Federal-State Unemployment Compensation (UC) Program; Interstate Arrangement for Combining Employment and Wages; Final Rule
The U.S. Department of Labor (Department) is issuing this final rule to amend its regulations governing combined-wage claims filed under the Federal-State Unemployment Compensation (UC) program. Most significantly, this final rule amends the definition of “paying State.”
Table of Contents
- I. Background
- II. General Discussion of the Rulemaking
- III. Comments on the Proposed Amendments
- Discussion of Comments
- IV. Administrative Provisions
- Executive Order 12866—Regulatory Planning and Review
- Paperwork Reduction Act
- Executive Order 13132: Federalism
- Unfunded Mandates Reform Act
- Assessment of Federal Regulations and Policies on Families
- Regulatory Flexibility Act/Small Business Regulatory Enforcement Act
- Executive Order 13045—Protection of Children From Environmental Health Risks and Safety Risks
- Executive Order 13175—Consultation and Coordination With Indian Tribal Governments
- Executive Order 12630—Government Actions and Interference With Constitutionally Protected Property Rights
- Executive Order 12988—Civil Justice
- Plain Language
For further information, contact: ↑
Stephanie Garcia, Team Leader, State and Federal Programs Team, Division of UI Operations, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., Room S-4231, Washington, DC 20210; (202) 693-3207 (this is not a toll-free number).
Supplementary information: ↑
I. Background ↑
On November 2, 2007, the Department published a notice of proposed rulemaking (NPRM) to amend the definition of “paying State” for purposes of combined-wage claims (CWCs) filed under the Federal-State UC program. (72 FR 62145, Nov. 2, 2007) The Department invited comments through January 2, 2008.
II. General Discussion of the Rulemaking ↑
Section 3304(a)(9)(B) of the Federal Unemployment Tax Act (FUTA) (26 U.S.C. 3304(a)(9)(B)) requires each State, as a condition of participation in the Federal-State UC program, to participate in any arrangement specified by the Secretary of Labor (Secretary) for payment of UC on the basis of combining an individual's employment and wages in two or more States. A claim filed under this arrangement is a CWC. Rules implementing this arrangement are found at 20 CFR part 616.
As explained in § 616.1, the purpose of the arrangement is to permit an unemployed worker with covered employment or wages in more than one State to combine all such employment and wages in one State, in order to qualify for benefits or to receive more benefits. Section 616.2 explains that, in accordance with section 3304(a)(9)(B), the arrangement was developed in consultation with the representative of the State UC agencies, currently known as the National Association of State Workforce Agencies (NASWA).
The arrangement provides, at § 616.7(a), that any unemployed individual who had employment covered under the UC law of two or more States, whether or not he or she has earned sufficient wages to qualify for UC under one or more of them, may elect to file a CWC. Under the current regulations, § 616.6(e)(1), the “paying State” is the State in which the claimant files the CWC, if he or she qualifies for benefits under the UC law of that State on the basis of combined employment and wages. Section 616.6(e)(2) identifies the “paying State” when either the CWC claimant does not qualify for unemployment benefits under the UC law of the State in which he or she files the CWC or when the claimant files a CWC in Canada.
The NPRM proposed amending the definition in § 616.6(e) to provide that any “single State” in which the claimant had base period wages and employment, and in which the claimant qualifies for unemployment benefits, may be a “paying State.” For example, if a claimant had wages and employment in the base period(s) of State A and the base period(s) of State B, the claimant may elect either State A or State B (assuming the claimant qualifies in both States), because the “paying State” must be a “single” State. Further, no State other than State A or State B could serve as the “paying State” because the claimant did not have wages in the base period(s) of any other State. The amendment's purpose was to prevent “forum shopping,” under which an individual may file a claim in a State with a higher weekly benefit amount (WBA) than that which exists in any of the States in which the claimant had covered employment. The amendment limits the “paying States” to those States in which CWC claimants had base period wages and employment.
The Department believes that “forum shopping” is undesirable for several reasons. First, it may unfairly advantage claimants who worked in multiple States over those who worked in just one State by affording CWC claimants the choice of filing a UC claim in a State with a higher WBA. Second, “forum shopping” results in higher costs for the claimant's employers, because the claimant files a CWC in a State paying higher benefits, which are ultimately funded by those employers.
