State New Hampshire Department of Employment Security v. MarshallState New Hampshire Department of Employment Security v. Marshall
Robert T. Duffy, Atty., Tax Div., Dept. of Justice, Washington, D. C., with whom M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Leonard J. Henzke, Jr., Attys., Tax Div., Dept. of Justice, Washington, D. C., were on brief, for respondents.
George Kaufmann, Washington, D. C., with whom Zwerdling & Maurer, A. L. Zwerdling, Janet Kohn, Leonard Lesser, J. Albert Woll, Gen. Counsel, AFL-CIO, Laurence Gold, Sp. Counsel, AFL-CIO, and Edward J. Hickey, Jr., Gen. Counsel, Washington, D. C., Public Employee Dept., AFL-CIO, were on brief, for American Federation of Labor, et al., amicus curiae.
Before CAMPBELL and BOWNES, Circuit Judges, DEVINE, District Judge.*
BOWNES, Circuit Judge.
This is an appeal pursuant to
In order to understand the issues involved, some explanation of the unemployment compensation law is necessary. The law has its roots in the Great Depression when unemployment was so widespread that the separate states were unable to meet the basic needs of their citizens. Several states, of which Wisconsin was the leader and New Hampshire an early follower, enacted their own unemployment insurance programs. The financing for these programs was obtained mainly by a tax on private employers. Many states, however, refused to enact such programs fearing that the tax on local employers would cause them to flee to other states which did not have such a law. The federal unemployment insurance law was thus devised to meet a national problem. The constraints of federalism and the dictates of practical politics resulted in legislation designed to equalize the burden on the states with full participation by all. This was accomplished by the inducement of tax credits to private employers and outright grants made available to the states to help defray the administrative costs of the program. The tax on the private employer was levied and collected by the state. The moneys collected had to be promptly remitted by the states to the Secretary of the Treasury. A credit of up to 90% of the tax due was given the employer if he had made contributions to his state‘s unemployment insurance fund. The tax credit and the grants were contingent on certification by the Secretary of Labor that the state had enacted an unemployment compensation program that conformed to federal statutory requirements.
There was no direct statutory command to the states requiring them to conform to federal law. The federal government made an offer to the states which they could accept or refuse. Up until now, all the states found the combination of tax credits to its private employers and outright grants in return for conforming legislation an offer that could not be refused.2
Coverage under the unemployment compensation law was modified, restricted and expanded in 1976 by amendments to FUTA. The changes that concern us are as follows.
1. Employees of a state and its political subdivisions were required to be covered.
2. Coverage was extended to the employees of nonprofit schools which are not institutions of higher learning.
3. Political subdivisions of a state were given the option of reimbursing the state for unemployment benefits paid to former employees in lieu of making payments in the same manner as private sector employees.
4.
5. Coverage afforded to professional athletes was restricted by prohibiting the payments of benefits between athletic seasons.
6. The coverage of employees of educational institutions was modified in regard to the coverage of professional and non-professional employees between academic terms or years, and during vacation periods and vacation recesses.
This case was precipitated by the veto on June 23, 1978, by the then governor of New Hampshire, of a bill that was intended to bring the New Hampshire Unemployment Compensation Law into conformity with the provisions of
After the veto of the conformity legislation, a hearing pursuant to
The state did not meet the conformity requirements of
This is clearly not the type of case where statutory interpretation makes it unnecessary to meet the constitutional issues. New Hampshire made it clear before the ALJ at the hearing, and before us, that it was refusing to conform because it felt that the statute itself was unconstitutional. New Hampshire‘s decision to put all its eggs in the constitutional basket, however, does not mean that we can avoid our statutory duty of review of the Secretary‘s order. See New York City Transit Authority v. Beazer, 440 U.S. 568, 99 S.Ct. 1355, 59 L.Ed.2d 587 (1979). We must determine whether there is substantial evidence on the record to support the Secretary‘s findings.3
The evidence presented at the hearing can be summarized as follows. New Hampshire was advised during the period October 21, 1976, through June 24, 1978, by the Department of Labor what amendments would be necessary to bring its unemployment compensation law into conformity with
The evidence was uncontradicted that, although New Hampshire has provided full unemployment insurance coverage for its permanent and classified civil service employees, temporary and seasonal workers and those not classified are not covered.
Under subsections (B) and (C) of
The Secretary properly found that, under New Hampshire law,
We uphold the decision of the administrative law judge, as modified and adopted by the Secretary, that New Hampshire‘s Unemployment Compensation law was in the six respects specified not in conformity with the requirements of the implicated 1976 amendments to FUTA.
The constitutional issue can be stated thusly: do the 1976 amendments to FUTA violate the sovereign integrity of the states and impair their ability to function effectively under the federal system as guaranteed by the tenth amendment.
