University of Southern California Dissertations and Theses

The control of unemployment insurance payments in California

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The control of unemployment insurance payments in California

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Content THE CONTROL OP UNEMPLOYMENT INSURANCE PAYMENTS
IN CALIFORNIA
A Thesis
Presented to
the Faculty of the Department of Economics
University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Arts
by
Robert H. Lillevick
June 1951
UMI Number: EP44707
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T his thesis, w ritte n by
JRol)Br.t..II*„iill©Arijak..............
under the guidance o f A-iS—F a cu lty Com m ittee,
and approved by a ll its members, has been
presented to and accepted by the C o u n cil on
G raduate Study and Research in p a rtia l f u lf ill
ment of the requirements fo r the degree of
E & s . ta r. .. Q£ .. Ar . fc s.
D a te...
Faculty Committee
__'
Chairman
TABLE OF CONTENTS
CHAPTER PAGE
I. INTRODUCTION ................................ 1
' The problem - . 1
Control of unemployment insurance payments . 6
Literature and method of study ............ 13
Scope of study......................... 17
II. THE LEGISLATIVE DEVELOPMENT OF UNEMPLOYMENT
COMPENSATION.......................... 19
Nature and origin of unemployment insurance. 19
Purposes and objectives of unemployment
insurance........................... 28
Summary of the unemployment insurance act. . 34
Significance of unemployment insurance ... 4l
III. LEGISLATIVE CONTROL OF BENEFIT PAYMENTS ... 45
Present legislative controls .............. 45
Power of the legislature to amend..... 48
Proposed legislative amendments to control
payments............................. 51
Conclusions....................... 69
IV. ADMINISTRATIVE CONTROL OF PAYMENTS....... 73
Qualification for benefits......... 74
Re-employment as a control measure..... 87
Power of the administrative section to
iv
CHAPTER PAGE
amend............. ................. 89
Educational program as a control
measure............................. 92
Conclusions..................... 94
V. CALIFORNIA UNEMPLOYMENT INSURANCE APPEALS
MACHINERY............................. 98
Hearing and decision by referee ........ 100
Proceedings of the Appeals Board ........ 104
Decisions of the Appeals Board .......... 107
Conclusions........................... 113
VI. FRAUD AND INVESTIGATION SECTION.......... 116
Organization and functions.............. 118
Procedure for controlling fraud ........ 120
Nature and extent of fraudulent practices. 125
Convictions for fraud ................ 136
Conclusions........................... 138
VII. INTERNAL AUDIT AS A METHOD OF CONTROL ... l4l
Eligibility for benefits .......... 142
Amount of weekly benefits and maximum
total benefits....................... 143
Detection of duplicate claims .......... 145
Matching benefit payments against
earnings............................. 147
Conclusions........................... 148
V
CHAPTER PAGE
VIII. JUDICIAL CONTROL OF UNEMPLOYMENT INSURANCE
PAYMENTS............................ 152
Right of parties to Judicial review . . . 152
Judicial interpretation of the law .... 155
Significant cases.................. 157
Conclusions........................ 166
IX. OTHER SOURCES OF CONTROL OVER PAYMENTS ... l68
Employer control over payments ............ 169
Controls by workers and by the general
public............... 186
Conclusions........................ 190
X. AN INTEGRATED PROGRAM FOR CONTROL OF
BENEFIT PAYMENTS................... 194
The general framework of the integrated
program........... 196
Basic changes in the law............ 197
Reconstruct the benefit structure .... 198
Eligibility and disqualification .......... 200
Improvements in administration ............ 201
Participation of employers, workers, and
general public .......................... 203
Educational programs ...................... 204
BIBLIOGRAPHY................................ 208
LIST OP TABLES
TABLE PAGE
I. Unemployment Compensation Contribution
Rates............................. 9
II. Unemployment Insurance Benefit Appeals . . . 102
III. Unemployment insurance Benefit Appeals . . . 110
IV. Average Number of Workers in Covered
Employment and Average Number of Weekly
Benefits............................ 134
V. Weekly Benefit Amounts .................... 144
VI. Unemployment Compensation Contribution
Rates . ............................. 180
CHAPTER I
INTRODUCTION
More than fifteen years have passed since Califor
nia first adopted an unemployment insurance program, and
more than twelve years have passed since benefit payments
were first made. The national program of unemployment
insurance was undertaken in 1935 In spite of rather pessi
mistic views held in some quarters. The American Bar
Association asserted it would be held unconstitutional. 1
And no one today would contend that purchasing power was
seriously disrupted as forecasted by the National Associa
tion of Manufacturers. 2 There were also some who pointed
to the failure of the unemployment compensation system of
Great Britain as Indicative of what we could expect in
this country.
I. THE PROBLEM
The subject of unemployment insurance is one which
fairly bristles with problems. Time and space do not
1 E. E. Witte, "Development of Unemployment Com
pensation," The Yale Law Journal, December 19^5* P- 3^*
2 J. C. Gall and R. S. Smethurst, "A Critical Anal
ysis of the Federal-State System of Unemployment Compensa
tion." Law and Contemporary Problems, Duke University,
j a n u a r y T ^ r p T 124. ------- ----------------
2
permit the inclusion of all of the problems here. Accord
ingly, attention is centered on the problem having to do
with the control of benefit payments. The proper control
of payments may be the factor which will keep expenditures
of the program within the revenue, without the need of
resorting to changes in the tax rate every two years.
Though no conclusive answer can be given, support will be
set forth in the following pages for the contention that
the proper control of payments may truly be the solution
of how to keep expenditures within revenues at reduced tax
rates.
The experience gained in these first fifteen years
of experiment is full of significance. The present time
is an appropriate one to re-examine several aspects of the
program in the light of this experience.
In particular, attention in this study will be
focused upon aspects of control over benefit payments.
"To the average citizen the question of improper payment of
benefits, commonly referred to as 'chiseling,1 stands out
as the most important problem of the unemployment insur
ance p r o g r a m . This is natural, since occasions of abuse
receive wider publicity than other aspects of the program.
■ a
J Arthur P. Allen, Unemployment Insurance in
California (Los Angeles: The John Randolph Haynes and Dora
Haynes Foundation, 1950), p. 34.
3
The majority of people, knowing little else about the sub
ject, have heard or read about abuse— alleged or real.
While fraud and chiseling constitute a danger to the unem
ployment insurance program, they are not the only elements
subject to control. Certain basic faults in the act also
are responsible for the excess of outgo over income.
The lack of recognition that the system is insur
ance only rather than mere public relief is not the sole
factor endangering the Unemployment Insurance Trust Fund.
When workers, businessmen, and the general public do not
assume their respective duties and responsibilities under
the unemployment insurance program, there is the ever-
eonstant threat that the program will degenerate into a
“dole" with the economic consequences similar to those of
Great Britain.
This raises the question of the purpose of unem
ployment insurance. If it is the purpose of the program
to provide ”insurance” for unemployment, then exhaustion
of accumulated reserves would spell failure because it
would demonstrate that disbursement was not properly
related to income. However, there are those who look upon
unemployment compensation as a social institution. They
claim the unemployment insurance system is but a part of a
broad social front, its purpose being to attack the unem
ployment problem utilizing the State’s full power. The
4
real purpose of such a system will be treated in detail
later.
The primary concern now is to point out that if the
system is to be run as an ”insurance” against unemployment
(assuming this to be the legislative intent) then the pro
gram now faces a financial crisis and the element of con
trol over payments is very significant. The attention of
businessmen, workers, the general public and the legislature
both in California and in the United States at large should
be focused on the elements of control over benefit payments
if the system as an "insurance" system is to be successful.
Benefit payments have exceeded receipts for unem
ployment insurance for the past three years in California,
and the balance in the Trust Fund^ (although very large at
present) has been declining rapidly. Despite record high
employment during these years the Trust Fund is steadily
declining. One writer has said:
The unemployment insurance fund has been depleted
some $176,000,000 since . . . 1946. This because,
instead of regarding unemployment insurance as
’insurance,’ too many workers have regarded it as a
form of public relief.5
2 i
The excess of tax contributions over benefit pay
ments has been set up in a reserve account known as the
Trust Fund, or Unemployment Insurance Fund.
5 Ross Graham, "Save Your Jobless Pay,” Angeles
News Advertiser. January 11, 1951* p. 4.
It has been proven, that with proper safeguards and
in times of fairly stable industrial conditions, unemploy
ment is an Insurable risk, susceptible to treatment in a
businesslike way. On the other hand, the experience in
Great Britain during the 1920*s shows how vulnerable the
safeguards are during periods of widespread distress; and
how readily the system may degenerate into a “dole1 1 or
charitable relief.
These years saw severe depression in Great Britain,
with widespread unemployment and steadily increasing dis
tress among the laboring population.
Motives of compassion caused the authorities to
relax the safeguards and restrictions with which
the system was surrounded. The waiting period was
virtually extinguished; eligibility was no longer
based on the worker‘s contribution during the pre
ceding two years; payment of benefits was continued
after the statutory period had passed and the worker
had exhausted his legal claim. In other words, the
system ceased to be one of insurance and beeame a
policy of charity to people in distress administered
on a nationwide scale. 6
However serious the financial loss of funds due to
”chiseling’1 may be, even more serious, perhaps, is the
effect upon popular opinion. In the summer of 1948 a maga-
.zine of national circulation published an article which
told of large numbers of New Yorkers who were financing
^ F. R. Fairchild, E. S. Furniss, and N. S. Buck,
Economics (New York: The Macmillan Company, 1950), pp. 657-
vacations in Florida partly through unemployment insurance
benefits.^ Then there is the story of a man who wants to
paint his house, or work on his car or garden. Or the
employed woman who wants to stay home a few weeks because
she is tired or because of illness of someone in the family.
Workers who heard or read of these stories naturally
resented the inequity involved. A loss of respect for the
entire program could result without proper control. From
this point it is but a step to excuse and then to embrace
the abusive practices, though perhaps in some other and
even more serious form. Such a sequence of attitudes- can
lead to the complete breakdown of a social program, as the
failure of prohibition testifies.
What devices may be used to prevent the people from
emasculating the program? What administrative techniques
and legal provisions are employed to curtail abuse? How
effective are these devices? What improvements are needed?
II. CONTROL OF UNEMPLOYMENT INSURANCE PAYEMNTS
Emphasis on control. The control of unemployment
insurance payments in California constitutes the core of
this thesis. Time and space do not permit a thorough study
^ Howard Whitman. “Chiseler’s Holiday,” Colliers.
June 26, 19^8, p. 13.
7
of the entire subject of unemployment insurance. The reader
may wonder why attention is centered on the aspects of con
trol of payments. The primary reason is that California’s
unemployment insurance system is facing a financial crisis.
