Opposition Brief — Doherty v. Pennington

Supreme Court brief1997

Ask Donna

What actually matters in this document.

Text

- bad

a id

3 Ce

No. 97-58 sep 5 (1997

CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

LYNN Q. DOHERTY, Director of the Illinois Department of

Employment Security, in her official capacity

Petitioner,

-VB-

LUELLA PENNINGTON, individually and on behalf of all others

similarly situated,

Respondents.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

MOTION TO FILE BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI IN FORMA PAUPERIS

JEFFREY B. GILBERT

Counsel of Record

Johnson Jones Snelling

Gilbert & Davis

36 S. Wabash

Suite 1310

Chicago, IL 60603

(312) 578-8100

ROBERT E. LEHRER

Lehrer & Redleaf

205 W. Monroe Street

Chicago, Illinois 60606

(312) 332-2121

Attorneys for Respondents

Pursuant to Sup. Ct. R. 39, Luella Pennington, moves to file

her Brief in Opposition to the above-captioned Petition for Writ of

Certiorari in forma pauperis. In support thereof, Ms. Pennington

offers the attached declaration evidencing her financial status and

states that:

- She represents a class of unemployment insurance

claimants in Illinois;

# On July 7, 1985, she moved to file this action in forma

pauperis in the United States District Court for the Northern

District of illinois. That motion was granted on July 19, 1985;

3, From 1985, when the case was filed, until July 31, 1996,

Ms. Pennington was represented by attorneys employed at the Legal

Assistance Foundation of Chicago ("LAFC"), a legal services

organization. Mr. Jeffrey B. Gilbert, one of the attorneys who has

represented Ms. Pennington in this matter since it was filed has

been a partner at Johnson, Jones, Snelling, Gilbert & Davis, P.C.

since September 16, 1994, but was employed at LAFC for fifteen

years prior thereto, and he remained as counsel to Ms. Pennington

and the class in this case since his departure from LAFC;

4. Robert E. Lehrer has also represented Ms. Pennington

since the case was first filed. He was employed at LAFC for 23

years until March 1996 when he became a partner in Lehrer &

Redleaf. Since his departure from LAFC, Mr. Lehrer has remained as

counsel to Ms. Pennington and the class in this case;

ee a

Om cr

LS Tee ee ee

‘ aa —_

5. LAFC withdrew from representation of Ms. Pennington on

July 31, 1996 pursuant to Section 504(a) (7) of Public Law 104-134,

which barred federally funded legal services programs such as LAFC

from "“participat[ing] in a class action lawsuit" after August 1,

1996. Since LAFC’s withdrawal, Messrs. Gilbert and Lehrer have

continued to represent Ms. Pennington in this matter.

WHEREFORE, Respondent requests that this Court permit her to

proceed in forma pauperis.

Respectfully submitted,

JEFFREY B. GILBERT

Counsel of Record

Johnson Jones Snelling

- Gilbert & Davis

36 S. Wabash

Suite 1310

Chicago, IL 60603

(312) 578-8100

ROBERT E. LEHRER

Lehrer & Redleaf

205 W. Monroe Street

Chicago, Illinois 60606

sb (312) 332-2121

No. 97-58

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

LYNN Q. DOHERTY, Director of the Illinois Department of

Employment Security and successor in office to LOLITA

DIDRICKSON and SALLY WARD, former Directors of the

Illinois Department of Employment Security

Petitioner,

-VB-

LUELLA PENNINGTON, individually and on behalf of others

similarly situated,

Respondent.

DECLARATION IN SUPPORT OF MOTION TO FILE BRIEF IN

OPPOSITION TO PETITION FOR WRIT OF CERTIORARI IN FORMA PAUPERIS

I, Luella Pennington, state that I am the Respondent in the

above-entitled case; that in support of my motion to proceed in

this matter without being required to prepay fees, costs or give

security therefore, I state that because of my poverty I am unable

to pay the costs of said proceedings or to give security therefore;

that I believe I am entitle to redress; and that I desire to

respond to the Petition for Certiorari filed by Lynn Q. Doherty

("Petition") and to otherwise defend the Court of Appeals’ decision

should this Court grant the Petition.

I further state that the responses which I have made to the

questions and instructions below relating to my ability to pay the

cost of responding to Petition are true:

Are you presently employed?

Answer:

a. If the answer is yes, state the amount of your

salary or wages per month and give the name and

address of your employer.

b. If the answer is no, state the date of your last

employment and the amount of the salary and wages

per month which you received.

Answer: I was last employed part-time in September

1986 when I earned approximately $4.00 per

hour for 20 hours per week, and I received

some additional unemployment insurance

benefits for a total of approximately $500.00

per month.

# Have you received within the past twelve months any

income from a business, profession or other form of self-

employment, or in the form of rent payments, interest, dividends,

or other source?

Answer: (No,

> Do you own any cash or checking or savings account?

Answer: Yes

a. If the answer is yes, state the total value of the

items owned.

Answer: I have a checking account (No. 10000655084) at

Merchandise National Bank in Chicago,

Illinois. I receive a monthly Social Security

check in the amount of $507. I have

approximately that amount, though sometimes a

little more, in the account. When a check is

deposited, I spend it down through the month

until the next check arrives. I also receive

$42 in food stamps every month.

4. Do you own any real estate, stocks, bonds, notes,

automobiles, or other valuable property (excluding ordinary

household furnishings and clothing) ?

Answer: fo)

a. If the answer is yes, describe the property and

state its approximate value?

$s. List the persons who are dependent upon you for support

and state your relationship to those persons.

Answer: I have no dependents other than myself.

I understand that a false statement or answer to any questions

in this declaration will subject me to penalties for perjury; and

I declare under penalty of perjury that the foregoing is true and

correct.

Executed on: July 2], 1997

VWs hacks

Ms. Luella Penningtor/

No. 97-58

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

LYNN Q. DOHERTY, Director of the Illinois Department of

Employment Security, in her official capacity

Petitioner,

-VB-

LUELLA PENNINGTON, individually and on behalf of all others

similarly situated,

Respondents.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

BRIEF IN OPPOSITION

JEFFREY B. GILBERT

Counsel of Record

Johnson Jones Snelling

Gilbert & Davis

36 S. Wabash

Suite 1310

Chicago, IL 60603

(312) 578-8100

ROBERT E. LEHRER

Lehrer & Redleaf

205 W. Monroe Street

Chicago, Illinois 60606

(312) 332-2121

Attorneys for Respondents

i i a ait Di ad asst a ie

_. on

QUESTIONS PRESENTED

Until August 5, 1997, section 303(a) (1) of the Social Security

Act, 42 U.S.C. §503(a) (1) (the "when due" clause), unequivocally

required that state unemployment insurance laws include "methods of

administration ... reasonably calculated to insure full payment of

[benefits] when due." In Pennington v. Didrickson, 22 F.3d 1376

(7th Cir. 1994) ("Pennington I"), App. 16-39, cert denied, 513 U.S.

1032 (1994), the cour 2%f appeals held that section 237 of the

Illinois Unemployment Insurance Act, 820 ILCS 405/237 ("section

237") defines a "method of administration" within the meaning of

the "when due" clause and remanded the case for "factual findings

and a determination of the issue of section 237’s compliance with

the ‘when due’ clause and corresponding regulations." Id. 37-39.

On remand, the district court issued extensive findings of fact and

held that section 237 violated the "when due" clause. In

Pennington v. Doherty, 110 F.3d 502 (7th Cir. 1997) ("Pennington

II"), the court of appeals affirmed the district court’s judgment.

On July 3, 1997, the Director of the Illinois Department of

Employment Security ("Director" of "IDES") filed a petition for

certiorari, no. 97-58 which sought review of whether the court of

appeals in Pennington I correctly held that section 237 defines a

"method of administration" within the meaning of the "when due"

clause; and wh ther, on remand, the district court correctly

applied the rule of law enunciated in Pennington I.

On August 5, 1997, however, the President signed of the

Balanced Budget Act of 1997, Pub.L. 105-33, 111 Stat. 251. Section

5401 of that statute ("the anti-Pennington provision") provides

that:

Section 1. Clarifying Provision.

(a) In General. - No provision of a State law

under which the base period for such State is

deiined or otherwise determined shall, for purposes

of section 303(a) (1) of the Social Security Act (42

U.S.C. 503(a)(1)), be considered a provision for a >

method of administration.

(b) Definitions. - For purposes of this

section, the terms "State law", "base period", and

"State" shall have the respective meanings assigned

to them under section 205 of the Federal-State

Extended Unemployment Compensation Act of 1970 (26

U.S.C. 3304 note).

apply for purposes of any period beginning before,

on, or after the date of the enactment of this Act.

