02. Employer Liability, Tax Rate, Successorship

Midwest Rubber Co v UIA – 2.28

Midwest Rubber Co v UIA
Digest no. 2.28

Sections 22, 41

Cite as: Midwest Rubber Co v UIA, Unpublished Opinion of the Michigan Court of Appeals, December 18, 2008 (Docket No. 07-031516-AE).

Appeal pending: No (denied)
Claimant: N/A
Employer: Midwest Rubber Company
Docket no.: 2868H
Date of decision: December 18, 2008

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HOLDING: A company does not become a “successor employer” under Sections 22 and 41 when it purchases all of the assets of a corporate subsidiary if the subsidiary was formed for the purposes of corporate restructuring.

FACTS: Newcor was a publicly-held corporation that filed for bankruptcy in 2001, and was required to spin off and sell some of its divisions pursuant to the bankruptcy restructuring plan. As a result, the Deckerville division of Newcor was incorporated as Michigan Rubber and Plastic, Inc. on January 13, 2003.

In July of 2003, Ken Jehle, the general manager of the Deckerville division and later MRPI, formed appellee, Midwest Rubber Co., to purchase the Deckerville division of Newcor. After the sale was completed, Jehle completed the UC Schedule B Successorship Questionnaire at the UIA’s request. However, he had difficulty understanding the form, and decided to list MRPI and Newcor both as the prior owners of the business, although Midwest Rubber had actually purchased the assets from Newcor. As a result of the Schedule B mistake, UIA assigned Midwest Rubber Co. the same tax rate which had been assigned to MRPI, which was the same tax rate that had been assigned to Newcor.

The ALJ found that because appellee had purchased all of the assets of MRPI, it should be assigned the same tax rate as a successor employer, and the Board of Review agreed on appeal. However, the circuit court ruled that it was necessary to “look at substance over form,” and therefore ruled in favor of appellee, having found that appellee purchased the division from Newcor. Since the assets in MRPI only constituted about nine percent of the assets of Newcor, the circuit court found that appellee was not a successor employer for purposes of Sections 22 and 41, and therefore should not be subject to the same tax rate.

DECISION: The Michigan Court of Appeals affirmed the Circuit Court determination that Appellee is not a successor employer for purposes of Sections 22 and 41.

RATIONALE: As in K&K Woodworking v. MESC, 206 Mich App 515 (1994), the Court of Appeals held that under Section 41, “the Legislature intended to permit a factual inquiry into the substance of the transaction rather than require any technical form of acquisition.” Accordingly, it was appropriate to consider that appellee had only purchased about nine percent of Newcor’s assets, and that MRPI was only created to facilitate the selling of the Deckerville division of Newcor.

Further, MRPI would not be considered a new business for the purposes of Section 22, as there was “substantially common ownership, management, or control,” there was never any “transfer of business” for the purposes of the statute. Therefore, appellant’s argument that appellee received the tax rate of MRPI as a successor employer, which had received its tax rate from Newcor as a successor employer must fail.

Digest Author: Nick Phillips
Digest Updated: 8/14