Amicus Curiae Brief — California Department of Human Resources Development v. Java

* Page

ARGUMENT 2

a a 41335 Cal. Unemp. Ins. Code Is In Conflict With

2 uche Of The Social Security Act 4

"9, § 1335 Cal. Unemp. Ins. Code Is In Conflict With The

Due Process Clause 13

occur 19

Oitations

2 D.C. Compensation Board v. Hahn, 399 F.2d 987

_ (C.AD.C., 1968) 10

eee Lumber Co. v. Rowley, 326 U.S. 295 (1945) . 13

| Goldberg v. Kelly, 397 U.S. 254 (1970) 13, 14-15, 16, 17, 18, 19

© Liner v. Jafco, 375 U.S. 301 (1963) 3

"Nash v. Florida Industrial Commission, 389 U.S. 235

GS

| Sniadach v. Family Finance Corp., 395 U.S. 337

> (1969) 13-14, 15, 16, 17, 19

Steward Machine v. Davis, 301 U. S. 548 (1987) sesso. 4

j gr .:

i -$503(a) (1) of the Social Security Act, 742 U. S. C.

E 508 (a) (1) 3, 5, 7

Onlifornia Unemployment Compensation Code:

9977 7

$978 7

§ 1240 7

$1275 7, 16

§ 1281 *

§ 1335 2, 3, 4, 8, 9, 10, 11, 12 16

§ 1375 — 2

§ 46-311 District of Columbia Code — 1

MISCELLANEOUS:

Burns, Unemployment Compensation and Socio-

Economic Objectives, 55 Yale L.J.1 (1945) . . . 9.10

79 Cong. Rec. 5468 (1935) 9, 11, 18

Hearings on S. 1130, 74th Cong., Ist Sess. (1935) 10,11

H.R. Rep. No. 615, 74th Cong., Ist Sess. (1935) ............ 6,9

Katona, et al., Survey of Consumer Finances (1970) , g

Note, Charity versus Social Insurance in Unemploy-

ment Compensation Laws, 73 Yale L. J. 357 (1968) ...... 6.7

Report to the President of the Committee on Economie

Security (1935) 2-3, 5, 6, 16

S. Rep. No. 628, 74th Cong., Ist Sess. (1935) . . 5,9

Statistical Abstract of the United States, 1970................ 6

U.S. Dept. of Commerce, Bureau of the Census, Current

Population Reports, Series P-60, No. 75 (Dec. 14

1970) 6

U.S. Dept. of Labor, Bureau of Labor Statistics, Em-

ployment and Earnings, Vol. 17, No. 6 (Dec. 1970) .... 6

U.S. Dept. of Labor, Bureau of Labor Statistics, Spring

1970 Cost Estimates for Urban Family Budgets (Dee.

21, 1970) 6

US. Dept. of Labor, Bureau of Manpower Administra-

tion, Unemployment Insurance Statistics (March

1970) 8

Witte, The Development of the Social Security Act

(1963) 10

Supreme Court of the United States

OCTOBER TERM 1970

No. 507

CALIFORNIA DEPARTMENT OF

HUMAN RESOURCES DEVELOPMENT, et al.,

Appellants,

v.

JUDITH JAVA, et al.,

Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE NORTHERN DISTRICT

OF CALIFORNIA

BRIEF FOR THE AMERICAN FEDERATION

OF LABOR

AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

AS AMICUS CURIAE

This amicus brief in support of the position of the

Appellees is filed by the American Federation of Labor

and Congress of Industrial Organizations (AFL-CIO), a

federation of one hundred and twenty-one national and in-

ternational unions having a total membership of approxi-

mately thirteen and one-half million working men and

women, with the consent of the parties, as provided for in

Rule 42 of the Rules of this Court.

Unemployment compensation was designed to protect

“industrial workers ordinarily employed,’’ Report To The

0

—

President Of The Committee On Economic Security, 13

(1935). That, of course, is an accurate description of the

great majority of the members of the Federation’s affiliates,

The fact that the instant case promises to have a substantia]

impact on the manner in which unemployment compensa.

tion is administered, is, therefore, more than sufficient cause

for the AF L- CIO to be vitally concerned as to its outcome,

But in this instance the practical importance of the question

presented does not exhaust organized labor’s interest in the

proceeding. For § 1335 of the California Unemployment

Insurance Code, the provision overturned by the court be.

low (A. 133-140), is not based on a valid neutral principle

it is based on the principle that the entire costs of litigation

delay incident to an appeal of an initial eligibility deterni-

nation shall be borne by the unemployed. Thus, 6 135

discriminates against workers, as a class, and in favor of

employers, as a class, without any rational basis, thereby

distorting the basic protective purposes of the unemploy-

ment compensation law. This being so, we have sought this

opportunity to present the Court with an expression of

our views.

