Birth and Adoption Unemployment Compensation

SUMMARY: The Department of Labor (DOL) is issuing for comment a Notice

of Proposed Rulemaking to create, by regulation, an opportunity for

State agencies that administer the Unemployment Compensation (UC)

program to pay, under a voluntary experimental program, UC to parents

who take time off from employment after the birth or placement for

adoption of a child. This effort responds to the President's Executive

Memorandum issued May 24, 1999, directing the Secretary of Labor to

allow States the opportunity to develop innovative ways of using UC to

support parents taking leave to be with their newborns or newly-adopted

children and to evaluate the effectiveness of using the UC system for

these or related purposes. This regulation will permit interested

States to experiment with methods for allowing the use of the UC

program for this purpose.

DATES: DOL invites written comments on this proposal. Comments are to

be submitted by January 18, 2000.

ADDRESSES: Submit written comments to Grace A. Kilbane, Director,

Unemployment Insurance Service, Employment and Training Administration

(ETA), U.S. Department of Labor, 200 Constitution Avenue, N.W., Room S-

4231, Washington, DC 20210. Prior to issuance of this Notice of

Proposed Rulemaking, the DOL received correspondence on the subject

matter of the proposal. This correspondence, along with correspondence

received in response to the Notice of Proposed Rulemaking, will be made

part of the rulemaking record and will be considered in the development

of a final rule.

FOR MORE INFORMATION CONTACT: Gerard Hildebrand, Unemployment Insurance

Service, ETA, U.S. Department of Labor, 200 Constitution Avenue, N.W.,

Room S-4231, Washington, DC 20210. Telephone: (202) 219-5200 ext. 391

(this is not a toll-free number); facsimile: (202) 219-8506.

SUPPLEMENTARY INFORMATION:

I. Background

A. General Overview

(1) Need for Birth and Adoption Leave

On May 23, 1999, the President directed the Secretary of Labor to

issue a regulation allowing unemployment fund moneys to be used to

provide partial wage replacement to mothers and fathers on leave

following the birth or adoption of a child. In discussing the

importance of providing partial wage replacement, the President stated:

``[T]hose first weeks of life are critical to the bonding of parents

and children, and they can have long-term positive developments for the

children. No parent should have to miss them.'' The President also

noted that, ``We can do this in a way that preserves the soundness of

the unemployment insurance system and continues to promote economic

growth.''

The President elaborated on this Birth and Adoption UC proposal in

a May 24, 1999, memorandum to the heads of executive departments:

First, I hereby direct the Secretary of Labor to propose regulations

that enable States to develop innovative ways of using the

Unemployment Insurance (UI) system to support parents on leave

following the birth or adoption of a child. In addition, I direct

the Secretary to develop model State legislation that States could

use in following these regulations. In this effort, the Department

of Labor is to evaluate the effectiveness of using the system for

these or related purposes. In a 1996 study conducted by the

Commission on Family and Medical Leave, lost pay was the most

significant barrier to parents taking advantage of unpaid leave

after the birth or adoption of a child. This new step will help to

give States the ability to eliminate a significant barrier that

parents face in taking leave.

In response to the President's May 24, 1999, Executive Memorandum, the

DOL is exercising its authority to interpret Federal UC statutes, and,

in particular the statutes' longstanding ``able and available''

requirements, by implementing an experimental program to examine the

use of the UC program as a means for providing partial wage replacement

to employees who desire to take approved leave or otherwise leave their

employment following the birth or placement for adoption of a child.

(2) The Federal-State UC System

The Federal-State UC program is administered as a partnership of

the Federal government and the States. States collect State UC taxes

used to pay compensation while the Federal government collects taxes,

used for grants for State UC administration, under the Federal

Unemployment Tax Act (FUTA). (The FUTA is codified at 26 U.S.C. 3301-

3311.) The DOL has broad oversight responsibility for the Federal-State

UC program, including determining whether a State law conforms and its

practices substantially comply with the requirements of Federal UC law.

If a State's law conforms and its practices substantially comply with

the requirements of the FUTA, then the Secretary of Labor issues

certifications enabling employers in the State to receive credit

against the Federal unemployment tax as provided under section 3302,

FUTA. If a State and its law are certified under the FUTA, and the

State's law conforms and its practices substantially comply with the

requirements of Title III of the Social Security Act (SSA), then the

State receives grants for the administration of its UC program. (Title

III of the SSA is codified at 42 U.S.C. 501-504.) The DOL enforces

Federal UC law requirements through the FUTA credit and grant

certification processes.

(3) Ability To Work and Availability for Work

The DOL has the authority and responsibility to interpret the

provisions of Federal UC law such as the ``able and available''

requirements. Although no explicit able and available requirements are

stated in Federal law, the DOL and its predecessors (the Social

Security Board and the Federal Security Agency) interpreted four

provisions of Federal UC law as requiring that claimants be able to and

available for work. Two of these provisions at section 3304(a)(4),

FUTA, and section 303(a)(5), SSA, limit with-drawals, with specific

exceptions, from a State's unemployment fund to the payment of

``compensation.'' Section 3306(h), FUTA, defines ``compensation'' as

``cash benefits payable to individuals with respect to their

unemployment.'' The able and available requirements provide a test of a

claimant's ``unemployment.''

The other two provisions found in section 3304(a)(1), FUTA, and

section 303(a)(2), SSA, require that compensation ``be paid through

public employment offices.'' The requirement that UC is to be paid

through the public employment system (the purpose of which is to find

people jobs) ties the payment of UC to an individual's search for

employment and to his or her ability to work and availability for work.

Agencies administering the Federal-State UC program have for over

60 years interpreted these four statutory provisions to require a

participating State to have able and available requirements.

