BILL NUMBER: AB 664 CHAPTERED BILL TEXT CHAPTER 827 FILED WITH SECRETARY OF STATE SEPTEMBER 28, 2004 APPROVED BY GOVERNOR SEPTEMBER 28, 2004 PASSED THE SENATE AUGUST 27, 2004 PASSED THE ASSEMBLY AUGUST 27, 2004 AMENDED IN SENATE AUGUST 25, 2004 AMENDED IN SENATE AUGUST 24, 2004 AMENDED IN SENATE JUNE 21, 2004 AMENDED IN SENATE FEBRUARY 18, 2004 AMENDED IN ASSEMBLY JANUARY 6, 2004 AMENDED IN ASSEMBLY SEPTEMBER 29, 2003 INTRODUCED BY Assembly Member Lowenthal (Coauthor: Senator Kuehl) FEBRUARY 19, 2003 An act to amend Sections 976.5, 976.8, 977, 982, 1036, and 1052 of, and to add Sections 336, 1061, 1145, and 2101.6 to, the Unemployment Insurance Code, relating to unemployment insurance, and making an appropriation therefor. LEGISLATIVE COUNSEL'S DIGEST AB 664, Lowenthal. Unemployment insurance: contribution rates. (1) Existing law requires every employer, with specified exceptions, to pay contributions to the Unemployment Fund at specified rates. This bill would require the Director of the Employment Development Department (EDD) to assign an employer the maximum contribution rate plus 2% for specified rating periods if that employer had previously obtained a favorable rate of contributions due to deliberate ignorance, reckless disregard, fraud, intent to evade, misrepresentation, or willful nondisclosure. (2) Existing law also generally authorizes employers to submit to the EDD voluntary unemployment insurance contributions for the purposes of redetermining its unemployment insurance contribution rate, unless specifically excluded from this authorization. Existing law excludes from this authorization an employer whose reserve account has been subject to benefit charges, as specified. This bill would additionally exclude from this authorization an employer who is assigned the maximum contribution rate plus 2% for certain rating periods, as specified, because that employer had previously obtained or attempts to obtain a favorable rate of contributions due to deliberate ignorance, reckless disregard, fraud, intent to evade, misrepresentation, or willful nondisclosure. (3) Existing law requires specified employers to contribute 0.1% of specified wages into the Employment Training Fund but provides a relief from this requirement to an employer who has a negative reserve account balance on the computation date. This bill would specify that an employer who has a negative reserve account balance on the computation date would, nonetheless, be required to contribute 0.1% of specified wages into the Employment Training Fund if the director assigned the employer the maximum rate plus 2% for certain rating periods, as specified, because that employer had previously obtained or attempted to obtain a favorable rate of contributions due to having engaged in specified acts. (4) Existing law requires the director to furnish to each employer, at least annually, with an itemized statement of the charges to the employer's account and a statement of the account showing the credits and charges, the net balance of the employer's reserve, and the employer's contribution rate for the applicable rating period, and requires, prior to the expiration of the rating period to which the statements relate, to provide an employer with a notice of correction of any error in the statement of account or statement of charges and to assess a deficiency in, or refund an overpayment of, contributions paid. This bill would not require that the notice of correction of any error must be mailed before the expiration of the rating period in the case where fraud, intent to evade, misrepresentation, or willful nondisclosure is found by the director. (5) Existing law allows an employing unit, as defined, that acquires an organization, trade, or business, and continues that organization, trade, or business without substantial reduction of personnel to apply for transfer of the predecessor's reserve account, as specified, to the successor employer for purposes of determining the employer's rate of contribution, unless the acquisition was undertaken by the employing unit solely or primarily for the purpose of obtaining a more favorable rate of contributions. This bill would delete the requirement that obtaining a more favorable rate of contributions be the sole or primary purpose for the acquisition, and instead, would provide that a transfer of the predecessor's reserve account to the successor employer would not be allowed if the acquisition of the predecessor occurred for the purpose of obtaining a more favorable rate of contributions for the successor employer. (6) Existing law also authorizes the Director of the Employment Development Department to treat 2 or more entities as one employing unit, as defined, if they are united because of ownership, operation, and use, and specifies factors and conditions pursuant to which ownership, operation, and use of 2 or more entities are considered to be united. This bill would require the director to establish procedures that would allow the department to identify the transfer or acquisition of a business that is