ARGUMENT

Litigation is a method for determining whether the status

quo ante shall be changed. The impetus for a judicial or

administrative proceeding is the plaintiff’s demand that the

defendant change his course of conduct by taking certain

specific actions and the defendant’s refusal so to do. As

California properly emphasizes (Cal. Br. 6-7), such de-

terminations take time, often in considerable amounts. De-

lay is thus an inherent cost of this method of dispute

settlement. Who shall bear that cost is, therefore, of critical

significance. The legal rules which govern that determina-

tion are those which set the terms upon which interim relief

pending a final decision on the merits is available. Initially,

the costs of delay are on the moving party. The preliminary

injunction shifts those costs to the defendant. Moreover,

in a system providing for appeals the costs of delay are on

the appellant. A stay shifts those costs to the appellee. Be-

cause of its cost-shifting function, interim relief is often

more important in practical terms than the final determina-

3

tion on the merits, of., Liner v. Jafco, 375 U.S. 301, 307-308

(1964).

The instant case tests the validity of the procedure

California has adopted to allocate the costs of delay incident

to an employer appeal from an initial determination, made

“after all parties have been heard’’ (A. 137), that a former

employee is eligible for unemployment compensation. Sec-

tion 1335 of the California Unemployment Compensation

Code provides that once such an appeal is filed no benefits

shall be paid pending the appellate decision; in other words

§ 1335 provides for an automatic stay of the initial determi-

nation. The court below held that this stay provision is in

conflict with both § 503 (a) (1) of the Social Security Act,

42 U.S.C 503(a)(1), which requires state unemployment

compensation systems to be administered in a manner

“reasonably calculated to insure full payment . . when

due, and the Due Process Clause (A. 138-140).

The procedural setting of 5 1335 is succinctly stated in

the lower court’s decision (A. 133-137):

‘‘A claimant for unemployment insurance benefits

must initially file Forms DE 1101, 1426 and 3893. These

forms, taken together, apprise the eligibility inter-

viewer of the basis of the claim, the name of the claim-

ant’s previous employer, the reason for his no longer

working, his work experience, and so on. The question

most frequently basic to disputed cases, i.e. the claim-

ant’s reasons for no longer working, is answered on

DE 1101 and copies of this form are immediately sent

to the previous employer for verification. The employer

is then bound to submit, within ten days, ‘any facts

then known which may affect the claimant’s eligibility

for benefits.’ Calif. Unempl. Ins. Cde. § 1327. If the

employer raises an issue as to eligibility, the claimant

may then be asked to complete Form DE 4935, which

asks for detailed information about the termination of

claimant’s previous job.. The interviewer has, ac-

cording to the Local Office Manual used in California,

the duty ‘to seek from any source the facts required to

make a prompt and proper determination of eligibility.’

The actual decision may be suspended an additional

ten days to get further information. If employer state-

ments leave certain questions unresolved, the employer

— ——̃ ¶—

4

‘must be given an opportunity to provide additions

information.’ L. O. M. $§ 1400.3; 1400.5 . . Interested

persons must be allowed to ‘confirm, contradict, 19

or explain any evidence [which is relevant ].“ L. O

§ 1404.4.

The eligibility interviewer must, then, consider the

evidence presented by all sides and make a ‘determing.

tion’ or ‘determination ruling’ as to eligibility. ‘The

determination is the point at which any issue Dea

claimant’s eligibility is decided and fulfills fn

ment’s legal obligation to insure that lien a are

= promptly if claimant is eligible.’ L. O. M. 59

ayments begin upon this decision.

Form DE 1000, upon being filed [however] halt bap.

ments... nerally after two payments have =

made... [NJo hearing is held; no chance is given the

claimant to rebut, even in writing, new information

offered by the appellant . . [T]he arrest of *

continues for a median period of seven wee

In contrast, there is no provision in the California law

for interim relief in those cases in which the initial deter.

mination is adverse to a claimant. And the context would

appear to preclude such a provision. For a mere rejected

claim of entitlement does not seem a sufficient basis for

the payment of funds which are reserved by law for a de-

limited group. The result of § 1335 is, therefore, that on

an appeal from an initial determination, when a claimant

is the appellant, appellants bear the costs of delay; yet

when a claimant is an appellee, appellees bear these costs,

Thus, the purported ‘‘balance’’ California has struck (Cal.

Br. 9-10) is not based on a neutral principle for distributing

the costs of litigation delay—it is based on the principle

that in each instance the entire burden of those costs shall

be borne by the unemployed. This is contrary to the require-

ments of §503(a)(1) and due process—as we shall now

demonstrate.

1. § 1335 Cal. Unemp. Ins. Code Is In Conflict With

§ 503(a)(1) Of The Social Security Act.