Despite record high employment in recent years, the reserve
fund is being steadily reduced. Expenditures from the
State’s Unemployment Trust Fund have exceeded receipts from
the last quarter of 19^7 to the third quarter of 1950. The
totals for 1950, however, are still in the red column, even
though expenditures were brought in line with receipts the
last half of the year. Preliminary estimates for 1950 list
contributions to the fund of about $167 million. At the
same time estimates of total benefit payments amount to
about $190 million. This, during a year in which California
had the highest employment figures in its history!
Tax rates based on solvency of the fund. The
increase in contributions rates for unemployment Insurance
for the calendar year 1950 from the schedule in effect in
19^8 and 19^9 focuses attention upon the factors affecting
the solvency of the Trust Fund. Principally the factors
affecting the solvency of the Trust Fund are the benefit
structure, coverage, and control over benefit payments.
Contribution rates paid by employers are dependent upon the
amount of reserves in the Trust Fund available for benefit
8
payments. The proper control over benefit payments is one
of the most Important factors affecting the solvency of
the Trust Fund. Therefore, the proper control of benefit
payments indirectly affects employer contribution rates.
The manner in which benefit payments affect employer con
tribution rates will be outlined in this section.
The law sets forth three different rate schedules
on employer's payrolls depending on the status of the
Trust Fund. The three schedules of contribution rates thus
provided by the Unemployment Insurance Act are shown in
Table I. The law sets forth three different rate schedules
on employer's payrolls depending on the status of the
reserve fund. The first of these, and the one now effec
tive, is that when, at the first of any calendar year, the
amount in the Unemployment Trust Fund is less than 7*5 per
cent of the total taxable wages subject to the act during
the twelve month period ending the previous June 30*
The first schedule provides for a maximum tax rate,
or “general rate" of 2.7,per cent for employers whose
respective reserve accounts have not been subject to bene
fit charges for the three year period ending the previous
June 30, or whose net balance of reserve on June 30 was
less than 7.5 per cent, and the rates which apply to
employers with a reserve ratio of 7*5 per cent or more are
progressively reduced from the 2.7 per cent general rate
TABLE I
UNEMPLOYMENT COMPENSATION CONTRIBUTION RATES*
Ratio of employers
reserve balance to
average base payroll
Intermediate
tax ratea
Lowest
tax rate1 3
Highest
tax rate0
Less than
6$ but less than 6-1/2%
6-1/2% but less than 7%
7% but less than 7-1/2$
7-1/2$ but less than 8$
8$ but less than 8-1/2$
8-1/2$ but less than 9$
9$ but less than 9-1/2$
9-1/2$ but less than 10$
10$ but less than 10-1/2$
10-1/2$ but less than 11$
11$ but less than 11-1/2$
11-1/2$ but less than 12$
12$ but less than 12-1/2$
12-1/2$ or more
2 .7 2 .7 2 .7
2 ,7 2 .5 2 .7
2 .7 2 .3 2 .7
2 .7
2.1
2 .7
2 .5 1.9 2 .7
2 .5 1.7 2 .7
2 .5 1.5 2 .7
2.0
1.3 2 .7
2.0 1.1
2 .7
1.5 • 9 2 .7
1.5 .7 2 .7
1.0
.5 2 .7
1.0
• 3 2 .7
1.0 .1
2 .7
1.0 .0
2 .7
California Unem]
Sections 39(a 390/
Insurance Act, as Amended, 19^9*
, and 41.3.
a Schedule prior to 1947 and applicable whenever available fund
balance is less than 7-1/2 per cent of total taxable pay
roll for year ending previous June 30th.
b Schedule used in 1948 and 1949*
0 May be used whenever balance is less than 1-1/2 times
amount paid for previous year.
vo
10
to 2.5 per cent, and then In 0.5 per cent steps to a mini
mum of 1.0 per cent as their reserve ratios increase in
o
varied steps to 11 per cent or more.
The second schedule is that, when on the first of a
calendar year, such fund balance is at least equal to 7*5
per cent of total taxable payrolls subject to the tax
during the twelve month period ended the previous June 30,
the experience-rating tax schedule now most favorable to
employers shall be effective that calendar year. This
schedule provides for a maximum tax rate, or "general rate"
of 2.7 per cent for employers whose respective net balance
of reserve on the previous June 30 was less than 6 per cent
of his average base payroll. It further provides for a
progressive reduction in tax rates for employers with such
reserve ratios of 6 per cent or more, in steps 0.2 per cent
for each 0.5 per cent increase in reserve ratio, until the
tax r&te becomes zero for those with a reserve ratio of
12.5 per cent or more.9
The third taxing formula is that provided in
Section 41.3 of the act under which the commission may
suspend all reduced rates under either of the first two
Q
California Unemployment Insurance Act, as Amended.
, 1949, Section 39(a).
9 Ibid.. p. 47, Section 39(b).
11
experience-rating schedules and return all subject employ
ers to the maximum or general rate of 2.7 per cent whenever
the balance in the fund is less than 1.5 times the total
unemployment insurance benefits paid in the preceding cal
endar year. This last is an emergency formula.10
Since the beginning of the unemployment insurance
program employers have enjoyed the reduced rate (second
schedule) for only two years, 1948 and 19^9* The unemploy
ment reserve fund during these two years decreased rapidly,
requiring the first tax schedule to be re-imposed. Experts
at the Department of Employment gay that it may be possible
that employers would enjoy the reduced rate once again in
1952, if present levels of employment are maintained.
Thereafter, continued use of the reduced rate will depend
upon high levels of employment and proper control over
benefit payments.
Abuse and solvency of the fund. Charges are heard
from all quarters that the fund is being depleted of
11
amounts ranging from $30 million to $75 million per
10 Ibid., pp. 51, 52, Section 41.3.
11 Employment Stabilization, a report of the Senate
Interim Committee on Employment stabilization to the 1949
California Legislature, p. 26. This estimate is for fraud
only.
12
year,12 by fraud and improper payments, or payments made
contrary to legislative intent. This ranges from 20 to 30
per cent. Staff members at the Department of Employment
deny that improper payments or abuse equal figures anywhere
near the amounts mentioned. 1 1 The Department makes no
general estimate of the total amount of fraud or improper
payments.However, improper payment of benefits is
almost inevitable in a program involving the distribution
of public funds on a large scale. It would appear desir
able as a first step to measure as accurately as possible
how much abuse does oceur. Improper payments do occur, but
an accurate measure of them Is impossible. However, an
examination of some of the particular types of cases which
are often asserted to the occasion of Improper payments is
possible. In general, they result from some one or a com
bination of the following causes: failure of the law to
express the intent of the program; improper interpretation
of the law by those charged with its administration; other
defects in administration, such as the lack of due care or
organization; lack of cooperation by employers in supplying
necessary information or jobs; ignorance of the law on the
12 Ross Graham, ’ ’Save Your Jobless Pay,” o£. cit.,
p. %.
1- a
Statement of a Staff member of the local
Department of Employment Office.
13
part of claimants; and deliberate violation of the law, or
t
fraud.
While a large part of the controversy over unemploy
ment insurance revolves about the adequacy of the tax rate,
the tax rate structure and the experience-rating principle
it is suggested here that perhaps more could be accomp
lished by centering attention on the disbursements side,
or in controlling payments.
Important questions arise which should be answered.
How much protection should be provided? And to whom? And
for how long? Is the law itself, or Its administration,
inadequate to prevent payment of benefits to unworthy
persons? Is such abuse general? If so, the cost of insur
ing deserving workers is bound to become inordinately
great. And even more serious is the danger that the temp
tation of something for nothing will undermine the desire
to work and corrupt public morals. Is the present program
accomplishing its purpose?
These important questions must be answered if public
confidence in and cooperation with the program are to be
maintained.
III. LITERATURE AND METHOD OF STUDY
In order to answer the Important questions which
14
arise in connection with unemployment insurance, a certain
amount of detailed knowledge of the system and an under
standing of its objectives are essential. Though there is
considerable published material regarding unemployment
insurance in general, it is intended chiefly for the stu
dent or professional worker in the field rather than the
layman. With the exception of official reports there is
little or nothing which concerns itself with the program
as it has developed in California.
However, there are one or two exceptions. Ralph J.
Wade, Department of Employment Public Education Information
Representative in Southern California, has prepared a loose-
leaf type book directed to employers.1^ It is a detailed
summary and guide for the use of employers in securing a
working knowledge of the unemployment insurance program in
California. Its descriptive nature and concentration of
attention on employers* duties and responsibilities impose
limitations on its use.
Of most recent date is Arthur P. Allen*s book on
unemployment i n s u r a n c e . This publication gives a brief
14
Ralph J. Wade, Handbook for Employers on
California* s Unemployment insurance Program (Los Angeles:
Personnel and IndustiralRelationsAssociation, Inc.,
1949)•
15
^ Allen, o£. cit.
account of the nature of unemployment Insurance and then
treats at some length most of the major problems of unem
ployment insurance including the problem of experience
rating; tax rates; problems of administration (other than
control over payments); proposed changes in State and
Federal law; and problems of abuse. Its obvious limita
tion lies in the fact that it attempts to treat most of the
problems in such short space (135 pages). However, since
it is addressed primarily to the interested public, as well
as students and experts, it achieves its purpose by out
lining in brief form the major problems.
Official sources consulted are many and varied.
Among them are the unemployment insurance act, California
Assembly and Senate reports, the California Assembly daily
journal, and reports of Federal agencies. In addition,
many pamphlets, reports, and periodicals of the Department
of Employment; newspaper articles, articles in national
periodicals; and reports and publications of employer asso
ciations and civic associations were used.
The major shortcoming of all these sources is that
each of their authors had a certain narrow purpose in mind
for their publication and circulation. While bits of use
ful information were gleaned from most of them, certain
questions still remained unanswered.
In order to do a thorough job it seemed essential
to travel Into the field for the answers. Interviews were
arranged with officials and departmental heads of the
Department of Employment in Los Angeles. Because of the
difficulties which tend to multiply in large urban centers,
answers to the most important questions were secured from
the local office. Officials at the Department of Employ
ment were most helpful and very cooperative. Opportunity
was given to observe the internal workings of the Depart
ment including the Appeals and Fraud Sections. A visit to
a municipal court with an attorney of the Fraud Section
was made to observe the prosecution of cases of fraud.
Opportunity was also given to visit the Superior Court to
witness the prosecution of another fraud case. In addi
tion, opportunity was given to visit a class conducted for
employers by the Public Education Information Representa
tive of the Department of Employment.
To supplement this approach, and In order to avoid
bias, interviews were arranged with persons outside the
Department who might be expected to have knowledge of
definite opinions concerning some phase of the system.
Talks were arranged with payroll managers and personnel
managers of large corporations, employers, officials of
central labor councils (C.I.O. and A.F.L.), and represent
atives of employer's associations, Chamber of Commerce, and
California Taxpayer's Association.
