Dept of Talent & Economic Development v. Nbc Truck Equip ( 2019 )


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  •         If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
    revision until final publication in the Michigan Appeals Reports.
    STATE OF MICHIGAN
    COURT OF APPEALS
    DEPARTMENT OF TALENT & ECONOMIC                               FOR PUBLICATION
    DEVELOPMENT/UNEMPLOYMENT                                      September 12, 2019
    INSURANCE AGENCY,                                             9:05 a.m.
    Appellant,
    v                                                             No. 343521
    Jackson Circuit Court
    AMBS MESSAGE CENTER, INC.,                                    LC No. 17-003129-AE
    Claimant-Appellee.
    DEPARTMENT OF TALENT & ECONOMIC
    DEVELOPMENT/UNEMPLOYMENT
    INSURANCE AGENCY,
    Appellant,
    v                                                             No. 343846
    Oakland Circuit Court
    GREAT OAKS COUNTRY CLUB, INC.,                                LC No. 2017-162608-AE
    Defendant-Appellee.
    DEPARTMENT OF TALENT & ECONOMIC
    DEVELOPMENT/UNEMPLOYMENT
    INSURANCE AGENCY,
    Appellant,
    v                                                             No. 343989
    Macomb Circuit Court
    NBC TRUCK EQUIPMENT, INC.,                                    LC No. 2017-000132-AE
    Claimant-Appellee.
    -1-
    Before: MURRAY, C.J., and METER and FORT HOOD, JJ.
    PER CURIAM.
    In these consolidated appeals, appellant, Department of Talent and Economic
    Growth/Unemployment Insurance Agency (the Agency), appeals by leave granted the circuit
    courts’ determinations that claimants, Ambs Message Center, Inc., Great Oaks Country Club,
    Inc., and NBC Truck Equipment, Inc., were entitled to claim the new employer unemployment
    insurance tax rate under the Michigan Employment Security Act (MESA). We conclude that the
    claimants were not entitled to the new employer rate. Therefore, we reverse and remand in each
    docket.
    I. BACKGROUND
    A. ALTERING THE PROFESSIONAL EMPLOYER ORGANIZATION ARRANGEMENT
    The claimants are employers subject to MESA’s reporting and contribution requirements.
    See MCL 421.13(1); MCL 421.19. When calculating the tax rate applicable to an employer’s
    payroll, the Agency generally uses a formula that takes into consideration the amount of benefits
    distributed to the employer’s employees over a specified period. See MCL 421.19(a). The
    formula is altered, however, for new employers whose base tax is a set rate of 2.7%. See MCL
    421.19(a)(1)(i). The Agency thereafter incorporates a portion of the employer’s employees’
    actual use of unemployment compensation benefits using the applicable formula until a certain
    number of years pass, after which the full formula applies (sometimes referred to as the
    experienced employer formula). See MCL 421.19(a)(1); MCL 421.19(a)(2). For that reason,
    new employers usually pay a lower tax rate on their payroll than experienced employers.
    An employer can cease to be an employer liable to pay the unemployment insurance
    tax—in relevant part—by transferring its “entire rating account” to another employer, see MCL
    421.24(b), or after the “conclusion of 12 or more consecutive calendar quarters during which the
    employer has not had workers in covered employment,” MCL 421.19(a)(1)(i). If an employer
    again becomes liable for contributions to the unemployment insurance system after ceasing to be
    liable, the Agency must treat the employer as a new employer. MCL 421.19(a)(1)(i).
    An employer can also cease to be liable to pay unemployment insurance contributions as
    a contributing employer by entering into a service agreement with a professional employer
    organization (sometimes referred to as a PEO). Under a typical service agreement, a business
    transfers its employees to the professional employer organization, which then leases the
    employees back to the business. The leased employees are treated as the employees of the
    professional employer organization even though the original employer (now considered the
    client employer) maintains day-to-day control over the employees. The professional employer
    organization normally handles all of the human resource matters involving the employees, which
    includes paying the unemployment insurance obligations related to the payroll of the client
    employer. See Adamo Demolition Co v Dep’t of Treasury, 
    303 Mich. App. 356
    , 359-360; 844
    NW2d 143 (2013).