Moreover, “forum shopping” undermines the insurance principles of the Federal-State UC program. Under an insurance program, benefits are payable based on a specific plan. In the case of UC, benefits are payable under a State's plan for compensating unemployment. This plan balances premiums (in the form of employer contributions) with benefit outlays (in the form of payments to individuals), requiring that benefit rights and contribution rates be coordinated. CWCs are unique in that insured wages are necessarily combined under a single State's plan. Requiring that benefit eligibility be determined under the law of one State in which the claimant had insured base period wages conforms more closely to the insurance principles of the program.
The NPRM proposed amending § 616.7 by adding a new paragraph (f) to require a State that denies a CWC to notify the claimant of the option of filing in another State, and proposed a conforming amendment to § 616.8(a) addressing the responsibilities of the “paying State.” The NPRM also proposed removing and reserving § 616.5, which makes December 31, 1971 the effective date of the arrangement, because it is no longer necessary.
III. Comments on the Proposed Amendments ↑
The Department received 19 pieces of correspondence commenting on the NPRM by the close of the comment period. All were from State UC agencies. The Department considered all comments, although those that were not germane to this rulemaking are not addressed here.
Discussion of Comments ↑
In General. Eleven commenters generally supported the proposed amendments while four opposed the proposed amendments. Four other commenters limited their comments to matters related to implementation of the new definition of “paying State” and did not express support or opposition to the proposed amendments.
Commenters favoring the proposed amendments noted the problem of “forum shopping.” In describing the extent of forum shopping, one commenter related that payments attributable to CWCs without employment in that State totaled $41 million for the 12 months ending June 2006. Another commenter stated that the proposed amendment was an “equitable solution” to the problems created by the current rule. Commenters favoring the proposed amendment also stated that it “would simplify combined-wage claim filing” or that “the revised definition should result in a more expedited and efficient processing of CWCs.”
Conversely, commenters opposing the proposed amendment expressed concerns about an increased administrative burden and workload shifts between States. Three commenters proposed alternative amendments to the existing rule. These alternative approaches and concerns about administrative burdens are discussed below.
Alternative Approaches. One commenter proposed that the current definition of “paying State,” under which the paying State is the State in which the claimant files the claim (as long as the claimant qualifies for benefits in that State), be retained, but require also that the claimant must havewages in that State. If the claimant did not have wages in that State, the “paying State” would be the State where the claimant was last employed in covered employment (among those States in which the claimant qualifies for UC on the basis of combining employment and wages).
This alternative approach thus has two parts: The first part makes the “paying State” a State in which the CWC claimant files the claim as long as the claimant qualifies for benefits in that State. This is similar to the NPRM's approach, in that it requires the claimant to have wages in, as well as qualify for benefits in, the “paying State.” This first part, therefore, serves the same purpose of the NPRM to prevent forum shopping.
However, the second part of the alternative approach would require, in instances where the claimant did not have wages in the first State in which the CWC was filed, that the “paying State” be the State where the claimant was last employed. This approach, however, would unnecessarily restrict a claimant's choice as to the “paying State.” Under the first part of the alternative approach, a claimant would be free to file a claim in, and therefore select among, any of the States in which he or she qualified for benefits and had wages. However, the claimant would lose this right if he or she had the misfortune of initially filing in a State which did not meet the definition of “paying State.” In that event, the selection of the “paying State” would default to a particular State, that is, the State of last employment, thereby eliminating any choice the claimant originally had in selecting the “paying State”. Thus, the Department declines to adopt this alternative.
Another commenter suggested that the “paying State” be either the State in which the claimant had the most recent covered employment or the most recent base period employment, regardless of where the claim was filed. This approach raises concerns because the identification of a claimant's most recent employer may not be readily available at the time a claim is filed due to the fact that wages are often not reported until several weeks after the end of the last calendar quarter in which the claimant was employed. Moreover, if a claimant had more than one employer during that quarter, those reports will not identify which one was the claimant's last employer during that quarter, and the claimant may not know the correct name of the last employer. The delay is even greater for CWCs that are based in whole or in part on Federal employment, as wages are not reported by Federal employers until after a claim is filed, and thus States cannot immediately determine Federal employment and wages at the time of filing in order to make a determination of the “last employer.”