(a) The fundamental federal standard, cf., Steward

Machine v. Davis, 301 U.S. 548, 594 (1937), that unemploy-

ment compensation shall be administered in a manner

‘reasonably calculated to insure full payment . . when

due“ prohibits an automatic stay of a determination favor-

ing eligibility, rendered by the state after all parties have

been heard [and the relevant] evidence has been coll ”

(A. 187). There is no statement of the precise ambit of the

limitation imposed by §503(a)(1). As California notes

(Cal. Br. 7) the legislative history is ‘‘scant’’ in the ex-

treme. In light of the basic policies of the Social Secu-

rity Act, however, it is quite clear that Congress’s intent

was to insure that there would be a prompt determina-

tion, after a hearing open to all parties in the event of a

contest, which would establish the claimant’s ‘‘contrac-

tual right, ef., Report To The President Of The Commit-

tee On Economic Security, 13 (1935), to benefits. At that

point, a firm and rational basis having been supplied, com-

tion is ‘‘due’’ and full payment is required as a matter

of right. In terms of the reasoning suggested in the intro-

duction, pp. 2-4 supra, 5 503(a)(1) provides that the costs

of litigation delay incident to a prompt initial hearing,

open to all parties, shall be borne by claimants; but that

after that hearing the costs of further delays shall fall on

appellants, without regard to whether they are employers

or claimants, and may not be imposed upon the unemployed

in all cases.

(b) Unemployment compensation is designed to provide

the displaced industrial worker ordinarily employed,

Committee On Economic Security Report at 13, with eco-

nomic ‘‘security during the period following unemploy-

ment,“ in order to maintain purchasing power at times

when most needed and to encourage the regularization

of employment,’’ S. Rep. No. 628, 74th Cong., 1st Sess., 12,

16 (1935). Prompt provision of economic security is the key-

stone of the plan. Maintenance of consumer purchasing

power to arrest a downward economic spiral, and en-

couragement of the pursuit of job opportunities to stabilize

the labor market is dependent upon the payment of benefits

at the earliest practicable moment after claims are made,

and not after a substantial period of time has elapsed. For

Congress’s premise was that the benefits paid were not to

provide a comfortable superfluity, but to ‘‘enable workers

who lose their jobs to tide themselves over . . . without hay.

ing to resort to relief,“ H.R. Rep. No. 615, 74th Cong, ig

Sess. 7 (1935). As this Court noted in Nash v. Florida In

dustrial Commission, 389 U.S. 235, 239 (1967) the unem.

ployed are of modest means, have heavy responsibil.

ties, and risk financial ruin“ if there is a ‘‘severance of

[the] sustaining funds’’ provided by compensation.

Despite the soothing assurances offered by California

(Cal. Br. 14-15, 17, 22-24), and the amici supporting its

position, e.g., Southern California Edison Co. Asmicys

Brief at 11-14, the available statistical evidence demop.

strates that today, as in 1935, prompt payment of compen.

sation is required to assure economic security to the aver.

age industrial worker ordinarily employed,“ Committee

On Economic Security Report at 13. The mean hourly wage

of the rank and file worker as of November 1970 was $3.29

an hour, i.e. approximately $6,500 to $7,000 a year, U.S.

Dept. of Labor, Bureau of Labor Statistics, Employment

and Earnings, Vol. 17, No. 6, p. 74, Table C-2 (Dec. 1970).

Typically, that worker is the sole support of a family of

four.“ The latest government estimate places a lower“

weekly budget to feed, shelter, clothe and provide medical

care for such a family at $90 a week, U.S. Dept. of Labor,

Bureau of Labor Statistics, Spring 1970 Cost Estimates

For Urban Family Budgets, Table 1 (Dec. 21, 1970). But

the median liquid assets of that family, available to meet

an emergency which cuts off the flow of income, is $260,

Katona, et al., Survey of Consumer Finances p. 100, Table

6-3 (1970). Thus, the typical industrial worker has funds to

tide him over for only three weeks of unemployment.

The policy favoring prompt payment does not stand

alone. Unemployment compensation does not provide

‘‘social insurance,“ see, Note, Charity Versus Social In-

surance In Unemployment Compensation Laws, 73 Yale

1 There are 39,303,000 families in the United States and 9,136,000

unrelated individuals. The average family has 3.54 members. Sta-

tistical Abstract of the United States 1970, p. 35, Table 40. In

over 55% of families only one spouse is an income earner, US.

Dept. of Commerce, Bureau of The Census, Current Population

Reports, Series P-60, No. 75, p. 55, Table 24 (Dec. 14, 1970).

7

LJ. 357 (1963) for every citizen nor does it cover all risks

of those whom it does protect. To be eligible the claimant

must have sufficient earnings in the base period to demon-

sirate an attachment to the labor market, see, § 1275 Cal.

Unemp. Ins. Code, and his unemployment must be involun-

tary, see, id. at § 1240. Moreover, California, in common

with most states, has an experience rating system which

provides that an employer’s tax payments to the Fund shall

with the number of his former employees who qualify

for benefits, see, id. at §§ 977, 978. These two features of the

unemployment compensation system require procedures for

determining eligibility at which the claimant’s former em-

ployer may be heard. This is necessary to carry out the in-

tent of the law, to insure that the fund is not depleted by

improper payments, and secondarily to safeguard the lim-

ited interest of former employers.