17
With the exception of one official of the Department,
most persons contributed freely and all seemed genuinely
concerned over the apparent incongruity of huge benefit
payments in a period of almost full employment when many
employers were seeking workers. Many of the contributors
were promised anonymity, and there were so many it is
impossible to name them. An overwhelming supply of statis
tics are available from the Research and Statistics Section
of the Department, or the Federal Bureau of Employment
Security.
IV. SCOPE OF STUDY
Of necessity the scope of the study has to be cur
tailed in a work such as this, unemployment insurance is
^ust a part of a larger program of social insurance Includ
ing in addition Old Age and Survivors Insurance, Workmen’s
Compensation, Disability Insurance, and public works pro
grams considered necessary in a modern industrial society.
In California the law which provides for unemployment
Insurance also provides for disability insurance and for
employment service.
No consideration is given here to disability insur
ance, since it does not present the same problems as unem
ployment insurance. The Employment Service is considered
18
only to the extent it can contribute to getting the unem
ployed back on the job and thus keep the amount of benefit
payments down.
Also exeluded from this investigation is the Service
men' s Readjustment Allowance program which closely resem
bled the unemployment Insurance program. Under this plan,
Veterans of World War II received benefits of $20 a week
for 52 weeks if unemployed during the reconversion period.
Since it has been terminated its exclusion seems justified.
Certain questions are the subjects of much contro
versy in the legislature, Department, and elsewhere. Some
have become hotly contested issues. Some of the questions
really present knotty problems. All this points up the
fact of the importance of an independent and objective
point of view If the study Is to be of real value. Every
effort has been made to avoid as far asrpassible any bias
for, or prejudice against, any class, group, or theory,
whether It be political, sociological, or economic.
CHAPTER II
THE LEGISLATIVE DEVELOPMENT OF UNEMPLOYMENT COMPENSATION
Unemployment insurance is but a part of a broad
social program whose purpose it is to mitigate some of the
shortcomings of an industrial economy. In this chapter a
general background of the place of unemployment insurance
in the broad social program will be given. In addition,
the manner in which the unemployment insurance system works
will be outlined. No attempt is made here to give a com
prehensive discussion of the whole social insurance pro
gram or even of the unemployment insurance program. Rather
the purpose here is to set down in a rudimentary way a
general outline which will assist in a better understand
ing of the setting and the problem of the control of unem
ployment insurance payments.
I. NATURE AND ORIGIN OF UNEMPLOYMENT INSURANCE
What is unemployment insurance? This is a much more
difficult question than might at first appear. Trying to
define unemployment insurance in a few words is like try
ing to define Economics in a few words. The California
law itself does not undertake to define unemployment insur
ance in a few words. Rather the law expresses Itself in
20
terms of the purposes, objectives and functions of unem
ployment Insurance. The nearest the law comes to a defini
tion is the following:
The Legislature therefore declares that in its
considered judgment the public good and the general
welfare of the citizens of the State require the
enactment of this measure under the policy (sic)
power of the State, for the compulsory setting
aside of funds to be used for a system of unemploy
ment insurance, providing benefits for persons
unemployed through no fault of their own, and to
reduce involuntary unemployment and the suffering
caused thereby to a minimum.1
Is it like fire insurance or life insurance? Or is
it rather a glorified system of relief, a step toward the
welfare state? Or is it perhaps some new scheme, under
stood only by super-economists, designed to redistribute
purchasing power? Some regard the program as one of the
above, others have a conflicting view. To some people
unemployment insurance is confined to the narrow limits of
unemployment compensation, i.e., payment of benefits to
those involuntarily unemployed. To others its scope Is
broader. They see it as an employment security program,
which also embraces placement service and disability insur
ance.
Perhaps the best brief definition of unemployment
insurance is that found in the State Senate Committee
1 California Unemployment Insurance Act, as Amended,
19^9. Article I, Section 1.
21
Report on Unemployment Insurance, 194-5* Unemployment
Insurance Is "defined as a device sponsored by government
whereby reserves are accumulated during periods of employ
ment from which compensation is paid to the worker who
becomes involuntarily unemployed."^ This short and limited
definition is the one which will be used as a starting
point for this thesis. This narrow description is obvious
ly of little use without a knowledge of the methods used
in accumulating reserves, the conditions on which benefit
payments are made, the amount and duration of benefit pay
ments, the method and procedure followed In making payments,
the control over the accumulated reserves, and the control
over benefit payments.
A factual knowledge of the present law and Its
application, necessary as it may be, still leaves the ques
tion of the origin of the present program unanswered. Only
with some knowledge of the background and of the evolutibn
of the program, can the present-day problems be understood.
Origin of unemployment insurance. Unemployment
insurance began with the efforts of trade unions to provide
benefits for their members when out of work. Since
2 Unemployment Insurance. A Report of the Senate
Interim Committee on Unemployment Insurance to the Cali
fornia Legislature, 194-5. (Sacramento: California State
Printing Office, 19^5), P* 10.
i
22
unemployment as we know it today is an element of indus
trialization, one should expect to find the early begin
nings of unemployment insurance in the European countries.
Most authorities say that the evolution of unemployment
insurance relates back to the practice instituted by the
Belgian City of Ghent in 1900, using public money to sub
sidize out-of-work funds maintained by the labor unions.^
Details of the system were as follows:
Public contributions were made on condition that
a substantial portion of cost— usually one-third or
one-half— be borne by the trade union; administra
tion was placed in the hands of union officials;
certain standards determining the amount and dura
tion of benefits were set by the governing body. 4
However, the public subsidization of the trade union
unemployment programs had beginnings earlier than the
Ghent venture.
Municipalities in France (in 1896 and 1897),
Cologne in Germany (in 1896), and Berne in
Switzerland (in 1893) had undertaken such a policy
in the nineties. In each case the city set up a
voluntary insurance fund rather than utilizing
the existing labor union funds.5
■ 5
J For example, F. R. Fairchild, et al., Economics,
op. cit., p. 656; Unemployment Insurance. California Senate
Committee report, op. cit., p. il; Arthur P. Allen, Unem
ployment Insurance, op. cit., p. 12; Barbara Armstrong,
Insuring the Essentials (New York: The Macmillan Company,
1932), p . 3 1 2 .
^ F. R. Fairchild, et al.. Economics, op. cit..
- g. * ___ * ----— -- - s- -----
p. opo*
5 B. Armstrong, Insuring the Essentials, op. cit.,
p. 485.
23
This combination of mutual and public insurance
spread rapidly among the municipalities and larger govern
mental units of Europe. France in 1906 was the first
eountry to adopt the "Ghent System" on a national basis.
Shortcomings of the voluntary insurance plans led many
governments to pass laws making insurance compulsory. Some
of the shortcomings of the voluntary system were: (1) the
contributions made by the members were not based upon
actuarial data; (2) the reserves set aside against future
benefits were inadequate to meet the drain of widespread
unemployment; (3) at best only a minority of the working
class (i.e., members of organized unions) were benefited;
(4) state subsidy to union insurance made it appear as if
the state was taking sides in union-manageraent conflict;
and (5) since employers bore none of the cost of relief,
trade union insurance added nothing to employer incentive
to keep their workingmen employed.
Compulsory unemployment insurance was first intro
duced on a limited basis by Great Britain with the enact
ment of its Unemployment Insurance Act of 1911. The ori
ginal act was restricted in coverage and only applied to
workers engaged in construction and metal trades.^
^ Unemployment Insurance. California Senate
Committee report, op. cit.. p. 11.
24
Employers, workers, and the Treasury contributed equally
to the fund; the contributions of the workers being held
back by the employers and passed on to the Government.
Today the coverage has been broadened to include most of
the working population.
The British experience disclosed both the merits
and weaknesses of compulsory unemployment insurance. It
has proved that: (1) unemployment in times of stable
industrial conditions is an insurable risk; ( 2) under the
proper safeguards it does not promote malingering; and
(3) it does act to reduce unemployment by stabilizing
demand for labor. On the other hand it shows how easily
the system may give way to the demand that insurance be
turned into a policy of charitable relief.
Early state legislation. As in much other social
legislation, Wisconsin (the sounding board of forward-
looking legislation) once again took the lead. Dr. John
R. Commons and his associates at the State University had
been advocating unemployment insurance since 1921. Because
of the success of workingmen’s compensation legislation in
reducing the number of industrial accidents, he reasoned
that a scheme of insurance with a varying rate to be paid
by employers based on the drain of reserve funds of workers
laid off would reduce unemployment. This scheme had
25
strong appeal since it seemed to strike at the heart of
unemployment, by putting the burden of unemployment entirely
upon industry as is customary with workmen1s compensation
for industrial injuries.
The Wisconsin legislature on January 28, 1932
enacted the first compulsory unemployment insurance statute
in this country.^ This measure constituted the first
attempt on the part of any state in the United States to
hold employers financially responsible to their employees
when the latter are dismissed, without cause, and cannot
find other employment.
In 1933 a total of sixty-eight unemployment inSUr-
C S
ance bills were introduced in twenty-five states.u None
of them were enacted into law because it was feared that a
payroll tax would impose a competitive handicap on the
producers of that state in comparison with those of other
states which did not have similar legislation.
Federal action. It was obvious that Federal action
was necessary to jolt the various states into action. It
was generally believed that the Federal government could
not under the constitution enact an unemployment insurance
^ Armstrong, Insuring the Essentials, op. cit.,
p. 5^9.
8
Allen, Unemployment Insurance, op. cit., p. 15.
26
program. Therefore, means were sought to compel all states
to act. Precedent was discovered in the inheritance tax
law, which through a system of credits to the states, made
it advantageous for them to adopt inheritance tax laws.
The Social Security Act, with which the unemployment insur
ance program had been consolidated was enacted into law
on August 14, 1935*9 Its legality was upheld in May 1937
when the U. S. Supreme Court by a five-to-four vote
declared It constitutional.
Under this plan the states were almost compelled
to adopt unemployment compensation legislation of some
kind; otherwise their citizens would receive no benefits,
although employers would be subject to a tax. Federal con
trol over state administration was accomplished through
control over funds required for administrative expenses,
which were raised by means of a federal tax. The amount
of the tax arrived at was 3 per -cent. One-tenth of this
amount, or 0.3 per cent, was to go to the Federal govern
ment to provide for administrative expenses. The other
nine-tenths, or 2 .7 per cent, was to go to the state to
provide for benefit payments. Though benefit schedules
9 Ifrid.. P* 17.
Steward Machine Company v. Davis, 301 U. S. 5^8
(1937)#
27
were computed using 3, and. 5 per cent, the lowest figure
was adopted, because it was considered the maximum which
could be levied without imposing an undue burden on employ
ers. ’1 '1 The fact that it provided satisfactory benefits
was incidental to its determination. The influence of the
Wisconsin plan and workmen’s compensation is evident in a
provision of most state laws which provide for a variable
rate based on experience with unemplpyment.
