02. Employer Liability, Tax Rate, Successorship

GLRS Leasing Services, LLC v. State of Michigan – 2.24

GLRS Leasing Services, LLC v. State of Michigan
Digest No. 2.24

Section 421.22

Cite as: GLRS Leasing Services, LLC v State of Michigan, unpublished opinion of the Oakland County Circuit Court, issued April 27, 2009 (Docket No. 2008-095740-AE).

Appeal pending: No
Claimant: State of Michigan
Respondent: GLRS Leasing Services, LLC
Docket no: 2008-095740-AE
Date of decision: April 27, 2009

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Holding: The Board’s decision that there was a transfer of business is contrary to law and not supported by the evidence on the record. The transfer of assets from LRS to GLRS is not deemed statutorily a transfer of business for purposes of assigning to the transferee the transferor’s rating account.

Facts: In 2004, there was a migration of 110 employees from LRS, a staffing leasing company, to GLRS, which was in the same business. There was no common ownership between the two companies but the owner of GLRS was still an employee of LRS as a commissioned salesperson. He had formed GLRS to provide PEO services, which LRS did not wish to provide. Some of these employees had told the Unemployment Insurance Agency examiner that the transfer was so that LRS could reduce its Worker’s Compensation costs and provide health insurance to those employees. LRS was also a client of GLRS, though GLRS also had contracts with other employers for its services.

Decision: The circuit court reversed the Board’s decision, and found that there was not a transfer of business under Section 22 of the MES Act.

Rationale: The migration of employees did not satisfy any of the four statutory ways that a transfer of business assets will be deemed a “transfer of business” under MCL 421.22. First, there was no evidence in this case that the transferee GLRS acquired the transferor LRS’ name or goodwill; GLRS merely used a similar name. Second, there was no evidence that GLRS continued all or part of LRS’ business, as GLRS was formed to provide a different type of service than LRS. Third, more than 75% of LRS’ assets were not transferred. Even assuming that employees were LRS’ only assets, 110 out of 191 transferred to GLRS, which is only 57%. Fourth, GLRS and LRS were not substantially owned or controlled by the same interests. There was no evidence that the owner of GLRS had any control over LRS, as he was a salesperson and not a manager, nor that LRS had any control over GLRS. Any work done for GLRS was done separately from LRS.  Therefore, the decision of the Board that there was a transfer of business was in error.

Digest Author: Alisa Hand, Michigan Law, Class of 2017
Digest Updated: 3/27/2016

02. Employer Liability, Tax Rate, Successorship

CTC Acquisition CO, LLC v. State of Michigan – 2.23

CTC Acquisition CO, LLC v. State of Michigan
Digest No. 2.23

Section 421.22, Section 421.41

Cite as: CTC Acquisition CO, LLC v State of Michigan, unpublished opinion of the Kent County Circuit Court, issued November 10, 2008 (Docket No. 2008-06293-AE).

Appeal pending: No
Claimant: N/A
Employer: CTC Acquisition Co., LLC
Docket no.: No. 2008-06293-AE
Date of decision: November 10, 2008

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HOLDING: CTC is a “new employer” under the statute and a 2.7% rate must be applied.

FACTS:  Case stems from CTC Acquisitions Co’s purchase of most of Grand Rapids Controls, Inc’s (GRC) assets. GRC was a spring and cable manufacturer solely owned by Linda Southwick. Sale occurred in April 2004. CTC stopped the spring manufacturing but continued the cable production line. Production staff was retained, management was not. CTC reported the acquisition to the UIA for the determination of the appropriate contribution rate. The company was renamed GRC, LLC. Under the statute (MCL 421.22), a “new employer” is assigned 2.7% contribution (2.7% of its payroll to the UIA). A new employer is an acquisition under 75%. When a business acquires more than 75% of another business, then it is considered a “transfer of business” and the former employer’s contribution rate is transferred. In August 2004 UIA determined GRC, LLC to be a new employer because it has acquired less than 75% of GRC, Inc’s assets. However in June 2005 the UIA reversed its determination because it found that more than 75% of the assets were purchased and assigned a 10.3% contribution rate. UIA determined that the leasehold improvements (valued at $1.3 million) were not GRC, Inc assets.

