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Agency erred in adjusting experience account rates after merger

October 30, 2012

The Indiana Court of Appeals has ordered the Department of Workforce Development to reinstate the original contribution rates for unemployment insurance experience accounts of a parent company and its subsidiaries. The DWD should not have combined the accounts and adjusted the rates following a merger.

Boulder Acquisition Corp., a subsidiary of Xerox Corp., merged with Affiliated Computer Services Inc. BAC acquired equity interests in various subsidiaries of ACS, 26 of which operate in Indiana, and those entities became subsidiaries of BAC. Those Indiana subsidiaries kept their own employees, had their own unemployment insurance accounts that were separate from ACS’s account, and each still operated as an individual legal entity.

After BAC reported the merger to the DWD, the agency determined BAC became the “successor employer” of the subsidiaries under state law and combined the experience accounts of all the subsidiaries with BAC. This resulted in a higher contribution rate of 3.7 percent and a higher combined unemployment insurance tax for the companies. The DWD also assessed a penalty against BAC for failure to timely pay the appropriate fees.

A liability administrative law judge within the DWD upheld the determination BAC was the successor employer to the subsidiaries, citing I.C. 22-4-10-6 and 22-4-11-7.

In Boulder Acquisition Corp. (n/k/a Affiliated Computer Services, LLC), et al. v. Unemployment Insurance Appeals of the Indiana Dept. of Workforce Development, 93A02-1202-EX-127, BAC argued that it did not acquire “the organization, trade or business, or substantially all the assets” of each of the subsidiaries, as defined in statute. The DWD claimed that I.C. 22-4-11.5-7 applies, so the experience accounts should have been recalculated and combined. The agency admitted that the relationship between the subsidiaries and its parent company didn’t change with the merger, but believed that the account setup prior to the merger was an error that it merely corrected once it learned of the merger.

This issue is one of first impression in Indiana. The Court of Appeals found guidance in Franklin Electric, although that decision doesn’t govern the COA’s interpretation of I.C. 22-4-10-6(a) because of Franklin Electric’s narrow holding.  

The judges concluded that BAC did not acquire the organization, trade or business, or substantially all the assets of any of the subsidiaries, nor did the subsidiaries transfer all or a portion of their trade or business to BAC. The subsidiaries remained separate legal entities and can be separate employers from their parent company.

The subsidiaries should be permitted to maintain their own employment experience accounts, Chief Judge Margret Robb wrote. She noted the court’s decision remains the same when interpreting I.C. 22-4-11.5-7.

The judges remanded for the DWD to adjust BAC’s and the subsidiaries respective experience accounts and refund any overpayment by BAC and/or the subsidiaries.

 

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