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Ekco Products Co. v. Cummins

OPINION FILED MARCH 24, 1955.

EKCO PRODUCTS COMPANY, APPELLEE,

v.

ROY F. CUMMINS, DIRECTOR OF LABOR, APPELLANT.



APPEAL from the Superior Court of Cook County; the Hon. DONALD S. McKINLAY, Judge, presiding.

MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:

In November of 1951, Minute Mop Company, which manufactured floor mops and other cleaning aids, sold its manufacturing equipment and certain other assets to Ekco Products Company. The Director of Labor held that Ekco Products Company had succeeded to "substantially all of the employing enterprises" of Minute Mop Company and was therefore affected by Minute Mop's unfavorable employment experience in determining its unemployment contribution rate. In a proceeding under the Administrative Review Act the superior court of Cook County reversed the decision of the Director. He appeals to this court under section 2205 of the Unemployment Compensation Act. Ill. Rev. Stat. 1953, chap. 48, par. 685.

The Unemployment Compensation Act provides for the accumulation of reserves during periods of employment to be used to pay benefits to workers during periods of unemployment. (Ill. Rev. Stat. 1953, chap. 48, par. 300.) To provide the funds to pay unemployment compensation benefits, the statute imposes upon employers an obligation to pay a percentage of their pay rolls into the State unemployment trust fund. Contribution rates vary from .25 per cent to 2.7 per cent, depending upon the employment experience of the particular employer. Employers who have a history of unstable employment tend to have higher contribution rates, and those who have a history of stable employment tend to have lower contribution rates.

Section 1507 of the act (Ill. Rev. Stat. 1953, chap. 48, par. 577,) deals with the determination of the contribution rate when the business of one employer is sold to, or otherwise taken over, by another. The section provides that the employment experience of one employer is transferred to another employer whenever the latter "succeeds to substantially all of the employing enterprises" of the former. The contribution rate of the successor is then computed upon the combined employment experience of the predecessor and the successor.

The only question in this case is whether Ekco Products Company succeeded to "substantially all of the employing enterprises" of Minute Mop Company, within the meaning of that phrase as used in section 1507. The Director of Labor answered this question in the affirmative and revised Ekco's contribution rate for the year 1952 from 1.0 to 1.25 per cent. Without the unfavorable employment experience of Minute Mop, Ekco's contribution rate would have been 1 per cent.

The facts are not in controversy. Prior to November 19, 1951, Minute Mop Company manufactured and sold patented floor mops, dish mops, bathtub brushes and other cleaning aids, each of which contained, as a basic part, a cellulose sponge. The company also sold under an exclusive licensing arrangement, but did not manufacture, a device for removing bottle caps and resealing beverage bottles, known as "Recap." From January 1, 1951, to November 19, 1951, the date of the transfer, the company's gross sales were $613,910.22. Of this amount, "Recap" accounted for not more than $15,000.

During the week ending November 19, 1951, Minute Mop Company had 65 employees. The number of persons employed by the company fluctuated markedly during the year; in general, fewer persons were employed during the summer months. Thus, the company had 106 employees during the week ending May 12, 1949; 75 for the week ending September 14, 1950; 119 for the week ending May 24, 1951. The portion of the company's business attributable to the sale of the "Recap" device utilized from two to four employees, or approximately 24 man-hours per day.

Excluding certain minor current assets and a Canadian investment, Minute Mop Company had, as of November 19, 1951, assets of $208,088.20, consisting of accounts receivable, $34,731.49; inventory other than "Recap," $141,281.30; "Recap" inventory, $10,394.31; machinery and equipment, $18,681.10, and patent license, $3,000.

On November 7, 1951, Minute Mop and Ekco entered into an agreement under which Ekco purchased, on November 19, 1951, all of Minute Mop's manufacturing machinery and equipment and some of its office equipment for $51,000; the Minute Mop corporate name, trade marks, brands, and trade names and goodwill for $1000, and all of Minute Mop's inventories of finished goods and work in process for $27,541.83, a figure determined upon the basis of material and labor costs. Under this agreement Ekco advanced to Minute Mop Company a sum equal to the difference between $85,000 and the amount paid for the work in process and finished goods inventories. This cash advance of $57,458.17, which Minute Mop needed to pay some of its obligations, was evidenced by Minute Mop's note and secured by assignment and pledge of its inventories of raw materials and supplies. The agreement also gave Ekco the option to purchase raw materials and supplies from Minute Mop Company as Ekco needed them; such purchases were to be credited against the cash advance made by Ekco. From November 19, 1951, to January 31, 1953, Ekco did purchase raw materials and supplies in the amount of $64,368.19, which liquidated the cash advance and required Ekco to expend further cash. The agreement provided, further, that Minute Mop should shut down its factory and cease operations as of the close of business on November 15, 1951.

Minute Mop Company agreed to deliver to Ekco all manufacturing, processing, scientific and technical data, records and drawings pertaining to its business, lists of customers, sales correspondence, books of accounts, price lists and other records and advertising materials used in the business. Minute Mop further agreed, subject to certain limitations, not to engage in the manufacture or sale of cellulose sponge mops, and other cleaning aids described in its catalog, for a period of five years.

The agreement required Minute Mop to shut down its factory and cease operations therein. Pursuant to the agreement, Minute Mop Company executed and delivered to Ekco a sublease of space in the factory building it occupied, and thereafter Ekco occupied approximately the same space that Minute Mop had used in its manufacturing operations. Minute Mop also caused the execution of a lease from Trindl Building Corporation to Ekco of approximately one third to one half of its warehouse space.

In compliance with the terms of its agreement with Ekco, Minute Mop Company changed its name to Trinco Industries, Inc. This corporation retained those assets of Minute Mop Company which had not been sold to Ekco. After the sale, Trinco Industries, Inc. had, again excluding minor cash assets and the Canadian investment, total assets of $162,103.29, consisting of accounts receivable, $34,731.49; inventory other than "Recap," $113,739.49; "Recap" inventory, $10,394.31; office equipment $1000; delivery equipment, $238; patent license on "Recap," $2000. Ekco agreed to act as a collecting agent of the accounts receivable; subsequently, certain uncollected accounts were returned by Ekco to Trinco Industries, Inc.

To continue the Minute Mop operations, Ekco, immediately after November 19, 1951, hired 61 of the 65 Minute Mop Company employees. All but two or three continued to work at the same plant and at the same jobs as they had before. The two or three who did not continue at the old plant were office workers, who were transferred by Ekco to its own plant. The transition occasioned by the sale to Ekco on November 19, 1951, was orderly; employees reported for work, orders were filled, and sales were made, all without interruption.

Ekco's position is that upon these facts, "where $162,000 out of a total of $208,000 of employment providing assets were retained by the prior employing unit," it did not succeed to "substantially all of the employing enterprises," of Minute Mop Company, within the meaning of section 1507 of the Unemployment Compensation Act. Relying upon Winakor v. Annunzio, 409 Ill. 236, Ekco argues that "where a portion, but not a major portion, of the employment-providing assets of an employment unit are transferred" to a successor unit, the successor has not succeeded to ...


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