Section 503(a)(1) of the Soeial Security Act resolves

these competing considerations by mandating prompt de-

terminations of eligibility, after all parties are heard, which

establish the claimant’s contractual right to benefits, thereby

making full payment to him due.“ The California experi-

ence makes it plain that this resolution of the relevant in-

terests provides the optimum solution to the problem pre-

sented.

As the court below recognized, the California law pro-

vides for an initial determination, within 21 days of the

filing of a claim (A. 128-131), after ‘‘all parties have been

heard [and the relevant] evidence has been collected“

(A. 136-137). This procedure is effective in insuring that

benefits are limited to eligible claimants. In 1969 there

were 395,740 initial determinations in favor of claimants.

During the same period 113,395 initial claims were dis-

allowed because of insufficient base period wages, and

139,274 claims were disallowed because the claimants had

left their last employment under disqualifying conditions.

Employers appealed 8,315 of the favorable determinations,

and 5,325 of these appeals, 64% of the total, resulted in

afirmance of the finding of eligibility. Appellant’s Juris-

dictional Statement, App. C. p. 14. Thus, the overwhelm-

ing preponderance of ineligible claimants, 98.2% of the to.

tal, are screened out at the initial determination stage. Th,

system is not dependent on further hearings to limit the

payment of benefits to those who are eligible.

The record also demonstrates that stays pending em.

ployer appeals are not necessary to safeguard against de.

pletion of the Fund. In 1969 abolition of the stay procedure

would have resulted in payments of approximately

000 to claimants later held ineligible, Juris. State. App.

C, at 14-15.* The loss to the Fund would have been on the

order of $350,000, however, for California states that ip

the period 1965 to 1969 it recovered 64% of ‘‘benefits paid

to claimants not eligible,’’ ibid. In 1969 California collected

$587,122,000 in unemployment taxes and interest. And the

Fund’s reserves stood at $1,304,868,000, which represented

a one year increase of $170,354,000. U.S. Dept. of Labor,

Bureau of Manpower Administration, Unemployment In

surance Statistics, Table 6 (March 1970). Abolition of the

stay requirement would, therefore, result in a loss equal to

06% of income, .03% of reserves, and .2% of one year’s

increase in the reserve. Thus the Fund’s solvency is assured.

And the spectre of a tax increase if the decision below is

affirmed is wholly illusory.

Finally, it is plain that §1335’s stay provision is not

necessary to insure former employers an adequate oppor-

tunity to protect their experience ratings. California law

allows such employers a full opportunity to be heard prior

to the initial determination (A. 135-137). Moreover

§ 1335(b) provides:

„If [a] determination [in favor of a claimant] is

finally reversed, no employer’s account shall be charged

with benefits paid because of that determination.“

Thus elimination of the stay procedure does not even

touch, much less harm, the limited financial interest of

former employers. And, of course, § 1335 (b) by itself in-

sures that such employers will continue to have a sufficient

2 There were 2,990 successful employer appeals, the average bene-

fit paid was $52 a week, and the median time for an appeal was

6 weeks.

economic interest to motivate them to appeal when there is

a substantial allegation of error at the initial stage.

The foregoing demonstrates that a stay pending an em-

ployer appeal from a determination reached after full

hearing does not significantly further sound administra-

tion of unemployment compensation. In contrast, such

stays undermine, to a marked degree, the basic objectives

of the law. The median time necessary to hear and decide

an employer appeal in California is 6 to 7 weeks (A. 49;

Juris. State. App. C. p. 15) and the median period of un-

employment is 9 weeks (A. 139). Assuming a random dis-

tribution, approximately half of those found eligible on

appeal will receive their benefits after they have regained

employment. That result is directly contrary to Congress’s

desire to provide compensation ‘‘during the period follow-

ing unemployment when the unemployed are seeking an-

other job or waiting for a return to their old positions, S.

Rep. No. 628 at 12. Moreover, the typical industrial worker

has sufficient resources to make ends meet during the nor-

mal three-week period provided by California for an initial

determination (A. 128-131). At that point, his resources are

apt to be exhausted, see, p. 6 supra. Yet § 1335 requires him

to wait a median period of one and a half additional months

to secure the moneys which were intended to ‘‘tide [him]

over [unemployment] . . . without having to resort to re-

lief,“ H.R. Rep. No. 615 at 7. Obviously, this thwarts the in-

herent protection afforded by social insurance [which]

comes to the worker as a matter of right,“ 79 Cong. Rec.

5468 (1935; Remarks of Rep. Doughton, Chairman of the

Committee on Ways and Means).

