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655 15TH ST, NW, SUITE 700 WASHINGTON, DC 20005 TELEPHONE: 202/452-8444 FAX: 202/429-4519 |
February 2, 2000
Ms. Grace A. Kilbane
Director
Unemployment Insurance Service
Employment and Training Administration
U.S. Department of Labor
200 Constitution Avenue, N.W.
Room S-4231
Washington, D.C. 20210
Re: Comments on Birth and Adoption Unemployment Compensation Proposed Rule
Dear Ms. Kilbane,
The Food Marketing Institute (FMI) appreciates the opportunity to submit the following comments in response to the proposed rule issued by the Employment and Training Administration (ETA) of the U.S. Department of Labor (DoL) entitled, "Birth and Adoption Unemployment Compensation." 64 Fed. Reg. 67971 (December 3, 1999). FMI strongly opposes the proposed extension of unemployment compensation to those who choose to leave the workforce voluntarily. ETA's proposal violates the spirit and the letter of the fundamental principle that UI benefits should be reserved for those who are involuntarily separated from the workforce.
FMI is a non-profit association that conducts programs in research, education, industry relations and public affairs on behalf of its 1,500 members and their subsidiaries. Our membership includes food retailers and wholesalers, as well as their customers, in the United States and around the world. FMI's domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $220 billion, which accounts for more than half of all grocery store sales in the United States. FMI's retail membership is composed of large multi-store chains, small regional firms, and independent supermarkets. Our international membership includes 200 members from 60 countries.
American supermarkets employ approximately 3.5 million people. As a leading provider of jobs, FMI members are sensitive to the needs of their employees, and are pleased to offer progressive parental leave programs on a voluntary basis. The supermarket industry's role as a significant employer also means that food retailers contribute substantial resources to state Unemployment Insurance (UI) Trust Funds, and, therefore, have a keen interest in the way in which UI funds are disbursed. We are especially concerned that the Department has set forth a vaguely justified proposal that will undoubtedly increase UI expenditures and, therefore, increase the UI taxes imposed upon the food distribution industry, without accomplishing the ill-defined goal it purports to seek. Accordingly, we respectfully request that the Department withdraw the proposal.
A. ETA's Birth-Adoption Compensation ProposalThe Employment and Training Administration (ETA) has proposed to amend Title 20 of the Code of Federal Regulations to add rules that would allow states to pay unemployment compensation (UC) to parents who choose to leave work on a temporary or permanent basis after the birth or adoption of a child. 64 Fed. Reg. 67972 (Dec. 3, 1999). The proposal defines a newborn child as a child who is less than one year old; newly adopted children are those who have been placed with their new families within the previous year, regardless of age. Individual states would be permitted to determine the length of paid leave for which parents would be eligible. The model state legislation drafted by the Department would allow parents to receive compensation for 12 weeks, although the terms of the Department's regulations would allow States to offer parents unemployment compensation for as long as one year.
The experimental program does not specify an end point, nor does it include a methodology or a specific goal. After four states have operated such a program for at least three years, the agency will conduct a "comprehensive evaluation" of the programs' implementation. 64 Fed. Reg. at 67974. The Agency hopes to compile information on the following issues: workforce availability of employees receiving birth-adoption compensation; the effects on employers who bear the costs of birth-adoption compensation; and the effects on the states' unemployment funds. 64 Fed. Reg. at 67974.
B. Proposal Will Consume Substantial Resources from State UI Trust Funds, Many of Which Are Insufficiently Funded for Their Primary Purpose
The potential cost of the proposed policy is enormous. The Department estimates a maximum cost of $68 million, which is "based on the expressed interest of a small number of States." 64 Fed. Reg. at 67975. The agency indicates that it does not know how many States will participate in the "experiment" and thus cannot adequately estimate the true cost. Nonetheless, $68 million is a substantial expenditure of UI funds.
Moreover, the ultimate expenditures are likely to be far greater than $68 million. Current average weekly UI benefits are approximately $200. If states pass legislation allowing qualified parents to receive up to 12 weeks of UI benefits, as recommended in the agency's model state legislation, the total direct cost per claim would be $2,400. One administration estimate indicates that as many as six million workers need parental leave for childbirth or adoption. In that case, the true cost of DoL's "experiment" will actually be more than $14 billion dollars.