    -2-
    Because the professional employer organization was the employer of the employees
    transferred to it, the professional employer organization historically paid the unemployment
    insurance contributions required under MESA using its own account and the Agency calculated
    the tax on the basis of the professional employer organization’s use of benefits. The client
    employer, by contrast, was treated as having no employees and no payroll during the term of the
    agreement with the professional employer organization.
    The Legislature, however, addressed this arrangement with the enactment of the
    Michigan Professional Employer Organization Regulatory Act, MCL 338.3721 et seq., see 
    2010 PA 370
    , and the corresponding changes to MESA, see 
    2010 PA 383
    . With the enactment of
    MCL 421.13m, the Legislature required professional employer organizations to file reports and
    pay contributions for its client employers by using the account information for the client
    employer. See MCL 421.13m(2)(a). In other words, for the purpose of calculating the tax rate,
    the professional employer organization is taken out of the picture, and the rate is calculated based
    on the number of years the employer has employed a staff—either personally or through the
    professional employer organization. Although the professional employer organization is still
    liable to the agency for the tax, the rate is calculated as if the employees remained with the client
    employer.
    Acknowledging the impact of these changes on the client employer/professional
    employer organization’s relationship, the amendment provided that a professional employer
    organization that was liable for unemployment insurance contributions before January 1, 2011,
    could choose to use the reporting method stated under MCL 421.13m(2)(a) before January 1,
    2014, but was not required to use the reporting method stated under MCL 421.13m(2)(a) until
    January 1, 2014. See MCL 421.13m(2)(b). Accordingly, by January 1, 2014, the Agency was
    required to calculate the unemployment insurance tax rate by reference to the client employer’s
    prior account and experience rather than by reference to the professional employer organization’s
    prior account and experience. As such, as of January 1, 2014, every client employer would be
    taxed at its own rate even though the professional employer organization would be paying the
    contribution.
    The Legislature also addressed how a professional employer organization should
    calculate the tax rate applicable to client employers who had established a relationship with the
    professional employer organization before the mandatory change in the method for reporting.
    The Legislature indicated that, if the client employer met certain eligibility criteria, it would be
    entitled to treatment as a new employer under the statutory scheme:
    (i) For a client employer that is a contributing employer and was a client
    employer of the PEO on the date that the PEO changed to the reporting method
    provided in this subdivision, the following rates apply:
    (A) Except as provided in sub-subparagraphs (B) and (C), if the client
    employer reported no employees or no payroll to the agency for 8 or more
    calendar quarters or, beginning January 1, 2014, for 12 or more calendar quarters,
    the client employer’s unemployment tax rate will be the new employer tax rate.
    -3-
    (B) If the client employer was a client employer of the PEO for less than 8
    calendar quarters or, beginning January 1, 2014, for less than 12 calendar
    quarters, the client employer’s unemployment tax rate will be based on the client
    employer’s prior account and experience.
    (C) If the client employer’s account has been terminated for more than 1
    year of if the client employer never previously registered with the agency, the
    client shall be separately registered using a method approved by the agency within
    30 days after the employer becomes a client employer of the PEO. The client
    employer shall be assigned the new employer unemployment tax rate. [MCL
    421.13m(2)(a).]
    B. THE CONSOLIDATED APPEALS
    In these appeals, it is undisputed that each claimant became a client employer of a
    professional employer organization that operated in this state before January 1, 2011, and which,
    for that reason, was not required to change its reporting method until January 1, 2014. It is
    similarly undisputed that each claimant had been a client employer of the professional employer
    organization for at least eight quarters as of January 1, 2014, and that each claimant had reported
    no employees or no payroll for those same eight quarters. Finally, it is undisputed that the
    claimants’ professional employer organizations did not change their reporting method until
    January 1, 2014.
