family Services signed by the predecessor employer and the acquiring employer, the employer acquiring such enterprise was the successor in interest. In the case of a transfer of a portion of an employer's enterprise, only that part of the experience with unemployment compensation and payrolls that was directly attributable to the segregated and identifiable part was transferred and used in computing the contribution rate of the successor employer on the next computation date. The Director by rule could prescribe procedures for effecting transfers of experience. (Sec. 4141.24(F).)
Also, under former law, two or more employers who were parties to or the subject of a merger, consolidation, or other form of reorganization effecting a change in legal identity or form were deemed to be a single employer if the following conditions were satisfied: (1) the Director found that immediately after such change, the employing enterprises of the predecessor employers were continued solely through a single employer as successor thereto, (2) immediately after such change such successor was owned or controlled by substantially the same interests as the predecessor employers, (3) the successor had assumed liability for all contributions required of the predecessor employers, and (4) the consideration of such two or more employers as a single employer for the purposes of this section was not inequitable. (Sec. 4141.24(G).)
The act replaces some of the statutory provisions above with more specific details concerning business transfers. It specifies that if an employer or person transfers all of its trade or business to another employer or person, the acquiring employer or person is the successor in interest to the transferring employer and must assume the resources and liabilities of such transferring employer's account, and continue the payment of all contributions, or payments in lieu of contributions, that are due. If an employer or person acquires substantially all, or a clearly segregable and identifiable portion of an employer's trade or business, then upon the Director's approval of a properly completed application for successorship, the employer or person acquiring the trade or business, or portion thereof, is the successor in interest.
The act additionally specifies that notwithstanding other provisions of the Unemployment Compensation Law (R.C. Chapter 4141.) governing rating, experience, and payroll calculations, both of the following apply regarding assignment of rates and transfers of experience:
(1) If an employer transfers its trade or business, or a portion thereof, to another employer and, at the time of the transfer, both employers are under substantially common ownership, management, or control, then the unemployment experience attributable to the transferred trade or business, or portion thereof, must be transferred to the employer to whom the business is so transferred. The Director must recalculate the rates of both employers and those rates must be effective immediately upon the date of the transfer of the trade or business.
(2) Whenever a person is not an employer governed by the Unemployment Compensation Law at the time the person acquires the trade or business of an employer, the unemployment experience of the acquired trade or business must not be transferred to the person if the Director finds that the person acquired the trade or business solely or primarily for the purpose of obtaining a lower rate of contributions. Instead, that person must be assigned the applicable new employer rate under the normal rating provisions.
The act requires the Director to establish procedures to identify the transfer or acquisition of a trade or business in addition to adopting rules prescribing procedures for effecting transfers of experience, as under continuing law. (Sec. 4141.24(F), (G), and (H).)
The act prohibits a person from acquiring the trade or business of an employer, or a portion thereof, solely or primarily for the purpose of obtaining a lower rate of contributions under the Unemployment Compensation Law. In determining whether the trade or business was acquired solely or primarily for the purpose of obtaining a lower rate of contributions, the Director must use objective factors that may include all of the following:
(1) The cost of acquiring the trade or business;
(2) Whether the person continued the trade or business of the acquired trade or business;
(3) If the trade or business was continued, how long the trade or business was continued;
(4) Whether a substantial number of new employees were hired for performance of duties unrelated to the business activity conducted prior to the acquisition. (Sec. 4141.48(A) and (B).)
If a person knowingly violates, attempts to violate, or advises another person in a way that results in a violation of the prohibition described above or any other provision of the Unemployment Compensation Law related to determining the assignment of a contribution rate, the person is subject to the following penalties:
(1) If the person is an employer, the Director must assign the employer the highest maximum rate or penalty rate assignable for the rate year during which the violation or attempted violation occurred and the three rate years immediately following that rate year, except that, if the person's business is already at the highest rate for any of those years, or if the amount of increase in the person's rate would be less than 2% for that year, then an additional penalty rate of contributions of 2% of taxable wages must be imposed for that year.[1]
(2) If the person is not an employer, the Director must assess a fine of $5,000. (Sec. 4141.48(C).)