However, the state UI Trust Funds are not prepared for this dramatic increase in claims. Even in the current period of unprecedented economic expansion and consistent low unemployment, the UI Trust Fund balances of 20 states and the District of Columbia are currently below the Department of Labor's solvency test, known as the "average high cost multiple." Many of these 20 states are large states such as California, Illinois, Michigan, New York, Ohio and Texas. Accordingly, these 20 states already have inadequate reserves, by the Department's own standard, in what is unquestionably a strong economy.
Employers will be required to make up the shortfall. Employers currently pay approximately $30 billion annually in UI payroll taxes. Strategic Services on Unemployment and Workers' Compensation estimates that employers will pay an additional $3000 in payroll taxes for each employee who collects UC under the proposal because increased UC claims may require the employer to pay more moneys into the state UI trust funds. Conservatively assuming that only 1% of the 3.5 million people that U.S. supermarkets employ file claims for birth-adoption compensation annually, the cost to this industry alone will be more than $100 million in additional payroll taxes. An excess tax of this magnitude may require employers - especially smaller retailers - to curtail current benefits and will certainly limit their ability to add benefits that may be used by a broader cross-section of employees.
To help offset these costs, employers should be allowed to require employees to use all accrued paid time before filing a claim for UC. This approach is consistent with DoL's FMLA regulations. See 29 C.F.R. § 825.207.
C. "Able and Available" Requirement Cannot Be Met by Individuals Who Voluntarily Choose To Leave Work and Remain Unemployed
The UI program was created in 1935 to provide income assistance to unemployed workers who lost their jobs through no fault of their own. "Supplementary Social Insurance Information," OIG Repot No. 12-99-002-13-001 at 6.3. Benefits under the unemployment compensation laws are not payable to all persons who are out of employment, but only to those who are qualified in accordance with the prescribed requirements and conditions. 81 C.J.S. § 212. Statutes providing for unemployment benefits are not intended to serve as insurance for all who are without wages. See 81 C.J.S. § 261.1. Involuntary Unemployment and the Meaning of "Able and Available"
Rather, unemployment compensation is designed to provide a source of income in the case of involuntary unemployment, which is unemployment resulting from a failure of industry to provide stable employment, rather than from situations in which an individual becomes unemployed by reason of a change in personal conditions or circumstances.1 81 C.J.S. § 225. This fundamental principle is reflected in the "able and available" standard, which has been used by the federal government since the inception of the program to direct State payment of UI trust fund moneys as unemployment compensation.
Specifically, the DoL and its predecessor agencies in administering the UI program have long interpreted four federal statutory provisions as requiring that claimants be able to and available for work; that is, UI recipients must be actively seeking and willing to accept new employment. Under the Federal Unemployment Tax Act (FUTA) and the Social Security Act (SSA), withdrawals from a State's unemployment fund may only be used to pay "compensation." 26 U.S.C. § 3304(a)(4); 42 U.S.C. § 503(a)(5). Compensation is defined as "cash benefits payable to individuals with respect to their unemployment." 26 U.S.C. § 3306(h). Thus, an individual must be unemployed and, therefore, no longer an employee, in order to receive UC.2
Moreover, compensation must be paid "through public employment offices." 26 U.S.C. § 3304(1)(1); 42 U.S.C. § 503(a)(2). Linking unemployment compensation with the public employment system that is intended to locate jobs for people ties the payment of unemployment compensation to an individual's search for employment. 64 Fed. Reg. at 67972.
The "able and available" requirements determine whether a claimant is unemployed within the meaning of the statutes. 64 Fed. Reg. at 67972. The purpose of the "availability" requirement is to establish or test the claimant's attachment to the labor market and to determine if the claimant is unemployed because of the lack of suitable job opportunities or for some other reason. 81 C.J.S. § 258. In order to be "available" for work, a claimant must ordinarily do more than passively wait for work; a claimant must make a good faith or sincere effort to secure employment. See 81 C.J.S. § 254. See, also, Webster's II New College Dictionary at 77 (1995) (available: "1. accessible for use: at hand. 2. having the qualities and the willingness to take on a responsibility").
