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01/30/87 the Northern Trust Company v. E. Allan Bernardi

January 30, 1987





504 N.E.2d 89, 115 Ill. 2d 354, 105 Ill. Dec. 220 1987.IL.97

Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Arthur L. Dunne, Judge, presiding.


JUSTICE SIMON delivered the opinion of the court.


The Northern Trust Company initiated this action seeking judicial review of the Director of Labor's March 25, 1983, decision assessing the Northern Trust $201,849.29, plus interest, on account of unpaid unemployment-insurance contributions for the years 1978 through 1981. The circuit court of Cook County affirmed the Director's assessment but reduced the amount of interest owed. The appellate court reversed, concluding that the method utilized in determining the unpaid contributions was not authorized by the statute and that the circuit court had improperly restricted the time frame in which interest could be charged. (139 Ill. App. 3d 248.) The Director sought leave to appeal, which we allowed. 103 Ill. 2d R. 315(a).

The issue presented is technical, and an understanding of how unemployment-compensation contribution rates are determined is essential for dealing with it. Rates for an employer who has incurred liability within each of the three calendar years preceding the year for which a rate is to be determined are calculated by multiplying the employer's "benefit wage ratio" times a State-experience factor and then adding an emergency contribution rate set by statute. (Ill. Rev. Stat. 1981, ch. 48, pars. 576.1, 576.2.) The benefit-wage ratio is the most significant factor of the equation, and the makeup of that ratio is disputed in this case. As defined by section 1503of the Unemployment Insurance Act (Ill. Rev. Stat. 1981, ch. 48, par. 573), the ratio is arrived at by dividing the employer's "benefit wages" (a figure related, though not equal, to unemployment-compensation claims charged against the employer's account) by the total "wages . . . on which contributions were paid" (referred to by the parties as "wages on which"). For an employer with five or more continuous years of experience, the benefit wages and "wages on which" comprising the benefit-wage ratio are the total benefit wages and "wages on which" for the 36 calendar months ending on the last day of June which immediately precedes the calendar year for which a rate is being determined. The purpose of the ratio is to introduce an experience component into the unemployment-compensation contribution rate, an employer's experience over three years being largely determinative of his liability to the unemployment trust fund for the succeeding year. Bernstein, The Illinois Unemployment Insurance Act, Ill. Ann. Stat., ch. 48 (pars. 138.13 to 850), at XLI (Smith-Hurd 1986).

For example, in determining the Northern Trust's 1979 benefit-wage ratio, the total benefit wages of the Northern Trust from July 1, 1975, through June 30, 1978, would supply the numerator and the total "wages on which" for the same period the denominator. Those figures amounted to $925,040.25 and $44,020,260.07 respectively, or a ratio of 2.101%. Multiplied by the State-experience factor of 126 (actually 1.26 in the equation) for 1979 and supplemented with the emergency contribution of 0.3%, the formula produces a 1979 contribution rate of 2.9% of the Northern Trust's taxable wages. However, the Director has determined that the Northern Trust should have paid at a rate of 3.0% in 1979, and at rates in 1980 and 1981 higher than those which the Northern Trust concedes. The issue presented by this appeal is whether the method by which the Director has determined higher rates for those three years is authorized by statute.

This confrontation over methodology is rooted in an error which occurred in 1978. For that year, the Director assessed a rate of 2.0%, at which rate the Northern Trust claims to have made timely contributions each quarter. Likewise, the Northern Trust claims to have paid contributions for each quarter of 1979, 1980 and 1981 at the rates then assigned by the Director. For reasons which the record does not disclose and which are immaterial to this decision, on April 7, 1981, the Director revised the 1978 rate from 2.0% to 2.2%, and the parties agree that the Northern Trust's contribution rate for 1978 should have been 2.2%, not 2.0% as charged and paid. Because the Northern Trust did not pay the extra 0.2% on 1978 taxable wages within 30 days of the Director's April 7, 1981, revision, the Director reduced the Northern Trust's "wages on which" for the second, third and fourth quarters of 1978 (an overpayment for the first quarter of 1981 eliminated the deficiency for the first quarter of 1978). That modification increased the Northern Trust's benefit-wage ratio and consequent contribution rates for the years 1979, 1980 and 1981, leading to a total deficiency of $201,849.29, as computed by the Director.

The Director contends that, under section 1503, the denominator of the benefit-wage ratio may include an amount of taxable wages for each quarter only as large as the contribution actually paid, divided by the properly revised contribution rate. For example, if taxable wages in a particular quarter amounted to $1,000 and the employer paid 2%, or $20, and if the rate for that quarter was later increased to 4% ($40) but the employer did not remit the additional $20, according to the Director's interpretation of section 1503the employer should receive "wages on which" credit for that quarter only for the amount of taxable wages on which he paid the full 4% contribution. In this example, the employer has paid only $20 when he was supposed to have paid at 4%, so he is credited with having paid the full 4% contribution on only $500 (.04 x 500 = 20). Thus the employer is, by the Director's computation, entitled to only a 50% "credit" for that quarter, or "wages on which" for purposes of the benefit-wage ratio of one-half ($500) of the taxable wages on which contributions were made ($1,000).

Having revised the rate upward for 1978 and not received a speedy remittance of the deficiency from the Northern Trust, the Director proceeded to reduce the "wages on which" credit for the three quarters of 1978 for which the revision had created deficiencies. During the second-quarter of 1978, the Northern Trust paid its employees $5,698,586.48 in taxable wages, but it made an unemployment-compensation contribution of $114,251.61. That contribution, although 2.0% of $5,698,586.48, is 2.2% (the revised contribution rate) of $5,193,121.86, so the Director utilized a second-quarter 1978 "wages on which" figure of $5,193,121.86 to redetermine the Northern Trust's modified "wages on which" for the 36 months ending with the second quarter of 1978, thereby reducing the denominator and enlarging the benefit-wage ratio from 2.101% to 2.126%. Based on the greater ratio, the Director increased the 1979 contribution rate from 2.9% to 3.0%. The increased 1979 rate caused the Northern Trust to have a deficiency for every quarter of that year. Without advising the employer of the revised 1979 rate based upon the failure to pay the 1978 rate revision, and then allowing 30 days for the employer to remit payment to cover the resultant deficiencies (as the Director's method requires), the Director reduced the Northern Trust's "wages on which" for every quarter of 1979 in accordance with the percent-credit method outlined above. The methodology employed by the Director led to a recalculation of the 1980 rate using the reduced "wages on which" for the last three quarters of 1978 and the first two of 1979, and the 1980 rate was raised from 2.8% to 3.0%.

As might be supposed, revision of the 1980 rate created deficiencies for all of 1980, leading next to a revision of the 1981 rate using the modified "wages on which" from the second quarter of 1978 through the second quarter of 1980. The Director imposed a revised 1981 rate of 2.5%, but a rate of 2.2% would, according to the Northern Trust, have been proper had unmodified, rather than modified, "wages on which" been used.

The difference between the amount of unpaid contributions as determined by the Director using modified "wages on which" and the amount which the Northern Trust concedes to be owed is summarized:

Deficiency Using Deficiency Using

Quarter/ Modified Wages ...

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