DECISION: Board of Review’s decision is reversed. The decision reversed was the decision of the agency to recalculate Appellant-Employer’s contribution rate and increase the rate from 2.7% to 10.3%.

RATIONALE: UIA is permitted to reconsider and redetermine an employer’s contribution rate. MCL 421.32(a). However, if the reconsideration occurs within 30 days of the original intent, the rate may only be reconsidered for good cause.As a matter of law, the leasehold improvements were GRC, Inc’s assets and should have been included in the calculation.

Question 1: Is remand required for a determination of whether the agency had good cause to reconsider CTC’s contribution rate because the rate was not reconsidered within 30 days of the original determination?

  • Based on this decision is it not necessary to remand for a determination of whether the agency has good cause to reconsider the rate determination more than 30 days after the original determination.

Question 2: Did the Board err in not considering GRC, Inc’s leasehold improvements in the asset calculation? The improvements were properly written off and they were assets.

  • Court believes that the focus must be on what the seller’s total assets were and what percentage of those assets was transferred to a particular acquiring business. Not the total percentage of what was transferred.
  • CTC is a new employer and must be assessed under the 2.7% rate.

Digest author: Katrien Wilmots, Michigan Law, Class of 2017
Digest updated: 3/27/2016

02. Employer Liability, Tax Rate, Successorship

MESC v Park Lane Management – 2.22

MESC v Park Lane Management
Digest no. 2.22

Section 22

Cite as: MESC v Park Lane Mgt, unpublished opinion of the Court of Appeals of Michigan, issued September 28, 1999 (Docket No. 210592).

Appeal pending: No
Claimant: N/A
Employer: Park Lane Management
Docket no.: N/A
Date of decision: September 28, 1999

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COURT OF APPEALS HOLDING: The doctrines of res judicata, and collateral estoppel may preclude relitigation of MESC administrative decisions that are adjudicatory in nature. The defendant’s failure to timely appeal the MESC determination of successorship rendered that determination res judicata, to any subsequent challenges.

FACTS: Defendant provided information to the MESC, from which the MESC was able to determine that defendant acquired 100% of its predecessor’s Michigan assets. The MESC ruled that defendant was subject to the 10% unemployment tax rate. The MESC sent a notice of successorship determination to the defendant, which had 30 days to appeal. The defendant failed to timely appeal. Plaintiff sent revised 10% yearly rate notices to defendant’s correct address. Defendant’s witness denied seeing the notices but admitted that a secretary opened the mail and sent any tax-related documents to a firm that prepared defendant’s taxes.

DECISION: Plaintiff was entitled to collect $23,698.02 in disputed unemployment insurance taxes.

RATIONALE: Plaintiff relied on the “mailbox rule” to prove that defendant received the notice of successorship and yearly tax notices. “[P]roper addressing and mailing of a letter creates a [rebuttable] legal presumption it was received.” Stacey v Sankovich, 19 Mich App 688 (1969) . Plaintiff’s regularly conducted business included the mailing of 200,000 rate determinations and payment notices a year. In this matter, although direct proof that the notices were mailed to defendant was impractical due to the large volume of mailing plaintiff generated, “evidence of the settled custom and usage of the sender in the regular and systematic transaction of its business may be sufficient to give rise to a presumption of receipt by the addressee. ” Insurance Placements v Utica Mutual Ins, 917 SW2d 592, 595 (1996). Plaintiff presented sufficient evidence to give rise to the common-law presumption that defendant received the mailed notices, which defendant failed to rebut.