undertaken for purposes of obtaining a lower unemployment insurance contribution rate. This bill would also require that, in the case where an employer transfers all or part of its business or payroll to another employer, and both employers, at the time of transfer, are under common ownership, management or control, the reserve account of the transferred business must be combined with the reserve account of the transferee employer. (7) Existing law, with limited exceptions, provides that every person who willfully violates the Unemployment Insurance Law or regulations implementing that law is guilty of a misdemeanor. This bill would impose a penalty of either $5,000 or 10% of the amount of any resulting underreporting of contributions, penalties, and interest, whichever is greater, on a person or business entity that knowingly advises another person to violate any provision of the Unemployment Insurance Code. This bill would also make it a violation for any person to willfully counsel, advise, procure, or coerce anyone to willfully make a false statement or representation, or knowingly fail to disclose a material fact for the purpose of lowering or avoiding any required contribution, or to avoid being or remaining subject to specific requirements, as provided, and would thereby establish a new crime. (8) By providing for the deposit of additional moneys into the Unemployment Fund, a continuously appropriated fund, this bill would make an appropriation. (9) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Appropriation: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 336 is added to the Unemployment Insurance Code, to read: 336. The director shall establish procedures to identify the transfer or acquisition of a business that is undertaken for purposes of obtaining a lower unemployment insurance contribution rate. SEC. 2. Section 976.5 of the Unemployment Insurance Code is amended to read: 976.5. (a) Except as provided in subdivision (b), in addition to other contributions required by this division, every employer, except an employer to which subdivision (c) is applicable, may submit a voluntary unemployment insurance contribution for the purpose of redetermining its unemployment insurance contribution rate. No redetermination of a contribution rate shall be made unless the voluntary contribution is submitted as required in subdivision (c) of Section 1110. No redetermination shall reduce an employer's unemployment insurance contribution rate by more than three rates as provided in Section 977. (b) This section shall not be operative in calendar years in which Contribution Rate Schedules E and F in Section 977 are in effect, or in calendar years to which the emergency solvency surcharge provided in Section 977.5 is in effect. (c) This section does not apply to any of the following: (1) An employer not eligible for a contribution rate other than that provided pursuant to Section 982 or subdivision (c) of Section 977. (2) An employer with a negative reserve account balance on the computation date. (3) An employer who was notified prior to September 1 of any unpaid amount owed to the department which is not the subject of a timely petition for reassessment pending before the appeals board on September 30 preceding the year to which a contribution rate is applicable. SEC. 3. Section 976.8 of the Unemployment Insurance Code is amended to read: 976.8. (a) Section 976.6 does not apply to any employer who has a negative reserve account balance on the computation date. (b) Subdivision (a) does not apply to an employer assigned the maximum rate pursuant to subdivision (c) of Section 977. SEC. 4. Section 977 of the Unemployment Insurance Code is amended to read: 977. (a) Except as provided in subdivision (c), if, as of the computation date, the employer's net balance of reserve equals or exceeds that percentage of his or her average base payroll which appears on any line in column 1 of the following table, but is less than that percentage of his or her average base payroll which appears on the same line in column 2 of that table, his or her contribution rate shall be the figure appearing on that same line in the appropriate schedule, as defined in subdivision (b), which shall be a percentage of the wages specified in Section 930. Reserve Ratio Contribution Rate Column Column Schedules Line 1 2 AA A B C D E F 01 less than -20 5.4 5.4 5.4 5.4 5.4 5.4 5.4 02 -20 to -18 5.2 5.3 5.4 5.4 5.4 5.4 5.4 03 -18 to -16 5.1 5.2 5.4 5.4 5.4 5.4 5.4 04 -16 to -14 5.0 5.1 5.3 5.4 5.4 5.4 5.4 05 -14 to -12 4.9 5.0 5.3 5.4 5.4 5.4 5.4 06 -12 to -11 4.8 4.9 5.2 5.4 5.4 5.4 5.4 07 -11 to -10 4.7 4.8 5.1 5.3 5.4 5.4 5.4 08 -10 to -09 4.6 4.7 5.1 5.3 5.4 5.4 5.4 09 -09 to -08 4.5 4.6 4.9 5.2 5.4 5.4 5.4 10 -08 to -07 4.4 4.5 4.8 5.1 5.3 5.4 5.4 11 -07 to -06 4.3 4.4 4.7 5.0 5.3 5.4 5.4 12 -06 to -05 4.2 4.3 4.6 4.9 5.2 5.4 5.4 13 -05 to -04 4.1 4.2 4.5 4.8 5.1 5.3 5.4 14 -04 to -03 4.0 4.1 4.4 4.7 5.0 5.3 5.4 15 -03 to -02 3.9 4.0 4.3 4.6 4.9 5.2 5.4 16 -02 to -01 3.8 3.9 4.2 4.5 4.8 5.1 5.4 17 -01 to 00 3.7 3.8 4.1 4.4 4.7 5.0 