Indeed, it is difficult to conceive of a provision more in-

consistent than § 1335 with the social insurance philosophy

which informs unemployment compersation. The essence

of social insurance is that payments are due under ‘‘clearly

defined conditions’’ stated in ‘‘such a way that the worker

ean determine his benefit beforehund,“ Burns, Unemploy-

ment Compensation and Socio-Economic Objectives, 55 Yale

LJ. 1, 2 (1945). Its antithesis is a system which subjects a

worker’s entitlement to his former employer’s arbitrary

— ——— — — —¼

——— —.:——

veto power. And § 1335 does give employers precisely th

veto power. It allows for no distinctions. An appeal auto

matically stays the payment of benefits, even if frivolom

and filed with the specific intent to harass.

The foregoing makes it plain that placing the entire cog;

of delay incident to appeals of initial determinations on

claimants would be unjustified in any event. And that prac.

tice is manifestly intolerable in a system in which 64% of

employer appeals are decided in favor of claimants.

(e) The basic argument presented to justify & 1335 (Cal

Br. 7-8) is that it is in conformity with the model statutes

drafted by Edwin Witte, Executive Director of the Com.

mittee on Economic Security, see, Witte, The Development

Of The Social Security Act, 125-126 n. 78 (1963); Hear.

ing On S. 1130, 74th Cong., Ist Sess., 602, 623 (1935), and

the District of Columbia Unemployment Compensation

Law, § 46-311 D. C. Code. The model statutes and the D. C.

law do provide for stays pending an employer appeal“

from an initial determination. However, it is quite elear

that it was the contemplation of those bills that the initial

determination would be based solely on the claimant’s in-

formation, and that the appeal“ would be the employer's

first opportunity to be heard. For that is the manner in

which the D. C. law is administered, D. C. Compensation

Board v. Hahn, 399 F.2d 987, 989-990 (C.A. D. C., 1968).

Thus, these statutes are consistent with the position devel-

oped herein, rather than with § 1335. The question of wheth-

er there shall be a stay pending a full hearing is entirely

distinct from the question of whether stays shall be per-

mitted after such a hearing. For a full hearing alters the

calculus of the relevant interests. Thus our contention is

simply that full payment is ‘‘due’’ upon a prompt determi-

nation in favor of the claimant rendered after all parties

have been heard. Section 503 (a) (1) makes no distinction be-

tween procedures, such as California’s in which the hearing

occurs at the earliest stage, and procedures, such as D. C.’s,

in which the initial determination is made solely on the

claimant’s information and in which the first hearing occurs

on appeal.“ The limitations it imposes are, as the model

7 B®

e

11

statutes expressly state that ‘‘disputed [claims] shall be

ptly decided, Hearings on S. 1130 at 623; and that

after the initial hearing the costs of further litigation delay

shall fall on appellants and may not be shifted to claim-

ants.

The subsidiary arguments advanced by California are all

contrary to the facts. First, the theme of California’s brief

is that it follows from the fact that there is no means

test for unemployment compensation that claimants can

easily weather the delay. . . of modest duration“ im-

posed by § 1335 (Cal. Br. 22-23, 14, 16). The logic of this

ition is faulty. The decision not to impose a means“

test does not lead to the conclusion that if there were such

a test the majority of claimants would be denied benefits.

The means test was omitted because of ethical considera-

tions, not because it was believed that the intended benefi-

ciaries were well-to-do. As Representative Doughton stated,

the form of the bill was dictated by a belief that workers who

had contributed to the creation of the wealth paid into the

fund should not have their benefits marked with ‘‘the stigma

of charity with its devastating effect on the morale of the

population“ 79 Cong. Rec. 5468. But Congress recognized

that the typically displaced ‘‘industrial worker ordinarily

employed could not ‘‘tide himself over“ a period of un-

employment without compensation. That is the reason the

law was passed, pp. 5-6 supra. And today as in 1935 the evi-

dence indicates that the typical worker can not wait 6 to

7 weeks for his benefits without suffering substantial harm.

Second, it is contended (Cal. Br. 9-10) that employer ap-

peals cast a sufficient cloud on the initial determination

to warrant withholding benefits.“ An employer’s self-selec-

tion as an appellant is not a rational basis for concluding

that an initial determination favoring eligibility was er-

roneous. That is clear from the fact that 64% of such de-

cisions are affirmed, Juris. State. App. C at 15.

Third, California states (Cal. Br. 16) that payments to

those later found ineligible are essentially unrecoverable.“

The affidavit attached to its Jurisdictional Statement at

App. C, p. 15, however, states that from 1965 through 19

64% of payments to ineligible claimants were recovers

And California Insurance Appeals Board, In The Matte

Of Everard A. Goding (1969) (A. 90-92) demonstrates thy

the doubts expressed (Cal. Br. 16 n. 10) as to the aal

ability of recoupment under § 1375 Cal. Unemp. Ins. Code

are baseless.

