HOUSE
BILL REPORT
ESSB 5702
As Reported By House Committee On:
Commerce & Labor
Title: An act relating to unemployment insurance.
Brief
Description: Regulating
unemployment insurance.
Sponsors: Senate Committee on Labor & Commerce
(originally sponsored by Senators Prentice, Wojahn and Franklin; by request of
Employment Security Department).
Brief
History:
Reported
by House Committee on:
Commerce & Labor, April 2, 1993, DP.
HOUSE COMMITTEE ON COMMERCE & LABOR
Majority
Report: Do pass. Signed by 5
members: Representatives Heavey, Chair; Conway; King; Springer; and Veloria.
Minority Report: Do not pass. Signed by 3 members:
Representatives Lisk, Ranking Minority Member; Chandler, Assistant Ranking
Minority Member; and Horn.
Staff: Chris Cordes (786-7117).
Background:
Disqualification from unemployment
insurance benefits
To be eligible for unemployment
compensation, an unemployed person must register for work at an employment
office, be able and willing to accept suitable work, and be actively searching
for work. The claimant will be disqualified for benefits if he or she
voluntarily quits a job without good cause or was terminated for misconduct
connected with work. The employee is disqualified until the employee has
returned to work and earned wages at least equal to his or her weekly benefit
amount in five different weeks.
Employees who quit work for good
cause are not disqualified from benefits. Good cause includes accepting a bona
fide offer of work or quitting work because of the employee's illness or
disability, or the illness, disability, or death of a family member. In other
cases, to determine whether an individual has left work without good cause, the
commissioner of the Employment Security Department must consider only
work-connected factors, such as the degree of risk to health, safety, and
morals, the employee's physical fitness for the work and ability to perform the
work, and other factors deemed pertinent. However, good cause is not
established for leaving because of (1) the distance to work when the distance
was known at the time of accepting employment, and the distance is customarily
traveled by employees in that job classification and labor market; or (2) the
presence of other significant work factors generally known and present at the
time of accepting employment.
Special requalification provisions
apply if the reason for leaving work involves marital status or domestic
responsibilities, such as following a spouse to another location. In this
case, the employee may either work and earn the weekly benefit amount in five
different weeks or report to the Employment Security Department for 10 weeks
while searching for work.
"Misconduct" is not defined
in the statute, but has been interpreted through court cases. The Washington
Supreme Court has used the following test for on-the-job misconduct: (1) the
employer's rule that was violated is reasonable; (2) the rule is connected
with work and compliance with rule is consistent with legitimate expectations;
and (3) the employee's conduct violated the rule.
If the claimant was terminated
because of a felony or gross misdemeanor conviction, or because of admitting
the commission of a felony or gross misdemeanor to a competent authority, the
claimant may not receive any benefits based on base year wage credits earned
before the termination.
Until 1988, the Employment Security
Department determined a claimant's benefit eligibility under the "last
employer rule." The rule requires the department to review only the
reasons the claimant left his or her last job. In a 1988 court decision, the
Washington Court of Appeals disapproved the department's policy based on the
last employer rule. The court found that a hospital employee who had been
discharged for theft of hospital property, and who had been subsequently
employed and terminated from other jobs, could not base eligibility on the wage
credits accrued during employment with the hospital even though the job
termination for theft was not the employee's last job separation. The
department's determination that benefit charges would be made against the
hospital was overturned.
After the Othello case was
decided, the department began reviewing all of a claimant's separations from
employment during the base year for potentially disqualifying separations. The
department determined that this procedure created administrative difficulties.
The department now reviews previous job separations if a felony or gross
misdemeanor is involved or if the last job would not have requalified the
claimant for benefits if a disqualification had been applied.
Social security pension deduction
An unemployment compensation
claimant's benefits are reduced by 50 percent of the amount of the federal
social security retirement pension that the claimant receives. Although
federal law requires that most pensions based on prior employment be deducted
from unemployment benefits, it no longer requires any deduction for social
security pensions.
Temporary disability
To be eligible for unemployment
insurance benefits, a claimant must have worked at least 680 hours in his or her
base year - the first four of the last five completed calendar quarters
preceding his or her application for benefits. For claimants who have left
work because of temporary total disability resulting from a work-related injury
or a crime victim injury, a special base year may be established that consists
of the first four of the last five completed calendar quarters immediately
preceding the start of the disability. This special base year allows the
claimant to use wage credits that were earned before the disability began.
However, the claimant must use the wage credits within six years of the start
of the disability.
Unemployment insurance information
access
The unemployment insurance system has
confidentiality requirements for release of employer and claimant information.
Claimant information is available only to the claimant's last employer or a
base year employer.
Employment Security Department
compliance and audit resolution
Federal compliance audits of federal
programs administered by the Employment Security Department may result in
charges to the state that must be repaid from nonfederal sources. The
department's main source of nonfederal funds is the administrative contingency
fund.
Maximum weekly benefits
Unemployment insurance benefits are
calculated according to a statutory formula, but a claimant may not receive a
weekly benefit of more than 60 percent of the state average weekly wage
(currently $273).