5.4 18 00 to 01 3.4 3.6 3.9 4.2 4.5 4.8 5.1 19 01 to 02 3.2 3.4 3.7 4.0 4.3 4.6 4.9 20 02 to 03 3.0 3.2 3.5 3.8 4.1 4.4 4.7 21 03 to 04 2.8 3.0 3.3 3.6 3.9 4.2 4.5 22 04 to 05 2.6 2.8 3.1 3.4 3.7 4.0 4.3 23 05 to 06 2.4 2.6 2.9 3.2 3.5 3.8 4.1 24 06 to 07 2.2 2.4 2.7 3.0 3.3 3.6 3.9 25 07 to 08 2.0 2.2 2.5 2.8 3.1 3.4 3.7 26 08 to 09 1.8 2.0 2.3 2.6 2.9 3.2 3.5 27 09 to 10 1.6 1.8 2.1 2.4 2.7 3.0 3.3 28 10 to 11 1.4 1.6 1.9 2.2 2.5 2.8 3.1 29 11 to 12 1.2 1.4 1.7 2.0 2.3 2.6 2.9 30 12 to 13 1.0 1.2 1.5 1.8 2.1 2.4 2.7 31 13 to 14 0.8 1.0 1.3 1.6 1.9 2.2 2.5 32 14 to 15 0.7 0.9 1.1 1.4 1.7 2.0 2.3 33 15 to 16 0.6 0.8 1.0 1.2 1.5 1.8 2.1 34 16 to 17 0.5 0.7 0.9 1.1 1.3 1.6 1.9 35 17 to 18 0.4 0.6 0.8 1.0 1.2 1.4 1.7 36 18 to 19 0.3 0.5 0.7 0.9 1.1 1.3 1.5 37 19 to 20 0.2 0.4 0.6 0.8 1.0 1.2 1.4 38 20 or more 0.1 0.3 0.5 0.7 0.9 1.1 1.3 (b) (1) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is greater than 1.8 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule AA. (2) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is equal to or less than 1.8 percent and greater than 1.6 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule A. (3) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is equal to or less than 1.6 percent and greater than 1.4 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule B. (4) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is equal to or less than 1.4 percent and greater than 1.2 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule C. (5) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is equal to or less than 1.2 percent and greater than 1.0 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule D. (6) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is equal to or less than 1.0 percent and greater than or equal to 0.8 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule E. (7) Whenever the balance in the Unemployment Fund on September 30 of any calendar year is less than 0.8 percent and greater than or equal to 0.6 percent of the wages (as defined by Section 940) in employment subject to this part paid during the 12-month period ending upon the computation date, employers shall pay into the Unemployment Fund contributions for the succeeding calendar year upon all wages with respect to employment at the rates specified in Schedule F. (c) For each rating period beginning on or after January 1, 2005, in which an employer obtains or attempts to obtain a more favorable rate of contributions under this section due to deliberate ignorance, reckless disregard, fraud, intent to evade, misrepresentation, or willful nondisclosure, the director shall assign the maximum contribution rate plus 2 percent for each applicable rating period, the current rating period, and the subsequent rating period. SEC. 5. Section 982 of the Unemployment Insurance Code is amended to read: 982. (a) Except as provided in subdivision (b), no employer shall be eligible for a contribution rate of more or less than 3.4 percent for any rating period unless his or her reserve account has been subject to benefit charges during the period of 12 complete consecutive calendar quarters ending on the computation date for that rating period and he or she is qualified under Sections 977 and 977.5. (b) No new employer shall be eligible for a contribution rate of more or less than 3.4 percent unless his or her reserve account has been subject to benefit charges during the period of 12 complete consecutive calendar months ending on the computation date and the new employer is qualified under Sections 977 and 977.5. (c) For the purposes of this section "new employer" means any of the following: (1) An employer who first qualifies as an employer after the 1969 calendar year, and whose account is continuously subject to benefit charges from the date of first chargeability, except that a successor employer under Section 1051 is not a new employer if the successor applies for or obtains the transfer of the reserve account or part thereof of a predecessor who is not a new employer. (2) An employer whose entire reserve account has been transferred to a successor under Article 5 (commencing with Section 1051) of Chapter 4 of this part. (3) An employer whose reserve account has been canceled pursuant to Section 1029. (d) Section 905 applies to a new employer, except that for the purposes of this section "average base payroll" means: (1) The payroll in the calendar year immediately preceding the computation date for a new employer with a payroll only in that calendar year. (2) The quotient obtained by dividing by two the total amount of taxable wages paid by a new employer during the most recent period of two consecutive calendar years immediately preceding the computation date, for a new employer with a payroll only in each of, or only in the first of, the two consecutive calendar years. (e) The contribution rate of an employer, for any period prior to January 1, 1988, shall not be changed, other than by the provisions of Sections 977 and 977.5, when the director makes a determination, pursuant to