Fourth, starting from the twin premises that payment

to ineligible claimants are unrecoverable, and that the de.

cision below requires that all ‘‘disqualified claimant

should be paid benefits until given a referee hearing.”

Juris. State. App. C at 15, it is asserted (Cal. Br. 16) that

elimination of the stay provision would require replenish.

ment of the Fund by new levies upon employers. As just

noted the first of these premises is unwarranted. It is

equally clear that the second is also unsound. This case has

nothing to do with the rights of disqualified claimants, see,

p. 4 supra. It deals solely with the treatment, pending an

employer appeal, of claimants who have been found eligible

by the state, on the basis of a full hearing. Moreover, once

this matter is put in proper context the data developed at

p. 8 supra, belies the necessity of a tax increase. It demon-

strates that the decision below does not threaten the sound-

ness of the Fund to the slightest degree.

Fifth, it is argued (Cal. Br. 16-17, ns. 11, 12) that elim-

ination of § 1335 would result in ‘‘the employer’s property

being taken away before he had had a meaningful oppor-

tunity to be heard.“ If this reference is to the interest of

former employers in their experience ratings it is con-

trary to the record. The court below held that California

law provides for ‘‘evidence [to be] presented by all sides”

and for all parties [to] have been heard“ prior to an

initial determination (A. 136-137). Moreover, § 1335(b)

provides that an employer’s reserve account shall not be

charged for any payments to an ineligible claimant. If the

reference is to the interest of all employers in procedures

which minimize the basic tax rate, there are two short but

complete answers. As a matter of fact elimination of the

stay provision will not affect that interest, pp. — supra. As

13

a matter of law that interest is too remote contingent

and speculativeꝰ to warrant protection, Gange Lumber Co.

y, Rowley, 326 U.S. 295, 305 (1945).

Finally, it is absolutely plain that the decision below

would not encourage frivolous appeal although the vil-

lain would be the employee, not the employer (Cal. Br.

17 n. 13). The rule of law contended for here requires all

appellants, without regard to whether they are employers or

claimants, to bear the costs of delay. Claimants only appeal

initial determinations finding them ineligible. In such cases,

as we have noted, p. 4 supra, there is no requirement that

benefits be paid pending the appellate decision. Thus, while

61335 does encourage frivolous appeals by employers, the

decision below discourages such appeals by both employers

and claimants.

2. § 1335 Cal. Unemp. Ins. Code Is In Conflict With The

Due Process Clause.

The crucial process of granting or withholding interim

relief is, of course, subject to the requirements of the Due

Process Clause. That, indeed, is the premise of this Court’s

recent decisions in Sniadach v. Family Finance Corp., 395

US. 337 (1969), and Goldberg v. Kelly, 397 U.S. 254 (1970).

Sniadich and Goldberg are seminal cases opening numerous

legal perspectives. Their central concern, however, is with

the limits the Constitution places on the choice of pro-

cedures utilized to shift the costs of litigation delay from

one party to another.

In Sniadach the question was whether the interim freez-

ing of wages without a chance to be heard violates pro-

cedural due process, 395 U.S. at 340. This question was

answered by the finding of a violation. The Court noted

that prejudgment garnishment ‘‘may impose tremendous

hardships on wage earners with families to support“; that

the procedure made possible.. grave injustices’’; that it

created ‘‘enormous .. . leverage of the creditor on the wage

earner’’; and that the amount left the garnishee is gener-

ally insufficient to support the debtor for any one week,“

395 U.S. at 340-341. On this basis the conclusion was

reached that:

—

— — —

— —ꝛꝛ —⅛——ö —

„The result is that a prejudgment garnishment a

the Wisconsin type may as a practical matter din

a wage-earning family to the wall. Where the

of one’s property is so obvious, it needs no

argument to conclude that absent notice and a

hearing. .. this prejudgment garnishment proceduy

violates the fundamental principles of due process“

395 U.S. at 341-342.

In Goldberg the problem presented was whether welfare

payments to a recipient who had been ruled eligible could

be cut off prior to a hearing at which he could “appear

personally, offer oral evidence, confront and cross-examine

the witnesses against him.. . Thus the constitutional is.

sue to be decided was ‘‘whether the Due Process Clause re.

quires that a recipient be afforded an evidentiary i

before the termination of benefits.“ 397 U.S. at 260 (this

Court’s emphasis). The holding of Goldberg is that “sam.

mary action pending a later hearing’’ is prohibited and

that a pre-termination hearing is required:

It is true, of course, that some governmental bene-

fits may be administratively terminated without afford-

ing the recipient a pre-termination evidentiary hear-

ing. But we agree with the District Court that when

welfare is discontinued, only a pre-termination evi-

dentiary hearing provides the recipient with proce-

dural due process. Cf. Sniadach v. Family Finance

Corp., 395 U.S. 337 (1969). For qualified recipients,

welfare provides the means to obtain essential food,

clothing, housing, and medical care. Cf. Nash v. Flor-

ida Industrial Commission, 389 U.S. 235, 239 (1967).