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In response to practical economic and societal concerns, the DOL

has previously, as discussed below, exercised its authority to

interpret Federal UC statutes regarding the able and available

requirements to address several specific areas: training, illness, jury

duty and temporary layoffs. Under its authority to interpret Federal UC

law and consistent with its broad oversight responsibility, the DOL

interprets the Federal able and available requirements to include a

voluntary experimental program for examining the use of the UC program

to provide partial wage replacement to employees who take approved

leave or otherwise leave employment to be with their newborns or newly-

adopted children. This experiment recognizes the impact of women in the

workforce and responds to the dramatic societal and economic changes

resulting from the large number of families where both parents work. It

should allow parents of newborns and newly-adopted children to

strengthen their availability for work by providing them with the time

and financial support to address several vital needs that accompany the

introduction of a new child into the family. The program would allow

such parents to provide the initial care that the child will need, to

form a strong emotional bond with the child, and to establish a secure

system of child care that, once in place, will promote the parents'

long-term attachment to the workforce.

(4) Minimal Tests of the Able and Available Requirements

Consistent with DOL interpretations, some States have imposed

minimal tests of the able and available requirements for specific

situations, provided the claimant has demonstrated an attachment to the

labor force.

Approved Training. Prior to incorporating the training provision

into the Federal laws, the DOL encouraged States to treat individuals

in training approved by the State agency as meeting the able and

available requirements since such training represents the most

effective step available to the individual to return to work. The DOL

cautioned that State agencies should only approve short-term training

that would make individuals job ready. In 1970, Congress, recognizing

the importance of training in remedying unemployment, made this

training provision mandatory for all States. (Section 3304 (a)(8),

FUTA.) The Federal able and available requirements are preserved

because individuals who fail to attend training, except by specific

waiver, are held to be unavailable for work and ineligible for UC.

Illness. Eleven States allow an individual who initially meets the

able and available requirements, but then becomes ill, to receive UC

payments without interruption, provided that no suitable work is

offered and refused. The DOL approved such State laws in an effort to

deter disqualification for UC where a claimant was not ``able and

available'' for perhaps one day, or even one hour, out of a week. Two

States, Alaska and Massachusetts, cap the number of weeks ill claimants

can collect UC at six weeks and three weeks, respectively; the other

States have no statutory limitations. The Federal able and available

requirements are preserved because claimants must initially demonstrate

their ability to and availability for work before the illness and must

be held ineligible if they refuse an offer of suitable work.

Similarly, under the Federal-State Extended Unemployment

Compensation Act of 1970 (EB) (26 U.S.C. 3304, note), an ill individual

may receive UC only if no suitable work is rejected. The EB program

provides additional weeks of compensation to individuals who have

exhausted their rights to regular compensation during times of high

unemployment and contains a specific ``work search'' requirement. This

work search requirement is suspended for EB claimants who are

hospitalized for an emergency or life-threatening condition (20 CFR

615.8 (g)(3)(i)(B)). This suspension is permitted only if the State law

contains a similar provision to those explained above, which must be

consistent with the Federal able and available requirements.

Jury Duty. The DOL accepts that States may pay UC to individuals

serving on jury duty consistent with the Federal availability

requirement. This is reasonable because individuals are compelled under

the threat of contempt of court by the judicial branch of the

government to go on jury duty, and attendance at jury duty may be taken

as evidence that the employee would otherwise be available for work. It

would be inconsistent for the State to compel jury service and at the

same time disqualify unemployed persons from UC for complying. Most

employment is not considered an excuse for avoiding jury duty, and

unemployment would also likely not be an excuse from jury duty. Indeed,

EB claimants are exempt from the work search provision while on jury

duty (20 CFR 615.8(g)(3)(i)(A)).

Temporary Layoffs. In a temporary layoff, the employer is unable to

provide work for a short period of time, but both the employer and the

employee have the expectation that the employee will return to work on

a specific date. When the employer recalls the employee, the employee

must accept or be denied UC. In these cases, the availability

requirement is essentially limited to the employer who laid off the

employee. This recognizes that such employees are frequently career

employees who would likely quit a new job to return to their former

employer when the layoff ends; therefore, other employers would not

likely hire such employees.

B. The Birth and Adoption Unemployment Compensation (BAA-UC) Experiment

(1) Able and Available Requirements for BAA-UC

The DOL previously exercised its authority to interpret the able

and available requirements in the areas of training, illness, jury

duty, and temporary layoffs. Based on this precedent, the DOL's

experimental BAA-UC program is designed to test whether expansion of

its interpretation of the able and available requirements would promote

a continued connection to the workforce in parents who receive such

payments.

As the number of mothers in the workforce and families with both

parents working rises, the need to test this interpretation increases,

and collecting data under the BAA-UC program to test the existence and

magnitude of this group's connection to the work force, is increasingly

important. Indeed, much in the same way that providing training to

laid-off employees enhances their connection to the workforce by making

them more marketable, the DOL wants to test whether providing parents

with BAA-UC at a point during the first year of a newborn's life, or

after placement for adoption, will help employees maintain or even

promote their connection to the workforce by allowing them time to bond

with their children and to develop stable child care systems while

adjusting to the accompanying changes in lifestyle before returning to

work.

The initial time period during which a new child is introduced into

a home, and how that child's care will be assimilated into the working

lives of the parents, is critical. It is during this period that secure

emotional bonds are formed between children and their parents. It is

also during this period that a system of child care, which will foster

the parents' availability for work, can be firmly established. These

requirements are universal when any working family has a new child.

Addressing these needs is fundamental to helping families flourish and

is also connected to

[[Page 67974]]

sustaining a stable workforce. Where parents continue to work after the

arrival of children, they often need the opportunity to bond with their

child as well as arrange a system of care that will allow the parents

to continue, and indeed strengthen, their attachment to the workforce.