Section 135.1 or 135.2, because of arrangements entered into or business activities conducted between January 1, 1984, and January 1, 1986. (f) This section does not apply to an employer assigned the maximum rate pursuant to subdivision (c) of Section 977. SEC. 6. Section 1036 of the Unemployment Insurance Code is amended to read: 1036. (a) The director shall give notice, pursuant to Section 1206, to the employer of the correction of any error which the director finds in any statement of account or statement of charges. Except in the case where fraud, intent to evade, misrepresentation, or willful nondisclosure is found, the notice of correction shall be issued prior to the expiration of the rating period to which a statement relates. (b) Any additional amount of contributions resulting from an increased contribution rate caused by the correction of any error that the director finds in any statement of reserve account or statement of charges shall be assessed within 180 days from the postmarked date of the notice of correction. These assessments shall be issued in accordance with Article 8 (commencing with Section 1126). However, these assessments shall become final on the last day of the calendar month following the calendar quarter in which the assessment is issued. (c) Any overpaid amount of contributions resulting from a reduced rate caused by the correction of an error that the director finds on any statement of reserve account or statement of charges shall be refunded within 180 days of the postmarked date of the notice of correction. These refunds shall be issued in accordance with Article 9 (commencing with Section 1176). SEC. 7. Section 1052 of the Unemployment Insurance Code is amended to read: 1052. Upon receipt of the application the separate account, actual contribution and benefit experience and payrolls of the predecessor or that part thereof, as determined by authorized regulations, which pertains to the organization, trade, or business, or portion thereof acquired, shall be transferred to the successor employer for the purpose of determining its rate of contribution after such acquisition with the same effect for such purpose as if the operations of the predecessor had at all times been carried on by the successor. Such separate account shall be transferred by the director to the successor employer and, as of the date of the acquisition, shall become the separate account or part of the separate account, as the case may be, of the successor employer, and the benefits thereafter chargeable to the predecessor employer on account of employment relating to the transferred organization, trade, or business or transferred portion thereof prior to the date of the acquisition shall be charged to the separate account. This section shall not apply to any acquisition which is determined by the director to have been made for the purpose of obtaining a more favorable rate of contributions under Section 977. SEC. 8. Section 1061 is added to the Unemployment Insurance Code, to read: 1061. (a) For purposes of this article, the reserve account attributable to a transferred business shall also be transferred to, and combined with, the reserve account attributable to the employer to whom that business is transferred, if both of the following are satisfied: (1) An employer transfers all or part of its business or payroll to another employer. (2) At the time of transfer, both employers are under common ownership, management, or control. (b) This section shall be applied to meet the minimum requirements contained in any guidance or regulations issued by the United States Department of Labor. SEC. 9. Section 1145 is added to the Unemployment Insurance Code, to read: 1145. (a) If the director finds that a person or business entity knowingly advises another person or business entity to violate any provision of this chapter, the director may assess the greater of: (1) A penalty of five thousand dollars ($5,000). (2) Ten percent of the combined amount of any resulting underreporting of contribution, penalties, or interest required by law. (b) For purposes of this section, "business entity" means a partnership, corporation, association, limited liability company, or Indian tribe, as described in subsection (u) of Section 3306 of Title 26 of the United States Code, or any other legal entity. SEC. 10. Section 2101.6 is added to the Unemployment Insurance Code, to read: 2101.6. (a) It is a violation of this chapter for any person to procure, counsel, advise, or coerce anyone to willfully make a false statement or representation, or to knowingly fail to disclose a material fact in order to lower or avoid any contribution or to avoid being or remaining subject to this division. (b) It is a violation of this chapter for any person to willfully aid or assist anyone in making a false statement or representation, or in knowingly failing to disclose a material fact, in order to lower or avoid any contribution, or to avoid being or remaining subject to this division. SEC. 11. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.