On September 5, 1997, the Director filed a supplemental

petition for certiorari asking that the Court either summarily

reverse the Pennington decisions or grant the Director’s petition,

vacate the court of appeals’ judgment and remand for further

consideration in light of the anti-Pennington provision.’ That

question is now presented to this Court.

, By letter dated August 4, 1997, this Court’s Chief Deputy

Clerk, Francis J. Lorson, extended the date for filing this brief

until September 6, 1997. To allow us to meet that deadline, the

Director’s counsel sent as a draft of the Director’s supplemental

petition before it was filed, and said that they would file it, by

mail,,on September 5, 1997. We appreciate their courtesy in doing

so.

TABLE OF CONTENTS

QUESTIONS PRESENTED .

TABLE OF AUTHORITIES

STATEMENT OF THE CASE ......« -«

Zz. Mature Of The Actiom: . «see ese vvewves

IZ. Statement Of Pacts ..«6s-ecsevrevcsee s

A. The Operation Of Section 237

Of The Illinois ee

Insurance Act .... .

B. The Reason Section 237 Delays

Payment Of Unemployment Insurance

Benefits: Wage Record, Wage Request

And Movable Base Period Systems ....

Cc. Luella Pennington And The Class Members

IIz. The "When Due* Clause ...«+«sseee

IV. The Course And Disposition Of The Proceedings .

ARGUMENT * . . * * . . . . . . . . >. * . . . * . * *

Zt. The Anti-Pennington Provision Undermines

The Central Purpose Of The "When Due" Clause

II. Section 237 Is A Method Of Administration

Not An Eligibility Criterion ... os

III. The Secretaries of Labor Have Not

Historically Treated The Base Period

As An Eligibility Criterion .......

EV. The Anti-Pennington Provision Will Exacerbate

A Deep Decline In The Rate Of Unemployment

Insurance Recipiency At An Enormous Cost To

The Nation’s Poorest Workers ....++.+4.s.

iii

V. The Use Of An Alternative Movable Base Period

Would Neither Substantially Increase The Costs

Of Operating The Unemployment Insurance Program

Nor Unduly Burden Employers... AEP iin Oe °

A. The Costs To States Of Movable Base

peracage Ore Minimal . «+e © « «© «

B. The Costs To Employers Of Movable Base

Periods Are Also Minimal .......-

CONCLUS n> ON . * + . . * . * . . . . . . * * . * . . . os

Stipulations OF Vaet «..s+«-+ste2¢-e

Statement By Day Gilbert, Deputy Administrator

Ohio Bureau Of Employment Services, On

Behalf Of The Interstate Conference Of

Employment Security Agencies, To The House

Subcommittee On Ways And Means Subcommittee

On Human Resources ....+ + +-++«s e+ © « «

Testimony Before The Human Resources Subcommittee,

House Ways and Means “ommittee, By The Honorable

Lynn Quigley Doherty, Director, Illinois Department

Of Employment Services, On Behalf Of The Honorable

Jim Edgar, Governor Of The State Of Illinois .

Testimony Before The Human Resources Subcommittee,

House Ways and Means Committee, By Albert R.

Miller, President, Phoenix Closures, Inc.

Testimony Of Janet L. Norwood, Senior Fellow,

Urban Institute, Before The Subcommittee

On Human Resources, Committee On Ways and

Means, U.S. House Of Representatives.

Letter Of November 21, 1996 from Al Lee,

Chief Deputy Director, Of The California

Employment Development Department to The

Honorable Patrick Johnston, Of The California

State Gemate .-«ssestseeveseevevees see eo @

U.S. Department of Labor, Unemployment Insurance

Legislative Policy: Recommendations for State

[aera Seen Cae) 6 cs «6 400 8 6 «8

21-25

26-29

30-31

32-38

39-44

45-57

TABLE OF AUTHORITIES

CASES

Avex v. Robbing, U.S. _, 117 8.Ct. 905 (1997)

California Department of Human Resources

Development v. Java, 402 U.S. 121 (1971)

Fitzpatrick v. Bitzer, 427 U.S. 445 (1976)

Fleiszia v. Board of Review,

412 Ill. 49, 104 N.E.2d 818 (1952)

Fusari v. Steinberg, 419 U.S. 379 (1975)

Jenkins v. Bowling, 691 F.2d 1225 (7th Cir. 1982)

Ohio Bureau of Employment Services v. Hodory,

431 U.S. 471 (1977)

Paschal v. Jackson, 936 F.2d 940 (7th Cir. 1991)

Pension Benefit Guaranty Corp. v. R.A. Gray & Co.,

467 U.S. 717 (1984)

United States v. Johnston, 268 U.S. 220 (1925)

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976)

STATUTES

42 U.S.C. § 503(a) (1)

42 U.S.C. § 1108(b), (f£),

see P.L. 102-164 and 102-107

Section 5401, Pub.L. 105-33, 111 Stat. 251.

U.S. Sup. Ct. Rule 10, 28 U.S.C.

820 ILCS 405/237

820 ILCS 405/242

820 ILCS 405/500.E

820 ILCS 405/701

Page(s)

+: Oe +.

2G, a3;

23, as, 29

bay Ses AS

iS, 29

i? , b8y ae

6, 20s as

passim

2-3

passim

5, 6

3, 6

STATUTES (cont’d)

820 ILCS 405/702

820 ILCS 405/601 i aes eee

820 ILCS 405/602

Mass. Ann. Laws ch. 151A, § 1(a)

Me. Rev. Stat. Ann. tit. 26, § 1043

Mich. Comp. Laws §§ 421.45 and .75

N.J. Rev. St. § 43:21-19(c) (1)

1995 NY S.B. 7957, Sec. 3 and 28

Ohio Rev. Code Ann. § 4141.01(Q)

R.I. Gen. Laws § 28-42-3(10)

Vt. Stat. Ann. tit. 21, § 1301(17) (B) and (C)

Wash. Rev. Code § 50.04.020

NJ Legis. 234 (1995)

REGULATIONS

20 C.F.R. § 640.1(a) (2)

20 C.F.R. § 640.3 (a)

MISCELLANEOUS

Advisory Council on Unemployment Compensation,

Defining Federal And State Roles

in Unemployment Insurance (Jan. 1996)

Advisory Council on Unemployment Compensation,

Unempl e nsuran a

enefi Financi Vv (Feb. 1995)

Appendix to Appellants’ Brief in Java,

No. 507 (U.S. Sup. Ct. 1970)

Congressional Research Service, Federal-State

m t m m (Sept.

Page(s)

ll,

16-17

11,

28,

MISCELLANEOUS (cont’d)

General Accounting Office, Unemployment Insurance:

Program's Ability to Meet Objectives Jeopardized,

GAO/HRD-93-107 (Sept. 1993) pe wis

Haber, Wm. & Murray, M., Unemployment Insurance

In The American Economy (1966)

U.S. Department of Labor, Unemployment Insurance

and Employer Layoffs, Occasional Paper 93-1 (1993)

2.6. Department of Labor, Unemployment Insurance

Legislative Policy: Recommendations for State

Legislation, 1962 (1962)

Vroman, Wayne, The Alternative Base Period

in Unemployment Insurance: Final Report,

Jan. 31, 1995

vii

Page(s)

25, 26

27, 36

> Py >|

a rs

STATEMENT OF THE CASE

I. Nature Of The Action

Respondent, Luella Pennington, and the members of the class

she represents, are claimants for unemployment insurance. They

brought this case against the Director of the Illinois Department

of Employment Security ("Director" of "IDES") to challenge one

aspect of the definition of "base period" found in section 237

Illinois Unemployment Insurance Act ("section 237" of "IUIA"), 820

ILCS 405/237. The "base period" is the time within which claimants

must have earned sufficient wages to qualify for unemployment

insurance benefits. The claimants argued that, by giving rise to

an unnecessarily long "lag period" (as described at p. 6 infra),

section 237 delays payment of benefits in violation of the "when

due" clause, which requires that a state’s unemployment insurance

law provide for "methods of administration ... reasonably

calculated to insure full payment of unemployment compensation when

due." 42 U.S.C. § 503 (a) (1).

In her original. petition, the Director sought review of the

two appellete court decisions in this case. The first of those

decisions, Pennington v. Didrickson, 22 F.3d 1376 (7th Cir. 1994)

("Pennington I"), App. 16-397, held that section 237 was subject

the constraints of the "when due" clause. As respects Pennington

. The claimants cite to: the Appendix bound with the

Petition For Writ of Certiorari (App."); the Petition itself

("Pet."); the Director’s Petition For Writ of Certiorari in No. 94-

592 ("1994 Pet."); portions of the record transmitted to the Court

of Appeals, including documents recorded on the district court’s

docket ("R."), the trial transcript ("Tr.") and plaintiff’s and

defendant’s trial exhibits ("P.Ex." and "Def. Ex."); and the

Respondents’ Appendix ("Resp. App."), which is bound with this

brief.

