DEPARTMENT OF TALENT & ECONOMIC DEVELOPMENT/UNEMPLOYMENT INSURANCE AGENCY, Aрpellant, v. AMBS MESSAGE CENTER, INC., Claimant-Appellee. DEPARTMENT OF TALENT & ECONOMIC DEVELOPMENT/UNEMPLOYMENT INSURANCE AGENCY, Appellant, v. GREAT OAKS COUNTRY CLUB, INC., Defendant-Appellee. DEPARTMENT OF TALENT & ECONOMIC DEVELOPMENT/UNEMPLOYMENT INSURANCE AGENCY, Appellant, v. NBC TRUCK EQUIPMENT, INC., Claimant-Appellee.
No. 343521; No. 343846; No. 343989
STATE OF MICHIGAN COURT OF APPEALS
September 12, 2019
FOR PUBLICATION; Jackson Circuit Court LC No. 17-003129-AE; Oakland Circuit Court LC No. 2017-162608-AE; Macomb Circuit Court LC No. 2017-000132-AE
If this opinion indicates that it is “FOR PUBLICATION,” it is subject to revision until final publication in the Michigan Appeals Reports.
Before: MURRAY, C.J., and METER and FORT HOOD, JJ.
In these consolidated appeals, appellant, Departmеnt of Talent and Economic Growth/Unemployment Insurance Agency (the Agency), appeals by leave granted the circuit courts’ determinations that claimants, Ambs Message Center, Inc., Great Oaks Country Club, Inc., and NBC Truck Equipment, Inc., were entitled to claim the new employer unemployment insurance tax rate under the Michigan Employment Security Act (MESA). We concludе that the claimants were not entitled to the new employer rate. Therefore, we reverse and remand in each docket.
I. BACKGROUND
A. ALTERING THE PROFESSIONAL EMPLOYER ORGANIZATION ARRANGEMENT
The claimants are employers subject to MESA‘s reporting and contribution requirements. See
An employer can cease to be an employer liable to pay the unemployment insurance tax—in relevant part—by transferring its “entire rating account” to another employer, see
An employer can also cease to be liable to pay unemployment insurance contributions as a contributing employer by entering into a service agreement with a professional employer organization (sometimes referred to as a PEO). Under a typical service agreement, a business transfers its employees to the professional employer organization, which then leases the employees back to the business. The leased employees are treated as the employees оf the professional employer organization even though the original employer (now considered the client employer) maintains day-to-day control over the employees. The professional employer organization normally handles all of the human resource matters involving the employees, which includes paying the unemployment insurance obligations related to the payroll of the client employer. See Adamo Demolition Co v Dep‘t of Treasury, 303 Mich App 356, 359-360; 844 NW2d 143 (2013).
Because the professional employer organization was the employer of the employees transferred to it, the professional employer organization historically paid the unemployment insurance contributions required under MESA using its own account and thе Agency calculated the tax on the basis of the professional employer organization‘s use of benefits. The client employer, by contrast, was treated as having no employees and no payroll during the term of the agreement with the professional employer organization.
The Legislature, however, addressed this arrangement with the enactment of the Michigan Professional Employer Organization Regulatory Act,
Acknowledging the impact of these changes on the client employer/professional employer organization‘s relationship, the amendment provided that a professional employer orgаnization that was liable for unemployment insurance contributions before January 1, 2011, could choose to use the reporting method stated under
The Legislature also addressed how a professional employer organization should calculate the tax rate applicable to client employers who had established a relationship with the professional employer organization before the mandatory change in the method for reporting. The Legislature indicated that, if the client employer met certain eligibility criteria, it would be entitled to treatment as a new employer under the statutory scheme:
(i) For a client employer that is a contributing employer and was a client employer of the PEO on the date that the PEO changed to the reporting method provided in this subdivision, the following rates apply:
(A) Except as provided in sub-subpаragraphs (B) and (C), if the client employer reported no employees or no payroll to the agency for 8 or more calendar quarters or, beginning January 1, 2014, for 12 or more calendar quarters, the client employer‘s unemployment tax rate will be the new employer tax rate.
(B) If the client employer was a client employer of the PEO for less than 8 calendar quarters or, beginning January 1, 2014, for less than 12 calendar quarters, the client employer‘s unemployment tax rate will be based on the client employer‘s prior account and experience.
(C) If the client employer‘s account has been terminated for more than 1 year of if the client employer never previously registered with the agency, the client shall be separately registered using a method approved by the agency within 30 days after the employer becomes a client employer of the PEO. The client employer shall be assigned the new employer unemployment tax rate. [
MCL 421.13m(2)(a) .]
