WEST HOLLYWOOD COMMUNITY HEALTH AND FITNESS CENTER, Plaintiff and Appellant, v. CALIFORNIA UNEMPLOYMENT INSURANCE APPEALS BOARD, Defendant and Respondent.
No. B248641
Second Dist., Div. Eight
Dec. 5, 2014
COUNSEL
Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney General, W. Dean Freeman and Lisa W. Chao, Deputy Attorneys General, for Defendant and Respondent.
OPINION
FLIER, J.—This appeal requires us to consider whether an employer may obtain judicial review of a decision from the California Unemployment Insurance Appeals Board (the Board) finding that an applicant for unemployment benefits was an employee, not an independent contractor. The Board argues that decision is not subject to judicial review because both the California Constitution and the Unemployment Insurance Code bar actions whose purpose is to prevent the collection of state taxes. Appellant recognizes that actions seeking to avoid a tax are prohibited, but argues that this case does not challenge the imposition of a tax. We agree with appellant and reverse the judgment.
FACTS AND PROCEDURE
Mario Serban worked as a massage therapist at West Hollywood Community Health and Fitness Center, doing business as Voda Spa (Voda Spa). Serban and
1. Employment Development Department Rulings
After leaving his job at Voda Spa, Serban applied for unemployment benefits. On April 19, 2011, the Employment Development Department (EDD) sent Voda Spa a letter indicating that Serban was an employee. On May 19, 2011, the EDD sent Voda Spa notice indicating Serban was an employee and had good cause to leave work. Voda Spa appealed from those findings.
An administrative law judge heard the appeal and concluded that Serban was an employee. In a separate opinion, the administrative law judge concluded that Serban had good cause to leave his work, making him eligible for unemployment benefits. Voda Spa appealed from those determinations. The Board affirmed both findings in separate opinions. The Board‘s decision regarding good cause further indicated that “[t]he employer‘s reserve account is subject to charges.”
2. Voda Spa‘s Petition for Writ of Mandate Is Denied
Voda Spa sought administrative mandamus pursuant to
DISCUSSION
We begin with relevant background on unemployment insurance, then separately discuss judicial review of the taxation and benefit decisions by the EDD. Finally, we consider First Aid Services of San Diego, Inc. v. California Employment Development Dept. (2005) 133 Cal.App.4th 1470 [35 Cal.Rptr.3d 663] (First Aid), which the Board argues is dispositive and Voda Spa argues was wrongly decided.
“‘The taxing sections of the [Unemployment Insurance Code] are entirely separate from those concerning benefits, and ... the provisions fixing liability for payments to the fund are to be considered accordingly.‘” (Hunt Building Corp., supra, 79 Cal.App.4th at p. 219.) “[T]here are ‘significant substantive and procedural differences between the Unemployment Insurance Act‘s benefit and taxation components.‘” (Merchandising Concept Group, Inc. v. California Unemployment Ins. Appeals Bd. (2010) 181 Cal.App.4th 1274, 1282 [104 Cal.Rptr.3d 892].)
1. Judicial Review of Tax Decisions
The superior court has no power to grant a writ of mandate to prevent the collection of state taxes.
The long-standing prohibition is based on “the dangers inherent in delaying collection of needed public revenue.” (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 282 [165 Cal.Rptr. 122, 611 P.2d 463].) “The policy behind section 32 is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted. [Citation.] ‘Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.‘” (Id. at p. 283.) “Procedural due process does not require judicial determination of tax liability before collection of a tax [citations];
Section 32 “bars ‘not only injunctions but also a variety of prepayment judicial declarations or findings which would impede the prompt collection of a tax.‘” (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247-248 [73 Cal.Rptr.3d 825].) Similar to the constitutional prohibition,
Several cases have applied these principles in the context of unemployment taxes. In Louis Eckert B. Co. v. Unemploy. R. Com. (1941) 47 Cal.App.2d 844 [119 P.2d 227], the court held that a corporation could not obtain a declaratory judgment that it was not an employer within the meaning of the Unemployment Insurance Act. In that case, the Unemployment Reserves Commission was “about to tax” the corporation seeking declaratory relief. (47 Cal.App.2d at p. 845.) The court held that the predecessor to
Interpreting a section similar to section 32, in Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720 [192 P.2d 916] (Modern Barber Colleges), our high court considered a mandamus petition to compel the California Employment Stabilization Commission to vacate its finding that certain persons were employees of Modern Barber Colleges, “and to cancel the charges made against the petitioner [(Modern Barber Colleges)] by virtue of these findings.” (Id. at p. 722.) Judicial review was not available because Modern Barber Colleges had not paid its taxes. (Id. at pp. 722, 723.) The high court reasoned as follows: “It is obvious that a judgment directing the commission to vacate its findings would in effect amount to a declaration by the court that the relationship did not exist; the commission after such a judgment could not ‘properly undertake to enforce a tax against plaintiff corporation as an employer in defiance of an adjudication that the latter [asserted employer] did not maintain that relationship with the other parties.‘” (Id. at p. 723.) The court held: “Since the net result of the relief
More recently in California Logistics, Inc. v. State of California, supra, 161 Cal.App.4th 242, the court applied this rule to an employer‘s effort to seek review of the employee independent contractor determination after the EDD sent “a ‘Proposed Notice of Assessment’ in the amount of $1,287,898.90.” (Id. at p. 246.) The employer alleged that it could not afford to pay the proposed assessment and that if it were required to pay the assessment prior to challenging the EDD‘s determination, it would be denied judicial review. (Ibid.) The court reiterated the policy that “‘A taxpayer ordinarily must pay a tax before commencing a court action to challenge the collection of the tax. This rule, commonly known as “pay first, litigate later,” is well established and is based on a public policy reflected in the state Constitution, several statutes, and numerous court opinions.‘” (Id. at p. 247.) “A taxpayer may not go into court and obtain adjudication of the validity of a tax which is due but not yet paid. [] The important public policy behind this constitutional provision ‘is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.’ [Citation.] ‘The fear that persistent interference with the collection of public revenues, for whatever reason, will destroy the effectiveness of government has been expressed in many judicial opinions.‘” (Ibid.) The appellate court concluded that the relief sought in the lawsuit was barred by section 32. (California Logistics, Inc. v. State of California, at p. 833.)