In direct contravention of the "able and available" requirements, ETA is attempting to open the UI trust funds to persons who voluntarily make themselves unavailable for employment based on a non-work-related reason. The proposed rule itself acknowledges that it seeks to provide UI benefits to those who desire to take approved leave, thereby underscoring the point that the claimant has chosen to be unavailable for work. Accordingly, ETA's proposal runs afoul of the fundamental principle of unemployment compensation that the claimant must be able to and available for work.
Four exceptions to the "able and available" requirement have been recognized over the years by DoL; these exceptions have generally been undergirded with specific statutory authority and, thus, do not depend solely on an administrative interpretation of the existing law. ETA attempts to justify the instant birth-adoption compensation proposal by arguing that it is analogous to the existing exceptions because it would promote a "continued connection to the workforce." However, as explained more fully below, the existing exceptions differ significantly from the proposed exception and, therefore, do not provide sufficient justification.2. Current Exceptions to "Able and Available" Requirement Do Not Justify Extending UC To New Parents
The first exception DoL cites is for "approved training;" the exception was ultimately codified into the law. Under this provision, individuals do not lose their eligibility for UC while in approved training because training is recognized as an effective remedy for unemployment. Training courses are directly related to an individual's ability to obtain employment because increasing an individual's job-specific skills will render the individual a more desirable and more competent employee. DoL has not asserted that parental leave will provide individuals with job-related skills.
For the illness or jury duty exceptions, the state effectively "steps into the shoes" of the employer for short periods of time during the individual's unemployment. And, there lies the key: for both of these exceptions, the individual must already have established that s/he meets the able and available requirements. That is, an individual who initially meets the able and available requirements, but then becomes ill or is called to jury duty, remains eligible to receive UC payments without interruption, provided that no suitable work is offered and refused. 64 Fed. Reg. at 67973. In these instances, the state serves as an approximate surrogate for an employer, since employers ordinarily provide reasonable sick leave and jury duty pay for employed workers. However, these exceptions are intended to provide UC during a short period of a pre-existing involuntary unemployment situation.
The existing exception closest in scope to the proposed birth-adoption exception is the "temporary layoff" exception. An employee who must stop working for a specific employer for a period of time may receive UC, even though both the employer and the employee expect that the employee will return to work on a specific date in the future. The key difference here is that a "temporary layoff" arises if the employer is unable to provide work to the employee for a short period of time. 64 Fed. Reg. at 67973.
In that case, the employer has made a business decision to cease paying an individual's wages, but intends to pay the individual for his/her services again when the economic opportunity arises. Although an employer might arguably be expected to provide compensation to an employee through the UI system if the employee is without wages as a result of the employer's economic decision-making, employers should not be required to subsidize the personal choices of their employees via the UI system, especially when those choices are unrelated to the work force or the employers' decisions. If paid birth or adoption compensation is socially desirable, such a determination should be made by Congress through the legislative process, and the costs of the program should be allocated across the public accordingly.
The Department states that one of the purposes of the proposal is to test whether providing new parents with unemployment compensation will improve or maintain their availability. DoL theorizes that UC will maintain or even promote parental connection to the workforce by allowing parents time to bond with their children and to develop stable child care systems while adjusting to the accompanying changes in lifestyle before returning to work. 64 FR at 67973. ETA has not considered the possibility, however, that the proposed birth-adoption compensation might actually diminish an individual's connection to the workplace on at least a temporary basis.3. Birth-Adoption Compensation May Diminish Connection to the Workplace
Since an important reason that many individuals work is to earn an income, one reasonable result of replacing wages with unemployment compensation would be an actual reduction in attachment to the workforce. For example, if a state passed legislation authorizing birth-adoption compensation to be paid for the first full year of a newborn's life, one or both parents might be encouraged to leave the workforce for the full year, even though they might not have chosen to leave the workforce for this period if UC had not been available. Although eventually one or both parents might decide to return to work, they may not have both been able to remove themselves from the workforce for a year without the subsidy provided by unemployment compensation. Thus, UC may decrease worker availability. DoL's proposal has not considered or even admitted this possibility.
