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05/17/88 Lake Region Conference of v. Sally A. Ward

May 17, 1988

LAKE REGION CONFERENCE OF SEVENTH-DAY ADVENTISTS, PLAINTIFF-APPELLEE

v.

SALLY A. WARD, DIRECTOR OF EMPLOYMENT SECURITY ET AL., DEFENDANTS-APPELLANTS

SECTION 211.3OF THE ACT, IN EFFECT THROUGHOUT THE ENTIRE PERIOD, EXEMPTED EMPLOYMENT SERVICES PERFORMED BY THOSE (ILL. RE

v.

STAT. 1979, CH. 48, PAR. 321.3):



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

524 N.E.2d 1004, 170 Ill. App. 3d 999, 120 Ill. Dec. 822 1988.IL.760

Appeal from the Circuit Court of Cook County; the Hon. Marilyn R. Komosa, Judge, presiding.

Rehearing Denied June 17, 1988.

APPELLATE Judges:

PRESIDING JUSTICE HARTMAN delivered the opinion of the court. STAMOS* and SCARIANO, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN

The Illinois Director of Employment Security (Director) appeals the reversal of her decision assessing unemployment insurance payments in lieu of contributions against the Lake Region Conference Association of Seventh-Day Adventists (Lake Region). The circuit court found Lake Region's employees exempt from unemployment insurance coverage.

We are asked to review whether Lake Region is estopped from denying its liability by its failure to respond to notices sent to it by the State when its former employees requested unemployment benefits and failure to respond to statements of amounts due, under section 705 of the Unemployment Insurance Act (Act) (Ill. Rev. Stat. 1977, ch. 48, par. 455); and whether the director lacked subject matter jurisdiction because Lake Region's employees were exempt from coverage under section 211.3of the Act (Ill. Rev. Stat. 1979, ch. 48, par. 321.3 ).

Lake Region, a nonprofit Illinois corporation organized for religious purposes serving Seventh-Day Adventist Church members, operates churches and schools in Michigan, Indiana, Illinois and Wisconsin. Its board of trustees hires and supervises all school personnel and determines their compensation. No school has a separate corporate charter or legal organization.

As in other States, Illinois' unemployment insurance legislation implements mandatory Federal minimum standards of coverage established by the Federal Unemployment Tax Act (26 U.S.C. § 3301 et seq. (1982)). Although previously exempt, in 1970 a FUTA amendment required State coverage of employees of nonprofit organizations; however, employees of churches and of organizations operated primarily for religious purposes and controlled, supervised, operated or mainly supported by a church or convention or association of churches were again exempted. (St. Martin Evangelical Lutheran Church & Northwestern Lutheran Academy v. South Dakota (1981), 451 U.S. 772, 775-77, 68 L. Ed. 2d 612, 616-17, 101 S. Ct. 2142, 2144-45; 26 U.S.C. § 3309(b)(1) (1982).) FUTA was again amended in 1976 to eliminate an exemption for employees of schools which were not institutions of higher education. In 1978 the Secretary of Labor announced that this change meant that church-related schools would be covered and notified the States, which began collecting unemployment taxes from such schools. The Supreme Court, however, held that the 1976 amendments did not alter the exemption for church-operated schools that had no separate legal existence from a church or association of churches. St. Martin Evangelical Lutheran Church & Northwestern Lutheran Academy v. South Dakota, 451 U.S. at 777-78, 784-85, 68 L. Ed. 2d at 617, 621-22, 101 S. Ct. at 2145-46, 2149; 26 U.S.C. § 3309(b)(1)(1982). Accord Alabama v. Marshall (5th Cir. 1980), 626 F.2d 366, 368-69, cert. denied sub nom. Donovan v. Alabama (1981), 452 U.S. 905, 69 L. Ed. 2d 405, 101 S. Ct. 3029; Community Renewal Society v. Department of Labor (1982), 108 Ill. App. 3d 773, 780, 439 N.E.2d 975; Lutheran Church-Missouri Synod v. Bowling (1980), 89 Ill. App. 3d 100, 101-02, 411 N.E.2d 526; Ill. Rev. Stat. 1979, ch. 48, par. 321.3.

"In the employ of (1) a church or convention or association of churches, or (2) an organization or school which is not an institution of higher education, which is operated primarily for religious purposes and which is operated, supervised, controlled or principally supported by a church or convention or association of churches."

Section 302 of the Act (Ill. Rev. Stat. 1977, ch. 48, par. 382) permits employing units not otherwise subject to the Act to obtain coverage by filing a written election after written approval of the election by the Director. Section 1404 of the Act (Ill. Rev. Stat. 1977, ch. 48, par. 554) allows nonprofit organizations as defined in section 211.2 to elect to pay in lieu of contributions amounts equal to the full amount of regular benefits and half of the amount of extended benefits actually paid to their employees, upon filing written notice with the Director, who then serves notice of his approval or disapproval on the organization. Except as provided by section 211.3, employment includes service after December 31, 1971, by persons working for nonprofit organizations. Ill. Rev. Stat. 1977, ch. 48, par. 321.3.

Lake Region's treasurer testified that a Department of Labor auditor in 1978 or 1980 informed him that although Lake Region did not contribute to unemployment insurance payments, it had to file reports. Lake Region's executive secretary testified that its executive committee had approved an election of unemployment insurance coverage, but such action could not be found in the minutes and no document was found indicating that Lake Region had ever given its written consent or that the Director had approved such a request.

An affidavit notice form, stamped August 11, 1978, applying to a Lake Region employee, contains a handwritten notation reading: "[Asked] to be placed in reimbursable account." On May 13, 1980, the treasurer, then listing his title as accountant, filled out a form letter indicating that an employee received wages for each quarter of 1978 from Lake Region that were covered under the Act. Employer's contribution reports were filled out by the treasurer from October 1979 through December 1982, all showing an entry for total wages paid for covered employment but "O" for contribution due and total payment due. Department of Labor records indicate that forms BEN-305, notices of findings to base period employers, were sent to Lake Region on July 7, 1979, May 3, 1981, June 6, 1981, and June 13, ...


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