DATE: April 16, 1991
CASE NO. 86-UIA-2

IN THE MATTER OF

STATE OF WISCONSIN

v.

DEPARTMENT OF LABOR.

BEFORE:    THE SECRETARY OF LABOR

   The unemployment compensation program is a cooperative Federal-State system whereby the Department of Labor administers funding, collected through the federal FUTA ¹ tax system, for the administrative costs of the unemployment benefit programs administered by the several States. Employers also pay separate state UI taxes, which are held in accounts at the U.S. Treasury earmarked for each state, from which actual benefit payments to claimants may be drawn. Employers are entitled to tax credits against the federal FUTA tax for state UI taxes paid into the earmarked accounts. However, a state receives UI administrative funding and its employees receive tax credits only if the State has adopted in its unemployment compensation law, and has substantially complied with, certain Federal requirements. This case and the issues before me arise under the statutes and provisions that comprise the unemployment compensation system, ² as applicable in the State of Wisconsin.

   The Federal share of the unemployment compensation programs of the State of Wisconsin (State) were audited by the Labor Department's Inspector General for federal Fiscal Years 1982 and 1983.³ The Labor Department's Grant Officer issued an Initial Determination on January 24, 1986,⁴ and a Final Determination on March 19, 1986,⁵ based on the audit report, wherein he disallowed $13,465,477, of which $12,531,560 was subject to debt collection order the Federal Debt Collection Act of 1982, 31 U.S.C. §§ 3711 et seq. The State requested a hearing, specifically contesting the Grant Officer's Finding I: that the State

overclaimed the Federal share of Extended Benefits (EB)⁶ and shareable regular benefits⁷ ; Finding II: that the State paid EB and Federal Supplemental Compensation (FSC) benefits⁸ to ineligible claimants; and, Finding IV: that the State overpaid FSC benefits to eligible claimants.⁹

   On January 10, 1990, the Administrative Law Judge (ALJ) heard cross motions for partial summary judgment concerning Findings I and II, and on March 30, 1990, issued two Orders. One Order granted partial summary judgment in favor of the State and ordered the Grant Officer to allow costs associated with Finding I on the State's claim of the Federal share of EB and FSC costs involving payments to claimants during the noncompensable waiting week (first week following claim for unemployment). The second Order granted partial summary judgment in favor of the Grant Officer and upheld the Grant Officer's disallowance of benefits paid to EB and FSC claimants because the State did not use the same base period wages for determining EB and FSC benefits that it used for determining eligibility for regular unemployment compensation (UC).

   Each party asked the Secretary to review the ALJ order adverse to it. On May 15, 1990, the Secretary denied the requests for review as interlocutory, because the final disposition of the entire case was still pending before the ALJ.¹⁰ On September 6, 1990, the ALJ issued a Recommended Decision and Order addressing the remaining issues concerning certain disallowances in Findings II and IV. The Grant Officer then renewed his exceptions to the ALJ's order of March 30, 1990, in favor of the State and allowing costs on the waiting week issue. The State excepted to the ALJ's order of March 30, 1990, in favor of the Grant Officer and affirming the disallowance of costs for EB and FSC benefits, and to the September 6, 1990, order affirming the disallowance of excess EB and FSC benefits and requiring the State to provide for the recovery of those costs. The Secretary accepted the case for review on October 18, 1990.¹¹

   The second issue before me concerns the Grant Officer's disallowance of ED and FSC costs claimed by the State for certain ineligible claimants. The ALJ affirmed the Grant Officer's disallowance of the claimed costs in the ALJ's March 30, 1990, Order Disallowing Costs for Extended Benefits and Federal Supplemental Benefits. The State does not dispute that the Wisconsin Administrative Code, Section IND-UC 132.01(2), provides that in calculating a claimant's average weekly wage to determine eligibility for regular UC benefits, only wages earned in a specific week of employment during the base period shall be used.¹² Howard S. Bellman, Secretary of the

This peculiar provision provides that, in calculating a claimant's average weekly wage, only wages which were earned in a specific week of employment during the base period can be used O In effect, this provision requires us, in calculating a claimants average weekly wage, to disregard part of the claimant's gross wages earned during the base period if the wages are not attached to a week of employment.¹³

However, in determining EB and FSC eligibility requirements and benefits, the State did not adhere to this "specific week" UC base period calculation, but rather expanded it to include holiday pay, vacation pay and sick pay, and "tips and the reasonable value (actual or estimated average) of board, rent, housing, . . . and any other similar advantage received from the individual's employing unit. . . ." not allocated to any specific work week. Wisconsin Unemployment Compensation Law § 108.02(6); A.F. at 112.