Interest on unemployment insurance
fraud overpayments
Overpayment assessments are subject
to an interest penalty of 1 percent for each month that payments are
delinquent. If the overpayment resulted from fraud, the interest on the
delinquent account accrues immediately. For other overpayments, the interest
is imposed when the individual owing the payment has missed two or more
payments.
Federal-state extended benefits
program
The federal-state extended benefits
program permits the state to "trigger on" for additional weeks of
unemployment during high unemployment periods. The unemployment rate that is
used to determine whether these benefits are payable is established in federal
law. The required trigger is an insured unemployment rate of at least 5
percent that is at least equal to 120 percent of the average rate over a
specified corresponding earlier period. Federal law also permits the states to
adopt an optional trigger.
To qualify for these benefits, a
claimant must have base year wages of at least 40 times his or her weekly
benefit amount. An alternative test is also permitted under federal law.
The federal-state extended benefits
program requires claimants to meet special eligibility criteria, including
requirements for applying for and accepting suitable work, and for making work
search efforts. These special criteria were suspended under the 1992 federal
amendments for weeks of unemployment beginning March 6, 1993, and ending before
January 1, 1995.
Charging benefits to experience
rating accounts
Employers covered under the
unemployment compensation system have an experience rating account. Benefits
paid to claimants are charged to the account of their base year employers.
Certain benefit payments, however, are not charged to an employer's account.
Tax schedule
The unemployment insurance
contribution rate for employers is determined by a tax schedule. The schedule
includes schedules A through F, with 20 rate classes in each schedule. The
rates range from 5.4 percent to 0.48 percent.
The lowest tax schedule, schedule A,
is in effect if the fund balance ratio is 3.4 or higher.
Tax rate for delinquent employers
Employers who are delinquent in
paying unemployment contributions are not qualified to be in the tax schedule.
These employers pay basic contributions at a rate of 5.4 percent.
Summary of Bill:
Disqualification from unemployment
insurance benefits
The following changes for
disqualifying and requalifying for unemployment insurance benefits apply to job
separations that occur after July 3, 1993:
The provisions that disqualify an
employee because of voluntarily quitting work, because of work-connected
misconduct, or because of a felony or gross misdemeanor conviction are amended
to apply only to the claimant's most recent job separation. An employee who
leaves work to relocate for employment outside the existing labor market with
his or her spouse is not considered to have left work without good cause.
"Misconduct" is defined as
an employee's act in willful disregard of employer's interest where the effect
is to harm the business.
To requalify for unemployment
insurance benefits, a person who voluntarily quits work without good cause, who
refuses to apply for or accept suitable work, or who is discharged for
misconduct is disqualified for five weeks and must obtain bona fide work and
earn wages of not less than five times his or her weekly benefit amount.
The standard for determining when an
individual has left work without good cause is amended. In addition to other
work-connected factors, the distance to work and transportation available must
be considered. Good cause is established if the employee quits because the
hours of work offered, the pay, the distance to be traveled to work, or any
other significant work factor has deteriorated by more than 10 percent, unless
the reduction has been specifically agreed to in writing.
The provision that disqualifies an
employee from receiving base year credits because of a work-connected felony or
gross misdemeanor is amended to:
(1) delete the provision that
disqualifies the employee from receiving any benefits for which base year
credits are earned in employment prior to the discharge and substitute a
provision requiring cancellation of the hourly wage credits based on the
employment from which discharge occurred;
(2) add requirements that the
employer report the felony or gross misdemeanor admission or conviction within
six months and that the employee disclose, when applying for benefits, any
felony or gross misdemeanor conviction occurring in the previous two years; and
(3) delete the provision defining the
period when the employee's disqualification begins and substitute a provision
permitting the recovery of benefits paid in error based on wage credits that
should have been removed from the base year.
Social security pension deductions
For weeks claimed after July 3, 1993,
no deduction will be made from unemployment compensation benefits because of
the claimant's federal social security pension to take into account the
claimant's contribution to the social security pension program.
Temporary disability
Effective January 1, 1994, persons
who are reentering the work force after an absence of 13 weeks or more
resulting from temporary total physical disability because of a nonwork-related
injury or illness are allowed to establish a special base year using the wage
credits that were earned in the first four of the last five completed calendar
quarters before the start of the disability. The claimant must file an
application with the Employment Security Department within 26 weeks after the disability
commenced. A statement from the attending physician may be used to satisfy the
filing requirement. The department may examine medical information related to
the disability and, in case of appeal, the base year employer may also examine
the medical information and require a second opinion from a health care
provider selected by the employer.
Unemployment insurance information
access
An employer is entitled to
information relating to a decision to allow or deny benefits if the decision is
based on employment or an offer of employment with the employer or on material
information provided by the employer.
Employment Security Department
compliance and audit resolution
Money from the administrative
contingency fund may be spent to resolve federal claims arising from compliance
and audit issues requiring payment from state resources. In the following
priority, federal claims may be resolved by: (1) providing services to eligible
participants within the state; (2) providing substitute services or program
support; or (3) making direct payment to the federal government.
Maximum weekly benefits
For new claims filed after July 3,
1993, the maximum weekly benefit that a claimant may receive is changed from 60
percent of the state average weekly wage to 70 percent of the state average
weekly wage.