For all the above reasons, the DOL believes that these parents are

an appropriate focus of an experimental extension to the able and

available requirements. Thus, this expanded interpretation of the

Federal able and available requirements applies only to experimental

BAA-UC and does not extend to any other facet of the Federal-State UC

program. BAA-UC is an experiment being conducted within the regular UC

program.

(2) Experimental versus Permanent Program

This proposed rule will give the State agencies that administer the

UC program the opportunity to provide UC, under an experimental

program, to parents who take approved leave or otherwise leave their

employment to be with a newborn or newly-adopted child. The DOL chose

to proceed with an experimental rather than a permanent program in

order to compile the necessary information to evaluate the following

prior to any implementation of a permanent program: whether individuals

compensated for birth and adoption leave are more likely to return to

employment, and, therefore, are more available than those who are

uncompensated; the effects on employers whose employees take such

compensated leave; the effects on employers throughout a State who bear

the BAA-UC costs; and the effects on the State's unemployment fund. The

DOL anticipates that creating this experimental program, which States

can voluntarily choose to put into practice, will give States the

necessary latitude to develop innovative programs permitting the DOL to

measure employees' connections to the workforce after availing

themselves of BAA-UC, as compared to individuals who take unpaid leave

or none at all.

(3) Experimental Program Limitations

The purpose of the able and available requirements is to assure

sufficient attachment to the workforce. The BAA-UC experimental program

is designed to test the proposition that providing UC to the parents of

newborns and newly-adopted children who wish to take approved leave or

otherwise leave their employment will increase their attachment to the

workforce. In order to gain information on the impact of adapting the

UC program to address the needs of such employees, the DOL is defining

the experimental program to cover the parents of newborns and newly-

adopted children. The DOL believes that authorizing States to provide

unemployment compensation for parents of newborns and newly-adopted

children will produce valuable information for evaluating the program.

This information may also serve as a basis for further expanding

coverage to assist a broader group of employees to better balance work

and family needs. The class of employees covered by this proposed rule

is a small, easily-defined group that can be used to test whether

compensating absences from employment will assist individuals to

maintain, or even improve upon, their connection to the workforce by

enabling them to better meet their parental and family needs.

(4) Experimental Program Time Frame and Evaluation

States may enact legislation and begin operation of a BAA-UC

program any time after the effective date of the Final Rule. States

wishing to enact legislation prior to completion of the rulemaking

process should have a contingency provision in their legislation

allowing for State agencies to make changes necessary to comply with

Federal regulations prior to the implementation of their programs.

The DOL will begin collecting administrative data immediately upon

implementation of a BAA-UC program. As States gain experience with

their programs, the DOL will evaluate each State individually. A

comprehensive evaluation will be performed when at least four States

have implemented legislation and operated a BAA-UC program for a

minimum of three years.

The Federal evaluation methodology has not yet been completed.

Because States will have broad latitude in developing BAA-UC

experimental programs, the DOL may use a case study evaluation design.

Some of the issues that may be addressed in the evaluation include:

whether workforce attachment for this population changed; whether

employees faced barriers to taking advantage of BAA-UC; and, if so,

what can be done to break down these barriers. Though not required by

these regulations, it is anticipated that each State will include, as

part of its system development, an evaluation component. Once decisions

have been made regarding the Federal evaluation process and how the

relevant information will be collected, complete information collection

instructions will be issued and, if subject to the Paperwork Reduction

Act, published for public comment in the Federal Register.

C. Rule Format

In keeping with the Administration's commitment to writing

regulations in plain English, the substance and format of this Proposed

Rule is presented in a question-and-answer format so that the

regulations will be clear and easy to understand. In addition, the DOL

has attempted to anticipate and address issues that may arise during

this effort.

II. Explanation

DOL is proposing a rule which is not overly prescriptive. This is

consistent with the general structure of the UC program under which

States have wide latitude in designing their programs.

In accordance with the May 24, 1999, Executive Memorandum, BAA-UC

model State legislation has been developed and is appended (Appendix A)

for comment. This model legislation is optional and is provided for the

convenience of States that choose to implement a BAA-UC program. A

commentary on the model legislation and policy issues to aid States in

the development of methods provided for under the proposed rule is also

appended (Appendix B) for comment. Both appendices are subject to

change based upon comments. They will be issued in final form in the

Federal Register as a program letter and will not appear in the Code of

Federal Regulations.

Description of the Regulation

The proposed rule adds Part 604 to the Code of Federal Regulations.

Subparts are organized by subject matter:

Subpart A discusses the purpose and scope of the regulation and

defines critical terms.

Subpart B discusses Federal UC requirements as they relate to this

experiment.

Subpart C discusses BAA-UC eligibility requirements.

Following is a brief description of each subpart of the proposed

regulation.

Subpart A--General Provisions

Subpart A discusses the purpose and scope of the regulation and

defines critical terms. The purpose of the regulation is to establish

the opportunity for the State agencies that administer the UC program

to provide UC, under an experimental program, to parents who take

approved leave or otherwise leave employment to be with a newborn or

newly-adopted child. This proposal will permit interested States to

[[Page 67975]]

experiment with methods for allowing this use of the UC program.

The scope of the BAA-UC experiment extends to all State UC programs

that provide UC to parents who take approved leave or otherwise leave

their employment to be with their newborns or newly-adopted children.

This group was identified by the President as the focal group for the

experiment with possible expansion, if warranted, after the experiment

has been evaluated. State participation is completely voluntary.

Definitions of terms specific to BAA-UC are also in Subpart A:

Approved Leave--Because ``approved leave'' is commonly interpreted

as an approved, temporary separation from a specific employer, that

definition has been adopted for BAA-UC purposes.