   Pursuant to federal EUCA § 202(a)(2), the terms and conditions of the State law which apply to claims for regular UC "shall apply to claims for [EB]. . . ." 26 U.S.C. § 3304 note. And Section 602(d)(2) of FSCA requires that the terms and conditions of the State law which apply to EB "shall apply" to FSC. 26 U.S.C. § 3304 note. Contrary to these prescriptions, the State did not use the more restrictive "specific week" basis it applies in determining UC eligibility and benefit levels when it calculated the additional EB and FSC eligibility. This change in eligibility requirements resulted in improperly high payments to certain EB and FSC claimants. After a case-by-case review, the Grant Officer disallowed $100,341 in EB costs and determined that $97,064 was subject to debt collection. A.F. at 14, 17.

   In opposing the Grant Officer's determination, the State relies, in part, on language in EUCA § 202(a)(5)¹⁴ as a purported alternative to the "same basis" requirement in subsection (a)(2). This argument misconstrues the Section 202(a) subsections which enumerate the various qualifications concerning EB eligibility. Rather than constituting an alternative to subsection (a)(2), for basis calculation purposes, subsection (a)(5) merely states a mechanism for calculating equivalent insured wages for initial eligibility purposes for extended benefits. Moreover, I am persuaded that Congress would not have established different eligibility requirements for the EB add-on payment period than those applicable to the regular UC benefits without explicitly stating its intent to do so. I therefore AFFIRM the ALJ's order of March 30, 1990, Disallowing Costs for Extended Benefits (EB) and Federal Supplemental Benefits (FSB).

   The ALJ's Recommended Decision and Order (D. and O.) of September 6, 1990, affirmed the Grant Officer's determination that the State improperly overpaid $723,287 in EB and FSC benefits, that the State was required to set up a system to seek recovery of those overpayments, and that the State was to absorb the administrative costs involved in that recovery. Upon consideration of the September 6 Order, and the further arguments of the parties before me (essentially repeating arguments made to and considered by the ALJ), I adopt and append the ALJ's September 6, 1990, D. and O.¹⁵

¹Federal Unemployment Tax Act, as amended, 26 U.S.C. §§ 3301-3311 (1988).

²Social Security Act, as amended, 42 U.S.C. §§ 1100-1105 (1988); Federal-State Extended Unemployment Compensation Act of 1970 (EUCA), codified as amended in a note at 26 U.S.C. § 3304 (1988); Federal Supplemental Compensation Act of 1982 (FSCA), codified as amended in a note at 26 U.S.C. § 3304 (1988); regulations at 20 C.F.R. Part 615 (1990) and 41 C.F.R. Part 29-70 (1984); and Employment and Training Order No. 5-85 (August 16, 1985), 50 Fed. Reg. 40,072 (1985).

³Administrative File (A.F.) at 47-118.

⁴Id. at 28-45.

⁵Id. at 5-25.

⁶Additional benefits for up to 13 weeks following the initial 26 weeks of regular UI benefits, if certain state unemployment levels are reached.

⁷Benefits in weeks 27-30 in certain states, shared by the federal government if EB unemployment "trigger" levels are reached.

⁸Formerly payable during 1981-84, since expired. A.F. at 1.

⁹A.F. at 1

¹⁰Sec. Order Denying Requests for Review.

¹¹The Grant Officer suggested in a filing on October 19, 1990, that the State's exceptions were untimely. It is not clear on the record exactly when the State received the ALJ's September 6, 1990, decision. The State's exceptions encompass both the March 30, 1990, and the September 6, 1990, orders. In declining to grant interlocutory review of the March 30 orders, the Secretary stated that the ruling was "without prejudice to the right of either party to seek Secretarial review following final disposition by the ALJ". Supra n.6.

¹²Memorandum of Authorities in Support of State of Wisconsin's Exceptions at 28-29.

¹³A.F. at 112.

¹⁴

Notwithstanding the provisions of paragraph (2), an individual shall not be eligible for extended compensation unless . . . the individual had 20 weeks of full-time insured employment, or the equivalent in insured wages . . . . [T]he equivalent in insured wages shall be earnings covered by the State law for compensation purposes which exceed 40 times the individual's most recent weekly benefit amount . . .

26 U.S.C. § 3304 note (emphasis supplied).

¹⁵The appended ALJ's orders have been modified to reflect pagination.