California experience. California was the fifth
state to enact unemployment insurance legislation. The
Unemployment Insurance Act (Stat. 1935, Ch. 352 8780d) was
approved by Governor Frank L. Merriam on June 25, 1935*
It was passed in anticipation of action by Congress.
Section 2 of Article 1 of the act conditions the legisla
tion on Federal action. It provides among other things,
that:
This act shall take effect only if and when there
is enacted legislation by the United States Govern
ment providing for a tax upon the-payment of wages by
employers in this State, against which all or any
part of the contributions required by this act may
be credited. 12
11 W. S. Woytinsky, ’ ’ The Cost of Unemployment
Insurance," Social Security Bulletin, May, 19^8, p. 5 6.
12 California Unemployment Insurance Act, 1935*
Section 2.
28
The early law was based on model drafts prepared
by the Federal Committee on Economic Security. Though it
was an understandable fault under the circumstances, it
appears that the experts of the Committee were excessively
conservative in their estimates and cautious in their rec
ommendations. Through experience it was found that the
program could be liberalized without endangering it. Each
session of the California legislature has made significant
changes in some feature of the law. The California law
has always been, and is today, among the most liberal of
the state statutes.
Today an unemployment insurance program of some
type is to be found in about 30 different countries of the
world, the 48 states, District of Columbia, and the terri
tories of the United States.
II. PURPOSES M D OBJECTIVES OF UNEMPLOYMENT INSURANCE
A study of the purposes and objectives of unemploy
ment insurance is an aid to a further understanding of the
real nature of unemployment insurance. Article I, Section
1 of the California act sets forth the purpose of the
litigation as follows:
Experience has shown that large numbers of the
population of California do not enjoy permanent
employment by reason of which their purchasing power
is unstable. This Is detrimental to the Interests
29
of the people of California as a whole.
The benefit to all persons resulting from public
and private enterprise is realized in the final con
sumption of goods and services. It is contrary to
public policy to permit the supply of consumption
goods and services at prices which do not provide
against that harm to the population consequent upon
periods of unemployment to those who contribute to
the production and distribution of such goods and
services.
Experience has shown that private charity and
local relief cannot alone prevent the effects of
unemployment. Experience has shown that if the
State awaits the coming of excessive unemployment
it can neither create immediately the organization
necessary to orderly, economical and effective
relief nor bear the financial burden of relief
without jeopardizing its credit.
The legislature therefore declares that in its
considered judgment the public good and the general
welfare of the citizens of the State require the
enactment of this measure under the policy (sic)
power of the State, for the compulsory setting aside
of funds to be used for a system of unemployment
insurance, providing benefits for persons unemployed
through no fault of their own, and to reduce invol
untary unemployment and the suffering caused thereby
to a minimum.
It is the intent of the Legislature that unem
ployed persons claiming unemployment insurance
benefits shall be required to make all reasonable
effort to secure employment on their own behalf.13
To summarize the objectives of unemployment insur
ance it can be said the system has these objectives:
1. To lessen the hardships to the involuntary
unemployed.
California Unemployment Insurance Act, op. cit.,
p. 26.
2. To stabilize purchasing power and thus halt
the spread of unemployment and the economic
disruption which it causes.
3. To assist in prompt employment of persons
seeking work.
4. To minimize the necessity for public relief
and charity.
5. And finally, it is the declared intent of the
legislature that unemployed persons claiming
benefits make all reasonable effort to seek
employment themselves.
Prom time to time extended consideration of the
whole unemployment insurance program by legislative com
mittee has caused the legislature to expand and clarify
the purposes and objectives of the law. The 19^5 Senate
Interim Committee on Unemployment Insurance' said, "The
purpose of unemployment insurance has been to mitigate
some of the evil effects of unemployment, and not as a
preventative of or a cure for unemployment itself.nl2* ' Com
pensation in part for lost wages due to short periods of
unemployment, provides some economic security for the
worker and his family, gives greater stability of
Unemployment Insurance. Senate Committee Report,
31
purchasing power within the State, and decreases expendi
tures (and therefore taxes) for relief.^
The 1949 report of the Senate Interim Committee on
Employment Stabilization holds that the Unemployment Insur
ance Act is Intended to accomplish two things: (1) to
lessen the hardship of loss of wages to persons involun
tarily unemployed, and ( 2) to prevent the progressive
spread of unemployment by maintaining purchasing power.
However, the report states that the true purpose of the act
is best revealed by an analysis of the ways it is designed
to work. Three principle phases of the employment stabili
zation program are designed to prevent widespread and long
continuing unemployment, and not to cure it when It occurs.
These are:
1. The employment service, designed to reduce
lag between Jobs by finding Jobs for the unemployed
and workers for employers, and to keep track of
what kinds of skills are available among the unem
ployed;
2. The unemployment insurance system, designed
to provide partial compensation for lost wages to
regular members of the working force who have lost
their Jobs through no choice or fault of their own;
Ids”**
16
Employment Stabilization. A Report of the Senate
Interim Committee on Employment Stabilization to the 19^9
California Legislature (Sacramento: Califomia State
Printing Office, 19^9)> P- 16.
32
3. The disability insurance system, designed
to provide partial compensation for lost wages to
regular members of the working force who are not
able to work because of sickness or injury which
is not connected with their employment and so is
not covered by workmen1s compensation benefits.IT
The employment service phase of the program is con
sidered to be the first line of defense against the hard
ships of unemployment. Its primary function is to get the
unemployed worker back into a job for which he is suited.
It also functions to test the good faith of claimants for
unemployment insurance. The only effective way to prove
that a claimant is willing, able, and available for work
is to offer him a suitable job. Another function performed
by the employment service phase of the program is that of
acting as a ’ ’ barometer" of the labor market.
The unemployment insurance system is the second
line of defense.
[This] program should truly be an insurance and
not a relief program. . . . Legitimate collection
of benefits under it should be a matter of right,
rather than need. There should be no stigma of
eharity attached to legitimate collection of bene
fits, and legitimate claimants should be treated
with the same courtesy that would be accorded an -
insured claimant by a private insurance company.
Any person should have a perfect right to quit or
refuse work, but if he does he should not have a right to
17 Ibid., p. 16.
18 Ibid.. p. 1 8.
33
unemployment insurance for so long as his own act is likely
to continue to be the cause of unemployment.
Fraud and chiseling of the unemployment insurance
program causes apprehension on the part of workers rightly
entitled to benefit payments.
Even the people^ who are receiving unemployment
insurance are not s*ure they are in respectable com
pany. There is an uneasy feeling that fraud is
widespread, that the system is being taken by
chiselers right and left.1- *
If removal of the stigma of relief is important to
worker respect, equally important is the removal of the
stigma of chiseling and fraud to the respectable worker.
A more recent report reiterates that the program "should
truly be an insurance and not a relief program.”2® It also
states that the purpose of the principle of disqualifica
tion is to protect the unemployment fund by preventing
abuse, such as using benefits for vacation pay or voluntary
IQ
Milton 0. Loysen, "What's Wrong with Unemploy
ment Insurance?'' Assembly Daily Journal (September 20,
1950), p. 75* California Legislature, Third Extraordinary
Session, 1950. From a summarization of the Thirteenth
Annual Meeting of the Interstate Conference of Employment
Security Agencies, September 26-29, 19^9, Hotel Roosevelt,
New York City.
20 Unemployment and Unemployment Insurance and its
Administration, A preliminary report bythe Assembly
Interim Committee on Finance and Insurance to the Califor
nia Legislature, Third Extraordinary Session 1950, pp. 10-
11.
34
unemployment. A second purpose of disqualification is to
protect the fund from uninsurable persons who defraud or
attempt to defraud the fund. The report also states unem
ployment insurance is designed to be a form of preventative
medicine instead of a cure for mass unemployment.
The following section will consider in greater
detail the actual mechanical working of unemployment insur
ance, which in turn will lend greater support to the pur
poses and objectives as set forth here.
III. SUMMARY OP THE UNEMPLOYMENT INSURANCE ACT
21
As was mentioned above the Federal law acts only
to maintain certain standards within which the State laws
are free to operate. The states comprise the operating
half of the federal-state system for unemployment insur
ance. The state law therefore sets forth the detailed
provisions by which operation of it is goverened. Only the
main provisions of the Federal and State statutes will be
treated here, leaving the detailed treatment of specific
provisions to the main text of the thesis.
The Federal Unemployment Tax Act (formerly Title IX
of the Social Security Act) sets forth the provisions for
21 £f* ante, p. 2 3.
35
financing of the state unemployment insurance program. It
levies a payroll tax of 3 per cent on employers of eight
or more persons but provides that 2.J per cent of this tax
may be credited back, or offset, if payment is made under
one of the state unemployment insurance laws. In actual
practice this means that the federal tax is only 0.3 per
cent, since all of the states have enacted such laws. As
of 1950* employment in agriculture, domestic service,
national, state and local government service, and nonprofit
institutions are not covered. Wages or salary payments in
excess of $3000 per year are not taxed.
The 0.3 per eent tax which goes to the federal
government is intended to provide revenue for the adminis
tration of both state and federal agencies. The funds are
made available through lump sum appropriations by Congress
and allocated to the various states through the Bureau of
Employment Security. The total income of the 0.3 per cent
tax has exceeded appropriations by about $500 million to
date.
The funds collected by the states, except for
working bank balances, are deposited in a trust account
in the U. S. Treasury where they are invested in govern
ment bonds, each state making withdrawals as required for
benefit payments.
The states are not required to levy a uniform tax
36
of 2 .7 per cent of employer's payrolls in order to offset
the federal tax. The rate may be reduced and employers
may avoid all but the 0.3 per cent federal tax. This
feature, employed by most states, called the experience-
rating plan, will be treated in greater detail in Chapter
7111. This plan must be based upon factors having a
direct relation to unemployment risk during three years of
experience.
The federal law places few restrictions on the
states on the distributive side of the program. Payment
of benefits must be made solely through public employment
offices, and methods of administration must insure full
payment of benefits when due. Certain practices are for
bidden. The states may not deny benefits to workers who
refuse to accept employment when: (1) the position offered
is vacant due to a labor dispute; (2) the worker is required
to join a company union or resign from a bona fide labor
union; or (3) if the wages and conditions of work are sub
stantially less favorable than those prevailing for simi
lar work in the community. 22
The California law. Coverage under the California
Unemployment Insurance Act, as amended 19^9, is the same
22 U. S. Treasury, Internal Revenue Code, sec.
1603 (a) (5).
37
as under federal law. Employers of one or more persons in
covered employment, rather than eight or more as in federal
law, must contribute to the fund, and their employees are
entitled to protection of the law. Employment exempted
from coverage is the same as that mentioned above in con
nection with the federal law.