I, the Director’s petition is virtually identical to one the

Director filed in 1994, which this Court declined to grant.

Compare Pet. at 3-16 with Petition For Certiorari in No. 94-592 at

4-15; see 513 U.S. 1032 (1994) (denying certiorari).*? Yet the

Director did not even suggest reasons why this Court should grant

the writ to review Pennington I, when it would not do so three

terms ago.

The Director’s original petition also sought review of

Penninaton v. Doherty, 110 F.3d 502 (7th Cir. 1990) ("Pennington

II"), App. 1-15, which affirmed the trial court’s resolution of the

factual inquiry the Pennington I panel had instructed it to make .

See Pet. at 17-21. In that respect, however, the petition asked

this Court "to review evidence and discuss specific facts", United

States v. Johnston, 268 U.S. 220, 227 (1925), despite the

admonition in S. Ct. Rule 10 that "[a] petition for a writ of

certiorari is rarely granted when the asserted error consists of

erroneous factual findings or the misapplication of a properly

stated rule of law." U.S. Sup. Ct. Rule 10, 28 U.S.C. ("Rule 10").

Moreover, the original petition did not specifically invoke

even one of the reasons Rule 10 sets forth as "indicat [ive]" of the

type of "compelling reasons" that must be present to warrant an

order granting certiorari. Indeed, the Director acknowledged that

neither Pennington i nor Pennington II presents any conflict with

the decision of any other federal appellate court or any state

A typographical error in the Director’s petition

incorrectly cites the 1994 denial of certiorari as appearing at

Volume 573 of the U.S. Reports. Pet. at 1.

court of last resort. Pet. at 8 (Pennington I was a decision of

"first impression"); id. at 17-22 (criticizing Pennington II, but

not arguing that the ruling presents a decisional conflict within

the meaning of Rule 10(a)). Similarly, the Director implicitly

acknowledged that neither Pennington I nor Pennington II "decided

an important question of federal law that conflicts with relevant

decisions of this Court." S.Ct. Rule 10(c); see Pet. at 13, 14,

19, 21 (urging that the court of appeals’ reliance on various

rulings of this Court was misplaced, but not that the decisions in

Pennington I or Pennington II transgressed any such ruling).

Thus, despite the filing of the original petition, Mrs.

Pennington and the class had every reason to expect that, after

twelve years of litigation, this case would soon end with a

judgment in their favor. But the State of Illinois and other

sympathetic states then appealed to Congress to overturn Pennington

1. That appeal included a request that Congress not be restrained

by any "intellectual exercise." Statement by Day Gilbert ("Gilbert

Stmt.") at 5, Resp. App. 25. Congress accommodated that request by

enacting section 5401 of the Balanced Budget Act of 1997, Pub.L.

105-33, 111 Stat. 251, (the "anti-Pennington provision").

The anti-Pennington provision is the enactment of a lie, and

an expression of the government’s willingness to gut the most

critical public policies that protect our poorest fellow citizens.

See pp. 16-28 infra. We appreciate, however, that "judgments about

the wisdom of ... [the anti-Pennington provision] remain within the

exclusive province of the legislative and executive branches."

= on

Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717,

729 (1984). And though, by its terms and as confirmed by the

legislative history, the statute was expressly designed to overturn

the decision in Pennington I retroactively, this Court’s "cases are

clear that legislation readjusting rights and burdens is not

unlawful solely because it upsets otherwise settled expectations."

Gray, 467 U.S. at 729-30 (quoting Usery v. Turner Elkhorn Mining

Co., 428 U.S. 1, 15-16 (1976) (citations omitted)). Accordingly,

retroactive legislation is not unconstitutional so long as "the

retroactive application of the legislation is itself justified by

a rational legislative purpose." Fey ee We therefore

acknowledge at the outset that the anti-Pennington provision

eviscerates the claimants’ litigation position.

After twelve years of litigation, however, and on the verge |

of, what we believe, would have constituted important relief, we

take the opportunity this Court provides to file a brief in

opposition to the Director’s petitions, to set the historical

record straight as to the realities of Congress’s and the

President’s decisions to subvert the nation’s unemployment

insurance program so as to undermine a judgment that was critically

important to America’s poorest workers.

II. Statement Of Facts

The Director herself,. or her predecessors in interest,

stipulated to most of these facts in the trial court, in the

Stipulation of Fact ("Stip."). See Resp. App. at 1-20.‘

A. The Operation Of Section 237 Of The Illinois Unemployment

insurance Act

In Illinois, an eligible claimant can draw regular

unemployment insurance benefits during her "benefit year," which is

| the one-year period beginning with the Sunday of the week in which

| she first files a "valid claim" for benefits. 820 ILCS 405/242;

Stip. $4 A.3, Resp. App. 2; Pennington I, App. 18. To file a

"valid" claim, however, a claimant must have earned sufficient

wages during a year period called the "base period."® 820 ILCS —

6 The citations to Illinois statutes in the stipulation are

to "Illinois Revised Statutes" ("Ill. Rev. Stat."), a prior

codification of Illinois law that has been replaced by "Illinois

Consolidated Statutes" ("ILCS").

> To be eligible for benefits, a claimant must have earned at

least $1600 during the whole "base period" and at least $440

outside the calendar quarter in which (s)he earned the most wages.

820 ILCS 405/500.E; see Stip. 4 A.1, Resp. App. 1, Pennington I,

App. 18, n. 1. We call this the “earnings requirement."

Whether a claimant has sufficient wages in his base period is

resolved by a "finding" issued pursuant to Section 701 of the IUIA.

820 ILCS 405/701; see Stip. 4 A.2, Resp. App. 1. If a claimant is

monetarily eligible, he is said to have filed a "valid claim." 820

ILCS 405/242, 405/500.E; see Stip. at §¢ A.2, Resp. App. 1,

Pennington I, App. at 18.

That a claimant has filed a valid claim does not necessarily

mean that (s)he will receive benefits, however, because (s)he can

be disqualified based on a non-monetary "determination" issued

pursuant to section 702 of the IUIA, 820 ILCS 405/701; see Stip. at

{ A.2 n. 4, Resp. App. 2, when, for example, the claimant was

"discharged for misconduct connected with work" or "voluntarily

le[{ft] work without good cause attributable to the employl[er]."

See 820 ILCS 405/601, 405/602.

405/242, 405/500.E.; see Stip. 4 A.1, Resp. App. 1, Pennington I,

App. 18.

The claimants challenged section 237’s definition of the base

period because it included only "the first four of the last five

completed calendar quarters immediately preceding the benefit year"

(the "section 237 base period"). 820 ILCS 405/237; see Stip. 4

A.4, Resp. App. 2, Pennington I, App. 16-18. By that language,

section 237 skips both the calendar quarter in which the claimant

files his claim (the "filing quarter") and the preceding calendar

quarter (the "lag quarter"). See Stip. § A.5, Resp. App. 2,

Pennington I, App. 18; Tr. 16-19. Consequently, when IDES

determines whether a claimant has sufficient wages to qualify for

benefits, it disregards any wages earned by the claimant in both

the filing and the lag quarters (the "lag period"). Id.

Because of section 237, a claimant who lacks sufficient wages

in the first four of the last five completed calendar quarters

prior to his claim is ineligible for benefits when he first becomes

unemployed, even if he would have sufficient wages if his earnings

in the lag or filing quarter were counted toward eligibility.

Stip. at ¢ 6, Resp. App. 3. But if such a claimant simply waits

until his most recent wages fall into the first four of the last

five calendar quarters as defined by a later-filed claim, he

becomes eligible for benefits. Stip. at 44 7-8, Resp. App. 6.

Thus, the Director wrongly asserts that the class consists of

"claimants who are monetarily ineligible for benefits and who seek

eligibility status by including their earnings that fall outside

section 237’s base period." Pet. at 5. To make that assertion,

the Director must ignore -two of her own stipulations: the

stipulated class definition, which confirms that class members are

claimants who were denied "solely because part of all of their

wages, otherwise sufficient to satisfy Section 500(E) of the Act,

were disregarded by operation of section 237 of the Act", Stip. at

q{ B.3.a; Resp. App. 6 (emphasis supplied); and the stipulation that

wages that IDES initially disregards because they fall in a

claimant’s lag period, become qualifying wages by the passage of

enough time so that they fall within the section 237 base period

defined by the date of a claimant’s second, later-filed claim.

Stip. at 44 A.7 and 8, Resp. App. 3. In short, though IDES treats

class members as monetarily ineligible when they first apply for

benefits, those claimants become monetarily eligible by doing

nothing more than waiting until sufficient time has passed, after

which they can file a second, valid claim.

