Minnesota conformity decision on withholding unemployment benefits

U.S. Department of Labor
Employment and Training Administration
Washington, D.C. 20210
Classification: UI
Correspondence symbol: TEURL
Issue date: April 5, 1989
Rescissions: None
Expiration date: March 31, 1990
Directive: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 25-89
To: ALL STATE EMPLOYMENT SECURITY AGENCIES
From: DONALD J. KULICK, Administrator for Regional Management
Subject: Secretary's Decision in the 1988 State of Minnesota Conformity Proceedings

1. Purpose. To announce the Secretary of Labor's decision in the 1988 conformity proceedings concerning the State of
   Minnesota.

2. References. Sections 303(a)(1) and (5) of the Social Security Act (SSA); Sections 3304(a)(4) and 3306(h) of the
   Federal Unemployment Tax Act (FUTA); Secretary's Decision in Case No. 88-UIA-9, dated December 16, 1988.

3. Background. In 1987, the State of Minnesota amended its unemployment compensation law to permit the withholding of up to 50 percent of the unemployment compensation otherwise payable to an individual "for unpaid contributions, interest, penalties, and costs which the individual has been determined liable to pay." These liabilities were based on the individual's prior status as an employer.

   The Department of Labor (DOL) challenged this provision under several provisions of Federal law. The "withdrawal standard" in Section 3304(a)(4), FUTA, and Section 303(a)(5), SSA, requires State law to provide that all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation (with exceptions which were not germane to this issue). "Compensation" is defined in Section 3306(h), FUTA, as "cash benefits payable to individuals with respect to their unemployment." Section 303(a)(1), SSA, requires State law to include provision for "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."

   DOL argued that these provisions require the payment of unemployment compensation as a matter of right to eligible claimants, and therefore prohibit any levy, attachment or other remedy for the collection of public or private debts, prior to the receipt by the claimant of the benefits otherwise payable. DOL further argued that exceptions to the requirement that withdrawals from a State's unemployment fund be limited to compensation payable to eligible claimants are permitted only as specifically authorized or required by Section 303, SSA, and Section 3304, FUTA, and that DOL has no authority to grant any exceptions to the required payment of benefits to claimants as a matter of right.

   Briefs and reply briefs were filed with a Department of Labor administrative law judge (ALJ). Minnesota waived its right to a hearing. On November 14, 1988, the ALJ issued a recommended decision upholding DOL's position. On December 16, 1988, the Secretary issued her Decision.

4. The Secretary's Decision. The Secretary adopted, with certain technical corrections, the ALJ's decision and held that Minnesota law "no longer contains the provisions specified in Section 3304(a)(4) of FUTA and in sections 303(a)(1) and (a)(5) of SSA."

   In the event States face litigation involving the withdrawal standard, the States should note the discussion of Brewer v. Cantrell, 622 F.Supp 1320 (W.D. Va), aff'd 796 F.2d 472 (4th Cir. 1986), on page 4 of the ALJ's decision. DOL was not a party to Brewer, in which the plaintiffs claimed that Section 3304(a)(4) prohibited the offset of prior overpayments from compensation. In dismissing this claim, the Brewer Court reasoned that, to have a violation of Section 3304(a)(4), "money must be withdrawn from the unemployment funds." On this point, the ALJ stated that "the Brewer Court's interpretation of the withdrawal standard is deemed erroneous." (Although DOL agrees with the result in Brewer, DOL disagrees with other interpretations of Federal law in that case. These other interpretations were not addressed in the Minnesota proceeding and are not, therefore, discussed here.)

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

6. Inquiries. Direct inquiries to the appropriate Regional Office.

7. Attachment. Final Decision, dated December 16, 1988. (Contains Recommended Decisions of the ALJ, dated November 14, 1988.)

The Secretary’s December 16, 1988 decision and the ALJ recommendation are separate adjudicative documents attached at https://oui.doleta.gov/dmstree/uipl/uipl89/uipl_2589a.htm. They are not transcribed here.