Dep't of Talent & Econ. Dev./Unemployment Ins. Agency v. Great Oaks Country Club, Inc.

507 Mich. 212

968 N.W.2d 336

DEPARTMENT OF TALENT & ECONOMIC DEVELOPMENT/UNEMPLOYMENT INSURANCE AGENCY, Plaintiff-Appellee,

v.GREAT OAKS COUNTRY CLUB, INC., Defendant-Appellant.

No. 160638

Supreme Court of Michigan.

Argued on application for leave to appeal March 4, 2021

Decided June 7, 2021

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Zachary A. Risk, Assistant Attorney General, for the Department of Talent and Economic Development/Unemployment Insurance Agency.

Stark Reagan, PC, Troy (by Christopher E. LeVasseur ) and Thav Gross PC (by Kenneth L. Gross, Farmington Hills and Jeffrey B. Linden ) for Great Oaks Country Club, Inc.

BEFORE THE ENTIRE BENCH

Zahra, J.

This appeal arises from a relationship between an employer, defendant-appellant Great Oaks Country Club, Inc. (Great Oaks), and a Professional Employer Organization (PEO).¹ We are called upon to determine, in the context of this relationship, Great Oaks's unemployment-insurance tax rate under the Michigan Employment Security Act (the MESA), MCL 421.1 et seq. , specifically MCL 421.13m(2)(a)(i )(A) and (B).² The Court of Appeals interpreted Section 13m to require Great Oaks to have reported "no employees or no payroll" for a period of 12 or more calendar quarters to qualify for the lower "new employer tax rate" under the MESA. The Court of Appeals adopted the interpretation of Section 13m offered by plaintiff-appellee, the Department of Talent and Economic Development/Unemployment Insurance Agency (the Agency), which maintained that a client employer must have switched to client-level reporting before January 1, 2014, to be assessed the new-employer tax rate (the conversion-date interpretation).³ We disagree. We hold that, in this context, Section 13m is best understood according to the interpretation offered by Great Oaks: that a client employer must have accrued the relevant number of calendar quarters in which it reported "no employees or no payroll" by January 1, 2014, to be assessed the new-employer tax rate (the accrual-date interpretation). And because Great Oaks reported no employees or payroll for 8 consecutive calendar quarters before January 1, 2014, we hold that Great Oaks is entitled to be assessed the new-employer tax rate under Section 13m of the MESA. Accordingly, we reverse the Court of Appeals’ decision and remand to the Agency for further proceedings consistent with this opinion.

Because the proper resolution of this case rests so heavily on the interaction between the MESA, Section 13m, and the PEO Act, as well as subsequent amendments, we first review the statutory scheme and its relevant statutory history before presenting the basic facts and procedural history of this case.

I. THE MESA

All employers subject to the MESA are responsible for paying unemployment-insurance taxes, or contributions, to the Agency.⁴ The Agency places these contributions into the unemployment-compensation fund.⁵ From this fund, the Agency pays unemployment benefits to eligible and qualified workers.⁶ Benefits paid to claimants are charged against an employer's account.⁷ Under MCL 421.19 (Section 19), an employer is taxed either at the new-employer rate or at a calculated, experienced-employer rate based on its unemployment experience.⁸ Therefore, the more an employer's former workers are awarded unemployment benefits, the higher its tax rate will be.⁹

Liable employers are required to file quarterly tax reports with the Agency, and some employers utilize PEOs to file these reports.¹⁰ Prior to 2011, a PEO could report a client's payroll under the PEO's own unemployment account rather than the client employer's. But with the enactment of the PEO Act in 2011,¹¹ PEOs were required to report the payroll information under the client employer's unemployment account beginning January 1, 2014.¹² This practice is known as "client-level reporting," and reporting in this fashion was discretionary beginning January 1, 2011, but became mandatory as of January 1, 2014.¹³

When the PEO Act was passed, the Legislature also changed how the unemployment tax rate is calculated for client employers.¹⁴ Although the PEO remains the employer liable for paying unemployment-insurance contributions, the unemployment tax rate is no longer based on the PEO's prior account and experience.¹⁵ Rather, beginning January 1, 2014, for purposes of calculating unemployment tax rates, the PEO is taken out of the picture and the calculation is based on the number of years the client employer is deemed to have employed a staff, either directly or through the PEO, and each client employer is taxed at its own rate.¹⁶

II. STATUTORY HISTORY OF SECTION 13M AND TEXT OF OTHER KEY PROVISIONS

Section 13m is a subsection of the MESA and was enacted into law on January 1, 2011,¹⁷ at the same time as the PEO Act.¹⁸ Section 13m governs the applicable unemployment tax rates for PEOs and their client employers. In 2011, Section 13m provided, in relevant part:

(2) ... [A] PEO that is a liable employer shall use the following method for reporting wages and paying unemployment contributions under this act:

(a) The PEO shall comply with all requirements of this act that apply to a contributing employer....