Thus the crucial factor in this context . . . is that ter-

mination of aid pending resolution of a controversy

over eligibility may deprive an eligible recipient of the

very means by which to live while he waits.

„Moreover, important governmental interests are

prompted by affording recipients a pre-termination

evidentiary hearing. From its founding the Nation’s

basic commitment has heen to foster the dignity and

well-being of all persons within its borders . . Wel-

fare, by meeting the basic demands of subsistence,

can help bring within the reach of the poor the

15

opportunities that are available to others to partici-

te meaningfully in the life of the community.

The same governmental interests that counsel the pro-

vision of welfare, counsel as well its uninterrupted

provision to those eligible to receive it; pre-termina-

tion evidentiary hearings are indispensable to that

end. Appellant does not challenge the force of these

considerations but argues that they are outweighed by

countervailing governmental interests in conserving

fiscal and administrative resources.

„We agree with the District Court, however, that

these governmental interests are not overriding in the

welfare context. The requirement of a prior hearing

doubtless involves some greater expense, and the bene-

fits paid to ineligible recipients pending decision at

the hearing probably cannot be recou since these

recipients are likely to be judgment-proof. But the

State is not without weapons to minimize these in-

creased costs. Much of the drain on fiscal and admin-

istrative resources can be reduced by developing pro-

cedures for prompt pre-termination hearings

skillful use of personnel and facilities.. . Thus, the

interest of the eligible recipient in uninterrupted re-

ceipt of public assistance, coupled with the State’s in-

terest that his payments not be erroneously termi-

nated, clearly outweighs the State’s competing concern

to prevent any increase in its fiscal and administrative

burdens. 397 U.S. at 263-266 (this Court’s emphasis).

In analytical terms, then, both Sniadach and Goldberg

deal with procedures which automatically, without provid-

ing for effective notice and hearing, shift the costs of nor-

mal litigation delay from the party who would ordinarily

bear them to the other side. And the underlying theory of

those cases is that such procedures do not meet the require-

ments of due process where they shift these costs to a party

who is thereby condemned to suffer grievious loss, Gold-

berg, 397 U.S. at 263, absent a clear showing of an over-

riding governmental interest,“ id. at 266. For in that situa-

tion, at least, the stakes are simply too high,“ ibid, to al-

low a departure from ‘‘the fundamental requisite of due

process of law [which] is the opportunity to be heard...

at a meaningful time and in a meaningful manner,’’ 397

at 267.

16

An initial determination of eligibility, made after «gy

parties have been heard’’ (A. 137), establishes that mem

ployment compensation payments are due“, ibid., see, Pp.

4-10 supra. California’s actual practice . . is to begin

ments’’ at that point, ibid. These payments are a matter of

‘*statutory entitlement which it is ‘‘realistic . . . to-aegand

as more like ‘property’ than a ‘gratuity’ ’’, Goldberg, .

U.S. at 262 & n.8. They are a ‘‘contractual right”, Com

mittee On Economic Security Report at 13, to a portion of s

fund comprised of wealth which the claimant’s labor helped

to create. Indeed the unemployed worker’s share of the

fund varies in proportion to the value of the services which

he provided, 56 1275, 1280-1281 Cal. Unemp. Ins. Code. See.

tion 1335 operates to deprive a claimant of the enjoyment

of this right. The stay pending an employer appeal which

it authorizes, automatically, without provision for notice or

hearing, overrides an unreversed determination by the state

as to his entitlement. Thus § 1335, like a prejudgment gar.

nishment or a summary termination of welfare benefits, is

a form of interim relief which shifts the costs of litigation

delay from the party who would ordinarily bear them, here

the employer-appellant, to the other side, here the claimant-

appellee.

In the instant case, as in Sniadach and Goldberg, the re-

sult of this interim relief is to condemn the party who must

bear those costs to suffer grievous loss, 397 U.S. at 263.

The typical displaced ‘‘industrial worker ordinarily em-

ployed, Committee On Industrial Security Report at 15,

who is denied unemployment compensation pursuant to

§ 1335 occupies a position somewhat worse than the gar-

nisheed employee, and somewhat better than the welfare

recipient whose benefits are summarily terminated. The

garnisheed employee, in addition to his liquid assets, has a

continuing income in the form of a ‘‘subsistence allowance”

of $25 to $50 to a week, Sniadach, 395 U.S. at 338 n.1. The

typical displaced industrial worker has median liquid as-

sets of $260 but no continuing income, p. 6 supra. And the

welfare recipient ‘‘lacks [all] independent resources“,

Goldberg, 397 U.S. at 264. But in terms of the applicable

legal standard these are distinctions without a difference.