In addition, the proposed alternative fails to treat CWCs consistently with “regular” claims, because “regular” claims are based on base period wages and employment rather than the claimant's most recent wages and employment. Moreover, the claimant's most recent employment in a State might be only incidental, yet this definition would require the filing of a CWC in that State even though the claimant had earned considerable base period wages in one or more other States. This approach is therefore inconsistent with the insurance principles of the UC program since it permits the claimant to receive UC benefits from a State in which the claimant's employer made incidental contributions. Thus, the Department declines to adopt this alternative.
Another commenter proposed a residency requirement for CWC claimants. As discussed above, the Department values consistency in the treatment of CWC and “regular” claimants. For a claimant with base period wages and employment in only one State, the claimant's eligibility is determined under that State's law, regardless of where the claimant resides. Similarly, residency should not be taken into account in a CWC. Also, determining residency is not always a simple matter. For example, establishing the residency of a claimant who recently moved from one State to another could be complex, unnecessarily delaying the payment of UC. Therefore, the Department declines the suggestion to incorporate residency into the requirements.
Accordingly, after due consideration of the comments, the final rule adopts the proposed amendment of the “paying State” definition without change.
Administrative Burden. Commenters addressing the administrative burden of the proposed amendments were concerned about proposed paragraph (f) in § 617.7, providing that if a State denies a CWC, “it must inform the claimant of the option to file in another State in which the State finds that the claimant has wages and employment.” Eleven of the 19 commenters expressed concern that State agencies would be required to provide detailed information on claim filing and research claimant options.
The commenters apparently read the word “finds” in paragraph (f) to mean that a State must issue a formal determination listing the States in which the claimant has wages and employment. That is not correct. The purpose of proposed § 617.7(f) was to assure the notification of any claimant whose CWC was denied under one State's law that the individual has the option to file against another State. It did not intend to require that a State make a formal finding, but merely to direct a State to inform the claimant of this option. However, to clarify this matter and eliminate any confusion, the final rule deletes the words “State finds that.”
Workload Shifts. One commenter was concerned that the proposed rule would shift CWC workload from one State to another, which would shift the amount of funding provided by the Department for State UC administration. Another commenter was also concerned about workload increases.
CWCs are generally not a large part of the UC claims workload and, as a result, workload shifts likely would be minimal and have little effect on administrative funding. For example, in calendar year 2007, only about 4 percent of initial claims were CWCs. Moreover, the Department believes that any rule related to claimant eligibility should be based on fair and equitable treatment of claimants, and not be influenced by incidental workload shifts. The proposed rule would achieve this fair and equitable treatment by allowing the claimant to choose to file in any State in which the claimant qualified for unemployment benefits based upon insured base period wages and employment in that State. Accordingly, the final rule is adopted as proposed.
Another commenter noted that State Information Technology (IT) systems would require re-programming in order to add an advisement to claimants who are denied CWCs of the possibility of filing against another State. Although the amendment may require a relatively minor change(s) to a State's IT system this is a one time change that is within the scope of States' customary updates to claim filing systems and does not impose additional workload responsibilities on State agencies.
Implementation and other Administrative Issues. Several commenters raised questions related to the implementation and the timing of implementation. The Department believes that specific procedural guidance for implementation is best addressed through program letters and similar guidance. The Department plans to issue this guidance immediately after publication of the final rule.
The Department recognizes the significance of the questions related toimplementation. All States must convert to the new definition of “paying State” at the same time; failure to achieve this would be confusing and unfair to claimants and the employers who bear the benefit costs and would create additional implementation issues. To assure that all States have adequate time to address operational issues, including training new staff, the final rule will be effective January 6, 2009.
Some commenters also expressed concerns over more long-range implementation issues. Several expressed concern that not all wages are reported by employers in a correct or timely fashion to State UC agencies. These commenters emphasized the importance of cooperation and participation among all States to ensure that timely information is available. The Department agrees and will facilitate such efforts through procedural guidance and ongoing training efforts.