Benefits are paid to insured unemployed workers
only under certain conditions. An unemployed individual,
in order to establish a valid claim for benefits, must have
been paid wages in such employment of at least $300 during
his base period. (The base period is the first four out
of the last five completed calendar quarters preceding the
first day of the claimant's benefit year.)2^ Whenever
more than 75 per cent of the employee‘s base period earn
ings are received in a single calendar quarter, the mini
mum requirement of qualifying earnings increases to thirty
times the amount of the weekly benefit. This may be as
high as $750. These earning requirements insure two
thingst (1) that the claimants are workers, and (2) that
contributions have been paid into the Trust Fund on behalf
of the insured employee. To be eligible for benefits the
claimant must be unemployed, physically able, and available
California Unemployment Insurance Act, o£. cit.,
p. 28.
38
for work. He must be willing to accept any suitable job
offered, and he must also seek employment on his own behalf.
In addition, he must comply with the procedural require
ments of filing a claim and registering for work. Provided
the worker has met the above qualifications, he is now
entitled to receive benefits.
When are the benefits payable? What is the amount
and duration of benefits? No compensation is paid for the
first week of the benefit year, called the waiting period.
Weekly benefits may be as low as $10 or as high as $2 5.
The amount is determined by a schedule based upon earnings
in the calendar quarter of highest earnings within the base
period. Benefits paid are roughly one-half of the average
weekly earnings up to the $25 maximum. The maximum payable
will be fixed at 26 times the weekly benefit amount or one-
half the total base period wages, whichever is the lesser;
that is, the maximum duration that benefits are paid is
twenty-six weeks.
In the case of partial employment, the worker is
paid what is required to bring his total income for the
week up to his weekly benefit plus $3* The extra $3 is
intended to provide incentive to aecept part-time work.
The California law provides that benefits shall be
paid to persons unemployed through no fault of their own.
However, persons otherwise eligible for benefits may be
39
disqualified because of certain behavior on their part.
An individual may be disqualified from benefits for a
period of from two to five weeks for any of the following
reasons: (1) voluntarily quitting a Job without good cause,
( 2) being discharged for misconduct, (3) making a false
statement to secure benefits, and (4) refusing an offer
pil
fer suitable employment without good cause. ^
In cases of repeated disqualifications, the period
may be extended to a maximum of thirteen weeks. Disquali
fication, except for fraud, does not mean the cancellation
of benefit rights, it only means their deferment. Dis
qualification runs from the week in which the claimant
first registers for work, and in addition he must register
each week during the period of disqualification, thus
giving the Department a better opportunity to find him a
suitable Job. A claimant guilty of fraud forfeits all
benefit rights acquired prior to conviction. One other
feature of disqualification is that a worker who leaves
work because of a trade dispute Is disqualified for the
entire period of the strike.
Decisions of the administrative staff concerning
eligibility, amount of benefits, or disqualification are
ok 1
California Unemployment Insurance Act, op. cit.,
40
not final. Either the employer, In whose interest It is
to prevent improper payments, or the claimant, who believes
that he has been unjustly denied benefits, may appeal from
the decision of the local office claims examiner to a
referee. If either the claimant of the employer is dis
satisfied with the referee's decision, he may appeal fur
ther to the Appeals Board of the Department of Employment,
And finally, a determined dissenter may carry his case to
the state courts.
The legislature in the 1945 session adopted Section
86 of the Act which directed the Department of Employment
to establish a Fraud and Investigation Section, whose
function is to investigate all violations of the aet.25
This section of the Department is also charged with the
duty of insuring that the provisions of the Unemployment
Insurance Act are adequately and strictly enforced. Its
main activity is insuring that benefit payments sire not
obtained fraudulently.
This, then, is a summary of the main provisions of
the present California Unemployment Insurance Act.
ibid., p. 85.
41
IV. SIGNIFICANCE OF UNEMPLOYMENT INSURANCE
The America of tomorrow will in a large measure be
shaped by its institutions of today. How important an
institution is unemployment insurance? Of the total labor
force in the U.S. of 62 million people in 1948, 33 million
were covered by unemployment insurance.2^ However, the
total labor force includes self-employed and farm operators.
The total number of persons employed by others (including
agricultural workers) in the same year was about 47 million.
With this figure as a basis, seven out of every ten workers
are covered by unemployment insurance.2^
In California in 1949, the total number of workers
employed by others was about 4 million, and those covered
by unemployment insurance numbered about 2 .5 million.2^
This means that more than six of every ten workers in
California are covered by unemployment insurance. The
California ratio is somewhat lower than the national ratio
due to the fact that there are a large number of workers
2^ Unemployment Insurance. A report to the U. S.
Senate Committee of Finance from the Advisory Council on
Social Security. (Washington: U. S. Government Printing
Office, 1948), p. 8.
27 Ibid.. p. 6.
p8
California Department of Employment, Employment
Security News Letter. 4:1, Oct.-Dec. 1950* P* !•
in agriculture.
Perhaps more significant is the fact that the
unemployment insurance system is a business whose assets
are about $7 .5 billion and whose benefit payments equal
about $750 million annually (1948).2^ In California the
Unemployment Trust Fund amounts to nearly $600 million and
annual benefit payments amount to $190 million.^ 0 This
means that in California the total average monthly bene
fit payment bill to insure unemployed workers amounts to
$16 million per month! There are about 240,000 employers
who last year paid an estimated $170 million for unemploy
ment insurance.
Also of significance is the fact that during the
1949 recession approximately $1 .5 billion was paid in
benefit payments all over the country. "it is no exagger
ation to say that unemployment benefits (in 1949) • • •
cushioning purchasing power . . . have been a key factor
in keeping recession from becoming a depression,"^
Apart from being of general importance,
Employment Stabilization, op. cit., p. 207•
30
1950 preliminary estimates of the Department of
Employment. For 194-9, the figures are $590 million and
$253 million, respectively.
Milton 0. Loysen, "what's Wrong with Unemploy
ment Insurance?" o£. cit., p. 75.
unemployment Insurance plays an important role in the lives
of other than the insured. Farmers and farm workers, who
are not covered by the law, are affected by any system
which supports the purchasing power of the city workers
who buy their products. Property owners are affected also.
An investigating committee of the State senate has pointed
out that unemployment insurance can greatly reduce the
need for relief, a fact of which all county relief direc
tors are well aware.And finally, consumers are con
cerned because it is they, and not the employers, who
ultimately pay for the cost of the program. Though not
all economists agree, it is generally believed that in most
cases payroll taxes are shifted to the consumer in the
form of a higher price for the product.
The above evidence points out that the unemploy
ment insurance system is a big business concerning the
lives of most workers and businessmen; and it is the con
cern of the general public. The significance of these
figures do not,derive merely from its size. The important
implications are rather in their effect upon the economy
of the state and the administrative difficulties they
suggest.
Unemployment Insurance. 19^5 California Senate
Committee report, oj>. cl¥V. p. 43.
The fact that unemployment insurance plays such an
important part in the economies of the State and Nation
emphasizes the need for control over benefit payments.
Since this insurance affects the prices paid for products,
the cost of production of most goods, the market for farm
products, the moral fiber of workers, and the general
health of the economy, the effective control over benefit
payments becomes particularly significant.
CHAPTER III
LEGISLATIVE CONTROL OP BENEFIT PAYMENTS
The California Unemployment Insurance Act is one
which has grown like Topsy. Every session of the legis
lature has made changes in some feature of the law. Bene
fit provisions have been increased several times, the wait
ing period has likewise been reduced, more restrictive
eligibility provisions have been added, coverage has been
extended, and tax rates have been adjusted, until now the
law has become a “hodge-podge1 1 of legal jargon. It has
been nearly fifteen years since the original law was
passed and the law is in need of an overhauling. The ori
ginal law had certain shortcomings and weaknesses that
have not yet been removed. These disadvantages together
with the large number of amendments adopted over the years
have created inconsistencies and conflicts in the law
which make it difficult for the best administrators to
administer the law properly.
I. PRESENT LEGISLATIVE CONTROLS
Present legislative control over benefit payments
relate to provisions in the law that attempt to determine
who is eligible to receive benefit payments. The law
46
defines the workers that are covered under the program,
and establishes certain standards and tests that the
workers must meet before they can receive benefit pay
ments .
Section 6 .5 of the California Unemployment Insur
ance Act, as amended 1949, defines employment as any
service, including that in interstate commerce, performed
for wages under any written or oral contract. Section 7
of the Act excludes certain classes of services from sub
ject employment. The principle excluded classes are agri
cultural labor, domestic service in a private home and
services in the employ of the federal, state, and local
governments. In addition, there are excluded those who
are in the employ of certain non-profit charitable, edu-
/
cational or religious organizations under certain condi
tions, those in the employ of a son, daughter, or a spouse,
or of a father or mother if the employed child is under
21, and certain other classes under special circumstances.
Those workers who are in covered employment must
meet certain tests of eligibility. An unemployed indi
vidual to establish a valid claim for benefits must have
been paid wages in subject employment-of at least $300
during his ’ ’base period. ’1 If 75 per cent of the indi
vidual's total base period earnings are concentrated in
one quarter of his base period, he must also have earned
47
at least 30 times his weekly benefit amount in his base
period.
In addition to the required minimum amount of earn
ings, a claimant, to be eligible to receive unemployment
insurance for any week must comply with the procedural
requirements of filing a claim and registering for work, be
unemployed, physically able to work, available for and
willing to accept employment. In addition, he must make
reasonable effort to seek work for himself.
Provided the worker has met the above qualifica
tions, he is now entitled to receive benefit payments.
However, persons otherwise eligible for benefits may be
disqualified because of certain conduct on their part. An
individual may be disqualified from benefits for a period
of from two to five weeks for any of the following reasons:
(1) voluntarily quitting a job without good cause; (2)
being discharged for misconduct; (3) making a false state
ment to secure benefits; and (4) refusing an offer for
suitable employment without good cause.1 In cases of
repeated disqualifications, the period may be extended to
a maximum of thirteen weeks. A worker who leaves work
because of a trade dispute is disqualified for the entire
1 California Unemployment Insurance Act, as amended
1949. Section 5» la)•
period of the strike.
The law further provides standards for the amount
and duration of benefit payments, and the starting date for
benefit payments. Weekly benefits may be as low as $10 or
as high as $2 5. The amount is determined by a schedule
based on earnings in the calendar quarter of highest
earnings within the base period. Benefits paid are roughly
one-half of the average weekly earnings up to a $25 maxi
mum. The maximum duration that benefits are paid is 26
weeks. No compensation is paid for the first week of the
benefit, called the waiting period.
These objective tests and standards are the ones by
which the legislature effects control over benefit payments.
There are certain shortcomings in the present law and in
the particular standards established by the legislature to
control these payments. These shortcomings will be exam
ined in the following pages, and recommendations will be
made to improve the weaknesses in the law.
II. POWER OF THE LEGISLATURE TO AMEND
Whenever a program of soeial legislation begins to
break down, or does not fulfill its intended purpose the
trouble should be sought out in the administration or in
the legal framework which guides the program.