    For each claimant, the Agency determined that the claimant was not entitled to the new
    employer tax rate beginning with tax year 2014. The Agency made that determination on the
    basis that each claimant had to report no employees or no payroll for 12 quarters because their
    professional employer organizations did not change their reporting method until January 1, 2014,
    and the statute provided that “beginning January 1, 2014” the client employer had to have
    reported “12 or more calendar quarters” of no payroll or employees in order to qualify for the
    new employer tax rate. See MCL 421.13m(2)(a)(i)(A). Each claimant protested the tax rate and
    asserted that it was entitled to the new employer tax rate because it reported no employees or no
    payroll for the eight quarters preceding January 1, 2014. The Agency rejected these arguments
    and refused to apply the new employer tax rate to each claimant’s liability for the 2014 and
    subsequent tax years.
    After the Agency rejected their protests, the claimants each appealed to an ALJ. The
    ALJs each determined that, because each claimant had eight quarters of no employment or
    payroll before January 1, 2014, the claimants were entitled to the new employer tax rate. The
    ALJs each reasoned that MCL 421.13m(2)(a)(i)(A) established the date before which a client
    employer must have had the requisite eight quarters and was not a reference to the date on and
    after which the number of quarters increased to 12. The Commission and circuit courts affirmed
    -4-
    the ALJ in each case. The Agency then applied for leave to appeal in this Court, and this Court
    granted leave to appeal in each case and consolidated the cases.1
    II. ANALYSIS
    We review de novo the proper interpretation of a statutory scheme such as MESA.
    Polania v State Employees’ Retirement Sys, 
    299 Mich. App. 322
    , 328; 830 NW2d 773 (2013).
    Our Supreme Court has provided the following rules to guide the proper construction of statutes:
    In determining the intent of the Legislature, this Court must first look to
    the language of the statute. The Court must, first and foremost, interpret the
    language of a statute in a manner that is consistent with the intent of the
    Legislature. As far as possible, effect should be given to every phrase, clause, and
    word in the statute. The statutory language must be read and understood in its
    grammatical context, unless it is clear that something different was intended.
    Moreover, when considering the correct interpretation, the statute must be read as
    a whole. Individual words and phrases, while important, should be read in the
    context of the entire legislative scheme. While defining particular words in
    statutes, we must consider both the plain meaning of the critical word or phrase
    and its placement and purpose in the statutory scheme. A statute must be read in
    conjunction with other relevant statutes to ensure that the legislative intent is
    correctly ascertained. The statute must be interpreted in a manner that ensures
    that it works in harmony with the entire statutory scheme. Moreover, courts must
    pay particular attention to statutory amendments, because a change in statutory
    language is presumed to reflect either a legislative change in the meaning of the
    statute itself or a desire to clarify the correct interpretation of the original statute.
    Finally, an analysis of a statute’s legislative history is an important tool in
    ascertaining legislative intent. [Bush v Shabahang, 
    484 Mich. 156
    , 166-168; 772
    NW2d 272 (2009) (internal citations and quotation marks omitted).]
    The criteria at issue on appeal involves MCL 421.13m(2)(a)(i)(A), which states that,
    “[e]xcept as provided in sub-subparagraphs (B) and (C), if the client employer reported no
    employees or no payroll to the agency for 8 or more calendar quarters or, beginning January 1,
    2014, for 12 or more calendar quarters, the client employer’s unemployment tax rate will be the
    new employer tax rate.” The sole question is whether the ALJs properly interpreted and applied
    MCL 421.13m(2)(a)(i)(A).
    In the various lower court proceedings and again on appeal, the claimants argue that the
    reference to January 1, 2014, in MCL 421.13m(2)(a)(i) refers only to the point by which the
    1
    See Dep’t of Talent & Economic Dev v Ambs Message Ctr, Inc, unpublished order of the Court
    of Appeals, entered October 29, 2018 (Docket No. 343521); Dep’t of Talent & Economic Dev v
    Great Oaks Country Club, unpublished order of the Court of Appeals, entered October 29, 2018
    (Docket No. 343846); Dep’t of Talent & Economic Dev v NBC Truck Equip, unpublished order
    of the Court of Appeals, entered October 29, 2018 (Docket No. 343989).
    -5-
    claimant must have had eight quarters of no reported employees or payroll. Stated another way,
    the claimants would have this Court construe “beginning January 1, 2014” to mean “as of
    January 1, 2014.” However, that construction is untenable because it renders portions of the
    statutory scheme nugatory. See Klapp v United Ins Group Agency, Inc, 
    468 Mich. 459
    , 468; 663
    NW2d 447 (2003).