The act requires the Director to credit 50% of amounts paid to the Director under rates described in (1) directly above to the individual employer's account and 50% to the mutualized account. It also requires the Director to deposit any fine collected from a person described in (2) directly above into the Special Administrative Fund. (Sec. 4141.48(D) and (E).)
The act further specifies that whoever knowingly transfers employees of a trade or business or advises another person to transfer employees in violation of the prohibition described above is guilty of unemployment tax evasion. In addition to the penalties described above, if the tax avoided by the trade or business is less than $10,000, the violation is a first-degree misdemeanor. If the tax avoided is $10,000 or more, the violation is a felony, with increased criminal penalties as follows:
(1) If the tax avoided by the business is $10,000 or more but less than $50,000, the violation is a fifth-degree felony;
(2) If the tax avoided is $50,000 or more but less than $100,000, the violation is a fourth-degree felony;
(3) If the tax avoided is $100,000 or more, the violation is a third-degree felony. (Sec. 4141.99(F).)
For purposes of the prohibition and associated penalties described above: "knowingly" means having actual knowledge of or acting with deliberate ignorance or reckless disregard for the prohibition involved; "person" has the same meaning as under "The Internal Revenue Code of 1986," 100 Stat. 2138, 26 U.S.C. 7701; "trade or business" includes the employer's workforce; and "violates or attempts to violate" includes, but is not limited to, intent to evade, misrepresentation, or willful nondisclosure. (Secs. 4141.48(G) and 4141.99(G).)
Continuing law specifies conditions an individual must satisfy to be entitled to a waiting period or unemployment benefits. These conditions include requirements that the individual be able to work, available for suitable work, and actively seeking suitable work. The law additionally specifies that individuals are not paid benefits for their "waiting week," which is the first week occurring after an individual applies for benefits. However, under former law, the requirement that an individual be actively seeking work was waived and an individual could receive benefits for the waiting week when the individual's unemployment was directly attributable to a major disaster declared by the President of the United States pursuant to the Disaster Relief Act of 1974, 88 Stat. 143, 42 U.S.C. 5121, and the employer whose operation was adversely affected by the disaster, requested a waiver from the Director for the individual to be exempt from the requirement to actively seek suitable work. An individual was paid these benefits from the Unemployment Compensation Trust Fund ("Trust Fund").
The act eliminates the waiver described above and the potential for an individual to be paid benefits from the Trust Fund for a waiting week. Instead, the act creates a "state disaster unemployment benefit payment" that may be paid for the first week of unemployment to an individual suffering total or partial unemployment directly attributable to a major disaster declared by the President of the United States pursuant to the Disaster Relief Act of 1974 if the individual is not eligible to be paid unemployment compensation benefits under Ohio's Unemployment Compensation Law or any other state or federal unemployment compensation law for the first week of the individual's unemployment caused by the disaster.
The act requires the Director to compute the state disaster unemployment benefit payment as if the individual was otherwise qualified and claiming weekly unemployment compensation benefits under Ohio's Unemployment Compensation Law. This benefit is paid from the Unemployment Compensation Special Administrative Fund, as opposed to the Trust Fund, and the Director need not have the prior approval of the Unemployment Compensation Advisory Council to make these payments. The Director must maintain appropriate records of these payments and must submit those records at least annually to the Council as prescribed by the Council. (Secs. 4141.11(C), 4141.29(A)(4)(a)(ii)(I) and (B), and 4141.292.)
The federal Community Renewal Tax Relief Act of 2000 (P.L. 106-554) (hereafter "CAA") was signed into law on December 21, 2000. The CAA amended federal law to change the way American Indian tribes are treated under the Federal Unemployment Tax Act (FUTA). Under the new law, Indian tribes must be treated in a fashion that is similar to the way state and local governments are treated under federal unemployment tax law.