49
It Is natural to turn to the source of the unem
ployment insurance system as the first step in correction
of the shortcomings in the system. If the law is bad or
weak, action of the legislature should be sought to correct
and strengthen the law before other weaknesses in the
system can be corrected.
The total of improper payments such as those
obtained criminally, those paid contrary to legislative
intent, and those paid according to present law which
ought not to be paid, is not small. They constitute a
heavy drain on the reserve fund, and use up money which
should be used to increase benefits to real workers or
reduce employer1s taxes. In addition, the-ability of some
people to obtain payments improperly, does great damage to
the moral fiber of those securing such payments, and tends
to discourage active support of employers and the public
to the program. "No law, whether through poor provisions
or poor administration, should make it easy for anybody to
steal money from the State or anyone else, nor should It
encourage or reward loafing.”2
A considerable body of precedent Is to be found in
Judicial decisions and in decisions of the Appeals Board
which have the effect of law and which make material
p
Employment Stabilization, op. pit., p. 26
50
changes In the law. The effect of these decisions are not
to he found anywhere in the Act.
The legislature has properly reserved for itself
the power to amend the Act. Article 9, Section 110 sets
forth this right as follows: uATi the rights, privileges,
or immunities conferred by this act or by acts deemed
pursuant thereto shall exist subject to the power of the
legislature to amend or repeal this act at any time."^
Mention has already been made of the fact that
amendments to the Act have been made every year. In the
1949 session of the state legislature, more than two
hundred bills were introduced that had to do with the
unemployment insurance act.** Approximately thirty changes
were made in the law in this same year. Many of the
changes and amendments to the Act were efforts to correct
deficiencies. Some were very effective, but others only
led to complications and inconsistencies in the law—
particularly with respect to experience rating and the
method of reporting earnings of claimants.
However, most of the changes in the Act have been
■ 3
California Unemployment Insurance, op. clt..
p. 9 1.
* * ■ Arthur P. Allen, Unemployment Insurance in
California, op. cit., p. 111.
51
in the form of tinkering. The recurring attempts to sub
stitute statutory provisions for administrative discretion,
especially in matters of minor or passing importance, is
dangerous since such legislation encumbers the statute
unnecessarily and adds to the already difficult task of
admini s tration.
What is needed is a thorough overhaul of the
present legislation, not more tinkering on the part of the
legislators. It is in the proper province of the legisla
ture to make the needed correction of the major weaknesses
of the system. The California program has had a very for
tunate beginning, but it would be expecting too much to
count on a permanent continuation of full employment.
Somewhere ahead there is likely to be a period of compara
tively heavy unemployment. Such a period would put the
system to a real test. The time to prepare for the test
is in advance of the event. If this is not done, the pro
gram cannot be exepcted to perform effectively the func
tions for which it was created. In the following section
proposed changes in the Act will be considered.
III. PROPOSED LEGISLATIVE AMENDMENTS TO CONTROL PAYMENTS
When the California Unemployment Insurance Act was
first drafted, it was expedient to grant broad powers to
52
an administrative body to legislate by interpretation in
order to work out practical methods and corollary prin
ciples, At the beginning of the development of any new
concept in government, discretionary administrative powers
are found to be very useful. In the California law these
are found in such phrases as , f good cause,” and "if so
found by the Commission (or Department, or Director)."
Enough experience has been gained over the years to enable
the phrasing of the proper principles and methods into the
act. Administrative discretion, however expedient it may
be, endangers the traditional principle that ours shall be
a government of laws and not of men.
On the other hand it Is not desirous to place
administration in the hands of the legislature. Adminis
tration should be by special administrative agencies and
not by legislature and laws. In recent years, much of the
legislative tinkering has been in the form of administra
tion, while on the other hand, the legislative powers of
the administration have not been curtailed. The adminis
trative rulings and interpretations should be reduced pro
gressively to more specific law as rapidly as experience
permits.
A six point program is advanced as the course which
the legislature must undertake to correct the deficiencies
in the law. The six points are summarized as follows:
53
1. Overhaul the law and bring it up to date. Over
the years, the law has become a patchwork, containing many
confusing obsolete provisions, is without logical sequence
or grouping, and is needlessly unreadable.
2. Clarify and simplify the law so that it can be
understood by those to whom it applies.
3. The law should be made to prevent benefit pay
ments contrary to legislative intent.
4. Many payments now made are legal according to
the law and they should be made illegal.
5. The act should be better designed to stabilize
employment. As the law acts now it frequently causes
unemployment.
6. Clearly define fraud and fraudulent practices
and provide for greater protection against fraud.
In Judging the desirability of any provision of
the law, primary consideration should be whether it serves
the purpose of the program to the general benefit of the
people and the economy of California. Pine points of
theoretical Justice and equity which create more costly
administrative process than they are worth either to
employers or workers should be sacrificed. The details of
the six point program are treated in the following pages.
Specific recommendations are made to achieve the objective
of each of the six points.
54
Overhaul the law and bring it up to date. If
ignorance of the law Is to be considered no excuse for
breaking the law, it is the responsibility of the legisla
ture to put the law in such form that a person can find out
what provisions of the law are effective without a major
research effort. The Senate Committee report of Employ
ment Stabilization makes the following recommendations to
bring the law up to date:
(a) Whenever there has been enough experience
to permit it, to reduce the area of interpretation
of the law and of administrative discretion by more
specific language in the act, to get rid of the
phrase 'good cause1 by saying what the Legislature
means shall be a good cause, and where practical,
to get rid of the phrase 'if so found by the
Commission (or Director, or Department)1 to make
a finding of fact a question of fact.
(b) In drafting substantive changes, to try
also to group related provisions in logical order,
to inject throughout the act clarifying statements
of legislative intent placed with the provisions
to which they apply, and to take out obsolete pro
visions.
(c) To put the word 'director' or 'Department'
in the place of 'Commission' where that is what the
act means.
(d) Wherever there has been a judicial decision
which is now the law or a tested regulation which
has the effect of law and which makes a material
change in, or elaboration or clarification of, the
present language of the act, to amend the act to
give effect to such decisions or regulations, so
that a layman can find out what the law is by read
ing the act.
(e) To keep new material as nearly as possible
in layman's language which anyone who can read
55
eighth-grade English can understand.5
In general the comprehensive re-draft of the Cali
fornia law should put the provisions of the act in logical
sequence, group together or cross-reference its related
provisions, and get rid of obsolete provisions.
Clarify and simplify the law. While they are
corollary to a general re-drafting of the act, clarifica
tion and simplification are given special treatment for
the reason that they have particular effects on control of
payments. A general re-drafting of the act would require
a considerable amount of time and study, a careful con
sideration of substantive changes and the considered judg
ment of the legislature of the needed changes. However, a
simplification and clarification of the present act could
be accomplished in short order by an expert with advice of
legal counsel. The act thus simplified would perhaps lend
itself better to a major overhauling.
In appraising proposed changes, emphasis should be
placed continuously on simplification and clarification
wherever possible. Such action would result in an act and
a program that the average person can understand without
taking a college course on the subject. The department may
5 Employment Stabilization, op. clt., p. 23♦
then be able to stop talking specialized technical jargon
to claimants, many of whom have some difficulty in read
ing and writing.
"If any law should be one that a layman can under
stand, this law should be so."^ Claimants and small
employers have too little at stake to pay anything for
legal advice. They cannot afford it and should not have
to do so.
"The entire act should be rewritten by someone who
is expert in the preparation of educational text from a
public or industrial relations point of view, with the
advice and assistance of competent legal counsel." The
law should be put into precise but simple language so that
the average worker can easily get a full understanding of
the law by reading it. It is possible to be precise in
simple language.
No one at present denies the fact that the present
law is unduly complicated. Undoubtedly this condition is
reflected in higher administrative costs than would other-
Q
wise be necessary. The time and money spent by the clerks
g
Ibid., p. 6l.
T Ibid.. p. 6.
Q
Allen, Unemployment Insurance in California,
op. cit., pp. 119, 180.
57
In the Department of Employment in explaining the technical
provisions of the law could be saved by clarification and
simplification of the law. The time and money thus saved
could be re-directed by the Department to provide a better
employment service and to provide for better control over
benefit payments.
Most serious, perhaps, Is the fact that the present
complexities of the act tend to discourage public interest
in the program. There is no other satisfactory explanation
for the ignorance which still, after twelve years, gen
erally prevails concerning it. This applies to both work
er and employer, although the cooperation of both is
essential to the proper control over benefit payments.
To prevent benefit payments contrary to legislative
intent. Unemployment benefit payments are being made under
Interpretations of the Unemployment Insurance Act by the
Department of Employment which appear to be contrary to
legislative Intent. "The law requires unemployment insur
ance claimants to seek work diligently but this is inter
preted In the most lenient way."^ The payment of benefits
to claimants who have made no attempt to secure their own
^ Ray Zeraan, "Remedies Offered for Sinking Jobless
Fund and Higher Tax," Los Angeles Times, Thurs. Dec. 29,
1949.
58
employment is a common practice, since the administration
*
; rarely questions the claimant's statement that he has
sought work in his own behalf. In this case the law pro
vides that:
An unemployed individual shall be eligible to
receive benefits with respect to any week only if
the commission finds that: (e) He has made such
effort to seek work on his own behalf as may be
required in accordance with such regulations as
the commission shall prescribe.10
Surely the legislature intended that the claimant
seek work on his own behalf in order to be entitled to
benefit payments. Yet, merely registering for work with
the Employment Service of the Department, is often inter
preted by the Department as sufficient effort to seek work.
How strictly this section is enforced often depends on the
mood of the claims investigator. The legislature should
state more clearly just what it means by seeking work "on
his own behalf" and, perhaps, should even lay down minimum
requirements.
This is just one example of conditions upon which
payments are being made by interpretations contrary to
legislative intent. Perhaps this is the fault of adminis
tration. However, before placing the blame at the door of
the administration, the law should be examined to insure
10 California Unemployment Insurance Act, Sec. 57
(#)•
59
that the Intent of the legislature is clearly stated.
“Most of the Interpretations contrary to what the legis
lators intended and most practices which have no traceable
sanction In the law appear to be due to the way the act is
drawn.1,11
The following interpretations and practices are
responsible for many payments not intended by the legisla
ture:
First, misinterpretations which appear to be quite
costly to the unemployment fund are those with reference
to what is “suitable employment.” The department has
avoided any written instructions covering objective meas
ures of what Is suitable work, probably because of its
controversial nature. As a result, the measures used in
individual eases are highly subjective and they vary wide
ly. It is not believed that the legislature intended that
millions of dollars should be paid out in accordance with
varied personal feelings of the many individual claims
interviewers. To overcome this, it has been recommended
by a Senate committee to amend Section 13 of the Act, to
provide a top limit of four weeks on the time a claimant
may restrict himself to a particular kind of work or refuse
11 Employment Stabilization, op. cit., p. 30.
60
1 £ >
other suitable work without being disqualified. The
claimant should also be required to apply for each kind of
work he can do if he is qualified for more than one.