—

B. The Reason Section 237 Delays ie igs of Benefits: ae

Just as the Director ignores the fact that section 237 delays

adjudication of eligibility, she ignores the reason why it does so.

States have used one of three systems for compiling wage data. See

Stip. 4 C.1-6, Resp. App. 7-9. The most common system, and the one

used in Illinois, is the wage record system. Stip. at 4 C.2, Resp.

App. 7-8; Tr. 23. Until recently, many states used wage request

systems, Stip. at § C.4, Resp. App. 8, but none still does so.

Some states now use "movable" or "alternative" base periods

aa ee

("ABP"). Stip. at 9 C.6, Resp. App. 9; P. Ex. 2.°

a ne TREE EIEIO ENO

Under a wage record system, employers covered by the state’s

unemployment insurance statute report gross wages of all their

employees to the state unemployment security agency ("SESA") on a

quarterly basis. Stip. at § C.3, Resp. App. 8; Tr. 12, 16. In

contrast, under wage request systems, wage information was not

requested of a claimant’s employer until the claimant applied for

benefits, when his wages were required to adjudicate his claim.

Stip. at 7 C.4., Resp. App. 8; Tr. 11-16.

A wage record system is characterized by the existence of a

gap called the lag period, which falls between the end of a

claimant's base period and the beginning of that claimant’s benefit

year. Stip. at 4 C.3, Resp. App. 8; Tr. 15-20. The Director has

admitted that, in wage record states, "(t]his gap is necessary

because time is required for employers to report wages to the SESA

and for the SESA to make that information available in the local

[unemployment insurance] offices where claims are first taken and

adjudicated." Id.; see Pennington I, App. 36. In contrast, SESAs

in wage request states could request the most recent wage |

information for each claimant. Stip. at 4 C.5, Resp. App. 8; Tr.

15-16. Accordingly, in wage request states, there was no need for

a gap between the end of the claimant’s base period and the benefit

weer, Je.; Tr. 13-20.

The district judge used the term "ABP". See App. 50-51

(explaining operation of an APB). In its first opinion, the court

of appeals used the term "movable base period." See App. at 22 n.

3. In the second opinion, the court of appeals used the "ABP".

App. at 4. The claimants use both terms in this brief.

A movable base period system retains certain advantages of a

wage record system while minimizing the delay that is experienced,

because of the lag period, by those claimants who need their most

recent wages to qualify for benefits. See Stip. § C. 6.; Resp.

App. 9; Tr. 27. Under an ABP, the state uses a section 237 base

period except that, when an applicant has insufficient qualifying

wages in that base period, the SESA promptly redetermines the claim

based on the wages earned in the four completed calendar quarters

prior to the claim.’ Id.

C. Luella Pennington And The Class Members

Luella Pennington applied for unemployment insurance on June

7, 1984, and thereby created a base period from January 1, 1983 to

December 31, 1983. Stip., § B.2.b; Resp. App. 5. Pursuant to

section 237, the first and second calendar quarters in 1984 were

not in her base period, because those were her lag quarter and

filing quarters, respectively. Stip. at 4 B.2.b.-d; Resp. App. 5-

, Under most ABPs, when an applicant has insufficient

qualifying wages in the section 237 base period, the SESA

redetermines the claim based on the wages earned in the four

completed calendar quarters prior to the claim. Finding no. 31,

App. 50; see Me. Rev. Stat. Ann. tit. 26, § 1043; Ohio Rev. Code

Ann. § 4141.01(Q); R.I. Gen. Laws § 28-42-3(10); Wash. Rev. Code §

50.04.020; Tr. 25-27; Mich. Comp. Laws §§ 421.45 and .75. Four

states move the base period to include filing quarter wages earned

prior to the claim, if necessary, see Vt. Stat. Ann. tit. 21, §

1301(17) (B) and (C); N.J. Rev. St. § 43:21-19(c) (1); Mass. Ann.

Laws, 151A § 1; 1995 NY S.B. 7957, Sec. 3 and 28; see Stip. at 4

C.6., Resp. App. 9; Tr. 27.

Nine states (not eight as the Director contends, see Pet. at

9) use ABPs. See Finding no. 31, App. 50; Stip. 4 C.6, Resp. App.

9; Pennington I, App. 20. The Director miscalculates because she

counts New York as a state still using a wage request system. Pet.

at 9-10 n. 4. But New York switched from a wage request system to

an ABP in 1996. See 1995 NY S.B. 7957, Sec. 3 and 28.

6. Looking only to the wages Pennington had earned in calendar

_year 1983, the base period defined by her June 1984 claim,

Pennington was ineligible for benefits. Stip. at | B.2.c., Resp.

App 5. Accordingly, IDES denied that claim. Id.; P. Ex. 3.

Pennington remained unemployed, however, and filed a second

claim for benefits on or about October 5, 1984. Stip. at | B.2.e.,

Resp. App. 6. The base period determined by reference to that

October claim included the period from January 1 through June 30,

1984. Stip. at 4 B.2.f.; Resp. App. 6. That is, by the passage of

time, the quarters that had previously been Pennington’s filing and

lag quarters when she filed in June, became base period quarters

when she filed in October and, consequently, the wages that IDES

disregarded for purposes of her June claim, became qualifying wages

for purposes of her October claim. Stip. at § B.2.g., Resp. App.

6. She thus became entitled to receive benefits. Id.; see Pet. at

5 (although "Pennington was denied ... [unemployment insurance]

benefits upon filing her June 1984 claim because she had earned no

wages during her base period[,] ... [i]n October 1984, she [became]

. monetarily eligible for [unemployment insurance] benefits based

on her earnings in the first and second quarters ..., and she did

receive benefits for the benefit year beginning October 1984 after

filing a second ... claim").

To receive benefits, however, Pennington had to wait from June

7 to October 5, 1984, whereas, if IDES had used Pennington’s lag

quarter wages to determine eligibility, she would only have had to ~

wait from June 7 until July 2, 1984 to file a valid claim. Stip.

at 9 B.2.a.-g., Resp. App. 5-6; Tr. 70-71. Moreover, the Director

has stipulated that "[b]y definition, section 237 delays the date

on which each class member can file a valid claim in a manner

Similar to the delay experienced by Pennington as a result of

section 237." Stip. at § B.3.b, Resp. App. 7.

III. The "When Due" Clause

Until enactment of tbe anti-Pennington provision, the "when

due" clause "require[d] that a State [unemployment insurance] law

include provision for such methods of administration as will

reasonabl[y] insure the full payment of unemployment benefits to

eligible claimants with tthe greatest promptness that is

administratively feasible." 20 C.F.R. § 640.3(a). That standard

was derived from California Department of Human Resources Develop-

ment v. Java, 402 U.S. 121 (1971). The Secretary of Labor has also

interpreted the "when due" clause to confirm that "implicit in

prompt performance with respect to benefit payments is the

corresponding need for promptness by the State in making

determinations of eligibility." 20 C.F.R. § 640.1(a)(2). That

rule is required by this Court’s holding in Fusari v. Steinberg,

419 U.S. 379 (1975).

IV. The Course And Disposition Of The Proceedings

On April 11, 1994, in the first of two rulings in this case,

a Seventh Circuit panel held, unanimously, that section 237 defined

a "method of administration" that was subject to the "when due"

clause. Pennington I, App. 16-39. The Director had argued that

“section 237 functions as a measurement of each claimant’s

attachment to the work force ... fand]) that this function

demonstrates that section 237 is as much an eligibility provision

that defines the class of claimants as any of the state’s monetary

provisions, such as section 500E’s qualifying wages requirement."

App. at 36. But the court of appeals rejected that argument

because the Director "has conceded in more than one place that the

gap created by section 237’s base period, in which a claimani’s lag

quarter wages are not reported, ‘is necessary because some time is

required for employers to report wages and for the [state agency]

to make that information available in the local [unemployment

insurance] offices where claims are first taken and adjudicated."

App. 36 (citing Stip. 4 C.3, Resp. App. 8).

The literature concerning the history and purposes of the

unemployment insurance program confirms the appellate court’s

conclusion. See Haber, Wm. & Murray, M., Unem nsuran In

The American Economy ch. 11 at 175 (1966) (the "lag period between

the base period of earnings and the beginning of the benefit year

was necessary [in wage reporting states] in order to give a state

time to collect and post the quarterly [wage) information").

Accordingly, the appellate panel properly held that "section 237's

base period is essentially an administrative method employed to

accommodate the time needs of a wage record system." App. 36.

Having "reverse[d]) the decision of the district court that

section 237 is an eligibility provision as a matter of law," App.

