APPEAL from the Circuit Court of Sangamon County; the Hon.
L.E. WILHITE, Judge, presiding.
MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:
This is an appeal from a judgment of the circuit court of Sangamon County entered in two consolidated causes brought under the Administrative Review Act wherein the circuit court reversed separate decisions of the Director of Labor in which the Director had held that two employers, Altman's, Inc., a corporation, and Arthur H. Winakor, successor trustee under the will of William Altman, deceased, were not entitled to the unemployment compensation experience rating of their common predecessor, Altman's, Incorporated, a dissolved corporation. The appeal is prosecuted by the Director of Labor.
No controversy exists as to the facts. In 1947, and for a number of years prior thereto, Altman's, Incorporated, owned and operated five stores consisting of four retail women's apparel stores located, respectively, at Springfield, Murphysboro, Jacksonville, and Bloomington, Illinois, and the millinery department of a store at La Salle, Illinois. These stores were operated separately, each having a local manager and keeping separate payroll records, profit and loss records and other necessary books and records.
William Altman, the founder, president, and owner of approximately ninety-nine per cent of the capital stock of Altman's, Incorporated, died January 6, 1947. By his will, he left the bulk of his estate, including his interest in Altman's, Incorporated, in trust for the benefit of his wife, brother and sisters, designated his wife as trustee and Winakor as successor trustee, and directed his trustee to continue the operation of Altman's, Incorporated. The will was duly admitted to probate and Ruth F. Altman, the testator's widow, controlled the corporation, first as executrix and then as trustee, until September 18, 1947, when she resigned as trustee, renounced the will and elected to take her statutory one-half interest in the estate. Thereafter, Winakor qualified as trustee and operated Altman's, Incorporated, until December 31, 1947, when, pursuant to an agreement and an order of court, the corporation was dissolved and its assets distributed in kind. Winakor, as trustee, received the Murphysboro, Jacksonville, and Bloomington stores, while Ruth Altman took the more valuable store at Springfield and also the millinery department in the store at La Salle, and immediately transferred these assets to Altman's, Inc., a new corporation which she had caused to be organized for this purpose. The portion of the assets to which Altman's, Inc., succeeded accounted for approximately 62 per cent of the employees, 68 per cent of the wages paid subject to unemployment contributions and 63 per cent of the gross income of the dissolved corporation. In short, Ruth Altman, and through her Altman's, Inc., acquired about 65 per cent of the assets of the former business, and Winakor, trustee, about 35 per cent. The difference in valuation was adjusted by Ruth Altman making a cash payment to the trustee. Altman's, Inc., has since continued to own and operate the millinery department and the Springfield store, the three other stores being owned and controlled by Winakor, as trustee. The change in ownership and division of assets did not result in any change in the method of operating the several stores and each continued to keep its own separate and distinct payroll, profit and loss and other records.
Altman's, Incorporated, prior to its dissolution on December 31, 1947, had incurred liability for the payment of unemployment compensation contributions annually for five years and, by reason of its employment experience, had a contribution rate of 0.5 per cent for the year 1947. Had it continued in existence, it would have had a rate of one per cent for 1948. May 28, 1948, the Director of Labor assigned to Winakor, trustee, the standard contribution rate of 2.7 per cent applicable to all employers who have not incurred liability for the payment of contributions for a period of five successive years. July 29, 1948, Altman's, Inc., was assigned a contribution rate of one per cent for 1948. Subsequently, on October 19, 1948, this order was revoked and the standard rate of 2.7 per cent applied, retroactive to January 1, 1948. Both employers protested their rate determinations and exhausted their administrative remedies with the results as narrated. On review by the circuit court, however, the final decisions of the Director of Labor were reversed and the causes remanded, with directions that the contribution rates be established at one per cent for 1948, and that the benefit wage experience of Altman's, Incorporated, be assigned to both employers in computing their contribution rates in the years subsequent to 1948. This appeal followed.