Second, interpretation of "good cause" for quitting
a job voluntarily or for refusing suitable work is gen
erally defined as a "compelling reason." And compelling
reason is defined by the department as one the claims
interviewer would consider compelling if he were the
claimant. The phrase "good cause” should be eliminated in
relation to refusals of suitable employment and should be
limited, in the case of voluntarily quitting, to such cir
cumstances directly attributable to the employer or the
claimant having a compelling reason beyond his own choice
or control.3-3
Third, persons discharged for misconduct have not
always been disqualified because of misinterpretations of
the law. An employee can be guilty of acts generally con
sidered as misconduct which are not directly related to
the specific duties assigned to him but which nevertheless
directly affect his desirability as an employee. Examples
are employees who are improperly dressed for work, or
employees who smoke in a shop where smoking is prohibited.
12 IMd-» P- 31.
*3 ibid., p. 112.
61
The law should state that discharge for misconduct shall
mean for a person's misconduct connected with his work or
directly affecting his desirability as an employee.
Fourth, a department regulation proyides for the
backdating of certain claims. There is no traceable spe
cific basis in the law for the regulation permitting the
backdating of claims. This practice should be discontinued
or specifically authorized within prescribed limits by law.
Fifth:
There has been found in the Department a practice
that, when a claimant is belligerent or threatening
or does violence to employees of the department or
other claimants, his card is marked 'P. T.1 meaning
•preferred treatment,1 and thereafter that claimant
is given special privileges.1^-
This practice should be discontinued by providing that such
a claimant would be disqualified. The best remedies for
situations such as these is for the legislature to state
what it really intends.
Legal payments which should be made Illegal. Many
claimants are being paid benefits in accordance with the
present law who should not be paid. Payments to people who
are not really in the market for a job, or who have suf
fered no loss of their customary wage income should not be
entitled to benefits. Yet, many such people are being
^ Ibid.*, p. 33.
62
paid benefits within the provisions of the existing law.
The classes of circumstances in which payments should be
made illegal are first:
A person who is normally in the labor market
only for seasonal work, and who does not custom
arily do other work when his normal work is out
of season, suffers no loss of normal annual wages
when his normal work is out of season and should
not then be compensated for unemployment.15
The most predominant type of seasonal Industry in this
state is the canning of fruit and vegetables.
In the canning of fruit and vegetables, for
example, about 90 per cent of the claimants are
women, often housewives, who are usually employed
only up to sixteen or seventeen weeks a year.
But they welcome the opportunity to supplement the
family income by the several hundred dollars it is
possible to earn during the season.16
When the packing season is over there is little if
any other employment available in the community, and the
claimants' willingness to accept work can not be objec
tively tested. In addition, seasonal industries do not
contribute enough to the fund to pay for benefits to sea
sonal workers. In 19^7, the deficiency amounted to about
$7.8 million for firms engaged in canning and preserving
fruit, vegetables, and seafoods.
15 Ibid.. p. 3^.
^ Allen, o£. cit.. pp. 35-36.
17 Ibid.. p. 3 6.
63
These claimants could be eliminated from benefit
payments by first providing that in order to qualify they
do not restriot the work they will accept to their last
previous or usual kind of work if such work is out of
season in their locality, and secondly, by providing that
their base period wages were earned over a longer period
of time.- * - 8
Second, a person who moves his residence to a
place where there is no work in an occupation to which he
restricts himself or for which he is qualified, is not
available for work and should not be paid. An example of
this is the case of a young lady who moved from Los Angeles
to Marysville and registered for work modeling clothes.
This would be covered by providing that a claimant would
not be eligible if he removed himself to a locality in
which the work he registers for or will accept is not
available or usually performed.
Third, a pregnant woman who is past seven months
pregnancy should be presumed to be unable to work until
some time after the end of her pregnancy. If she does not
actually work, she should be paid disability insurance
benefits rather than unemployment insurance benefits.
Many states have adopted provisions in their laws to
Employment Stabilization, op. clt., p. 112.
64
cover this. California law should be brought up to date
by providing disability insurance, and not unemployment
insurance, in cases of pregnancy.
Fourth, if a person customarily works intermit
tently but regularly averages a substantial income, he
should not be paid for the intervening periods in which he
is not working. An example is a person who earns $250
every other week or $1,000 every other month. This could
be covered by providing that weekly benefits be based on
the highest earnings in any 13 consecutive weeks, instead
of the present arbitrary calendar quarter.^9
Fifth, if a person has left work voluntarily
because of a trade dispute, has accepted other employment
and has then again became unemployed for other reasons,
there should be an objective test of whether his continued
unemployment remains attributable to the trade dispute.
This could be covered by giving effect to the decision of
the California Supreme Court in the Mark Hopkins Hotel
Case.20 The law should provide that in order to be
eligible for benefit payments the claimant must not have
left employment prior to his most recent employment because
19 . P- HI-
20 Mark Hopkins Inc. v. California Employment
Commission,“24”C2d 744 (1^44).
65
of a trade dispute which is still going on unless he has
renounced seniority or right to reemployment in the estab
lishment affected by the trade dispute.
Sixth, when a claimant quits work to get married
,or join his or her spouse in some other place, the claim
ant should not be eligible for payments. This could be
covered by providing in the law that the claimant must,
after quitting, show evidence of continued attachment to
the labor market by subsequent earnings.
Seventh, the present discretionary period of dis
qualification of from two to five weeks can be applied
subjectively to discriminate claimants or to provide' inade
quate protection to the fund. The period of disqualifica
tion should be fixed uniformly. The present thirteen
weeks limitation on total disqualification for more than
one cause makes it possible for a claimant to be disquali
fied for his own wilful actions for thirteen weeks and
thereafter to draw benefits for twenty-six weeks while
refusing all offers of work.
The thirteen week limitation should be removed and
the law should provide further:
.... that the period of disqualification shall
be: for voluntary quitting or discharge for cause,
6 weeks; for refusal of suitable work, 4 weeks from
last refusal; and for obnoxious conduct in relation
66
to the department, 4 weeks accumulative.21
Eighth, under present law, a disqualification may
be wiped out by acceptance of subsequent employment no
matter how short its duration. If a disqualified person
goes to work, the period of disqualification should stand,
and his working during the period of his disqualification
should serve only to reduce that period by the time worked.
These instances cover most of those in which pay
ments are being made in accordance with the law but which
ought to be contrary to law.
The law should be better designed to stabilize
employment. There are three general circumstances con
nected with unemployment insurance which tend to create
unemployment. Two of these circumstances have already been
examined in connection with payments made contrary to
legislative intent and legal payments which should be made
illegal. First, payments of benefits under interpretations
of suitable work or availability which are contrary to
legislative intent enable a person to avoid going to work
and to be paid for loafing. Secondly, because of the
availability of unemployment insurance benefits, workers
in intermittent or seasonal occupations, who customarily
21 Employment Stabilization, op. cit., p. 114.
67
used to move about each year to follow their work or to
Op
find other work, will no longer do so.
There is a third way in which the present operation
of the California Unemployment insurance Act may be caus
ing unemployment in this state disproportionate to unemploy
ment in other states. This is the disproportionate tax on
the products of California in competition with the products
of other states which is resulting from the high rate of
pay roll tax from this state's excessive unemployment
benefit payments as compared with other states.
For the twelve months ending September 30> 1948,
the average rate of employer tax contributions that would
have been necessary to cover benefit payments in California
should have been 2.1 per cent. For the nation as a whole,
the average comparable rate would have been 0.9 per cent.
Only one state, Rhode Island, would have had to have a
higher rate of 2.3 per cent. The third state in line was
New York which would have needed a rate of 1.5 per cent.
This competitive situation is not important as long
as a seller's market prevails, but when sharp competition
is resumed, it will make a difference. And this element
tends to snowball. The higher the tax rate goes, the more
22 Ibid., p. 38.
23 ibid., pp. 38-40
68
unemployment In this state, so the higher goes the tax.
It then may be expected that if something is not
done to reduce payments to people who are not entitled to
them, the tax contribution rate will increase, the estab
lishment of new industry here may be retarded, California
products may be handicapped in competition; and the
Unemployment Insurance Act, as it now operates, may tend
progressively to create unemployment in California.
Clearly define fraud and fraudulent practices.
The Department of Employment uses the word “fraud,1 1 in
relation to payments from the unemployment fund, to mean
only the obtaining of benefits while employed. Further
more, many people in the department seem not to consider
that a person who lies with intent to defraud has com
mitted a crime, unless he succeeds in getting benefits.
Some seem to consider a person who does get away with it
as being only "naughty."
To obtain benefits by lying or not telling the
whole truth or by false pretenses is, by definition, a
fraud and is a crime. Trying to obtain benefits by fraud
is equally a crime. The person who does either is a crim
inal, yet the department interprets fraud to mean the
obtaining of benefits while employed.
Although a part of this practice is the fault of
69
the department, to a large measure the blame can be placed
at the door of the legislature. This fault could be
covered by providing in the act that:
... if anyone wilfully makes a false statement
or misrepresents a fact to the department which is
pertinent to his eligibility for benefits or wil
fully fails to report a material such pertinent fact,
or who, for the purpose of obtaining benefits, wil
fully follows a course of action designed to dis
courage a prospective employer from hiring him
without actually refusing the employment offered,
shall be guilty of a misdemeanor . . .2^
and subject to penalties for fraud as already provided for
in the Act.
Further, strengthening the employment service and
thereby enabling it to offer jobs quickly would catch many
of those who are working while drawing benefit payments
and stop malingerers who do not want to work. Additional
funds to strengthen and expand the Fraud and Investigation
Section are also recommended.
IV. CONCLUSIONS
The California Unemployment Insurance Act as ori
ginally enacted in 1935 contained weaknesses and short
comings that have not yet been removed. The large number
of amendments adopted over the years have created
Ibid., p. 117.
70
inconsistencies and conflicts in the law. These circum
stances make it difficult to administer the law properly.
Many provisions of the law are obsolete and the law is in
need of redrafting. The legislative tests and standards
to effect control over benefit payments are in need of
improvement.
A six point program is advanced as the course
which the legislature must undertake to correct the defi
ciencies in the law.
First, the legislature should redraft the law and
bring it up to date. The area of interpretation of the
law and administrative discretion should be reduced as
experience permits. Related provisions of the act should
be grouped together and clarifying statements of legisla
tive intent should be added to the provisions to which
they apply. Judicial decisions or tested regulations
which have the effect of law should be incorporated into
the law. Obsolete provisions should be removed. 1
Second, the legislature, should clarify and simpli
fy the law so that it can be understood by those to whom
it applies. The law should be put in precise but simple
language so that the average worker can easily get a full
understanding of the law by reading it.