B. THE CONSOLIDATED APPEALS
In these appeals, it is undisputed that each claimant became a client emрloyer of a professional employer organization that operated in this state before January 1, 2011, and which, for that reason, was not required to change its reporting method until January 1, 2014. It is similarly undisputed that each claimant had been a client employer of the professional employer organization for at least eight quarters as of Januаry 1, 2014, and that each claimant had reported no employees or no payroll for those same eight quarters. Finally, it is undisputed that the claimants’ professional employer organizations did not change their reporting method until January 1, 2014.
For each claimant, the Agency determined that the claimant was not entitled to the new employer tax rate beginning with tax year 2014. The Agency made that determination on the basis that each claimant had to report no employees or no payroll for 12 quarters because their professional employer organizations did not change their reporting method until January 1, 2014, and the statute provided that “beginning January 1, 2014” the client employer had to have reported “12 or more calendar quarters” of no payroll or employees in order to qualify for the new employer tax rate. See
After the Agency rejected their protests, the claimants each appealed to an ALJ. The ALJs each determined that, because each claimant had eight quarters of no employment or payroll before January 1, 2014, the claimants were entitled to the new employer tax rate. The ALJs each reasoned that
the ALJ in each case. The Agency then applied for leave to appeal in this Court, and this Court granted leave to appeal in each case and consolidated the cases.1
II. ANALYSIS
We review de novo the proper interpretation of a statutory scheme such as MESA. Polania v State Employees’ Retirement Sys, 299 Mich App 322, 328; 830 NW2d 773 (2013). Our Supreme Court has provided the following rules to guide the proper construction of statutes:
In determining the intent of the Legislature, this Court must first look to the language of the statute. The Court must, first and foremost, interpret the language of a statute in a manner that is consistent with the intent of the Legislature. As far as possible, effect should be given to every phrase, clause, and word in the statute. The statutory language must be read and understood in its grammatical context, unless it is clear that something different was intended. Moreover, when considering the correct interpretation, the statute must be read as a whole. Individual words and phrases, while important, should be read in the context of the entire legislative scheme. While defining particular words in statutes, we must consider both the plain meaning of the critical word or phrase and its placement and purpose in the statutory scheme. A statute must be read in conjunction with other relevant statutes to ensure that the legislative intent is correctly ascertained. The statute must be interpreted in a manner that ensures that it works in harmony with the entire statutory scheme. Moreover, courts must pay particular attention to statutory amendments, because a change in statutory language is presumed to reflect either a legislative change in the meaning of the statute itself or a desire to clarify the correct interpretation of the original statute. Finally, an analysis of a statute‘s legislative history is an important tool in ascertaining legislative intent. [Bush v Shabahang, 484 Mich 156, 166-168; 772 NW2d 272 (2009) (internal citations and quotation marks omitted).]
The criteria at issue on appeal involves
In the various lower court proceedings and again on appeal, the claimants argue that the reference to January 1, 2014, in
claimant must have had eight quarters of no reported employees or payroll. Stated another way, thе claimants would have this Court construe “beginning January 1, 2014” to mean “as of January 1, 2014.” However, that construction is untenable because it renders portions of the statutory scheme nugatory. See Klapp v United Ins Group Agency, Inc, 468 Mich 459, 468; 663 NW2d 447 (2003).
Under
The additional criteria stated under
In the cases before this Court, it is undisputed that each claimant‘s professional employer organization changed its reporting method on January 1, 2014. As such, the longer lookback period applied. It wаs also undisputed that each claimant had reported, at the most eight, quarters of no employees or payroll by that time. Consequently, under the plain terms of the statute, none of the claimants were entitled to the new employer tax rate under
III. CONCLUSION
The statute at issue was not ambiguous and provided that the shorter lookback periods applied оnly when a professional employer organization that was operating in this state before January 1, 2011, elected to change its reporting method before January 1, 2014. Because the professional employer organizations for each of the claimants waited until January 1, 2014, to change their reporting method, the longer lookback period applied to each claimant. As such, the claimants were not entitled to the new employer tax rate unless they had 12 quarters of not reporting payroll or employees. It is undisputed that none of the claimants met this requirement. Accordingly, the Agency did not err when it concluded that the claimants were not entitled to the new employer tax rate.
Therеfore, we reverse the circuit courts in each docket, and vacate the relevant circuit court orders, the Commission decisions, and the ALJ decisions. In each docket we further remand these cases to the respective ALJs for entry of decisions upholding the Agency‘s tax determinations for the relevant tax years.
Reversed, vacated, and rеmanded for further proceedings consistent with this opinion. We do not retain jurisdiction.
/s/ Christopher M. Murray
/s/ Patrick M. Meter
/s/ Karen M. Fort Hood