SB-0171, As Passed Senate, February 23, 2005

SUBSTITUTE FOR

SENATE BILL NO. 171

     A bill to amend 1936 (Ex Sess) PA 1, entitled

"Michigan employment security act,"

(MCL 421.1 to 421.75) by adding section 22b.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 22b. (1) A person shall not do either of the following:

     (a) Transfer the person's trade or business or a portion of

the trade or business to another employer for the sole or primary

purpose of reducing the contribution rate or reimbursement payments

in lieu of contributions required under this act.

     (b) Acquire a trade or business or a part of a trade or

business for the sole or primary purpose of obtaining a lower

contribution rate than would otherwise apply under this act.

     (2) The following provisions apply to assignment of rates and

transfer of the unemployment experience of a trade or business to

prevent or remedy transfers of trade or business in violation of

subsection (1):

     (a) If an employer transfers its trade or business or a

portion of its trade or business to another employer and there is

substantially common ownership, management, or control of the 2

employers at the time of the transfer, the unemployment experience

attributable to the transferred trade or business shall be

transferred to the transferee employer. The agency shall

recalculate the contribution rates of both employers under section

19 and apply the new rates in the same manner as for a transfer of

business under section 22(c)(1) and (d)(1). However, if, after a

transfer of experience under this subdivision the agency determines

that the sole or primary purpose of the transfer of trade or

business was to obtain reduced liability for contributions, then

the experience rating accounts of the employers involved shall be

combined into a single account and a single rate assigned to the

account.

     (b) If the unemployment insurance agency determines that a

person who is not an employer under this act at the time of a

transfer acquires a trade or business, or a portion of a trade or

business, solely or primarily for the purpose of obtaining a lower

contribution rate, the unemployment insurance agency shall assign

that employer the applicable new employer rate under section 19.

     (c) In addition to any sanction available under section 54(b)

or 54b, if a person knowingly violates or attempts to violate

subsection (1), or if a person knowingly advises another person so

as to cause a violation of subsection (1), the person is subject to

the following:

     (i) If the person is a transferring or acquiring employer, the

employer shall be assigned the higher of the following contribution

rates:

     (A) The highest contribution rate assignable under this act

for the rate year during which the violation or attempted violation

occurs and for the 3 rate years immediately following that rate

year.

     (B) If the employer's business is already at the highest rate

assignable for a year in which the violation occurs or if the

highest rate assignable would result in an increase of less than 2%

of taxable wages, an additional penalty rate of 2% of taxable wages

for that year.

     (ii) If the person is not an employer, the person is subject to

a civil fine of not more than $5,000.00.

     (d) Notwithstanding the restrictions in section 26(a), the

money recovered under this section as contributions, reimbursements

in lieu of contributions, civil fines, civil penalties, or interest

shall be credited to the unemployment compensation fund.

     (e) The unemployment insurance agency shall establish

procedures to identify the transfer or acquisition of a trade or

business, or part of a trade or business, for purposes of this

section. This subdivision does not grant authority to promulgate

rules to define SUTA dumping.

     (f) Beginning January 1, 2006, the unemployment insurance

agency shall provide an annual written report to the chairpersons

of the standing committees and the appropriations subcommittees of

the house and senate having jurisdiction over legislation

pertaining to unemployment compensation.  The report shall include

all of the following information in a form that does not identify

individual employers:

     (i) The procedures the agency has adopted to prevent SUTA

dumping.

     (ii) The number of SUTA dumping investigations opened during

the year.

     (iii) The average length of time to resolve a SUTA dumping

investigation and the number of investigations pending for more

than 6 months and for more than 1 year.

     (iv) The number of cases brought before an administrative law

judge or the board of review and the agency's success rate in those

cases.

     (v) The amount of money recovered as a result of implementing

the provisions of this section.

     (vi) The amount of the balance or deficit in the unemployment

compensation fund.

     (vii) The estimated fiscal impact of SUTA dumping on the

unemployment compensation fund balance and the factual basis for

the estimate.

     (viii) The number of full-time employees assigned to, and the

number of employee hours devoted to, SUTA dumping prevention,

investigation, and remediation.

     (ix) The number of SUTA dumping investigations that involved

the transfer of employees to or from an employee leasing company.

     (x) The number of investigations in which an employee leasing

company was found to have participated in SUTA dumping.

     (xi) The number of employee leasing companies operating in

Michigan.

     (3) For purposes of this section, the unemployment insurance

agency shall determine whether a transfer is made for the sole or

primary purpose of obtaining a lower contribution rate using

objective factors, such as the cost of acquiring the business,

continuity in operating the business enterprise of the acquired

business, the length of time the business enterprise continues to

operate, and the number of new employees hired to perform duties

unrelated to the business activity or trade conducted before the

acquisition.

     (4) Notwithstanding any other provision of this act, the

following provisions apply to changes in status between reimbursing

employer and contributing employer:

     (a) If a contributing employer, including an employer

described in section 13l that elected to be a contributing employer,

elects to become a reimbursing employer, any negative balance the

employer incurred while a contributing employer must be paid to the

agency before the employer may become a reimbursing employer.

     (b) Any benefit charges incurred as a result of services

performed for a contributing employer that are charged to the

employer's account after it has become a reimbursing employer shall

be transferred to the employer's reimbursing account and paid by

means of reimbursement to the agency.

     (c) If a reimbursing employer or an employer described in

section 13l of this act applies to become a contributing employer

and the agency permits the reimbursing employer to become a

contributing employer, or if the agency converts a reimbursing

employer to a contributing employer, then the employer shall

continue to pay the agency as reimbursement payments those benefit

charges that were incurred based on wages paid while the employer

was a reimbursing employer, and benefit charges incurred based on

wages paid after the reimbursing employer became a contributing

employer shall be used to calculate the employer's contribution

rate.

     (5) As used in this section:

     (a) "Knowingly" means having actual knowledge of, or acting

with deliberate ignorance or reckless disregard for, the

prohibition involved.

     (b) "Person" means that term as defined in section 7701 of the

internal revenue code of 1986, 26 USC 7701.

     (c) "SUTA" means state unemployment tax act.

     (d) "SUTA dumping" means transferring a trade or business, or

a part of a trade or business, solely or primarily for the purpose

of reducing the contribution rate or reimbursement payments in lieu

of contributions required under this act.

     (e) "Trade or business" includes the employer's employees, but

the transfer of some or all of an employer's employees to another

employer shall be considered a transfer of trade or business for

purposes of this section if, as a result of the transfer, the

transferring employer no longer performs trade or business with

respect to the transferred employees and that trade or business is

performed by the transferee employer.

     (6) This section is intended to be interpreted and applied in

a manner so as to meet the minimum requirements of the SUTA dumping

prevention act of 2004, Public Law 108-295, and implementing

federal regulations.

     Enacting section 1.  This amendatory act takes effect July 1,

2005.

     Enacting section 2.  This amendatory act does not take effect

unless all of the following bills of the 93rd Legislature are

enacted into law:

     (a) Senate Bill No. 172.

     (b) Senate Bill No. 173.

     (c) Senate Bill No. 174.