Birth and Adoption unemployment compensation--This is UC paid only

to parents on approved leave or who otherwise leave employment to be

with their newborns or newly-adopted children.

Newborns--To establish the distinguishing characteristics of the

experimental group, it is necessary to define ``newborn.'' For purposes

of the experiment, newborns are defined as children up to one-year old.

Newly-adopted children--Adoptive parents are included in the

experiment. Because adopted children may not be newborns, and a

comparable measurement period is necessary for all parents included in

the BAA-UC experiment, ``newly-adopted'' refers to children, regardless

of age, who have been placed within the previous 12 calendar months

with an adoptive parent(s).

Parents--For BAA-UC experimental purposes, parents are defined as

mothers and fathers--biological, legal or having legal custody of a

child during the adoption process. The BAA-UC experiment does not

include foster parents unless the child has been placed with the foster

parents for adoption.

Placement--The adoption process can be lengthy with completion

occurring long after a child has been placed with a family.

Consequently, for BAA-UC comparability between parents of newborns and

parents of newly-adopted children, ``placement'' for BAA-UC purposes

will be the time a parent becomes legally responsible for a child

pending adoption.

Subpart B--Federal UC Requirements

Subpart B discusses how the Federal UC requirements apply to BAA-

UC. Beyond the proposed interpretation of the able and available

requirements, this regulation does not change Federal UC requirements.

Under its authority to interpret the statutes it administers, the DOL

is interpreting the Federal able and available requirements to include

BAA-UC. This interpretation will give States the opportunity to

experiment with, and demonstrate methods of, providing BAA-UC to

parents of newborns and newly-adopted children. The experiment will

provide compensation only during the periods when parents take approved

leave or otherwise leave employment following the birth or placement

for adoption of their child. This interpretation of the Federal able

and available requirements applies only for purposes of this

experiment.

Subpart C-BAA-UC Eligibility

Subpart C discusses the BAA-UC eligibility requirements. Although

implementation of BAA-UC is entirely at State discretion and States

have wide latitude in BAA-UC program development, certain eligibility

parameters apply. For example, only parents of newborns or newly-

adopted children are included in the experiment. Also, because all

Federal UC law requirements must be met and the insurance nature of the

UC program must be maintained, the introduction of eligibility factors

that are inconsistent with Federal UC law requirements is not permitted

under BAA-UC programs. The introduction of eligibility factors

unrelated to the fact or cause of unemployment, such as industry,

employer size or whether the spouse of a UC recipient also receives (or

has received) UC, is inconsistent with Federal law. Specifically, in a

1964 conformity decision involving the State of South Dakota, the

Secretary of Labor held that Federal law prohibits the introduction of

any eligibility test unrelated to the fact or cause of the individual's

unemployment. (See Secretary of Labor's Decision of September 25, 1964,

In the Matter of the Hearing to the South Dakota Department of

Employment Security Pursuant to Section 3304(a) of the Internal Revenue

Code of 1954, transmitted by Unemployment Insurance Program Letter No.

787, October 2, 1964.) Therefore, all individuals covered under a

State's UC law must be covered for BAA-UC.

For BAA-UC purposes, the first compensable week is the week in

which birth or placement for adoption takes place. States are free to

determine whether to prorate the weekly compensation amount based on

the day of the birth or placement for adoption or whether to fully

compensate for that week. Weeks preceding the week of the birth or

placement and weeks following the end of the one-year period are not

compensable.

The purpose of BAA-UC is to provide support to new parents on

``leave'' from employment to be with their newborns or newly-adopted

children. The term ``leave'' implies that the individual will return to

the last employer after a designated period. However, for experimental

purposes, the DOL will allow States to pay BAA-UC to parents who

otherwise leave employment for this purpose. This will generate data

for evaluating how providing compensation affects the connection of

these individuals to the workforce. The DOL's view is that limiting

BAA-UC to only those individuals who are assured of job retention could

be seen as unfairly excluding parents from BAA-UC who are denied leave

by their employers.

Executive Order 12866

This proposed rule is a ``significant regulatory action'' within

the meaning of Executive Order 12866 because it meets the criteria of

Section 3(f)(4) of that Order in that it raises novel or legal policy

issues arising out of legal mandates, the President's priorities, or

the principles set forth in the Executive Order. Accordingly, the

proposed rule has been submitted to, and reviewed by, the Office of

Management and Budget.

However, the proposed rule is not considered an ``economically

significant'' rule because it will not have an annual effect on the

economy of $100 million or more, will not adversely impact a specific

sector of the economy, and will not materially alter the budgeting

impact of entitlements, grants, user fees or loan programs or the

rights and obligations of recipients thereof.

The Department estimates that the possible annual aggregate BAA-UC

cost could range from zero to approximately $68 million. The regulation

is permissive, and the DOL does not know how many States will choose to

enact experimental BAA-UC programs. The estimate of the annual

aggregate BAA-UC cost of $68 million is based on the expressed interest

of a small number of States. The cost depends upon such factors as the

extent to which BAA-UC affects parents' incentives to increase their

leave duration and the percentage of leave-takers applying for BAA-UC.

The derivation of this estimate begins

[[Page 67976]]

with 1997-98 Current Population Survey data showing the annual U.S.

average number of women in the labor force with a child under one-year

old. After this number is disaggregated by State, the likely proportion

of leave-takers for newborns and newly-adopted children is determined

based on percentages provided in a report by the Commission on Family

and Medical Leave, titled A Workable Balance: Report to Congress on

Family and Medical Leave Policies (April 30, 1996). Other factors used

in determining the cost estimate include the percent of leave-takers

with employer-paid leave, monetary eligibility rates, and average

weekly UC payments.

