Appeal from the Circuit Court of Cook County; the Hon. Arthur
L. Dunne, Judge, presiding.
PRESIDING JUSTICE WHITE DELIVERED THE OPINION OF THE COURT:
On March 11, 1981, E. Allen Bernardi, the Illinois Director of Labor, issued a notice of determination and assessment demanding that Northern Trust Company pay $1.5 million, in unpaid contributions for the tax period 1977 to 1980, to the Illinois unemployment insurance fund. Following Northern Trust's protests, the Director issued a decision revising the amount due to about $200,000, plus interest. Plaintiff, Northern Trust, filed a complaint under the Administrative Review Act (Ill. Rev. Stat. 1981, ch. 110, par. 264 et seq.) against the defendant Director seeking a further revision of the amount due. The trial court affirmed the Director's decision with respect to contributions due, but it reduced the amount of interest due. Northern Trust appeals, arguing that the Director's method of calculating its unemployment contribution rates is contrary to law. In particular, Northern Trust contends that the Director is not allowed to increase his assessments against Northern Trust for 1979, 1980 and 1981 on the basis of his revision of rates for 1978. The Director cross-appeals from the reduction of interest.
Employers' contributions to the Illinois unemployment insurance system are governed by section 1500 et seq. of the Unemployment Insurance Act (Ill. Rev. Stat. 1981, ch. 48, par. 570 et seq.) (the Act), which states that the employer shall pay each year an amount equal to the employer's wages for insured work paid during the year times the contribution rate for the employer. (Ill. Rev. Stat. 1981, ch. 48, par. 570(B).) For an employer who has incurred liability for payments for at least three years preceding the calendar year for which the rate is being determined, the contribution rate is determined according to the following formula:
benefit wages x experience factor emergency rate _____________ "wages on which"
(Ill. Rev. Stat. 1981, ch. 48, pars. 573(A), 576.1(B), 576.2.) The benefit wages, experience factor and emergency rate are not in dispute in this proceeding. Section 1503(A) of the Act defines the employer's ratio of benefit wages to "wages on which" as:
"the total of his benefit wages for the 36 consecutive calendar month period ending on the June 30 immediately preceding that calendar year, divided by his total wages for insured work for the same period on which contributions were paid to the Director on or before July 31 immediately following such June 30."
(Ill. Rev. Stat. 1981, ch. 48, par. 573(A).)
The Act provides that wages are counted as "wages on which" for purposes of computing the contribution rate only if contributions were paid on those wages on or before July 31 of the appropriate year. Their inclusion in the equation rewards employers for prompt payment of contributions and punishes those who pay late: wages on which contributions have not been paid on time are not included in the denominator of the benefit-wage ratio, so late payment causes the denominator to decrease, thereby increasing the ratio and correspondingly increasing the contribution rate. Because "wages on which" for a 36-month period are used to calculate the contribution rate for each year, uncorrected underpayment of contributions from one year affects rates for the following three years, whereas late payment affects the contribution rate for only one year if the payment is made within a year of the date on which it was originally due. The dispute in the instant case concerns the effect of a rate revision for 1978 on the amount considered as "wages on which" for purposes of computing Northern Trust's contribution rate for 1979, 1980 and 1981.
In 1978, the Director notified Northern Trust that its contribution rate for 1978 was 2.0%. Northern Trust timely paid 2.0% of its wages for insured work as contributions to the unemployment insurance system. Northern Trust also timely paid contributions at the rates the Director initially assigned for the years 1979, 1980 and 1981. On March 11, 1981, the Director sent Northern Trust notice of revised assessments for the years 1977 through 1980, and the Director required payment of $1,579,928.40 within 31 days. Northern Trust paid nothing and filed a protest on March 30, 1981. On April 7, 1981, the Director sent Northern Trust notice that its contribution rates for 1978 through 1981 were revised. The contribution rate for 1978 was increased from 2.0% to 2.2%, and both parties now agree that that revision was proper. However, that increase accounted for only a small part of the Director's request for $1.5 million. Because Northern Trust protested the assessment of $1.5 million without making any payment after receipt of the notice of increased rates, the Director determined that Northern Trust had not timely paid all contributions due for 1978. The Director held that Northern Trust could therefore count only part of its wages for 1978 as wages on which contributions had been paid. The Director recalculated Northern Trust's contribution rate for 1979, using a reduced figure for Northern Trust's "wages on which" from 1978. If he had not reduced the 1978 "wages on which," Northern Trust would have had contribution rate of 2.9% for 1979; with the director's calculations, the rate was 3.0%. The calculations from which these rates are derived are set out in the appendix to this opinion. The reduced "wages on which" for 1978 similarly affected contribution rates for 1980 and 1981.