At the time the General Assembly passed the act, there were no federally recognized Indian tribes or Indian tribe employers within the state of Ohio. According to the United States Department of Labor, petitions for federal recognition have been filed in Ohio. The act's provisions with respect to the new treatment of Indian tribes under Ohio's Unemployment Compensation Law will have a real effect only if an Indian tribe in Ohio succeeds in receiving recognition in accordance with federal law.
Under ongoing law unchanged by the act, employers who employ employees in employment that is subject to the Unemployment Compensation Law must pay into the Trust Fund. Money from that fund is used to pay benefits to unemployed workers.
Prior to the CAA, if an Indian tribe employer did exist in Ohio, it would have been required to pay the federal unemployment tax in the same manner as contributory employers. The act however, in conforming to the CAA, makes Indian tribe employers reimbursing employers. Thus, if an Indian tribe gains recognition in Ohio, an Indian tribe employer will be required to reimburse the Trust Fund, after-the-fact, for benefits paid to claimants, unless the Indian tribe employer elects to become a contributory employer. Under the act, an Indian tribe may make a separate election for itself and each subdivision, subsidiary, or business enterprise wholly owned by the Indian tribe. (Secs. 4141.01 and 4141.242.)
There are two types of "reimbursing employers"--nonprofit organizations and governmental entities. There are differences between what is required of each type. Under the act, Indian tribes must follow the same requirements set forth in continuing law that apply to governmental entities.
The act excludes from the definition of "employment," and therefore from coverage under the Unemployment Compensation Law, any service that is excluded from unemployment under FUTA, and any service performed for an Indian tribe when performed in any of the following manners:
(1) As a publicly elected official;
(2) As a member of an Indian tribal council;
(3) As a member of a legislative or judiciary body;
(4) In a position which, pursuant to Indian tribal law, is designated as a major non-tenured policymaking or advisory position, or a policymaking or advisory position where the performance of the duties ordinarily does not require more than eight hours of time per week;
(5) As an employee serving on a temporary basis in the case of a fire, storm, snow, earthquake, flood, or similar emergency;
(6) Service performed after December 31, 1971, for an Indian tribe as part of an unemployment work-relief or work-training program (this exemption applies only to nonprofit organizations and government entities under continuing law) (sec. 4141.01(B)(3)(z) and (aa)).
The Director is required to immediately notify the United States Internal Revenue Service and the United States Department of Labor if an Indian tribe fails to make required payments and fails to pay any forfeitures, interest, or penalties due within 90 days of receiving a delinquency notice in accordance with rules prescribed by the Director. (Sec. 4141.242(I).)
The act adds educational institutions operated by an Indian tribe to the existing definition of "educational institution" and "institution of higher education" for purposes of the Unemployment Compensation Law (sec. 4141.01(Y)). As a result, schools operated by Indian tribes become subject by the act to the same rules that apply to other educational institutions and institutions of higher education in continuing law. (Sec. 4141.29.)
Under ongoing law, extended benefits may be approved during times of high unemployment in the state as determined by the Director of Job and Family Services in accordance with federal regulations. Employers are charged for the benefits that are paid to claimants, which affects the amount that the employer must contribute to or reimburse the Trust Fund. A public employer's account may be charged an amount equal to one-half of the regular benefits chargeable to the employer's account on the claim. If extended benefits are paid to eligible individuals, the full amount of extended benefits are charged to the accounts of public employers. The act subjects Indian tribes that are employers to this existing payment structure. (Sec. 4141.301(H).)
Under law retained in part by the act, if an employer has not furnished the appropriate wage information necessary to compute the employer's contribution rate by September 1 of each year, the employer is assigned a penalty contribution rate equal to 125% of the maximum rate, with the following exceptions:
(1) If the employer files the necessary wage information by December 31 of the year immediately preceding the contribution period for which the rate is to be effective, the employer's rate is computed as normal;
(2) The Director must revise the contribution rate of an employer who has not timely furnished the necessary wage information, and who has been assigned a penalty contribution rate, and who does not meet the requirements for waiver of that penalty contribution rate if the employer furnishes the necessary wage information to the Director within 36 months following December 31 of the year immediately preceding the contribution period for which the rate is to be effective. This revised rate must be equal to 120% of the contribution rate that would have resulted if the employer had timely furnished the necessary wage information. However, the Director must deny an employer's request for this revision if the Director finds that the employer's failure to timely file the necessary wage information was due to an attempt to evade payment. (Sec. 4141.26(B)(3)(c).)