Further, the DOL has evaluated the proposed rule and found it

consistent with the regulatory philosophy and principles set forth in

Executive Order 12866, which governs agency rulemaking. Although the

proposed rule will impact States and State agencies, it will not

adversely affect them in a material way. The proposed rule would permit

States to voluntarily establish experimental programs to determine the

effectiveness of using the UC program to support parents taking leave

from their employment to be with their newborns or adopted children; it

would not impose any new requirements on States.

Paperwork Reduction Act

The DOL has determined that this proposed rule contains no

information collection requirements.

Executive Order 12612

These proposed regulations have been reviewed in accordance with

Executive Order 12612 regarding federalism. The order requires that

agencies, to the extent possible, refrain from limiting State policy

options, consult with States prior to taking any actions which would

restrict States' policy options, and take such action only when there

is clear constitutional authority and the presence of a problem of

national scope. Since this proposed rule does not limit State policy

options under the current UC program, it complies with the principles

of federalism and with Executive Order 12612.

Executive Order 12988

This proposed rule has been drafted and reviewed in accordance with

Executive Order 12988, Civil Justice Reform, and will not unduly burden

the Federal court system. The proposal has been written to minimize

litigation and provide a clear legal standard for affected conduct, and

has been reviewed carefully to eliminate drafting errors and

ambiguities.

Unfunded Mandates Reform Act of 1995 and Executive Order 12875

This proposed rule has been reviewed in accordance with the

Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.) and

Executive Order 12875. The DOL has determined that this proposal does

not include any Federal mandate that may result in increased

expenditures by State, local, or tribal governments, in the aggregate,

or by the private sector, of $100 million or more in any one year.

The States have full discretion to decide whether or not to enact a

BAA-UC program. See the section entitled ``Executive Order 12866'' for

further information on the BAA-UC cost estimate.

Regulatory Flexibility Act

This proposed rule will not have a significant economic impact on a

substantial number of small entities. The proposal affects States and

State agencies, which are not within the definition of ``small entity''

under 5 U.S.C. 601(6). Moreover, States have complete discretion in

deciding whether or not they will enact a program permitted under this

proposed regulation. Under 5 U.S.C. 605(b), the Secretary has certified

to the Chief Counsel for Advocacy of the Small Business Administration

to this effect. Accordingly, no regulatory flexibility analysis is

required.

Small Business Regulatory Enforcement Fairness Act

This proposed rule is not a ``major rule'' as defined by section

804 of the Small Business Regulatory Enforcement Fairness Act of 1996

(5 U.S.C. Chapter 8). This proposed rule will not result in an annual

effect on the economy of $100 million or more; a major increase in

costs or prices; or significant adverse effects on competition,

employment, investment, productivity, innovation, or the ability of

United States-based entities to compete with foreign-based entities in

domestic and export markets.

Effect on Family Life

The DOL certifies that this proposed rule has been assessed in

accordance with section 654 of Pub. L. 105-277, 112 Stat. 2681, for its

effect on family well-being. The DOL concludes that the proposed rule

will not adversely affect the well-being of the nation's families.

Rather, it should have a positive effect on family well-being by

permitting States to enable more parents to take leave from their

employment to be with their newborns or newly-adopted children.

List of Subjects in 20 CFR Part 604

Employment and Training Administration, Labor, and Unemployment

Compensation.

Catalogue of Federal Domestic Assistance Number

This program is listed in the Catalogue of Federal Domestic

Assistance at No. 17.225, Unemployment Insurance.

Signed at Washington, D.C. on November 18, 1999.

Alexis M. Herman,

Secretary of Labor.

Words of Issuance

For the reasons set forth in the preamble, the DOL proposes that

Chapter V of Title 20, Code of Federal Regulations, be amended by

adding new part 604 to read as follows:

PART 604--REGULATIONS FOR BIRTH AND ADOPTION UNEMPLOYMENT

COMPENSATION

Subpart A--General Provisions

Sec.

604.1 What is the purpose of this regulation?

604.2 What is the scope of this regulation?

604.3 What definitions apply to this regulation?

Subpart B--Federal Unemployment Compensation Program Requirements

604.10 Beyond the interpretation of the able and available

requirements for Birth and Adoption unemployment compensation, does

this regulation change the Federal requirements for the unemployment

compensation program?

Subpart C--Eligibility

604.20 Who is covered by Birth and Adoption unemployment

compensation?

604.21 When does eligibility for Birth and Adoption unemployment

compensation commence?

604.22 Are parents who leave employment to be with their newborns

or newly-adopted children eligible for Birth and Adoption

unemployment compensation, or is it limited only to parents who take

approved leave?

Authority: 42 U.S.C. 1302(a); 42 U.S.C. 503(a)(2) and (5); 26

U.S.C. 3304(a)(1) and (4); 26 U.S.C. 3306(h); Secretary's Order No.

4-75 (40 FR 18515); and Secretary's Order No. 14-75 (November 12,

1975).

Subpart A--General Provisions

Sec. 604.1 What is the purpose of this regulation?

This regulation allows the States to develop and experiment with

innovative methods for paying unemployment compensation to parents on

approved leave or who otherwise leave employment to be with their

[[Page 67977]]

newborns or newly-adopted children. States' experiences with Birth and

Adoption unemployment compensation will enable the Department of Labor

to test whether its interpretation of the Federal ``able and

available'' requirements promotes a continued connection to the

workforce in parents who receive such payments.

Sec. 604.2 What is the scope of the regulation?

This regulation applies to and permits all State unemployment

compensation programs to provide benefits to parents on approved leave

or who otherwise leave employment to be with their newborns or newly-

adopted children. A State's participation is voluntary.