On the basis of the recalculated rate for 1979, the Director found Northern Trust's contributions for 1979 were deficient, so he reduced the amount considered as "wages on which" for 1979, thereby further changing Northern Trust's contribution rates for 1980 and 1981. Similarly, the Director used reduced amounts for the "wages on which" for 1980, thereby increasing Northern Trust's Contribution rate for 1981 still further. If the Director had not reduced the "wages on which," Northern Trust's contribution rates for 1980 and 1981 would have been 2.8% and 2.2% respectively. Under the Director's method of calculation, the contribution rates were 2.9% and 2.5%, respectively. The reduction in "wages on which" for 1979 and 1980 also affects contribution rates for 1981 and 1982, but contributions for years after 1981 are not at issue in this proceeding. Accordingly, the record does not show the effect of the Director's method of calculation upon contributions due for subsequent years.
Under the Director's method of calculation, Northern Trust owes the State $201,849.29, plus interest, for contributions for the years 1978 through 1981. If Northern Trust is given full credit in rate determinations for all wages on which it timely paid contributions at the rate initially determined, Northern Trust owes only $67,457.76. The Director never sent notice demanding this amount, although it appears from the record that, if Northern Trust had paid $67,457.76 within 31 days after the Director demanded $1.5 million, Northern Trust would now owe nothing more. Thus, the Director has essentially assessed a penalty against Northern Trust of $134,391.53 ($201,849.29 minus $67,457.76) for protesting its revised assessment of $1.5 million.
The Director asserts that his method of calculating Northern Trust's contribution rates is supported by the Act, relying on the provision by which the employer is given credit only for "wages for insured work * * * on which contributions were paid to the Director on or before July 31 * * *." (Ill. Rev. Stat. 1981, ch. 48, par. 573(A).) The Director maintains that this phrase refers to wages on which contributions were timely paid at the correct rate, as eventually determined by the Director, in this case three years after the contributions were due. Northern Trust contends that the phrase refers to wages on which contributions were paid at the contribution rate which the Director initially set.
Our primary objective in statutory construction is to give effect to the intention of the legislature, as expressed in the statute. (Saskill v. 4-B Acceptance (1983), 117 Ill. App.3d 336, 342, 453 N.E.2d 761.) The Director correctly observes that the statute rewards employers who make timely payments and penalizes those who do not. The statute does not specifically address the Director's power to retroactively revise rates, but our supreme court held that the Director has the power to make retroactive assessments. (Winakor v. Annunzio (1951), 409 Ill. 236, 249, 99 N.E.2d 191.) The court has not decided what penalties attach to failure to pay retroactive assessments promptly. Other penalty provisions in the statute clearly apply to all delayed payments. Thus, the Director has the power to file a civil suit to enjoin a delinquent employer from operating a business in this State, even if the delinquency involves only failure to pay retroactive assessments. (Ill. Rev. Stat. 1981, ch. 48, par. 724.) The Act creates a lien in favor of the Director on the real and personal property of an employer who fails to pay amounts due. (Ill. Rev. Stat. 1981, ch. 48, par. 720.) In addition to these penalties, the Act provides that interest accrues on all unpaid assessments at 1% per month; if the unpaid contributions came due after 1981, interest accrues at 2% per month. (Ill. Rev. Stat. 1981, ch. 48, par. 551.) The Director contends that the penalty of higher contribution rates for those who pay late also applies to retroactive assessments.
• 1 The statute states that employers are to be given credit only for those wages on which contributions were paid "on or before July 31" of the year preceding the year for which the contribution rate is to be calculated. (Ill. Rev. Stat. 1981, ch. 48, par. 573(A).) If the statute refers to wages on which contributions were paid at the correct rate, as eventually determined by the Director, it appears to require Northern Trust to pay by July 31, 1978, at a rate not determined until 1981. The Director interprets the statute to mean that when the Director retroactively revises rates, the employer has 31 days to pay at the revised rates, and the payment will be considered as having been received on the date that the original payment was made in full. However, this interpretation essentially reads into the end of the statute the phrase, "by July 31 * * * or within 31 days of the Director's assessment, whichever is later." The Director ...