Digest Author: Board of Review (original digest here)
Digest Updated: 11/04

02. Employer Liability, Tax Rate, Successorship

Midway Stop-n-Shop, Inc v MESC – 2.19

Midway Stop-n-Shop, Inc v MESC
Digest no. 2.19

Sections 22, 41

Cite as: Midway Stop-n-Shop, Inc, v MESC, unpublished opinion of the Cass County Circuit Court, issued March 29, 1990 (Docket No. 86-12638AA).

Appeal pending: No
Claimant: N/A
Employer: Midway Stop-N-Shop, Inc.
Docket no.: L86-08390-RM1 (Bypassed Board of Review)
Date of decision: March 29, 1990

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CIRCUIT COURT HOLDING: Where successor took over an ongoing business, including the real estate via lease, and continued in business with essentially all the assets except for a large amount of cash, the cash was properly disregarded in determining the percentage of assets transferred.

FACTS: In June 1985, employer acquired an ongoing business (convenience store). Acquisition of $47,000 in inventory, equipment and goodwill was not in dispute. Issue was whether or not $59,000 in leasehold improvements on the realty and $80,000 in cash assets not transferred by the predecessor should be considered in determining whether or not more than 75 percent of assets were transferred. The referee found that out of a total of $126,000 in assets available for transfer, $106,000 was transferred, or 84 percent. He included the leasehold improvements in the transfer. He found that $20,000 of the $80,000 was available for transfer but should not be considered as a transferable asset.

DECISION: Employer is a successor under Sections 22 and 41, having acquired more than 75 percent of the predecessor’s assets.

RATIONALE: Transfer of a leasehold is the transfer of an asset for purposes of successorship because the transferee acquires an ownership interest in the property. With regard to cash assets, considering cash reserves (as opposed to receivables) as a transferable asset can lead to an absurd result of paying cash for cash. It could also lead to manipulation of the transaction for the purpose of, for example, reducing the amount of assets transferred as compared with the total assets.

Digest Author: Board of Review (original digest here)
Digest Updated: 7/99

02. Employer Liability, Tax Rate, Successorship

Ha-Marque Fabricators, Inc v MESC – 2.04

Ha-Marque Fabricators, Inc v MESC
Digest no. 2.04

Section 19, Section 22(d)(3), formerly 22(e)(3)

Cite asHa-Marque Fabricators, Inc v MESC, 178 Mich App 470 (1989); lv den 435 Mich 877 (1990).

Appeal pending: No
Claimant: N/A
Employer: Ha-Marque Fabricators, Inc.
Docket no.: L82 18210 1893
Date of decision: July 17, 1989

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COURT OF APPEALS HOLDING: A weighted average of the tax rate of the employer’s two predecessors which were merged into it must be used to determine the employer’s tax rate under Section 19 and 22(e)(3).

FACTS: The employer, based in Illinois, acquired two Michigan subsidiaries and merged them into its operation during a corporate reorganization and then filed a registration report to determine liability with the MESC. MESC assigned a 9% tax rate for 1982. The MESC based its calculations on legislative amendments to the rate calculation provision. The legislature failed to amend Section 22(e)(3) to conform to the other amendments. MESC interpreted the law to require that in mergers the employer should be assigned a total of the former employer’s rates.

DECISION: Employer’s tax rate must be determined by a weighted average of the merged former employer’s rates pursuant to Section 22(e)(3) and 19(a)(6) of the Act.

RATIONALE: “Although in this appeal, the MESC interprets Section 22(e)(3) to mandate a calculation of the employer’s contribution rate based on the balances in the employer’s experience account, we do not believe that the legislature intended such a construction. While we give respectful consideration to the MESC’s interpretation of the statute, we are not bound by it and we decline to follow it here.”

“We believe that the circuit court judge correctly interpreted Section 22(e)(3) as requiring that a weighted average approach be applied to determine Ha-Marque’s contribution rate … .”

Digest Author: Board of Review (original digest here)
Digest Updated: 6/91