Sec. 604.3 What definitions apply to the regulation?

The following definitions apply to this regulation:

(a) Approved Leave means a specific period of time, agreed to by

both the employee and employer, during which an employee is temporarily

separated from employment and after which the employee will return to

work for that employer.

(b) Birth and Adoption unemployment compensation means unemployment

compensation paid only to parents on approved leave or who otherwise

leave employment to be with their newborns or newly-adopted children.

(c) DOL means the United States Department of Labor.

(d) Newborns means children up to one-year old.

(e) Newly-adopted children means children, regardless of age, who

have been placed within the previous 12 calendar months with an

adoptive parent(s).

(f) Parents means mothers and fathers (biological, legal or who

have legal custody of a child during the adoption process).

(g) Placement means the time a parent becomes legally responsible

for a child pending adoption.

(h) State(s) means one of the States of the United States of

America, the District of Columbia, the Commonwealth of Puerto Rico, and

the United States Virgin Islands.

Subpart B--Federal Unemployment Compensation Program Requirements

Sec. 604.10 Beyond the interpretation of the able and available

requirement for Birth and Adoption unemployment compensation, does this

regulation change the Federal requirements for the unemployment

compensation program?

No. This regulation does not change the Federal unemployment

compensation requirements. Under its authority to interpret Federal

unemployment compensation law, the DOL interprets the Federal able and

available requirements to include experimental Birth and Adoption

unemployment compensation. The regulation applies only to parents who

take approved leave or otherwise leave employment to be with their

newborns or newly-adopted children.

Subpart C--Eligibility

Sec. 604.20 Who is covered by Birth and Adoption unemployment

compensation?

If a State chooses to provide Birth and Adoption unemployment

compensation, all individuals covered by the State's unemployment

compensation law must also be covered for Birth and Adoption

unemployment compensation. Just as with current unemployment

compensation programs, individuals may not be denied experimental Birth

and Adoption unemployment compensation based on facts or causes

unrelated to the claimant's unemployment, such as industry, employer

size or the unemployment status of a family member. The introduction of

such facts or causes would be inconsistent with Federal unemployment

compensation law.

Sec. 604.21 When does eligibility for Birth and Adoption unemployment

compensation commence?

Parents may be eligible for Birth and Adoption unemployment

compensation during the one-year period commencing with the week in

which their child is born or placed with them for adoption. Weeks

preceding the week of the birth or placement and weeks following the

end of the one-year period are not compensable.

Sec. 604.22 Are parents who leave employment to be with their newborns

or newly-adopted children eligible for Birth and Adoption unemployment

compensation, or is it limited only to parents who take approved leave?

States may limit Birth and Adoption unemployment compensation to

parents who take approved leave or may extend Birth and Adoption

unemployment compensation to parents who otherwise leave employment to

be with their newborns or newly-adopted children. However, the intent

of Birth and Adoption unemployment compensation is to support all

parents who wish to take time from employment to be with their newborns

or newly-adopted children.

The following appendix will not appear in the Code of Federal

Regulations.

Appendix A--Model State Legislation

Section ______. Birth and Adoption Unemployment Compensation.

(a) An individual who is on a leave of absence from his or her

employer or who left employment to be with the individual's child

during the first year of life, or during the first year following

placement with the individual for adoption, shall not be denied

compensation under Section ______ for voluntarily leaving

employment, Section ______ relating to availability for work,

Section ______ relating to inability to work, or Section ______ for

failure to actively seek work.

(b) Section ______, concerning the reduction of the amount of

compensation due to receipt of disqualifying income, shall apply to

payments under this section. In addition, the following payments

shall cause a reduction in the compensation amount:

(1) any payment from the employer resulting from a birth or

adoption described in subsection (a); and

(2) any payment resulting from a birth or adoption described in

subsection (a) from a disability insurance plan contributed to by an

employer, in proportion to the employer's contribution to such plan.

(c) Compensation is payable to an individual under this section

for a maximum of 12 weeks with respect to any birth or placement for

adoption.

(d) Each employer shall post at each site operated by the

employer, in a conspicuous place, accessible to all employees,

information relating to the availability of Birth and Adoption

unemployment compensation.

(e) Any compensation paid under this section shall not be

charged to the account of the individual employer.

(f) Two years following the effective date of this legislation,

the commissioner shall issue a report to the governor and the

legislature evaluating the effectiveness of the Birth and Adoption

unemployment compensation program.

(g) This section shall be applied consistent with regulations

issued by the U.S. Department of Labor.

The following appendix will not appear in the Code of Federal

Regulations.

Appendix B--Commentary on Model State Legislation, Including Policy

Issues

General

Must States Implement a Birth and Adoption Unemployment Compensation

(BAA-UC) Program?

No. This program is voluntary for the States. However,

implementation of BAA-UC will require some legislation on the part

of every State seeking to adopt the program. The Model State

Legislation is provided for the convenience of States that wish to

implement a BAA-UC program.

Does This Regulation Enable a State To Pay UC for Other Types of Family

or Medical Leave?

No. This regulation enables a State to pay UC to parents on

approved leave or who

[[Page 67978]]

otherwise leave employment to be with their newborns or newly-

adopted children. Permitting payment of UC for other types of family

leave or care would be inconsistent with this experimental program.

Must All Employer-Paid Leave Be Exhausted Before BAA-UC Is Available?

No. BAA-UC is designed to provide partial wage replacement to

parents of newborns or newly-adopted children. The Model State

Legislation assumes that any wages paid for the period of employer-

provided leave will be deducted. However, States need not deduct

these wages from BAA-UC.

Does This Regulation Impose Any Solvency Requirements Upon the States

Before They Enact BAA-UC?

