Employment Development Department v. California Unemployment Insurance Appeals Board
118 Cal. Rptr. 3d 167
Cal. Ct. App.2010Background
- SUTA dumping is illegal rate manipulation where one employer shifts payroll to a lower-rate entity; the Legislature directed the EDD to stop such manipulation and set forth a specific procedure.
- Screaming Eagle and Payday Diagnostics? Screaming Eagle and Payday are payroll services companies serving entertainment clients; they share ownership, management, office, and central accounting.
- In 2002 Screaming Eagle reported $16.4 million payroll at 0.7%, and in 2003 after a 5.4% rate was assigned, its reported payroll dropped dramatically to $1,500; Payday, assigned 1.7%, reported $14.4 million in the first three quarters of 2003.
- In November 2003 a Department auditor concluded Screaming Eagle and Payday formed a single employing unit and issued an assessment of $600,123.39, with a duplicate-account notice reassigning Payday’s payroll to Screaming Eagle at 5.4%.
- A second 2003-quarter assessment of $135,521.45 plus penalties followed; the agencies contested the assessments, arguing improper procedure under §1127.5; ALJ set aside; Appeals Board affirmed; trial court reversed; the Court of Appeal affirmed the trial court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 135.2(b) incorporates only §1127.5(d) or the entire §1127.5. | Screaming Eagle: unity determinations under 135.2 are subject to all of §1127.5, not just (d). | Department and Board: §135.2(b) references §1127.5(d) and retroactivity limits; does not import (a)-(c). | 135.2(b) incorporates only §1127.5(d). |
| Whether the retroactivity limits in §982(e) and §1127.5(d) apply to unity of enterprise assessments. | Retroactivity provisions apply to the timing and effects of unity determinations. | Retroactivity is the controlling constraint; assessments may be issued after finality under (d). | Retroactivity limits apply to unity determinations; assessments must respect finality under §1127.5(d). |
| Whether a unity-of-enterprise determination requires traditional correct-employer notice/review procedures before an assessment. | Unity determinations are subject to §1127.5(a)-(c) before assessments. | Unity determinations consolidate into a single unit; only the consolidated unit is assessed and reviewed; (a)-(c) do not apply. | Unity determinations do not require the §1127.5(a)-(c) notice/hearing regime before assessment; (d) governs timing and finality. |
| Whether the Department’s notice and assessment for Screaming Eagle were premature. | Assessments issued before finality under §1127.5(d) were premature. | Assessments may proceed under the general framework after the unity determination; no premature invalidation. | Assessments were premature under §1127.5(d) since finality had not occurred. |
Key Cases Cited
- American Employers Group, Inc. v. Employment Development Dept., 154 Cal.App.4th 836 (Cal. Ct. App. 2007) (unity of enterprise doctrine governs reporting under EDD)
- Romano v. Rockwell Internat., Inc., 14 Cal.4th 479 (Cal. 1996) (statutory interpretation using ordinary import and context)
- Smith v. Rae-Venter Law Group, 29 Cal.4th 345 (Cal. 2002) (use of extrinsic aids when statute is ambiguous)
- Hughes v. Board of Architectural Examiners, 17 Cal.4th 763 (Cal. 1998) (consideration of constitutional and policy implications in statutory construction)
- Atkinson v. Elk Corp., 109 Cal.App.4th 739 (Cal. App. 2003) (harmonization of multiple statutes in context)