The act shortens the 36-month maximum period described immediately above to an 18-month maximum to be able to obtain the revised rate that equals 120% of the normal rate for rate years beginning in 2006. The act also eliminates a third exception that allowed the Director to waive the penalty contribution rate if the employer, after the Director mailed the notice of the penalty contribution to the employer, met specified conditions. (Sec. 4141.26(B)(3)(c) and Section 3.)
Under continuing law, the Director of Job and Family Services must issue a corrected determination of benefits if the Director finds, within a claimant's benefit year, that the Director's determination was erroneous due to an error in an employer's report, any typographical or clerical error in the Director's determination, or as shown by correct remuneration information received by the Director. The act expands this provision to require the Director to issue a corrected determination if the Director finds one of the above-described errors within the 52-week calendar weeks beginning with Sunday of the week during which an application for benefit rights was filed. This means the Director must issue a corrected determination regardless of whether a valid application has been filed.[2] (Sec. 4141.28.)
Under continuing law, an appellant may appeal a final decision of the Unemployment Compensation Review Commission if the appeal is filed within 30 days after the final decision is sent to interested parties. An appellant must file the appeal in the court of common pleas in the county where the appellant is a resident or was last employed. If the appellant is a business, then the appellant must file in the county where the appellant is a resident or has a principal place of business in Ohio. The act adds the requirement that the appellant must file the appeal with the court of common pleas of Franklin County if the appellant is not a resident of or last employed in a county in this state or does not have a principal place of business in this state. (Sec. 4141.282(B).)
Law retained in part by the act requires the Commission to file a certified transcript of the record of the proceedings before the Commission with the clerk of the court within 45 days after an appellant files a notice of appeal. Under the act, the Commission must file a certified transcript of the proceedings either within 45 days after the appellant files a notice of appeal or within an extended period ordered by the court. The act also creates an exception to these filing requirements, which stipulates that if the Commission cannot file a certified transcript within that 45 days or extended period, the court must remand the matter to the Commission for additional proceedings in order to complete the record. The act specifies that additional proceedings may include a new hearing before the Commission or a designated hearing officer. (Sec. 4141.282(F).)
Under continuing law, whenever the Director has reason to believe that the unemployment of 25 or more people relates to a labor dispute, the Director must schedule a hearing with a hearing officer concerning the reason for unemployment. The hearing officer's decision issued by the Director is final unless a party files an appeal with the Commission. The Commission then must review the Director's decision and render a decision. (Sec. 4141.283.)
Under law retained in part by the act, a party may appeal the Commission's decision to the court of common pleas as required by the party's residence, last employment, or principal place of business as described above in "Where to file the appeal." The act creates a different venue for this type of appeal. Under the act, if the operations of an employer involved in a labor dispute are located in only one county, the appellant must file the appeal of the Commission's decision in the court of common pleas of that county. If the operations of an employer involved in a labor dispute are located in more than one county, the appellant must file the appeal of the Commission's decision in the court of common pleas of the county where the largest number of claimants worked for the employer. (Sec. 4141.283(E).)
Under law largely unchanged by the act, one reason an individual may not receive benefits is if the individual quit work without just cause or has been discharged for just cause in connection with the individual's work. However, this reason for denial does not apply if the individual is separated from employment because the individual applied to or was inducted into the armed forces within 30 days after separation from employment. The act modifies the armed forces exception so that the reason for denying unemployment explained above does not apply if the individual is inducted (the act removes the language referring to an individual applying to enter the armed forces within the 30-day period) into the armed forces within 30 days after separation from employment or within 180 days after separation if the individual's date of induction is delayed solely at the discretion of the armed forces. (Sec. 4141.29(D)(2)(a)(i).)