No. The DOL expects that a State will not enact changes without

assessing the effect on the solvency of its unemployment fund. Each

State has the responsibility to assess the cost to the State's

unemployment fund whenever coverage, benefit expansions, or tax

changes are considered within the State's UC program. Consequently,

DOL expects prudent decision makers in a State to examine the

State's solvency position and projected taxes and benefit payments

under current law before deciding to enact BAA-UC legislation.

Monetary Qualifications and Benefits

What Are the Earnings and Employment Requirements for BAA-UC?

States may establish their own requirements. The Model State

Legislation assumes that States will use the same earnings and

employment criteria that apply to all other individuals.

What Is the Weekly Benefit Amount for Individuals Eligible for BAA-UC?

States may establish their own weekly benefit amounts. The Model

State Legislation assumes that individuals eligible for BAA-UC will

receive the same weekly benefit amount as other individuals eligible

for UC.

How Does the Receipt of Other Income Effect Payment of BAA-UC ?

States will determine whether BAA-UC will be reduced by other

income. Under the Model State Legislation, the amount of BAA-UC will

be reduced in the same manner as any other payment of UC as provided

under State law. The Model State Legislation also provides for the

deduction of any payment from the employer as a result of the birth

or placement for adoption, and for the deduction of any disability

insurance payment received as a result of the birth or placement for

adoption in proportion to the employer's contribution to the

disability insurance plan. This provision, which is limited to

payments triggered by the same event which triggers BAA-UC, reflects

the view that the unemployment fund should not be held responsible

when wage replacement is available from other sources, particularly

when both payments are financed by the employer. States should

examine their laws to determine if all types of appropriate income

are, or should be, deductible. For example, some leave payments

which are not normally deductible under State law may cover costs of

birth and adoption leave.

How Does the BAA-UC Entitlement Relate to Regular UC Payments?

States are free to determine this. The Model Legislation assumes

that BAA-UC counts toward the maximum number of weeks of regular UC.

Period of Eligibility

When May BAA-UC Benefits Begin?

Under Section 604.21 of the proposed regulations, parents may

receive BAA-UC only during the one-year period commencing with the

week in which the child is born or placed for adoption. For example,

an individual taking leave in the 51st week following birth or

placement for adoption, would be eligible for BAA-UC only for weeks

51 and 52. Periods preceding the week of birth or placement for

adoption are not compensable. States are free to reduce the one-year

period.

How Many Weeks of BAA-UC May Individuals Receive?

States are free to determine this. The Model State Legislation

provides a maximum duration of 12 weeks per individual with respect

to any one birth or adoption. Since the Family and Medical Leave Act

of 1993 (FMLA) allows up to 12 weeks of unpaid leave for such

events, States may wish to have an identical amount. States may also

relate the duration of leave to the individual's weekly amount of

UC. For example, for each birth or adoption, an individual may

receive an amount equal to 12 times the individual's weekly UC.

To prevent confusion between FMLA and BAA-UC, States should

inform potential BAA-UC beneficiaries of the dissimilarities between

the two programs (for example, BAA-UC does not guarantee job

retention).

If a Child Is Born in the Middle of the Week or the Placement Occurs in

the Middle of the Week, is BAA-UC Payable for This Week?

Under the Model State Legislation, BAA-UC would be payable for

this week, assuming all applicable eligibility conditions, such as

the deductible income provisions, are met. States may provide the

full weekly compensation amount for this week or prorate the weekly

amount to reflect only periods following birth or adoption. If the

amount is prorated, the State may pay the remaining balance for the

last partial week if the individual is still on leave.

Must the Individual Serve a Waiting Period?

No. Nothing in Federal law requires States to have a waiting

week for regular UC or BAA-UC. However, not having a waiting week

for BAA-UC would eliminate the 50 percent Federal share for the

first week of all Extended Benefits claims. Under 20 CFR

615.14(c)(3), a State is not entitled to a Federal share for the

first week of Extended Benefits if the State's law provides ``at any

time or under any circumstances'' for the payment of UC for the

first week of unemployment.

When Is a Child Considered ``Placed'' for Adoption?

Under 604.3(g) of the proposed rule, placement occurs at the

time a parent becomes legally responsible for a child pending

adoption. State UC agencies should consult the adoption laws of

their States to determine precisely when placement occurs.

Other Eligibility Issues

May Both Parents Receive BAA-UC? If So, May They Both Receive Such

Compensation at the Same Time?

The answer to both questions is ``yes.'' States implementing

BAA-UC must allow both parents, if otherwise eligible, to receive

BAA-UC concurrently or consecutively. A State may not prohibit

payment of BAA-UC simply because the other parent is taking leave

for the same purpose. A State law which does so is inconsistent with

Federal law because the eligibility of one parent will be determined

based on whether the other parent is receiving UC. Specifically, in

a 1964 conformity decision involving the State of South Dakota, the

Secretary of Labor held that Federal law prohibits the introduction

of any eligibility test unrelated to the fact or cause of the

individual's unemployment. (See Secretary of Labor's Decision of

September 25, 1964, In the Matter of the Hearing to the South Dakota

Department of Employment Security Pursuant to Section 3304(a) of the

Internal Revenue Code of 1954, transmitted by Unemployment Insurance

Program Letter No. 787, October 2, 1964.) The recipient status of

the other parent is unrelated to the fact or cause of an

individual's unemployment. Thus, both parents may receive BAA-UC,

whether concurrently or consecutively. Similarly, States may not

limit use of BAA-UC to the ``primary'' parent.

Must BAA-UC Apply to Individuals Employed by All Employers Subject to

State UI Law?

Yes. As explained in the previous answer, States may not impose

eligibility conditions not related to the fact or cause of the

individual's unemployment. Assuming the services are taxable for UC,

States may not, for example, limit BAA-UC based on employer size.