The basic question is whether this case falls within the new furrow ploughed by National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976), or follows in the wake of Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279 (1937). In Usery, the Supreme Court, in a five to four decision, overruled Maryland v. Wirtz, 392 U.S. 183, 88 S.Ct. 2017, 20 L.Ed.2d 1020 (1968),4 and held that the 1974 amendments of the Fair Labor Standards Act (FLSA) extending its provisions to employees of the states and their political subdivisions were unconstitutional and prohibited by the tenth amendment. Petitioners urge that its holding and rationale also doom the 1976 FUTA amendments which apply to the same employee groups.
We note first that only two of the six nonconformity findings implicate the tenth amendment, the one pertaining to coverage of employees of the state and its political subdivisions5 and the option given these entities relative to the method of payment.6
Our analysis begins with the obvious; that we are dealing with a different federal statute and, more importantly, a different regulatory method than was at issue in Usery. The minimum wage and maximum hour provisions of the Fair Labor Standards Act (FLSA) invalidated in Usery were imposed on the states by command. The authority for such command rested on the commerce clause. On the other hand, the 1976 FUTA amendments, following the design of the original Act, were not based on the commerce clause and were not directly imposed on the states which had the option of conforming or not.
There is no doubt that Usery focused on the command of the FLSA amendments that the states must adopt the maximum hours and minimum wage provisions for its own employees.
The Act, speaking directly to the States qua States, requires that they shall pay all but an extremely limited minority of their employees the minimum wage rates currently chosen by Congress.
National League of Cities v. Usery, supra, 426 U.S. at 847-48, 96 S.Ct. at 2472.
But, like the minimum wage provisions, the vice of the Act as sought to be applied here is that it directly penalizes the States for choosing to hire governmental employees on terms different from those which Congress has sought to impose.
This command to the state is given bite by
Petitioners argue, however, that this option of the state to refuse to participate in the program is illusory, since the severe financial consequences that would follow such refusal negate any real choice. Petitioners assert that, while the 1976 federal statutory requirements are not imposed by fiat, as with the 1974 amendments to the FLSA, the coercive effect is the same. This is particularly so, they contend, because most of the financial burden for a state‘s decision not to conform falls on its private employers through loss of federal tax credits. All parties agree that the cost to the private employers in New Hampshire will be about forty million dollars in 1978 tax credits. It is argued that by holding the private employers “ransom,” Congress coerces compliance.
We do not agree that the carrot has become a club because rewards for conforming have increased. It is not the size of the stakes that controls, but the rules of the game.7 The basic design and mechanism of the Act have not changed since 1935. Its coverage has been extended,8 but the percentage of tax credits remains essentially the same.9
The primary reason, of course, for the increase in the dollar amount of tax credits has been the expansion of our economy since 1935. The increase in the number of employers and employees and the amount paid in wages has meant a corresponding increase in the dollar amount of tax credits.
We must also recognize that, since 1935, the philosophy and objective of the unemployment compensation program, viz., that unemployment is a national problem that must be dealt with on a national basis, have been woven into the fabric of our society.10
We express no view as to whether different results might obtain if Congress seeks to affect integral operations of state governments by exercising authority granted it under other sections of the Constitution such as the spending power, Art. I, § 8, cl. 1, or § 5 of the Fourteenth Amendment.
National League of Cities v. Usery, 426 U.S. at 852 n.17, 96 S.Ct. at 2474 n.17.
We construe Usery to hold that congressional legislation based upon the commerce clause which impairs the sovereign functions of the states is unconstitutional. Two other circuits have refused to extend the Usery doctrine to legislation not squarely bottomed on the commerce clause. In Usery v. Charlestown City School District, 558 F.2d 1169 (4th Cir. 1977), and in Usery v. Allegheny County Institution District, 544 F.2d 148 (3d Cir. 1976), cert. denied, 430 U.S. 946, 97 S.Ct. 1582, 51 L.Ed.2d 793 (1977), the courts rejected arguments that, in light of National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976), the Equal Pay Act was an unconstitutional exercise of congressional authority under the commerce clause. Both courts viewed the application of the Equal Pay Act to the states as a legitimate exercise of congressional authority to adopt legislation enforcing the fourteenth amendment‘s guaranty of equal protection of the law. Similarly, in Arritt v. Grisell, 567 F.2d 1267 (4th Cir. 1977), the court held that Congress enacted the Age Discrimination in Employment Act,
The tax at issue here, FUTA, is not based on the power of Congress under the commerce clause. Congress has relied on the attraction of the federal purse to persuade the states that it is in their best interests to conform to a national unemployment insurance program. Inducing state participation in national programs by the offer of federal funds is not limited to the unemployment compensation program. In North Carolina ex rel. Morrow v. Califano, 445 F.Supp. 532 (E.D.N.C.1977), aff‘d, 435 U.S. 962, 98 S.Ct. 1597, 55 L.Ed.2d 54 (1978), the issue of the constitutionality of a conformity addition to the National Health Planning and Resources Development Act of 1974,
It must be remembered that this Act is not compulsory on the State. Unlike the legislation faulted in State of Maryland v. Environmental Protection Ag., supra, 530 F.2d 215 (4th Cir.), it does not impose a mandatory requirement to enact legislation on the State; it gives to the states an option to enact such legislation and, in order to induce that enactment, offers financial assistance. Such legislation conforms to the pattern generally of federal grants to the states and is not “coercive” in the constitutional sense (emphasis in original).