39, the panel then remanded the case to the district court for

"factual findings and a determination of the issue of section 237's

EE meee

cae rm.

compliance with the ‘when due’ clause and corresponding

regulations." App. 38-39. .On remand, the district court found

that use of an ABP in Illinois would result in "a dramatic increase

in financial benefits to unemployed persons", App. 63 (emphasis in

original), in that each year, an ABP would pay an additional $30 to

$40 million in benefits, id., to "anywhere from 13,800 to 40,000

members of the plaintiff class", and that "even the lowest estimate

of 13,800 additional eligible claimants [per year] represents a

Significant increase in the number of claimants who would receive

benefits under an ABP." App. 62. The district court also found

that "an ABP results in prompter payment of benefits to both lag

quarter eligible and filing quarter eligible claimants." App. 64.°

The district court next considered the costs to IDES in

adopting an ABP. In doing so, it considered both the annual costs

of operating an ABP, and the one-time costs of converting to an

ABP. App. 56-58. As to both types of costs, however, it "used

only IDES’ cost estimates, which are significantly higher than the

plaintiffs’ ... [even though] IDES’ cost estimates may well be

inflated." App. 64. It did so, in part, because "using the

highest cost estimates should demonstrate most clearly whether the

costs outweigh the benefits to plaintiffs." App. 64. Despite

using IDES’s higher cost estimates, the district court concluded

. A study undertaken by the California Employment

Development Department (the "California study") shows that use of

an ABP in California would result in payment of between $36.5 and

$92.7 million in additional benefits to between about 30,000 to

50,000 claimants, and in prompter payment of between $121.1 and

$233.4 million. Resp. App. 39-44.

that IDES’ costs for implementing an ABP "are not so onerous as to

outweigh the benefits to plaintiffs." App. 65. The district court

"conclude[d)]) that section 237 violates the ‘when due’ clause

because it does not insure the greatest promptness in paying

unemployment insurance benefits that is administratively feasible",

id., and entered judgment for the claimants. App. 42.

In Pennington II, the court of appeals observed that the

district court’s opinion was "thorough and well-reasoned", App. 5,

and concluded that the district court had "correctly implemented

our mandate [in Pennington I])." App. 14.

ARGUMENT

q. The Anti-Pennington Provision Undermines The Central Purpose

Of The "When Due" Clause

In their appeal to Congress, the proponents of the anti-

Pennington provision (the "proponents") urged that Pennington I

"represents a 180-degree departure from the manner in which both

the federal government and states have construed the Social

Security Act, since the statute’s enactment more than 60 years

ago."” Doherty Stmt. at 1, Resp. App. 26. To support that

assertion, they argued that "(t]he United States Supreme Court has

held that the Social Security Act was intended to recognize the

importance of each state establishing its own eligibility criteria

’ The proponents contend that this "departure" from the

historical interpretation of the "when due" clause was wrought by

“unelected federal judges" intent on usurping the legislature’s

authority on "tax and spending policy." Doherty Stmt. at 1, Resp.

App. 26; see id. at 2, Resp. App. 27. But they offered not one

iota of support for this accusation against even one of the three

judges who sat on the Pennington panel, all of whom were appointed

by President Reagan.

for unemployment insurance." Id. at 2, Resp. App. 27. But while

"criteria for eligibility [are] largely determined by each state,

unemployment insurance is partly financed by the federal

government, which naturally has attached some strings to its

largesse ... [one of which is] section 303(a) (1) ... of the Social

Security Act[, the "when due" clause]." Jenkins v. Bowling, 691

F.2d@ 1125, 12286 (7th Cir. 1982).

Indeed, Pennington I is not only consistent with, but required

by two unanimous Supreme Court cases: California Department of

Human Resources Development v. Java, 402 U.S. 121 (1971) and Fusari

v. Steinberg, 419 U.S. 379 (1975). See Pennington I, App. 32-36.

In Java, this Court recognized that unemployment insurance was

designed both "to give prompt ... replacement of wages to the

unemployed to enable workers to tide themselves over, until they

could get back to ... work ... [and to] exert[] an influence upon

the stabilization of industry." 402 U.S. 131-32 (citations

omitted). Accordingly, the Java Court held that "’when due’ was

intended to mean at the earliest stage of unemployment that

payments were administratively feasible after giving both the

worker and the employer an opportunity to be heard." Id. at 131;

see also, Jenkins, 691 F.2d at 1229 (Posner, J.) ("Both the humane

(or redistributive) objectives of unemployment insurance and its

macroeconomic objective (dampening the business cycle by keeping up

the purchasing power of people laid off in a recession) require

that unemployment compensation be paid as promptly as possible

after the worker is laid off").

The "when due" clause requires not only prompt payment of

benefits but also prompt adjudication of claims. This Court made

that clear in Fusari, 419 U.S. 379, when it expressly rejected any

reading of the "when due" clause under which "benefits are not

‘due’ ... until administratively deemed payable." Id. at 388 n.

18. The Court reasoned that "such a definition of the ‘when due’

requirement of federal law would leave little vitality to Java and

would nullify the congressional intention of requiring prompt

administrative provision of unemployment benefits." Id.

Thus, the history of "when due" jurisprudence confirms that

Pennington I represented a federal court’s enforcement of a federal

statute, and belies the proponents’ argument that Pennington I

represents judicial encroachment on state prerogatives. With

enactment of the anti-Pennington provision, however, Congress has

declared that, from now on, the "when due" clause will assure

prompt payment of benefits only if states do not object.

II. Section 237 Is A Method Of Administration, Not An Eligibility

Criterion

A. Though the proponents of the anti-Pennington provision

hoped Congress would not be constrained by any "intellectual

exercise", Gilbert Stmt." at 5, Resp. App. 25, they tried to

provide some rationale for proposing to gut the policy of prompt

payment of unemployment insurance benefits. Because the "when due"

clause governs only the states’ "methods of administration" of

unemployment insurance programs, "applicable Federal laws provide

no authority for the Secretary of Labor to determine the

eligibility of individuals under a State law." a0 C37 Rf

ae ae ae eee em ee

ae’ Te

640.1(a) (2); see Ohio Bureau of Employment Services v. Hodory, 431

U.S. 71, 482-87 (1977). The proponents therefore urged that

section 237 is an eligibility criterion, not a method of

administration. See Doherty Stmt. at 1-2, Resp. App. 26-27;

Gilbert Stmt. at 3-4, Resp. App. 23-24.

As the court of appeals noted, however, the "truism [that the

when due clause governs administrative methods, not eligibility

criteria] simply begs the question and, consequently contributes

nothing to the inquiry before us." App. 27. Prior to enactment of

the anti-Pennington provision, the proper inquiry required a

determination of whether section 237 is a method of administration

or an eligibility criteria. The anti-Pennington provision resolves

that inquiry by dictating that base period definitions are not

methods of administration. In over twelve years of litigation,

however, no one - not the Director, nor the Secretary of Labor, nor

any of the judges or lawyers involved in this case - has ever

constructed a cogent argument that would suggest that the lag

period serves as anything other than a method of administration.

To press their argument that the lag period is an eligibility

provision, not a method of administration, the proponents

characterized the Pennington claimants as "individuals who would

not qualify using the first four of the last five quarters",

Gilbert Stmt. at 4, Resp. App. 24, and they contended that

Pennington I therefore "broaden[s] eligibility", Doherty Stmt. at

1, Resp. App. 26, to those not previously eligible. But that is

simply wrong. An eligibility provision "define[s] the class of

persons eligible for benefits." Hodory, 431 U.S. at 486-87. The

lag period, however, does not exclude claimants from eligibility;

it just delays the time at which the state will consider a

claimant’s most recent wages in determining his or her eligibility.

To argue the contrary, the proponents ignored the single most

important fact about the operation of the lag period: that the

Pennington claimants become eligible for benefits by doing nothing

more than waiting until sufficient time has passed to file a second

claim, since wages that are initially disregarded because they fall

in a claimant's lag period, become qualifying wages by the passage

of enough time so that they fall within the first four of the liast

five completed calendar quarters prior to the filing of the later-

filed claim. See Pennington I, App. 33-34.

Like the proponents in Congress, the Director argued in the

courts that section 237 is an eligibility criterion. But the court

of appeals rejected that argument because section 237 does not

concern "what earnings IDES will consider" to determining whether

benefits are due, as the Director contended, it only "determines

when IDES will count those earnings" and, thus, when benefits

become due." Pennington I, App. 33 (emphasis in original). Thus,

although Illinois’ base period delays the time at which the state

will count a claimant’s most recent wages toward eligibility, it

does not prevent a claimant from using those same wages so long as

he waits a sufficiently long time before filing a claim. Causing

a claimant to wait to receive benefits, however, is just what the

when due clause was designed to prevent. Java, 402 U.S. at 131-33.

ener

B. Eligibility criteria in unemployment insurance statutes

"measure a claimant’s ‘continued and current attachment to the

labor force.’" nnington I, App. 33 (quoting Fleiszig v. Board of

Review, 412 Ill. 49, 104 N.E.2d 818, 821 (1952)). The proponents

therefore urged that section 237 "(t]he Pennington alternate base

period would provide for the payment of unemployment benefits

to individuals with no established connection to the workforce."