To obtain a reversal of the judgment of the circuit court, the Director relies upon the provisions of section 18(c)(6) of the Unemployment Compensation Act. (Ill. Rev. Stat. 1947, chap. 48, par. 234.) As a preliminary matter, it should be observed that section 18 of the act is the only section dealing with the payment of contributions and contribution rates. Prior to 1943, all employers subject to the act were required to pay contributions to the unemployment trust fund amounting to 2.7 per cent of their payrolls, as adjusted. (Ill. Rev. Stat. 1941, chap. 48, par. 234.) Although the standard rate of 2.7 per cent was retained, commencing in 1943, employers who had incurred liability for the payment of contributions for each of the five preceding calendar years became entitled to variable rates ranging from 0.5 to 3.6 per cent, individual rates being based primarily upon the unemployment experience of the particular employer and, in part, upon the total benefits paid from the unemployment trust fund.
Until the addition of section 18(c)(6) in 1941, (Laws of 1941, pp. 660, 683,) the Unemployment Compensation Act made no provision for the transfer of an employer's experience rating record to his successor under any circumstances. Section 18(c)(6), as amended in 1945 and in force in 1948, (Ill. Rev. Stat. 1947, chap. 48, par. 234(c)(6),) contains two provisions for the transfer of experience ratings, the first being limited to mergers, consolidations, and reorganizations occurring prior to July 1, 1945, and, hence, not applicable here. The pertinent part of the second provision is as follows: "whenever on or after July 1, 1945, any employing unit succeeds to substantially all of the employing enterprises of another employing unit, then, all years during which liability for the payment of contributions was incurred by the predecessor preceding the succession * * * shall become years during which liability was incurred by the successor and not by the predecessor, * * *." Relying upon this, the Director contends that neither Altman's, Inc., nor Winakor, trustee, is entitled to a variable contribution rate based upon the unemployment experience of Altman's, Incorporated, because neither succeeded to substantially all of the employing enterprises of Altman's, Incorporated.
Seeking to avoid the requirements of section 18(c)(6), Altman's, Inc., and Winakor, hereafter referred to as appellees, jointly contend that, prior to the dissolution of Altman's Incorporated, each store was an employing unit, individually as well as collectively, under subsection 2(d) of the Unemployment Compensation Act; that each store was likewise an employer under subsection 2(e); that, regardless of the changes in legal ownership, no store ever ceased to be an employer under the act, and that, therefore, each store is entitled to the benefit of its own employment experience and a variable contribution rate based upon its individual experience. The employers thus resort to the definition section of the act and contend, in short, that section 18(c)(6) does not apply to the changes in legal form of a predecessor business, where the former business consisted of separate and distinct enterprises which could qualify individually both as employing units and employers.
The Unemployment Compensation Act imposes liability for contributions on employers and defines in terms of employing units. Section 2(d), (Ill. Rev. Stat. 1947, chap. 48, par. 218 (d),) provides: "`Employing unit' means any individual or type of organization, including any partnership, association, trust, estate, joint-stock company, insurance company, or corporation, whether domestic or foreign, or the receiver, trustee in bankruptcy, trustee or successor thereof, or the legal representative of a deceased person, which has or subsequent to January 1, 1936, had in its employ one or more individuals performing services for it within this State. All individuals performing services within this State for any employing unit which maintains two or more separate establishments within this State shall be deemed to be employed by a single employing unit for all purposes of this Act." While the foregoing definition specifically includes a corporation, broad as it is, it neither expressly nor impliedly includes a store or any other severable part of a corporation as an employing unit. Furthermore, the last sentence of the definition not only reveals that the possibility of one business having two or more separate establishments was considered, but expressly negatives appellees' assertion that separate establishments of a particular business may be regarded as individual employing units. In addition, section 18(c)(6), insofar as it provides that "whenever * * * any employing unit succeeds to substantially all of the employing enterprises of another employing unit * * *," also demonstrates that a separate establishment or employing enterprise is not an employing unit. The conclusion is inescapable that Altman's, Incorporated, was a single employing unit and that each store was not an employing unit but merely a separate establishment or employing enterprise of an employing unit.
Similarly, the theory that each store owned and operated by Altman's, Incorporated, was an employer is not substantiated by any of the five definitions of an employer found in section 2(e). (Ill. Rev. Stat. 1947, chap. 48, par. 218(e).) Under section 2(e)(I)(B), an "employer" is "any employing unit which has or had in employment six or more individuals within each of twenty or more calendar weeks, * * * whether or not such weeks are or were consecutive, within either the current or preceding calendar year; * * *." This is the basic definition of an employer.