May States Provide BAA-UC to Individuals Who Otherwise Leave Employment

(Not on Approved Leave) To Be With Their Newborns or Newly-Adopted

Children?

Yes. While States are free to determine their own requirements,

there are compelling reasons for providing BAA-UC to individuals who

otherwise leave employment. Although many employers may grant leave,

others may not. The DOL believes that all parents should be treated

identically for UC purposes when they take time away from employment

to be with their newborn or newly-adopted child. As such, their

eligibility for BAA-UC should not be based on whether an employer is

required to grant the leave, but on the parent's reason for wanting

to take the leave.

May Eligibility Be Conditioned on Whether the Individual Gave Notice to

the Employer?

Yes. Although the Model State Legislation does not provide for

such a condition because it may result in denials due to the

technicality of when the individual requested leave, States may

impose it. The basis of such a requirement is that employers should

be given sufficient time to accommodate the

[[Page 67979]]

leaving/absence of the individual. If such a provision is included,

the DOL recommends that the notice be required to be given no more

than 30 days prior to birth or placement, but only where

practicable. The FMLA contains a 30-day requirement or shorter

notice period where giving 30-day notice is not practicable; it does

not require notice when the necessity to take leave is

unforeseeable. (Section 102(e), Family and Medical Leave Act, Pub.

L. 103-3 (February 5, 1993).)

May Eligibility Be Conditioned on Whether the Individual Chooses Not To

Return to Work?

Yes. However, based upon Jenkins v. Bowling, 691 F.2d 1225 (7th

Cir. 1982), States may not delay payment until after the individual

returns to work. Section 303(a)(1), SSA, requires the full payment

of benefits when due, precluding States from delaying payment while

awaiting the individual's return to work. A State may, however,

declare an overpayment of benefits after the individual fails to

return to work.

May An Individual Be Paid BAA-UC Under the Federal-State Extended

Benefit Program or Any of the Federally Funded Unemployment Programs?

It depends on the program. Benefits under the UC for Federal

Employees (UCFE) and UC for Ex-Servicemembers (UCX) programs are, by

Federal law, required to be paid on the same terms and subject to

the same conditions as State benefits (with exceptions not relevant

here). Therefore, BAA-UC will be paid to individuals under these

programs to the same extent as under State law.

Individuals may only receive Disaster Unemployment Assistance

(DUA) when their unemployment is caused by a disaster as provided in

20 CFR Part 625. However, if they meet their State's Birth and

Adoption UC provisions, then they will satisfy the availability

requirement at Sec. 625.4(g), and so may qualify for DUA. For

example, an individual who is unemployed due to a major disaster may

later give birth. If this individual satisfies the BAA-UC

requirements in the State's law, she may receive DUA.

Extended Benefit claimants may not receive Birth and Adoption UC

since they cannot meet the systematic and sustained work search

requirements in 20 CFR 615.8(g).

Individuals claiming trade readjustment allowances (cash

benefits) under the Trade Adjustment Assistance and the North

American Free Trade Act Transitional Adjustment Assistance programs

will be ineligible since such individuals are required to either be

in full-time training or conduct the systematic and sustained work

search required for the Extended Benefit program.

Financing Costs of BAA-UC

May BAA-UC Costs Be Socialized Among Employers?

Yes. States are free to socialize or not socialize costs of BAA-

UC. The Model State Legislation socializes costs--also called

``noncharging.'' An employer may be reluctant to bear all the costs

of BAA-UC caused by an employee taking leave since the employer will

not have caused the individual's unemployment. Since noncharging is

permitted when the unemployment is caused by the employee, it is

permitted in this situation. This position applies to both

contributory and reimbursable employers.

May BAA-UC Costs Be Paid From a State Fund Other Than the State's

Unemployment Fund, for Example, a State's Temporary Disability (TDI)

Fund?

Yes. Nothing in Federal UC law governs the treatment of moneys

in these funds because they are financed by a separate tax and held

separately from the State's unemployment fund. For example, a State

with a TDI program may enact a special disability insurance tax on

employers and deposit the proceeds in a disability fund. If the

State chooses to use one of these funds (or create such a fund) to

pay birth and adoption leave benefits, the requirements of DOL's

BAA-UC regulation will not apply.

Administrative Costs

May States Use Administrative Grants Received From the Federal

Government To Pay for the Administration of a BAA-UC Program?

Provided that all the requirements of the BAA-UC regulation are

met, the use of administrative grants is permissible, including for

purposes of studying and evaluating the BAA-UC program. However, if

the regulation's requirements are not met, the expenditures of grant

funds are not for the proper and efficient administration of the

State's law as required by section 303(a)(8) of the Social Security

Act.

Reporting

Will States Need To Amend Their Laws To Address any Federal Reporting

Requirements Concerning BAA-UC?

Although this is a matter for States to determine, the DOL

anticipates that few, if any, States will need to amend their laws

since most State laws already contain language concerning reporting.

Many of these laws are based on the language on page 95 of The

Manual of Employment Security Legislation, as revised September

1950, which requires that the agency ``make such reports, in such

form and containing such information as the Secretary of Labor may

from time to time require, and shall comply with such provisions as

the Secretary of Labor may from time to time find necessary to

assure the correctness and verification of such reports.''

What Are the Reporting Requirements?

The DOL has not yet finalized a methodology for evaluating State

BAA-UC programs. When that methodology is completed, State reporting

requirements will be issued in a separate information collection

request and, if subject to the Paperwork Reduction Act, published

for public comment in the Federal Register.

[FR Doc. 99-30445 Filed 11-30-99; 8:45 am]

BILLING CODE 4510-30-P