These cases show that it is well established a party may not seek judicial review of a tax in advance of paying the tax. To challenge a tax, a party must follow these steps: “(1) the claimant files a claim for refund or credit ([
In contrast to a challenge to a tax decision, a party may challenge a benefit decision. When an employer‘s reserve account is charged, the employer may challenge the charges by means of a petition for writ of mandate. (Interstate Brands v. Unemployment Ins. Appeals Bd. (1980) 26 Cal.3d 770, 782 [163 Cal.Rptr. 619, 608 P.2d 707].) “The imposition of an erroneous charge against an employer‘s account, with the attendant consequence of his having to pay an increased contribution, amounts to a wrongful deprivation of property. The petitioner, as a contributing employer, has a vital interest in the status or condition of its reserve account and since the administrative decision here in question may affect its financial responsibility to the unemployment fund, a sufficient right of property is involved to entitle it to a limited trial de novo as to the propriety of the charges made against its account.” (Id. at p. 776.) An employer has a “direct pecuniary interest in any payments made to a claimant which may be charged against his reserve account.” (Chrysler Corp. v. California Employment Stabilization Com. (1953) 116 Cal.App.2d 8, 14 [253 P.2d 68].)
Our high court has allowed challenges to a decision regarding benefits. For example, in Matson Terminals, Inc. v. Cal. Emp. Com. (1944) 24 Cal.2d 695 [151 P.2d 202]—an employer petitioned for writ of mandamus to prevent enforcement of an order awarding unemployment insurance benefits. (Id. at p. 698.) The high court held that an employer whose reserve account may be affected by the payment of benefits may appeal from the initial determination and the decision of the referee. (Id. at p. 701.) “The act thus recognizes his adversary interest in preventing the illegal payment of benefits and does not limit his remedy to a protest of charges that have been made to his account after the disputed benefits have been paid.” (Id. at p. 702.) “He is a party ‘beneficially interested’ in the administrative proceeding to determine the award of benefits and retains this status for the purpose of testing before a court of law the legality of the commission‘s final decision.” (Ibid.)
More recently, in Southwest Research Institute v. Unemployment Ins. Appeals Bd. (2000) 81 Cal.App.4th 705 [96 Cal.Rptr.2d 769], the appellate court ordered that a peremptory writ of mandate issue, setting aside the decision of the Board that the corporation be charged with unemployment compensation benefits. Such reversal was required because the appellate court determined that the worker was an independent contractor, not an employee, as had been determined by the Board. (Id. at p. 711.) Similarly, in Metric Man, Inc. v. Unemployment Ins. Appeals Bd. (1997) 59 Cal.App.4th 1041 [69 Cal.Rptr.2d 569], the court considered a petition for writ of mandate, seeking to overturn the determination of the Board that a worker was an employee rather than an independent contractor.
The italicized language indicates that a party that fails to challenge the Board‘s final decision when notified of the claim, may not subsequently seek judicial review. The Board argues that “[Unemployment Insurance Code] [s]ection 1034, subdivision (a)‘s exclusion of protests for charges that were subjects of final administrative appeals, however, in no way bars a tax refund action.... It simply prevents employers such as Voda Spa from having a second bite at the apple to protest charges that had already been administratively appealed. [¶] Neither section 1034 nor section 1243 affects Voda Spa‘s ability to make a claim for or sue for a tax refund.” The problem with the Board‘s argument is that the subject of
3. First Aid
First Aid, supra, 133 Cal.App.4th 1470 blurs the distinction between a tax and a benefit. In First Aid, an employer sought mandamus review of a challenge to the Board‘s decision that a person was an employee rather than an independent contractor. (Id. at p. 1477.) That decision occurred in the context of determining whether a worker was entitled to unemployment insurance benefits. (Id. at p. 1476.) Extending Modern Barber Colleges, First Aid held that mandamus could not be used to challenge an administrative determination that persons were employees rather than independent contractors even though no tax had been assessed. (First Aid, supra, at
We agree with First Aid to the extent it holds that, if the “net result of the relief prayed for herein would be to restrain the collection of the tax allegedly due, the action must be treated as one having that purpose,” as that is required by Modern Barber Colleges, supra, 31 Cal.2d at page 723. However, here there is no allegation or evidence subject to judicial notice that the action is one to restrain the collection of a tax allegedly due, or imminently due. Therefore, at this early state in the proceedings, we must assume that no tax was assessed or was allegedly due. Therefore, Voda Spa may seek judicial review of the Board‘s determination that Serban was an employee, not an independent contractor.
The Board‘s argument that section 32,
The judgment is reversed. The trial court is directed to enter a new order denying respondent‘s motion to strike. The parties are to bear their own costs on appeal.
Bigelow, P. J., and Grimes, J., concurred.