Technical Changes. We did not receive comments addressing the deletion as unnecessary of § 616.5, which makes December 31, 1971, the effective date of the arrangement. Nor were there any comments about a conforming amendment to § 616.8(a), which eliminates language deemed irrelevant in light of the new definition of “paying State” because it addressed a scenario in which a State issues CWC determinations, even if the claimant had no covered wages in the “paying State.” These amendments are included in the final rule.
One commenter noted language in § 616.8(a), which mentions “wages in the paying State, if any.” The final rule deletes the words “if any” because, under the new definition of “paying State,” there must always be wages in the paying State.
Lastly, the proposed rule solicited comments on the desirability of amending any of the provisions of Part 616, because the CWC arrangement has been in existence for over thirty-five years without change to its basic structure. We received no comments. Accordingly, we have made no amendments other than those described above.
IV. Administrative Provisions ↑
Executive Order 12866—Regulatory Planning and Review ↑
The Department has determined that this final rule is not economically significant. Under Executive Order 12866, a rule is economically significant if it materially alters the budgetary impact of entitlements, grants, user fees, or loan programs; has an annual effect on the economy of $100 million or more; or adversely affects the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities in a material way. The Department has determined that this rule is not economically significant under this Executive Order because it will not have an economic impact of $100 million or more on the State agencies or the economy. The Department has consulted with the Office of Management and Budget (OMB) on this final rule. Based on their analysis, OMB has deemed that this rule is not a significant action under Executive Order 12866, therefore the Department is not required to submit the final rule to OMB for approval.
Paperwork Reduction Act ↑
Under the Paperwork Reduction Act (PRA), the Department of Labor is required to submit any information collection requirements to the Office of Management and Budget (OMB) for review and approval (44 U.S.C. 3501et seq.). As it does not impose any new requirements or modifications of existing requirements on the States that have not already been approved by OMB for collection, the Department has determined that this final rule does not contain new information collection requiring it to submit a paperwork package to OMB.
Executive Order 13132: Federalism ↑
Executive Order 13132 at section 6 requires Federal agencies to consult with State entities when a regulation or policy may have a substantial direct effect on the States or the relationship between the National Government and the States, or the distribution of power and responsibilities among the various levels of government, within the meaning of the Executive Order. Section 3(b) of the Executive Order further provides that Federal agencies must implement regulations that have a substantial direct effect only if statutory authority permits the regulation and it is of national significance.
Further, section 3304(a)(9)(B) of FUTA requires consultation with the State agencies in developing the CWC arrangement. Section 616.2 of the CWC regulations also provides that for purposes of “such consultation in its formulation and any future amendment the Secretary recognizes, as agents of the State agencies, the duly designated representatives of the National Association of State Workforce Agencies (NASWA).”
Consultation has occurred on an informal basis with the States through NASWA. The Department consulted with the UC Committee and other representatives of the States selected by the NASWA, during the 60-day comment period for this proposed rule.
Unfunded Mandates Reform Act ↑
This regulatory action has been reviewed in accordance with the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Under the Act, a Federal agency must determine whether a regulation proposes a Federal mandate that would result in the increased expenditures by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. The Department has determined that this final rule does not create any unfunded mandates because it will not significantly increase aggregate costs of the CWC arrangement, as these changes are considered to be within the scope of States' customary updates to claim filing systems. The effect of this final rule is to preclude “forum shopping” and tie UC eligibility more closely to the insurance principle of the Federal-State UC program, and it does not create additional entitlements.
Assessment of Federal Regulations and Policies on Families ↑
The final rule does not have an impact on the autonomy or integrity of the family as an institution, as it is described under section 654 of the Treasury and General Government Appropriations Act. We have assessed that while there may be costs associated with the rule, they are not of a magnitude to adversely affect family well-being. This provision protects the stability of family life, including marital relationships, financial status of families, and parental rights.