D. ETA Experiment Is FlawedThe proposal is intended to establish an "experiment" that is "[d]esigned to test whether expansion of its interpretation of the able and available requirements would promote a continued connection to the workforce in parents who receive such payments." 64 FR at 67973. However, as an experiment, the ETA proposal is poorly designed. The proposal includes only a vague standard for success, no methodology for determining whether the program is successful, and no means of accountability should it prove unsuccessful.
The standard DoL adopts is whether the program will increase parents' connection to the workforce. Given the vagueness of the standard, it is little wonder that the Agency has not been able to specify a method to determine whether the experiment has been successful. Thus, states will be allowed to make payments to an entirely new class of beneficiaries and will only be restricted by the knowledge that they will be judged at some unspecified time in the future by the vague standard previously mentioned.
However, what if the method ultimately chosen by the Agency reveals that parents' attachment to the workforce is decreased in the states that employ the experiment? If the "experiment" must continue until four States have implemented the legislation for at least three years, the experiment will last for at least three years and possibly twice as long or longer since four states must each separately enact and implement legislation. Over the course of the experimental period, millions, if not billions, of taxpayer dollars will be drained from UI trust funds to pay for an "experiment" that may ultimately prove to decrease employee attachment to the workforce.
Moreover, the proposal requires states to amend their statutes in order to participate. State legislation will serve as an obstacle to the removal of the program if the data collected from the experiment demonstrate that birth-adoption compensation decreases worker availability. Thus, the "experiment" seems intended to ensure that the payment of birth-adoption compensation is ultimately adopted nationally, rather than to establish an unbiased system for gathering data.
E. Extending UC to New Parents Will Set Poor Policy PrecedentETA should abandon the proposed rule because it will establish a poor precedent for the use of UI funds in the future. As discussed more fully above, the proposed rule violates longstanding principles that go to the core of the unemployment compensation system. Eroding the "able and available" requirement to justify paying unemployment compensation to new parents will open the door for the use of UI funds for other projects unrelated to the core purpose of the UI system. For example, the instant proposal claims to be a vehicle to allow more new parents to take advantage of the leave provided for under the Family and Medical Leave Act (FMLA); however, the proposal might just as well have included all of the various types of family and medical leave for which the FMLA provides, e.g., family leave to care for elderly parents, or medical leave for the worker or the worker's family members. Indeed, both President Clinton and the Department suggest that compensating new parents is simply the first in what may be a long line of additional social programs that the Administration would like to underwrite with the funds American businesses have set aside in the UI Trust Funds.
The U.S. economy is undergoing its longest period of prosperity, however, it is unreasonable to expect the economic expansion to continue indefinitely. If the UI funds that have been set aside to serve as an economic safety net for persons who find themselves involuntarily unemployed are used instead on a variety of other social programs, those funds will not be available when they are most needed. On behalf of the companies in the food industry that help to fund the unemployment system, we strongly believe that this money must be reserved only for those who find themselves without jobs despite the fact that they are able to and available for work. The funds should not be used to further unrelated social goals; rather, the money must be reserved for the truly unemployed.
We appreciate the opportunity to provide our comments on the proposed birth-adoption compensation plan. Based on the foregoing discussion, however, we urge the Department to withdraw the proposal.
Sincerely,
Tim Hammonds
President and CEO
² But, c.f., proposed 29 C.F.R. § 604.3(a) ("approved leave" means a specific period of time, agreed to by both the employee and the employer, during which an employee is temporarily separated from employment and after which the employee will return to work for that employer).
¹ See 81 C.J.S. § 225 ("It would be inequitable and unjust to compel employers to contribute money to fund from which unemployment compensation is paid for express purpose of paying employees during periods of involuntary unemployment and then to divert employer's contribution from its lawful purpose by giving it to former employees during unemployment brought about by their voluntary and deliberate act.")