Miller Stmt., Resp. App. 30; see also Doherty Stmt at 1, Resp. App.

26 (the lag period “ensures that unemployment insurance will be

available for workers with a genuine attachment to the labor force,

but not necessarily for those with only a marginal connection").

But that argument is not just wrong, it is perverse. Consider

the following table, which exhibits the operation of section 237 on

three claimants, each earning $5 per hour:

lst 2nd 3rd 4th 5th 6th 7th

Quart. Quart. Quart. Quart. Quart. Quart. Quart.

Wages Wages Wages Wages Wages Wages Wages

No. 1* 0 0 $440 $1160 0 0 0

No. 2** 0 0 0 $2600 $2600 0 0

No. 3*** 0Q 0 0 $2600 $3000 0 $3000

* Receives benefits by filing in the sixth quarter.

** Receives benefits only if he waits to file until the

seventh quarter.

*** Receives no benefits because he returns to work just

before beginning of 7th quarter.

By any measure of one’s attachment to the work force (e.g.,

amount of wages, hours worked, how recently the claimant was

employed prior to applying for benefits), Claimant No. 1 has the

most tenuous connection of the three claimants. Yet under section

237, he is awarded benefits in the sixth quarter. By the same

measures, if Claimant No. 2 applies for benefits in the sixth

quarter, he has a stronger and more recent attachment to the labor

force than Claimant No. 1 has when he files at the same time, but

Claimant No. 2 is denied benefits in the sixth quarter because of

the operation of section 237. If Claimant No. 2 waits and applies

again in the seventh quarter, however, he will then be granted

benefits, even though his attachment to the work force will have

weakened compared to when he first filed in the sixth quarter, just

after he lost his job. By every measure, including the fact that

he returned to work most promptly, Claimant No. 3 has the strongest

attachment to the work force. Yet, because of section 237, he is

the only one of the three claimants who receives no benefits at

all. Thus, in direct contrast to what any eligibility criterion

would do, section 237 "causes ... [claimants] with relatively

strong attachment to the work force to wait until that attachment

has weakened before they can receive benefits, and causes some to

receive no benefits at all (e.g., claimants who find employment

before the delay created by the lag quarter is over)." App. 33-34.

SC. Not only have the proponents failed to convincingly

suggest how the lag period could serve any eligibility purpose, the

have repeatedly conceded that the purpose of Illinois’ base period

is solely administrative, not substantive. For instance, in the

Pennington litigation itself, IDES admitted that the lag period "is

necessary because some time is required for employers to report

wages and for the [state agency] to make that informacion available

in the local [unemployment insurance] offices where claims are

first taken and adjudicated." App. 36. And in their submission to

the Subcommittee, the proponents said that whether states can

shorten their lag periods is dependent on whether "technology

permits states to collect and process wage information more

quickly." Gilbert Stmt. at 4, Resp. App. 24.

These concessions confirm what the court of appeals found:

that the lag period is "an administrative method employed to

accommodate the time needs of a wage record [data collection]

system. In a world of high-speed information exchange, the lag

quarter would not exist; yet an eligibility requirement like the

‘voluntary leaving’ provision [which disqualifies claimants who

leave work without good cause attributable to the employer] would."

Pennington I, App. 26-37. Now, however, by virtue of congressional

fiat, lag periods will not be "methods of administration" within

the meaning of the “when due" clause, even though, in fact, they

will still serve no purpose other than "to give a state time to

collect and post the quarterly [wage] information." Haber, Wm. &

Murray, M., Unemployment Insurance In The American Economy ch. 11

at 175 (1966). Indeed, the anti-Pennington provision will permit

states to employ even longer lag periods than the one used now in

Illinois.

III. The Secretaries of Labor Have Not Historically Treated The

Base Period As An Eligibility Criterion

The proponents also contended that "since the establishment of

the unemployment insurance system, the Labor Department ... has

considered a base period of the first four of the last five

quarters to be consistent with the [Social Security] Act." Doherty

Stmt. at 2, Resp. App. 27; see Gilbert Stmt. at 4, Resp. App. 24.

In fact, however, in 1962, the Secretary of Labor issued a policy

statement urging states to keep their lag periods "as short as

possible" because "unemployment insurance is designed to compensate

wage loss", Unemployment Insurance Legislative Policy:

Recommendations for State Legislation, 1962, Resp. App. 53, thus

confirming not only that lag periods should not unnecessarily delay

payment of benefits, but also that the Secretary has historically

treated lag periods as administrative methods, which are subject to

his regulatory authority, rather than eligibility criteria, as to

which he has no such authority. See Pennington I, App. 31.

The proponents relied on draft bills issued by the Secretary

of Labor in 1937 and 1950, which include a base period definition

like the one used in Illinois. From those draft bills, they

contended that "[t]hroughout the history of the unemployment

insurance program, determining the period that constitutes the base

period for unemployment insurance claims purposes has been one of

many eligibility criteria that federal law left to the states."

Gilbert Stmt. at 3, Resp. App. 23; see also Doherty Stmt. at l,

Resp. App. 26 (Pennington "represents a 180-degree departure from

the manner in which both the federal government and states have

construed the Social Security Act, since that statute’s enactment

more than 60 years ago").

But this Court has repeatedly refused to treat draft bills

even as interpretative rules to which courts should give some

deference. Hodory, 431 U.S. at 484-85; compare R. 98 Ex. A (the

1937 draft bill) at 25 with Java, 402 U.S. at 123 n. 1 (invali-

dating a provision that appears in the 1937 draft bill as violative

of the “when due" clause). Moreover, as the court of appeals

noted, the "draft bills do not ... directly address the issue here:

whether the lag period arrangement can be termed a matter of

eligibility as opposed to a matter of administration." Pennington

iI, App. 30 (footnote omitted). The court therefore concluded that:

the mere fact that the draft bills take notice of a lag

period similar to the ... [Illinois base period] does not

indicate that the lag period is in compliance with the

‘when due’ clause or the corresponding regulations. A

state must pay unemployment benefits ‘with the greatest

promptness that is administratively feasible.’ 29 C.F.R.

§640.3(a). Needless to say, what was ‘administratively

feasible’ when the draft bills were written - 1937, 1950,

and 1962 - is much different from what is

administratively feasible in today’s technologically

advanced world.

ig. at 30°33, 2. 4.

Though it is not true that the Department of Labor has

historically endorsed section 237-type base periods, it is true

that the Secretary filed an amicus brief in the court of appeals

supporting the Director. In response to the Secretary’s brief,

however, the court of appeals confirmed that it was "mindful of the

obligation to defer to the interpretation of an agency whenever

that interpretation can be said to embody a deliberate and

considered interpretation of the legislative intent." App. 29.

And it therefore "examined wi h great care the sources that, in the

agency’s view, evidence its longstanding view that issues of lag

periods are matters of eligibility and therefore are not subject to

the ‘when due’ clause." Id. Nonetheless, that court rejected the

Secretary’s interpretation because it did not "reflect the

deliberate attempt of the agency to implement the will of Congress

through the regulatory process." App. 28.

The court of appeals also noted that the Secretary’s position

was "developed in the heat of litigation." App. 28. In an amicus

brief filed in support of the Director’s petition, the Attorney

General of California relies on Auer v. Robbins, _ U.S. _, 117

S.Ct. 905 (1997), because in that case, this Court deferred to a

position taken by the Secretary in litigation. Id. at 912; see

Brief of Amicus Curiae States at 10. But in Auer, the Court noted

that "[t])here is simply no reason to suspect that the [Secretary’s]

interpretation does not reflect the agency’s fair and considered

judgment on the matter in question." Id. In contrast, after its

careful examination of the Secretary’s various promulgations, the

court of appeals concluded that these materials "cast a great deal

of doubt on the proposition that the agency ... consistently has

treated ... [lag periods] as a matter of eligibility." App. 31.

Thus, in contrast to Auer, there was ample reason for the court of

appeals to conclude that the Secretary’s interpretation did not

reflect the agency’s fair and considered judgment.

IV. The Anti-Pennington Provision Will Exacerbate A Deep

Decline In The Rate Of Unemployment Insurance Recipiency

At ° t T e on’s rest W

In Illinois alone,- the enactment of the anti-Pennington

provision will prevent a "dramatic" increase of $30 to $40 million

in unemployment insurance benefits to “anywhere from 13,800 to

40,000 unemployed persons." App. 63. Moreover, as confirmed by

the California study, because many other states use section 237-

type base periods, the potential nationwide effect of the

legislation is all the more striking.