Regulatory Flexibility Act/Small Business Regulatory Enforcement Act ↑
We have notified the Chief Counsel for Advocacy, Small Business Administration, and made the certification according to the Regulatory Flexibility Act (RFA) at 5 U.S.C. 605(b), that this rule will not have a significant economic impact on a substantial number of small entities. Under the RFA, no regulatory flexibility analysis is required where the rule “will not * * * have a significant economic impact on a substantial number of small entities” (5 U.S.C. 605(b)). A small entity is defined as a small business, small not-for-profit organization, or small governmental jurisdiction (5 U.S.C. 601(3)-(5)). Therefore, the definition of the term “small entity” does not include States.
This rule describes procedures governing State administration of the CWC arrangement under the Federal-State UC program, which does not extend to small governmental jurisdictions. Therefore, the Department certifies that this final rule will not have a significant impact on a substantial number of small entities and, as a result, no regulatory flexibility analysis is required.
In addition, the Department certifies that this rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Act of 1996 (SBREFA). Under section 804 of SBREFA, a major rule is one that is an “economically significant regulatory action” within the meaning of Executive Order 12866. Because this final rule is not an economically significant rule under Executive Order 12866, the Department certifies that it also is not a major rule under SBREFA.
Executive Order 13045—Protection of Children From Environmental Health Risks and Safety Risks ↑
Executive Order 13045 concerns the protection of children from environmental health risks and safety risks. This NPRM addresses UC, a program for unemployed workers, and has no impact on safety or health risks to children.
Executive Order 13175—Consultation and Coordination With Indian Tribal Governments ↑
Executive Order 13175 addresses the unique relationship between the Federal Government and Indian tribal governments. The order requires Federal agencies to take certain actions when regulations have “tribal implications.” Required actions include consulting with tribal governments prior to promulgating a regulation with tribal implications and preparing a tribal impact statement. The order defines regulations as having “tribal implications” when they have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
The Department has reviewed this NPRM and concludes that it does not have tribal implications. This regulation does not affect the relationship between the Federal Government and the tribes, nor does it affect the distribution of power and responsibilities between the Federal Government and tribal governments. Accordingly, we conclude that this rule does not have tribal implications for the purposes of Executive Order 13175.
Executive Order 12630—Government Actions and Interference With Constitutionally Protected Property Rights ↑
The final rule does not impose limitations on private property use as described under Executive Order 12630, Governmental Actions and the Interference with Constitutionality Protected Property Rights. It does not propose or implement licensing, permitting or other condition requirements on the use thereof, nor require dedications or exactions from owners of private property. Accordingly, we have determined this rule does not have takings implications.
Executive Order 12988—Civil Justice ↑
This regulation has been drafted and reviewed in accordance with Executive Order 12988, Civil Justice Reform, and will not unduly burden the Federal court system. The regulation has been written so as to minimize litigation and provide a clear legal standard for affected conduct, and has been reviewed carefully to eliminate drafting errors and ambiguities.
Plain Language ↑
The Department drafted this rule in plain language.
List of subjects in 20 cfr part 616 ↑
Unemployment compensation.For the reasons stated in the preamble, the Department amends 20 CFR part 616 as set forth below:
Part 616—interstate arrangement for combining employment and wages ↑1. The authority citation for 20 CFR part 616 is revised to read as follows:
Authority: ↑§ 616.5 2. Remove § 616.5. § 616.6 3. Revise paragraph (e) of § 616.6 to read as follows: § 616.6 * * * * *
(e)Paying State. A single State against which the claimant files a Combined-Wage Claim, if the claimant has wages and employment in that State's base period(s) and the claimant qualifies for unemployment benefits under the unemployment compensation law of that State using combined wages and employment.* * * * * § 616.7 4. Add new paragraph (f) to § 616.7 of 20 CFR to read as follows: § 616.7 * * * * *
(f) If a State denies a Combined-Wage Claim, it must inform the claimant of the option to file in another State in which the claimant has wages and employment during that State's base period(s).§ 616.8 5. In § 616.8(a) remove the words “, if any” and the words “, even if the Combined-Wage Claimant has no earnings in covered employment in that State”. * * * * * Signed at Washington, DC, this 16th day of October 2008. Brent R. Orrell, Deputy Assistant Secretary for Employment and Training.