    Under MCL 421.19(a)(1)(i), any employer—whether a client employer represented by a
    professional employer organization or a self-reporting employer—that has not had workers in
    covered employment for 12 consecutive calendar quarters is treated as a new employer if it
    should again become liable for contributions. As such, there was no reason for the Legislature to
    provide that, beginning January 1, 2014, any client employer who has no employees or payroll
    for 12 quarters would qualify as a new employer. Moreover, because all professional employer
    organizations had to switch to the new reporting method on and after January 1, 2014, see MCL
    421.13m(2)(a)(ii), a client employer who had employees or payroll would necessarily be unable
    to report no employees or payroll on or after January 1, 2014, simply because it has an
    agreement with a professional employer organization. Accordingly, using the claimants’
    preferred construction, no client employer that had reported fewer than eight quarters of no
    payroll or employees by that time could ever meet the criteria, notwithstanding that the
    Legislature clearly understood that some client employers might meet the 12-quarter period
    stated under MCL 421.13m(2)(a)(i)(A). That construction renders the 12-quarter period
    meaningless. This Court may not apply a construction that renders a portion of the statutory
    scheme meaningless or nugatory. See 
    Klapp, 468 Mich. at 468
    .
    The additional criteria stated under MCL 421.13m(2)(a)(i) must be understood as a
    compromise that allowed business entities that switched to being client employers less than three
    years before the enactment of MCL 421.13m, or within a specified period after the enactment of
    that statute, to still qualify for the new-employer tax rate even though the entity would not
    otherwise have qualified under MCL 421.19(a)(1)(i). For those professional employer
    organizations that waited to change their method of reporting on the date that the reporting
    requirements became mandatory, only those client employers who had been client employers
    since on or before the enactment of the new law would qualify for the new employer tax rate.
    When interpreted in this way, the shorter lookback period can be seen as a compromise that
    prevents client employers from being penalized should their professional employer organizations
    change to the new reporting method before the mandatory date for the change. And indeed the
    Legislature specifically provided that the rate rules stated under MCL 421.13m(2)(a)(i) applied
    to a “client employer” that “was a client employer of the PEO on the date that the PEO changed
    to the reporting method provided” under MCL 421.13m(2)(a). (Emphasis added). Hence, the
    plain language of the statute demonstrates that the date of the change to the method required
    under MCL 421.13m(2)(a) is the event that triggers the lookback provisions.
    In the cases before this Court, it is undisputed that each claimant’s professional employer
    organization changed its reporting method on January 1, 2014. As such, the longer lookback
    period applied. It was also undisputed that each claimant had reported, at the most eight,
    quarters of no employees or payroll by that time. Consequently, under the plain terms of the
    statute, none of the claimants were entitled to the new employer tax rate under MCL
    421.13m(2)(a)(i).
    -6-
    III. CONCLUSION
    The statute at issue was not ambiguous and provided that the shorter lookback periods
    applied only when a professional employer organization that was operating in this state before
    January 1, 2011, elected to change its reporting method before January 1, 2014. Because the
    professional employer organizations for each of the claimants waited until January 1, 2014, to
    change their reporting method, the longer lookback period applied to each claimant. As such, the
    claimants were not entitled to the new employer tax rate unless they had 12 quarters of not
    reporting payroll or employees. It is undisputed that none of the claimants met this requirement.
    Accordingly, the Agency did not err when it concluded that the claimants were not entitled to the
    new employer tax rate.
    Therefore, we reverse the circuit courts in each docket, and vacate the relevant circuit
    court orders, the Commission decisions, and the ALJ decisions. In each docket we further
    remand these cases to the respective ALJs for entry of decisions upholding the Agency’s tax
    determinations for the relevant tax years.
    Reversed, vacated, and remanded for further proceedings consistent with this opinion.
    We do not retain jurisdiction.
    /s/ Christopher M. Murray
    /s/ Patrick M. Meter
    /s/ Karen M. Fort Hood
    -7-
    

Document Info

Docket Number: 343989

Filed Date: 9/12/2019

Precedential Status: Precedential

Modified Date: 9/13/2019