The importance of those numbers can only be appreciated if

they are considered along with the data that confirms the steep

decline in unemployment insurance recipiency rates. In 1988, the

Congressional Research Service ("CRS") reported that "the share of

the unemployed receiving benefits declined to its lowest level in

program history, below one-third. In 1987, only 32 percent of the

unemployed received [unemployment insurance benefits]." Federal-

m n m m, (submitted to the House

Ways and Means Subcommittee on Public Assistance and Unemployment

Compensation) (Sept. 8, 1988), § 1.10 at 9. In 1993, in report to

the Chairman of the Senate Committee on Finance, the General

Accounting Office ("GAO") confirmed that, in contrast to "the 1973-

75 recession, [when] up to 50 percent of the unemployed were

receiving [unemployment insurance] benefits[,] ... about 39 percent

[received benefits] during the recession that begin in 1990 - one

fifth less." : Pf m’ ili M

Objectives Jeopardized, GAO/HRD-93-107 (Sept. 1993) at p. 12.

The 102nd Congress empaneled the Advisory Council on

Unemployment Compensation ("Advisory Council") to study the

nation’s unemployment insurance program. See P.L. 102-164.*° In

its 1996 report to Congress, the Advisory Council confirmed that,

in 1995, 14 states paid unemployment insurance to a quarter or

fewer of their unemployed workers, and that Illinois paid only

37.2% of its unemployed. Defining Federal And State Roles _ in

Unemployment Insurance, A Report to the President and Congress,

Advisory Council on Unemployment Compensation (Jan. 1996); see

Table 4-2 "Ratio Of Unemployment Insurance Claimants To Total

Unemployment, By State, 1995." And in her testimony before the

House Ways and Means Committee’s Subcommittee on Human Resources

(the "Subcommittee"), Commissioner Norwood said that the most

recent data shows that "only 37.4 percent of the unemployed ... are

receiving [unemployment insurance] benefits." Norwood Stmt. at 2,

Resp. App. 34.

Furthermore, the GAO’s study confirms that the decline in

recipiency rates for unemployment insurance is largely due to

competition among states to limit the costs of their program.

mpl n : m’ ili j iv

Jeo ized, GAO/HRD-93-107 (Sept. 1993) at p. 22. And

Commissioner Norwood warned that the Advisory Council’s "research

showed that the pressures under which many of the states were

operating encouraged a ‘race to the bottom,’ which affected ... low

™ The Council was chaired by Dr. Janet L. Norwood, the

former Commissioner of the Bureau of Labor Statistics.

wage workers[, and] ... that the competitive pressures among the

States to attract business could well lead to a continued decline

in the percentage of unemployed workers who receive benefits."

Norwood Stmt. at 4-5, Resp. App. 36-37.

A recent study concludes that "[t])he presence of an

alternative [movable] base period raises the number of monetarily

eligible claimants by 6 to 8 percent." Vroman, Wayne, The

Alternative Base Period in Unemployment Insurance: Final Report

(Jan. 31, 1995). Thus, enforcement of a federal standard of prompt

payment of unemployment insurance benefits to prevent states’ from

using long lag periods is critically important to any effort to

halt the decline in recipiency.

Also, “[t]he receipt of [unemployment insurance] benefits [is]

an important factor in keeping unemployed workers above the poverty

level." nem Insurance: P am’ Lli M

Objectives Jeopardized, GAO/HRD-93-107 (Sept. 1993) at 5. By

definition, the claimants in the Pennington class are the poorest

eligible unemployment insurance claimants. In her testimony,

Commissioner Norwood said that the unemployment insurance system in

some states "discriminates against the working poor, exactly the

group we most need to help in our society", Norwood Stmt. at 5,

Resp. App. 37, and that the problem of insuring the working poor

against unemployment will grow more acute "as an increasing number

of people move from welfare to jobs as the result of the recent

welfare legislation." Id.

Given this background, it is not surprising that, in its

February 1995 report to the President and Congress, the Advisory

Council recommended that "[aJ1l states should use a movable base

period in cases in which its use would qualify an Unemployment

Insurance claimant to meet the state’s monetary eligibility

requirements." Unemp1l ent nsuran in the Unite Ss:

Benefits, Financing, Coverage, Advisory Council on Unemployment

Compensation, Feb. 1995 at 17. Thus, by enacting the anti-

Pennington provision, Congress and the President not only rejected

a policy designed to protect the incomes of America’s poorest

workers, but they did so contrary to the advice offered by the very

body they had established to provide precisely such guidance.

Vv. The Use Of An Alternative Movable Base Period Would Neither

Substantially Increase The Costs Of Operating The Unemployment

Insurance Program Nor Unduly Burden Employers

As discussed above, the anti-Pennington provision cannot be

justified as consistent with the history or purposes that underlie

the nation’s unemployment insurance program. Accordingly, though

the constitutional tests for legislation are extremely forgiving

(see pp. 3-4, supra), if the proponents had offered no other

rationale for its enactment, the anti-Pennington provision would be

subject to attack as not "justified by a rational legislative

purpose." Gray, 467 U.S. at 730. But the proponents also contend

that alternatives to section 237 are too costly both to the states

and to employers. In fact, enactment of the anti-Pennington

provision saves states and employers very little, and it does so

not only by imposing far larger costs on the poorest unemployed

ed ee tt vo. ES eee

nee

workers, but also by ignoring the common interest in "dampening the

business cycle by keeping up the purchasing power of people laid

off in a recession." Jenkins, 691 F.2d at 1229; see Java, 402 U.S.

131-32 (the "when due" clause is designed, in part, to stabilize

industry).

Those arguments, however, question whether the anti-Pennington

provision is wise, not whether it is rational. And "judgments

about the wisdom of ... [the anti-Pennington provision] remain

within the exclusive province of the legislative and executive

branches." Gray, 467 U.S. at 729. That being said, however, we

believe it important to demonstrate just how unwise enactment of

the anti-Pennington provision was.

A. The Costs To State £ Movable Base Periods Are Minimal

The proponents contend that section 237 "streamlines adminis-

tration and minimizes the risk of fraud" because it allows for

verification of a claimant’s wages with data that "should already

be in the state’s computer system when the initial claim is filed."

Doherty Stmt. at 1, Resp._App. 26. But the testimony in Pennington

confirms that a movable base period can be most easily designed by

using the very same wage data - collected and processed in

precisely the same way - that Illinois does now. Tr. 32-33, 35,

36-37, 89. The only difference would be that, for claimants who

need their more recent wages to qualify, instead of enforcing a

mandatory delay on use of such wage data, the state would assess

eligibility as soon as the more recent wages were entered onto the

state’s data base. Tr. 57-8. Since exactly the same wage data

would be collected in exactly the same way, a movable base period

would neither affect the efficiency of the existing data collection

system, nor increase opportunities to commit fraud by submission of

improper wage statements, nor impose new paperwork burdens on

employers or the state. See Pennington II, App. 5, n. 3 (noting

that the district court did not consider the risk of increased

fraud to be a consideration because "IDES did not argue ... that

adopting an ABP would necessarily lead to an increase in the number

of fraudulent claims").

The proponents also argue, however, that the Pennington

decision "could have a costly impact upon ... state government [s]

and aggravate the federal deficit by hundred’s of million’s of

dollars." Doherty Stmt. at 1, Resp. App. 26. They estimate that

the administrative costs in Illinois would be "million’s of dollars

in one-time costs and $2.5 million in yearly operating expenses."

Id. at 2, Resp. App. 27; see Gilbert Stmt. at 3, Resp. App. 23

(quantifying the one-time costs at $13 million). They estimate

trust fund outlays for additional benefits of 1.5%; but note one

study that, they claim, indicates that alternate base periods could

"raise state Trust Fund outlays by four to six percent." Doherty

Stmt. at 3, Resp. App. 28; Miller Stmt. at 1, Resp. App. 30. From

these estimates, they contend that trust fund outlays for a movable

base period would be between $100 to $400 million over 8 years

which, they assert, would trigger tax increases or rising deficits.

Id. From all these figures, the proponents conclude that

Pennington I will "cause nationwide disruption in the various

states’ unemployment compensation system." Doherty Stmt. at 4,

Resp. App. 29.

Even using Illinois’ inflated cost estimates, however, the

district court concluded that IDES’ costs for implementing an ABP

"are not so onerous as to outweigh the benefits to plaintiffs."

App. 65. Moreover, Illinois’ estimates are grossly inflated.

First, as accurately described by the court of appeals, the

claimants’ evidence supports a narrowly-based challenge to the

section 237-type base period; not a challenge based on any

alternative base period that any litigant might conceive. App. 22-

«Oe Pa Furthermore, as the proponents concede, nine states

already use movable base periods. Yet the sky has not fallen in

any of them. Indeed, the Advisory Council concluded "that advances

in technology have made it feasible for all states to use the most

recently completed quarter when determining benefit eligibility."