Under law generally unchanged by the act, another reason an individual may be denied benefits is if the individual refused to accept an offer of suitable work without good cause or investigate a referral for suitable work. However, this reason for denial does not apply when the individual is attending a vocational training course. The act removes the requirement that the training course be a vocational training course. (Sec. 4141.29(D)(2)(b)(ii).)
Former law also stipulated that an individual was denied benefits if the individual had knowingly made a false statement or representation or knowingly failed to report any material fact with the object of obtaining benefits to which the individual was not entitled. The act removes this reason for which unemployment benefits are denied. However, the broader provisions of continuing law addressing the issue of obtaining benefits fraudulently still apply to this type of scenario. (Sec. 4141.29(D)(2)(d).)
Continuing law generally requires that an individual's benefits be reduced by the amount that individual is receiving in some form of retirement or pension benefits. Under law changed in part by the act, if an individual works 26 weeks or more for an employer to whom the retirement payments are not attributable, then any unemployment benefits paid are not reduced by the amount of retirement payments received, and charges for those unemployment benefits are made instead to the mutualized account, not the account of the employer who is paying the retirement. The act removes the specification that an individual work 26 weeks or more for this exception to apply. (Sec. 4141.31(A).)
The act also adds a qualification to this benefit reduction provision, specifying that the benefit reduction described above applies to any pension, retirement or retired pay, annuity, or other similar periodic payment only if both of the following are true:
(1) In the case of a payment under a plan not made under the "Social Security Act," 42 U.S.C. 401 et. Seq., or the "Railroad Retirement Act of 1974," 45 U.S.C. 231 et. Seq., or the corresponding provisions of prior law, services performed for such employer by the individual after the beginning of the base period, or remuneration for such services, affect eligibility for, or increase the amount of, such pension, retirement or retired pay, annuity, or similar payment.
(2) The payment is under a plan maintained or contributed to by a base period employer or chargeable employer. (Sec. 4141.312(A)(1) and (2).)
While (2) above is essentially not a new provision, (1) above is.
Ongoing law requires the Director to pay costs associated with the sale of real property no longer needed by the Director pursuant to the Unemployment Compensation Law from the Unemployment Compensation Special Administrative Fund. The act specifies that the Director need not have the prior approval of the Unemployment Compensation Advisory Council to make these payments. It also requires the Director to submit a report summarizing the use of that Fund for these payments at least annually to the Council as prescribed by the Council. (Secs. 4141.11(D) and 4141.131(A).)
The act clarifies that "amounts" (costs of benefits) that are chargeable to other states, the United States, or Canada, pursuant to agreements the Director enters into with those governments, are credited or reimbursed in accordance with those agreements. (Sec. 4141.29(H).)
The act eliminates an obsolete reference to "temporary partial disability." (Sec. 4141.31(A)(2).)
The act eliminates obsolete provisions regarding penalty assessments for employers who filed late wage information for contribution periods that occurred before January 1, 1995. (Sec. 4141.26(B)(1) and (2).)
The act corrects an outdated reference in the Unemployment Compensation Law to a specific provision in the federal "Immigration and Nationality Act," 8 USCA 1101 and 1184. (Sec. 4141.01(A)(1)(d)(ii).)
HISTORY
|
ACTION |
DATE |
JOURNAL ENTRY |
|
|
|
|
|
Introduced |
03-01-05 |
p. 250 |
|
Reported, S. Insurance, Commerce & Labor |
|
|
|
Passed Senate (32-0) |
04-12-05 |
p. 384 |
|
Reported, H. Commerce & Labor |
|
|
|
Passed House (99-0) |
05-17-05 |
pp. 838-839 |
05-sb81-126.doc/kl
[1] The Director must round the contribution rates the Director determines under this provision to the nearest tenth of 1%. (Sec. 4141.48(F).)
[2] The difference between the two periods described is that a benefit year starts upon the filing of a valid application for determination of benefit rights.