Under the Medicaid Act, Title XIX of the Social Security Act of 1965, participating states are enabled by the use of federal funds to provide medical services for welfare recipients. A state‘s participation in Medicaid is voluntary but, if it chooses to participate, its plan must conform to the requirements imposed by the Medicaid Act. Preterm, Inc. v. Dukakis, 591 F.2d 121, 124 (1st Cir.), cert. denied, 441 U.S. 952, 99 S.Ct. 2182, 60 L.Ed.2d 1057 (1979).
The sale of liquor through state licensed stores is one of the main sources of state revenue. The Director of Merchandising and Accounts of the New Hampshire State Liquor Commission estimated that the cost of extending unemployment benefits to Commission employees would be $75,000-$80,000 annually with a potential cost of $120,000 annually. The Comptroller of the State testified that the annual cost under the reimbursement method of financing unemployment benefits could amount to as much as $4.3 million and that, under the alternate contributing tax method, the cost would be about $300,000.
The cost to the New Hampshire Department of Employment Security for administering the additional coverage would be between $75,000 and $150,000 annually, according to the affidavit of its deputy commissioner. There was also affidavit testimony as to the additional cost to the Department of Health and Welfare $30,528 and $4,830 for the Fish and Game Department.
The overall cost to New Hampshire and its political subdivisions for unemployment coverage was the subject of expert testimony at the hearing. Lennox L. Moak was the expert for the state. He testified that the additional cost to the state would be $200,000 and $900,000 for its political subdivisions, for a total of $1,100,000. Dr. James D. Van Erden testified as an expert for the Labor Department. He estimated that the total cost to New Hampshire and its political subdivisions for fiscal 1978 would amount to $227,585, for fiscal 1979, $288,935, and for fiscal 1980, $330,787.12
Unlike the effect of the wage and hour standards in Usery, we do not think that this evidence establishes that extending coverage to the employees of New Hampshire and its political subdivisions will “significantly alter or displace” the ability of New Hampshire “to structure employer-employee relationships in such areas as fire prevention, police protection, sanitation, public health and parks and recreation.” National League of Cities v. Usery, 426 U.S. at 851, 96 S.Ct. at 2474. FUTA does not set the wage rates or affect hours worked. All it does is insure unemployment benefits for state employees. Its administration is entirely within the control of the state. See Pearce v. Wichita County, 590 F.2d 128 (5th Cir. 1979), and Marshall v. City of Sheboygan, 577 F.2d 1 (7th Cir. 1978), in which the Equal Pay Act was upheld as constitutional under the commerce clause on the grounds that, unlike the minimum wage provisions condemned in Usery, the provisions of the Equal Pay Act did not impermissibly interfere with the states’ employment scheme.
There is one more matter that requires our attention, the request of Amicus Los Angeles County to reconsider our order dismissing it as a named petitioner in the case. Our order is reaffirmed for lack of jurisdiction under
LEVIN H. CAMPBELL, Circuit Judge (concurring).
Like my colleagues, I find substantial evidence to support the decision of the Secretary of Labor that New Hampshire‘s unemployment compensation law failed in six specific respects to conform to the 1976 federal amendments. See
Under
As the Supreme Court has recently observed:
” ‘If there is one doctrine more deeply rooted than any other in the process of constitutional adjudication, it is that we ought not to pass on questions of constitutionality . . . unless such adjudication is unavoidable.’ Spector Motor Co. v. McLaughlin, 323 U.S. 101, 105 (, 65 S.Ct. 152, 154, 89 L.Ed. 101). Before deciding (a) constitutional question, it (is) incumbent on . . . courts to consider whether . . . statutory grounds might be dispositive.” New York Transit Authority v. Beazer, 440 U.S. 568, 582, 99 S.Ct. 1355, 1364, 59 L.Ed.2d 587 (1979); see also Rescue Army v. Municipal Court, 331 U.S. 549, 568-69, 67 S.Ct. 1409, 1419, 91 L.Ed. 1666 (1947); Ashwander v. TVA, 297 U.S. 288, 346-47, 56 S.Ct. 466, 482-83, 80 L.Ed. 688 (1936) (Brandeis, J., concurring).
I would add that apart from the reasons given above for avoiding constitutional adjudication, I take no particular exception to the court‘s decision.