Coverage, Advisory Council on Unemployment Compensation (Feb. 1995)

at 16. Also, the provision that the Supreme Court struck down in

Java was used in 48 states. See Appendix to Appellants’ Brief in

Java, No. 507 (U.S. Sup. Ct. 1970) at 69-70. Yet the proponents

offer no evidence that compliance with Java disrupted the nation’s

unemployment insurance program at all.

Furthermore, the Department of Labor has received, but not yet

published, a report on administrative costs of an alternative base

period. From speaking to the authors of that report, we have

confirmed that Illinois’ cost estimates are wildly inflated.

Illinois’ estimates of the administrative costs of a movable

base period include unnecessary additional costs for two

components: one was a “reachback" system’, but the most costly was

a wage request system to obtain wage data before it is reported in

the normal manner. The evidence at trial confirmed that if

Illinois did add a wage request component to a movable base period,

that alternative would be "administratively feasible" in the sense

that, if there was no cheaper alternative, the costs of those

systems would be worth the benefits they would generate to the

claimants. Tr. 78-79; 88-89; 700-701. But, in Illinois, the

marginal benefits of adding a wage request component are too small

to justify its greater expense over the alternative of simply using

" The district court found that "[{i]f IDES implements an

ABP, it intends to include a ‘reachback’ system in order to

identify ati undetermined number of me vers of the plaintiff class

and pay them benefits they were denied under the present system,

even though neither ... [of the alternatives for ABPs that

plaintiffs suggested] require it." Finding no. 40 at App. 53

(citations omitted). Though the Eleventh Amendment to the U.S.

Constitution bars federal courts from ordering IDES to reachback

prior to the date of the court’s "determination of ...

wrongfulness", Fitzpatrick v. Bitzer, 427 U.S. 445, 451 (1976); see

Paschal _v. Jackson, 936 F.2d 940 (7th Cir. 1991), the Director

argued that a reachback system was necessary because an ABP might

"not be up-and-running... [when] the requisite statutory change is

passed." R. 209 at 28-29. But no “statutory change" is necessary

to effect relief either. See Pennington I, App. 25-26.

Nonetheless, the district judge credited the Director’s

argument by construing it as the "belie[f that] a reachback system

is necessary because ... [IDES] cannot be certain that any new

system would be in place in a timely manner, and thus it would have

to pay retroactive benefits for the period from the date the new

system should have been operational to the date the new ¢vstem is

actually operational." Finding no. 40 at App. 54 (citations

omitted). But New Jersey instituted a movable base period using

the most recent completed calendar quarter immediately upon

enactment of the statutory change requiring it to do so. See NJ

Legis. 234 (1995).

the most recent wage data when it is reported in the usual course.

Id. Thus, while I! inois cculd enhance a movable base period

system marginally by incorporating a wage request component, the

"when due" clause does not require that it do so. If the

unnecessary costs of wage request and "reachback" systems are

eliminated from Illinois’ estimates, the one-time costs of adopting

a movable base period drop $7.1 million, from $13.3 million to $6.2

million, and the yearly operating costs drop $2.4 million, from

$2.8 to a meager $400,000. See P.Ex. 23 at 29, P.Ex. 24 at 2, 13,

P.Bx. 25 at 24, FP. Ex. 26 at 4.

As for trust fund outlays, the evidence at trial confirmed

that a movable base period in effect in Illinois during 1986 would

have paid a substantial proportion of about 23,000 additional

claimants approximately 13.6 million additional dollars, and

approximately 13,000 claimants would have been paid benefits

sooner. In 1994, the Director estimated that the additional

benefits paid to claimants would be about $30 to $40 million a

year. See P. Ex. 22. The Director’s "high side" estimate of the

trust fund costs is now $100 million annually. Doherty Stmt. at 3,

Resp. App. 28. But that figures assumes that, because the

percentage of claimants who receive benefits would increase by as

much as 6% if the state used an alternative base period, the trust

fund outlays would also increase that much. Id. That assumption

is unquestionably wrong, however, since the vast majority of

claimants who would benefit from a movable base period are those

who would receive at or near the minimum benefit amount.

Moreover, the assurance in the pre-amendment "when due" clause

that states would honor the claimants’ interest in prompt payment

of benefits necessarily meant greater outlays from the trust fund.

But since "the congressional objective of getting money into the

pocket of the unemployed worker at the earliest point that is

administratively feasible ... is what the Unemployment Insurance

program was all about", Java 402 U.S. at 135, to complain that

states were obligated to pay benefits promptly is to complain of

the very purpose of the unemployment insurance system itself. And,

conversely, to amend the "when due" clause to protect states from

paying benefits promptly is to gut the central public policy that

underlies the nation’s unemployment insurance program.

Indeed, in her testimony before the Subcommittee on behalf of

Illinois’ Governor, Jim Edgar, the Director conceded that Illinois

was not acting primarily in its own interest by urging enactment of

the anti-Pennington provision, but that instead, it was promoting

the interests of Illinois’ employers. Doherty Stmt. at 1, Resp.

App. 26 ("Unemployment insurance is funded almost exclusively by

employers. In Illinois, it is funded 100 percent by employers").

Yet, as confirmed below, the costs to employers are not only

minimal, but entirely fair.

B. The Costs To Employers Of Movable Base Periods Are Also

Minimal

Using the estimate that recipiency would increase by as much

as 6% under an alternate base period, Mr. Miller, the one employer-

proponent, assumed that taxes on employers would increase by that

same rate, requiring payment of as much as $40 million in

additional taxes each year. Miller Stmt. at 1, Resp. App. 30. As

noted, however, since the vast majority of claimants who would be

benefitted by a movable base period are those who would receive at

or near the minimum benefit amount, the percentage rise in

recipiency is larger than the percentage rise in trust fund

outlays. And since taxes are related to trust fund expenses, not

recipiency, they would not rise by 6% either.

Mr. Miller also urged that his company provides long-term,

stable employment. Id. If that is so, however, his workforce does

not include Pennington class members since they are, by definition,

those who have only recent earnings available to qualify for

benefits. Moreover, since the tax system in Illinois, like most

states, is experience rated, employers who do not have a

substantial unemployment insurance claims experience, pay less

taxes than employers (such as seasonal businesses) that provide

shorter, less stable employment. Thus, if we take Mr. Miller at

his word, he has little, if any concern that his company will be

burdened by whatever tax increase arises as a result of the

Pennington decision.

Moreover, for many years, the employers who do employ

Pennington class members have not had to finance unemployment

insurance to pay benefits to the Pennington claimants. Those

employers have been permitted to escape that part of the excise tax

they were supposed to pay for use of the nation’s labor supply.

Indeed, a study by the U.S. Department of Labor, using data from

Illinois, concludes that certain unscrupulous employers obtain a

form of subsidy by laying off workers while their wages are still

within the lag period, thereby avoiding the charge that would

Otherwise be associated with those workers’ unemployment insurance

claims. Unemployment Insurance and Employer Layoffs, Occasional

Paper 93-1, U.S. Dept. of Labor (1993). The researchers estimated

that "27 percent of all (UI chargeable) layoffs for a 4-5 quarter

period were free layoffs to the firms initiating the layoffs

{and that] the percentage of layoffs that are free varies from only

13 percent for the largest firms to 39 percent for construction

firms." iG. at xiv. They concluded that "this {unemployment

insurance] subsidy actually tends to destabilize rather than

Stabilize employment." Id. at 3. The GAO drew the same conclusion

in its 1993 report to the Chairman of the Senate Committee on

Finance. Unemployment Insurance: Program's Ability to Meet

Objectives Jeopardized, GAO/HRD-93-107, at 5 (Sept. 1993) (Illinois

"officials ... said some employers control employee work schedules

and earnings to ensure that they do not meet the qualifying

requirements") .

Thus, by enacting the anti-Pennington provision, Congress has

decided to undermine a 60-year old policy of paying unemployment

insurance benefits as promptly as possible because some employers

who hire the nation’s most vulnerable workers prefer not to pay

their fair share of the costs of unemployment when they lay those

workers off. Moreover, to effectuate that purpose, Congress lied

by saying that base period definitions are not methods of

administration when, in fact, they could be nothing else.

CONCLUSION

Congressional enactments must be obeyed as if they were wise

and true even if they are neither. Accordingly, the anti-

Pennington provision compels the Court to grant the Director’s

supplemental petition for certiorari.

JEFFREY B. GILBERT

Counsel of Record

Johnson Jones Snelling

Gilbert & Davis

36 S. Wabash

Suite 1310

Chicayo, IL 60603

(312) 578-8100

ROBERT E. LEHRER

Lehrer & Redleaf

205 W. Monroe Street

Chicago, Illinois 60606

(312) 332-2121

Attorneys for Respondents

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.