17

Yor here as in Sniadach the granting of interim relief ‘‘may

impose tremendous hardship on wage earners with families

to support, it may as a practical matter drive a wage

family to the wall’’ because the money available

will “generally be insufficient to support [the unemployed

worker] for any one week,’’ 395 U.S. at 340, 341-342. Thus

in the instant case no less than in Goldberg ‘‘termination

of [benefits] pending resolution of a controversy over eli-

gibility may deprive an eligible recipient of the very means

by which to live while he waits,’’ 397 U.S. at 264 (this

Court’s emphasis), see, pp. 5-6, 9 supra.

While the position of the garnisheed employee, the com-

pensation claimant, and the welfare beneficiary are com-

parable, the governmental interests supporting interim re-

lief here are even more attenuated than those advanced in

Sniadach and Goldberg. The loss of prejudgment garnish-

ments undoubtedly harms honest blameless creditors, as a

class, in a very real way. And there can be no doubt that

the loss of the power to summarily terminate welfare bene-

fits creates a drain on fiscal and administrative resources“

Goldberg, 397 U.S. at 266, of some dimension. In contrast

the deleterious effects of abolishing stays pending employer

appeals are miniscule. The ability of former employers to

protect their experience ratings is untouched. The interest

of the state, and of employers generally in a sound fund fi-

nanced at minimal tax rates is unimpaired. And here, in con-

trast to Goldberg, 397 U.S. at 266, the interest in assuring

that only eligible claimants receive benefits is safeguarded

by an effective power to recover erroneous payments as well

as by the fact that former employers continue to have an

economic incentive to appeal questionable determinations.

Finally, affirmance of the decision below may actually serve

to reduce administrative expenses by reducing the incentive

for frivolous appeals. See pp. 7-9 supra.

The basic argument put forward by California (Cal. Br.

18-24), which has already been refuted in detail, is that the

unemployed are insufficiently needy to fall within the ra-

tionale of Goldberg. A buttressing point for that conten-

tion, not yet dealt with, is that, if necessary, compensation

—

— —

18

claimants can secure welfare while awaiting dete

of an employer appeal. In the context of the statute Cal

fornia is obligated to administer that point is impermissible

The most fundamental purpose of . . . unemployment com

pensation .. . ‘is to prevent the burden of injured employees

being charges upon society’ (A. 138, emphasis in the

inal). Congress regarded referral of the displaced ‘‘indyg.

trial worker ordinarily employed to welfare as a ‘‘griey.

ous loss’’ in and of itself, because of the resulting deva

stating effect on... morale... and... self respect,” 79

Cong. Rec. 5468. Moreover, California’s premise is incor.

rect:

„Welfare is not available to single a males

between ages 20 and 45 in most counties. Moreover, in

order to qualify for welfare assistance, a claimant with

a family must come wthin the requirements of one of

the categorical aid programs, of which there are four:

Old Age Assistance; Aid to the Disabled; Aid to the

Blind; and Aid to Families with Dependent Children,

Cal. GI Code Section 11200; 11200; 12500; 13500,

Since a claimant would have to be of retirement age,

disabled, or blind to qualify for the first three, they can

be disregarded. In order to qualify for the fourth, the

claimant’s family must have less than $600 in personal

property. Cal. W & Code Section 11255. The claimant

with a family therefore, must divest himseif of nearly

all of his assets before he can be eligible for the receipt

of welfare benefits. (A. 78-79).

Finally it is asserted (Cal. Br. 18-19) that ‘‘in Goldberg

the question of basic eligibility was closed and the focus was

on subsequent termination,’’ that ‘‘the question of basic

eligibility is still open’’ here, and that this distinguishes the

instant case since it would be improper to hold ‘‘that a

claimant is entitled to payment before his eligibility has

been established’’ (emphasis in the original). This is a cal-

culated misconstruction of the theory of this case. Nothing

sought herein would require the states to make payments to

a claimant who has not been found eligible. The sole result

of the decision below is to insure that where a ruling on the

merits, made after all parties have been heard, is in favor

of eligibility the claimant may not be deprived of the en- |

19

titlement thus established by a process of automatic interim

relief without provision for notice and hearing. And con-

trary to the implication of California’s argument, Sniadach

tes that this basic measure of due process protec-

tion is applicable at the initial stages of litigation and is

not limited to situations in which the appellate process has

been exhausted.

The sum of the matter is that the standards developed in

Sniadach and Goldberg demonstrate that a finding that

§ 1335 is unconstitutional follows a fortiori from those deci-

sions.

CONCLUSION

For the above stated reasons the judgment below should

be affirmed.

Respectfully submitted,

J. ALBERT WOLL

General Counsel, AFL-CIO

ROBERT C. MAYER

LAURENCE GOLD

736 Bowen Building

815 Fifteenth Street, N. W.

Washington, D. C. 20005

THOMAS E. HARRIS

Associate General Counsel, AFL-CIO

815 Sixteenth Street, N.W.

Washingon, D. C. 20006

January, 1971