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Justices agree subsidiaries are not new employers

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Emphasizing its ruling only deals with determining the proper merit rate for unemployment fund contributions, the Indiana Supreme Court ruled a manufacturer did not create employers through its new subsidiaries, so it wasn’t entitled to a lower rate.

In Franklin Electric Company, Inc. v. Unemployment Insurance Appeals of the Indiana Dept. of Workforce Development, No. 93S02-1102-EX-89, Franklin Electric Co., which makes pumps, decided in 2002 to split the company into two new subsidiaries – one for manufacturing and one for sales. Franklin Electric retained 100 percent ownership in both entities while serving as corporate headquarters for the two.

An accounting firm believed that the two new subsidiaries would be eligible for a new unemployment insurance experience account with the rate of 2.7 percent. Franklin Electric’s experience rating was near 5 percent. The Department of Workforce Development investigated the company and determined that Franklin Electric didn’t “dispose of a distinct and segregable portion of its organization, trade, or business” and recalculated Franklin Electric’s merit rate. It demanded back payments, interest and a 10 percent penalty.

The liability administrative law judge affirmed the determination that the three entities were a single employer, but declined to impose penalties. The Indiana Court of Appeals affirmed, and the justices also agreed with the LALJ’s determination.

The manufacturing and sales subsidiaries didn’t acquire a distinct and segregable portion of Franklin Electric’s business, so they didn’t qualify as “employers” under the laws governing unemployment compensation arrangements, wrote Chief Justice Randall T. Shepard. The two subsidiaries combined formed essentially the same business as before the change –  Franklin Electric still does the payroll and provides benefits to all the companies, in addition to paying the workers’ compensation coverage for the entities.

“Today’s holding is a narrow one,” he wrote. “It deals only with the language ‘distinct and segregable’ as used in the unemployment statutes and only concerns determining the proper merit rate for unemployment contribution. The instant ruling neither calls into question the validity of the wholly owned subsidiary arrangement, nor holds that the creation of a wholly owned subsidiary can never result in the new entity becoming a separate employer.”

The justices agreed that imposing a penalty against Franklin Electric would be inappropriate because the company filed its reports to determine status in good faith based on advice from the accounting firm.



 

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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