The remaining definitions are supplementary. For example, section 2(e)(2) provides that "employer" means "any individual or employing unit which succeeded to the organization, trade, or business of any distinct severable portion of another employing unit, which portion, if treated as a separate employing unit, would have been, at the time of the succession, an employer under paragraph (1) of this subsection." Section 2(e)(3) is to much the same effect, defining "employer" as "Any individual or employing unit which succeeded to any of the assets of an employer or to any of the assets of a distinct severable portion thereof, if such portion, when treated as a separate employing unit would be an employer under paragraph (1) of this subsection," subject to certain provisions not pertinent here. Section 2(e)(4) treats a different aspect of the same problem. It provides that "employer" means "Any individual or employing unit which succeeded to the organization, trade, or business, or to any of the assets of a predecessor unit * * *," if the combined experience of the successor and predecessor unit equals the experience necessary to constitute an employing unit an employer under section 2(e)(1), adding that, for the purposes of this paragraph, "the term `predecessor unit' shall include any distinct severable portion of an employing unit." Section 2(e)(5) provides that affiliated employing units, which when taken together or treated as a single employing unit would be an employer under section 2(e)(1), shall be deemed an employer.
Section 2(e)(6) provides "employer" means "Any employing unit which, having become an employer under paragraphs (1), (2), (3), (4), or (5), has not, under Section 3, ceased to be an employer subject to this Act."
It is appellees' contention that sections 2(e)(1) through 2(e)(5) demonstrate that the individual stores owned and operated by Altman's, Incorporated, were separate employers and that, by virtue of section 2(e)(6), they did not cease to be employers upon the dissolution of the corporation, but continued to be separate employers and were entitled to their own individual experience ratings. All these paragraphs define employer as "any employing unit" or "any individual or employing unit" meeting the tests described. Since the separate stores were not, and are not, either individuals or employing units, it follows that they cannot be regarded as separate employers. To the extent that the successor clauses, sections 2(e)(2), 2(e)(3), and 2(e)(4), provide that a distinct severable portion of a predecessor employing unit may be treated as a separate employing unit for the purpose of determining when a successor employing unit is an employer, they constitute an additional manifestation of legislative intention that ordinarily a separate establishment of a business is not an employing unit. Furthermore, although appellees urge that the stores were employers prior to the dissolution of their common predecessor, it is evident that the successor clauses, so heavily relied upon in this connection, merely prescribe when the successor, not the predecessor, is an employer. Moreover, section 2(e)(6), relied upon to show that the stores, as alleged employers, did not cease to be employers upon their transfer to their present owners, has nothing to do with the transfer of assets. Appellees labor under the misapprehension that the section 3 referred to in sec. 2(e)(6) is paragraph (3) of subsection (e) of section 2, one of the successor clauses. Section 3 of the act provides, in substance, that an employer, who no longer meets the requirements of section 2(e)(1)(B) as to the minimum number of employees, is entitled to have his status as an employer terminated. Consequently, paragraph (e)(6) of section 2 merely means that an employer is an employing unit which has become an employer under paragraphs (e)(1) through (e)(5) of section 2 and has not, under section 3, ceased to be an employer by a subsequent reduction in the number of employees below the statutory minimum.
Appellees also rely strongly upon the decision in Karlson v. Murphy, 387 Ill. 436, in support of their contention that they are entitled to the experience rating of their common predecessor because of the continuity of the operation of the stores as separate business enterprise. The Karlson case involved the question of whether six successive partnerships of the same name, owning the same business, operating under a single partnership agreement, and having the same but an ever-decreasing number of partners constituted a single employer within the meaning of section 2(g)(1) providing that wages on which contributions are payable shall not include remuneration in excess of $3000 paid by an employer to an individual in one calendar year. As originally organized, the firm consisted of fourteen members. The articles of partnership provided that the partnership should not terminate upon the death or withdrawal of a partner but should be continued by the remaining partners. During the two calendar years involved, there were deaths or withdrawals on five separate occasions and, in each case, the remaining partners continued in business. Liability for contributions was sought to be imposed upon the basis that each reduction in membership and continuation in business resulted in a new partnership so that, in each year in question each allegedly new partnership was liable for contributions on the wages of employees up to $3000, regardless of the amounts paid to the same employees by a predecessor in the same year. It was there held that, since the ...