Interest on unemployment insurance
fraud overpayments
Beginning January 1, 1994, an
interest penalty of 1 percent per month is imposed on overpayment balances that
result from fraud, without regard to whether the payments are delinquent.
Interest is imposed when the overpayment assessment becomes final.
All money collected as interest on
overpayment assessments will be deposited in the administrative contingency
account. The money may be used only for overpayment activities.
Federal-state extended benefits
program
For benefits for weeks of
unemployment beginning after March 3, 1993 (effective for new extended benefit
claims filed after October 2, 1993), an optional trigger for the federal-state
unemployment benefits program is adopted. The seasonally adjusted total
unemployment rate (SATUR) must average at least 6.5 percent for the most recent
three months and be at least 110 percent of the SATUR for a specified
corresponding earlier period. Under this trigger, up to 13 weeks of extended
benefits are payable. If the SATUR is 8 percent or more in the same
circumstances, up to 20 weeks of extended benefits are payable.
For extended benefit claims filed
after October 2, 1993, an additional method for qualifying for benefits is
added. A claimant may also qualify if he or she has base year wages that are
1.5 times the wages in the base year quarter with the highest wages.
The special eligibility requirements
for the federal-state extended unemployment benefits do not apply to weeks of
unemployment beginning after March 6, 1993, and before January 1, 1995.
Charging benefits to experience
rating accounts
For employers requesting relief from
benefit charging after July 3, 1993, the following apply: (1) the requirement
for not charging benefits to an employer's experience rating account because of
termination of the employee for misconduct is changed to clarify that the termination
was not a result of inability of the employee to meet the minimum job
requirements; and (2) the provision permitting noncharging related to part-time
employment is changed to clarify that the employer requesting relief continues
to employ the claimant after the claimant is separated from another base year
employer.
Tax schedule
Beginning with tax year 1994, a new
tax schedule AA is created with lower rates for 16 of the 20 rate classes. Tax
schedule AA will be in effect if the fund balance ratio is 3.9 or higher.
Tax rate for delinquent employers
Beginning with tax year 1994, the
basic tax rate for employers who are delinquent in making contribution payments
is changed from 5.4 percent to 5.6 percent.
Joint task force on unemployment
insurance
A Joint Task Force on Unemployment
Insurance is created with up to 16 members representing the Legislature,
business, and labor. The task force is to study and make recommendations by
December 31, 1993, on financing and administration of unemployment insurance,
costs, experience rating systems, tax rates, trust fund adequacy,
accountability in programs, and other issues deemed appropriate.
The task force is funded by a
surcharge on employer contributions of 0.01 percent for the first calendar
quarter of 1994.
Fiscal Note: Available.
Effective Date: The bill contains an emergency clause and takes
effect July 3, 1993, except for the following sections: provisions relating the
optional triggers for the federal-state extended benefit program take effect October
2, 1993; provisions authorizing a special base year for claimants with
nonwork-related disabilities take effect January 2, 1994; provisions allowing
employer access to claim information, determining audit priorities, and
creating the Joint Task Force on Unemployment Insurance take effect 90 days
after adjournment of the session in which the bill is passed; provisions
changing interest on fraudulent claims take effect January 1, 1994; provisions
suspending the special eligibility requirements for the federal-state extended
benefits program takes effect immediately; and the special surcharge to fund
the task force and the change in the tax schedule apply to tax year 1994.
Testimony For: This state is going to experience another
"Boeing" cycle. Previous cycles have shown that unemployment
benefits help moderate the effect of the downturn because families are still
able to make payments and purchase goods. The system was intended to provide
an economic stimulus during downturns. The changes made in the tax structure
will enable the fund to withstand these costs. The eligibility restrictions
enacted during previous recessions have not been eased even though the tax
structure protects the fund. The tax increase that may be caused by increased
benefits is not expected to affect employers until after the economy is
recovering. An increase in the maximum benefit amount is needed for the
workers who now get less than 50 percent wage replacement when receiving
unemployment benefits.
Testimony Against: The cumulative cost of this bill to employers is
huge. The issues in this bill should be studied to understand all the
impacts. This state is already one of the highest tax states for unemployment
insurance. For a small business, the increase in unemployment taxes may make
it unprofitable to operate the business. Some employers will have to reduce
employees' hours or positions to pay the extra tax. The fiscal impacts are not
fairly distributed across the employer groups, because small employers tend to
bear more of the burden. Although some of the bill's provisions could be
supported, others are ambiguous and may cause more litigation. Some provisions
will increase administrative difficulties for the department.
Witnesses: (In favor) Jeff Johnson, Washington State Labor
Council; David Clay, International Union of Aerospace Machinists; and Steven
Aldrich, Hotel and Restaurant Employees Union. (Opposed) Clif Finch,
Association of Washington Business; Ray Gonzalez, The Boeing Company; Norm
Raffaell, Weyerhaeuser Company; Paul Fountain; Gail Seyl; John Morrish; and
Tony Meinhardt, Independent Business Association. (No position) Graeme
Sackrison, Employment Security Department.