(i ) For a client employer that is a contributing employer and was a client employer of the PEO on the date that the PEO changed to the reporting method provided in this subdivision, the following rates apply:

(A) Except as provided in sub-subparagraphs (B) and (C),^[19] if the client employer reported no employees or no payroll to the agency for 8 or more quarters, the client employer's unemployment tax rate will be the new employer tax rate.

(B) If the client employer was a client employer of the PEO for less than 8 full calendar quarters, the client employer's unemployment tax rate will be based on the client employer's prior account and experience.

* * *

(ii ) A business entity that is a contributing employer and becomes a client employer of the PEO on or after January 1, 2011 shall retain its existing unemployment tax rate or establish a new rate as provided in section 19.^[20]

Section 13m was amended for the first time on December 19, 2011, less than a year after it was first enacted, along with 28 other sections of the MESA (the 2011 Amendments).²¹ Of relevance here is that the 2011 Amendments changed both occurrences of "8" in Section 13m to "12."²²

Then, just six months later in 2012, Section 13m was amended for the second and final time (the 2012 Amendment).²³ The 2012 Amendment made four changes to Section 13m(2)(a)(i ) and one change to Section 13m(2)(a)(ii ). As to Section 13m(2)(a)(i ), both occurrences of "12" were changed back to "8"; the clause "or, beginning January 1, 2014, for 12 or more calendar quarters" was added to Section 13m(2)(a)(i )(A); the clause "or, beginning January 1, 2014, for less than 12 calendar quarters" was added to Section 13m(2)(a)(i )(B); and "quarters" was modified by "calendar" in Section 13m(2)(a)(i )(A). As to Section 13m(2)(a)(ii ), "2011" was changed to "2014."

Section 13m now provides, in relevant part:

(2) ... [A] PEO that is a liable employer shall use the following method for reporting wages and paying unemployment contributions under this act:

(a) The PEO shall comply with all requirements of this act that apply to a contributing employer....

(i ) For a client employer that is a contributing employer and was a client employer of the PEO on the date that the PEO changed to the reporting method provided in this subdivision, the following rates apply:

(A) Except as provided in sub-subparagraphs (B) and (C),^[24] if the client employer reported no employees or no payroll to the agency for 8 or more calendar quarters or, beginning January 1, 2014, for 12 or more calendar quarters, the client employer's unemployment tax rate will be the new employer tax rate.

(B) If the client employer was a client employer of the PEO for less than 8 calendar quarters or, beginning January 1, 2014, for less than 12 calendar quarters, the client employer's unemployment tax rate will be based on the client employer's prior account and experience.

* * * (ii ) A business entity that is a contributing employer and becomes a client employer of the PEO on or after January 1, 2014 shall retain its existing unemployment tax rate or establish a new rate as provided in section 19.

(b) A PEO that is a liable employer and that was operating in this state before January 1, 2011 may elect and use the reporting method in subdivision (a) before January 1, 2014, but shall report using the method in subdivision (a) on and after January 1, 2014.^[25]

Finally, MCL 421.19(a)(1)(i ) provides, in relevant part:

(a) The commission shall determine the contribution rate of each contributing employer for each calendar year after 1977 as follows:

(1)(i ) ... If ... at the conclusion of 12 or more consecutive calendar quarters during which the employer has not had workers in covered employment, and if the employer again becomes liable for contributions, the employer shall be considered as newly liable for contributions for the purposes of the tables in this subsection.^[26]

III. BASIC FACTS AND PROCEDURAL HISTORY

Several key facts are undisputed. First, Great Oaks became a client employer of a PEO that operated in this state before January 1, 2011.²⁷ For that reason, it was not required to change its reporting method until January 1, 2014.²⁸ Second, Great Oaks had been a client employer of the PEO for at least 8 quarters as of January 1, 2014, and Great Oaks had reported no employees or payroll for those same 8 quarters.²⁹ Third and finally, Great Oaks's PEO did not change its reporting method until January 1, 2014.³⁰

The dispute began when the Agency concluded that Great Oaks, which had 8 quarters of not reporting employees or payroll by January 1, 2014, was not entitled to the new-employer tax rate beginning with tax year 2014 because it did not report its eighth nonreporting quarter until after January...