Third, the law should be made to prevent benefit
payments contrary to the legislative intent. The
71
legislature should state more clearly what is meant by the
requirement that the claimant seek work on his own behalf.
The phrase "good cause" should be eliminated in relation
to refusals of suitable employment and should be limited,
in the case of voluntarily quitting. Disqualification
because of discharge for misconduct should be more clearly
defined.
Fourth, some payments that are now legal according
to the law should be made illegal. Persons who are not
really in the market for a job, or who have suffered no
loss of their customary wage income should not be entitled
to benefit payments. Seasonal and intermittent workers
should not receive benefit payments unless they are
attached to the regular labor force. Better standards to
test a claimant's attachment to the labor force should be
provided in the law.
Fifth, the law should be better designed to sta
bilize employment. The California law is one of the most
liberal of all the State Laws. More liberal provisions
for benefit payments result in a higher rate of payroll
taxes in this state as compared with other states. This
disproportionate tax on products of this state in compe
tition with products of other states may tend progressively
to create unemployment in California. This fact should be
kept in mind by the legislature when proposals for more
72
liberal provisions for benefit payments are made.
Sixth, the law should more clearly define fraud
and fraudulent practices. Fraud should be defined to mean
more than obtaining benefit payments while employed. The
law should provide that any false statement or wilful mis
representation of facts, on the part of the claimant, per
tinent to his determination of eligibility for benefits is
a misdemeanor.
If these measures are undertaken by the legislature
with respect to the Unemployment Insurance Act, much will
have been done to clear the way for effective control of
payments. In many respects the administration's hands are
tied by a poor law. However, good legislation alone will
not do the whole job. Good administration must go hand-
in-hand with good legislation. In the next chapter the
areas where administrative controls need improvement will
be discussed.
CHAPTER IV
ADMINISTRATIVE CONTROL OP PAYMENTS
The recommendations made in the last chapter put
the problem of control over payment right into the politi
cal arena. While the proposals appear justified and sound
on paper, often, when it comes to actual adoption, they
may not be politically feasible. Because of pressure
groups and the trading of favors among the legislators,
several legislative sessions may be required to complete
the needed legislation. In the meantime the fund contin
ues to be fraudulently depleted of millions of dollars
each year. Until such time as the law is brought up to
date, more effective administration may close some of the
loopholes.
In the last chapter, mention was made of the broad
discretionary powers which reside with the Department of
Employment. It is legally possible for the administration
to use its powers so as to exercise greater control over
payments. And by so doing the administration may well make
it easier for the legislature to accomplish its task.
While administration of the present law is good, in
general, some weaknesses are present, and in other areas
broader administrative discretion can help control payments.
The methods by which the administration may
74
tighten up control over payments, protect the insurance
fund from abuse, preserve the integrity of the insured
worker, and enlist the support of employers and the public
will be examined in the following pages.
I. QUALIFICATION FOR BENEFITS
Who can qualify for benefit payments under the
California Unemployment Insurance Act? Of the hundreds of
persons applying at the local offices for benefit pay
ments, which of them are eligible?* Which of them are to
be denied benefits? Which of them are to be disqualified?
All of the claims for unemployment insurance, with the
exception of a small percentage of cases appealed, are paid
or denied on the basis of the original determination of
claims examiners. The importance of the work of the claims
examiners may not be appreciated unless one actually visits
and observes the activity in a local office. From an
administrative and monetary standpoint, the local claims
examiner is perhaps the most responsible position in the
entire department. It Is with these people that the ques
tion of qualification for, or disqualification from, bene
fits initially lies. On what bases do the claims exam
iners determine whether or not a claimant qualifies for
benefit payments?
75
Determination for eligibility. In order to quali
fy for benefits under State law, a claimant must file a
claim, register for work, be able to and be available for
work, seek work on his own behalf, and be unemployed for a
waiting period of one week.1 The most fundamental eligi
bility requirement in unemployment insurance is section
57 (c), which provides that the claimant must be ’ ’able to
and available for work.” A worker who is not available
for work is ineligible and disqualified from receiving
unemployment benefits, although many Individuals have the
impression that the only significant grounds for disquali
fication are refusal of suitable employment, voluntarily
quitting work, and discharge for misconduct. The facts
show that over the years more workers were disqualified in
California for not being available for work than for all
P
three of the above named eauses combined. For the nation
as a whole:
More claimants . . . were held ineligible on the
ground of being either unable to work.or unavailable
for work than were disqualified for all other rea
sons combined (voluntary leaving without good cause,
refusing suitable work, being involved in a labor
1
California Unemployment Insurance Act, as Amended
1949, Sec. 57 (a-e).
2 Employment Stabilization, op. cit., Exhibit 3,
Appendix D, p. 182. See also Unemployment Insurance, 1945
Senate Committee, p. 116.
7 6
dispute, being discharged for industrial miscon
duct, and the other miscellaneous disqualifica
tions. )3
Because of the importance of the availability pro
vision in the administration of the unemployment insurance
law, an effort has been made to ascertain Just what "avail
able for work" actually means and how it is applied. Its
importance to the control over payments has been indicated.
Its effective application is basic to the control over pay
ments .
On its face, availability for work may appear to
be an obvious concept which requires little or no explana
tion. Actual operations, however, have revealed how dif
ficult it is to apply the availability requirement.
Does a union man, living in a nonunion town,
leave the labor force when he refuses to consider
nonunion work? Does a pregnant factory worker
remain in the labor force if she gives up her Job
as too heavy and will accept ’lighter1 work only?
. . . How do we decide the labor-force attachment
of a college student who will work afternoons,
evenings, and week-ends only? How about the
seventy-year-old longshoreman who is no longer
able to work in the hold?^-
The subject of availability for work is concerned
with specific problems like these. The defining of
3 Ralph Altman, Availability for Work (Cambridge:
Harvard University Press, 1950), p. 4.
^ Ibid., p. 1.
77
availability resolves into the practical problem of bor
derline cases. The number of cases involved in California
is substantial, being in excess of 1 5 ,00 0 for the two year
period ending December 31, 1948.^ There is no indication
of the number of cases, outside of the borderline, that
were allowed to slip through. Nor is there any indication
of the number of cases denied by claims examiners, outside
the borderline, that were never appealed.
The purpose of the availability requirement is
conceded to exclude those who are not in the labor market
from receiving benefits. However, in reference to the
term "available for work" it is necessary to keep in mind
that it is more in the nature of a conclusion of law than
a statement of fact. For this reason, to ask an unemployed
worker who is not acquainted with the administrative
interpretations of the unemployment insurance, if he is
available for work is practically meaningless. However,
it has been found that in many local offices of the
Department of Employment some of the claims examiners do
Just that. A claimant is frequently asked, "Are you
available for work?" and the normal reply from the worker
is "Yes, I guess so," and on the basis of such a statement
it is determined that a worker is available for work.
5
Employment Stabilization, op. cit., p. 182.
78
Such a procedure explains in part why the law is not
properly administered.
There are two basic elements involved in deter
mining availability for work. The primary test is a sub
jective one involving the state of mind or personal intent
of the individual with respect to employment. Thus where
an individual states that he is willing to work and will
accept a suitable job, then the secondary element involv
ing more objective standards applies.
The proper application of the objective test
involves a "finding of fact" to determine whether or not
an individual who is willing to work places such restric
tions on hours, wages, or conditions of work that he can-
not come within the meaning of "available for work!’ as used
in the law. Similarly, an individual who is willing to
work may have involuntary restrictions such as family
responsibility, lack of transportation or attendance at
school, which render him ineligible for benefits under the
availability provision. Again, where there are no volun
tary or involuntary limitations placed on the individual
who states that he is willing to work, his statement of
willingness to work may not be a true statement of fact.
His conduct may be such as to show this "unwillingness" by
refusing to accept referrals to jobs or refusing several
offers of suitable employment.
79
It appears that in general the availability provi
sions of the law are not applied properly. The usual pro
cedure of asking a claimant whether he is available for
work, if it has any meaning at all, will probably satisfy
the primary test and indicate whether or not the claimant
is willing to take a Job. This does not reveal whether or
not the claimant places limitations on the type of employ
ment he Is willing to accept. It does not reveal whether
there are any voluntary limitations such as family restric
tions and illness which render him not available for work.
There Is a general impression that a proper appli
cation of the law Is measured in terms of the number of
individuals who are denied benefits. In suggesting that
the law should be more strictly applied and strictly
enforced, it Is recommended that determinations of eli
gibility should not be made without a "finding of fact"
which will sustain the determination. A more careful
examination and sincere interrogation with respect to the
eligibility conditions of the claimant is needed. This
requires a thorough understanding of the detailed provi
sions and refined interpretations of the law as well as of
the general language of the Act. On such a basis the
claims examiners will be in a position to apply the law
more adequately in Individual cases and at the same time
insure a more uniform statewide administration.
80
Unquestionably, high standards of administration
can be maintained only with a staff that is adequate both
in numbers and in quality. The question is: What is ade
quate? One department official put it this way: “We have,
to watch the holes in the sack but the federal government
won't give us the thread to mend them.” The regular cost
of administering the Unemployment Insurance Act is paid by
the federal government. Employers' payrolls are all taxed
by the federal government at 0 .3 per cent, to defray the
costs of administration of unemployment insurance. The
money thus collected is put in the general fund of the
federal government. Congress appropriates, annually, a
lump sum of money which the Bureau of Employment Security
is authorized to allocate to the states to defray the cost
of administering the unemployment insurance laws of each
state.
In eleven years from July 1, 1936 to June 30,
1947 . . . the Federal Government collected
$97,900,000 from California employers under this
tax. In the same period it has returned to Cali
fornia, for administration both of the employment
service and the unemployment insurance programs,
only $49,900,000. Thus the Federal Government has
made a 'profit' of $48,000,000 on California col
lections.®
Because federal law requires that unemployment benefits
shall be "paid when due," inadequate administrative funds
c
Employment Stabilization, op. cit., pp. 50-51.
curtail the time given to determinations of eligibility of
claimants and to placement of claimants in jobs, which are
the two activities most in need of increased effort to pro
tect the unemployment fund. In addition, lack of suffi
cient funds, seriously handicaps the department's educa
tional and training program for claims examiners who are
responsible for determination of eligibility. While the
problem of adequate administration has been aggravated by
budgetary difficulties, it would be a mistake to consider
this the sole source of administrative shortcomings.
At least part of the trouble stems from sudden and
extreme fluctuations in the work load. At periods of peak
load the average claim which does not require a special
Interview is disposed of in a trifle over one minute.
Obviously such speed does not permit of much investigation
into the circumstances of any particular case. Unless the
department maintains a larger staff than is required under
normal circumstances, this situation can be met only by
recalling employees previously laid off and by placing both
placement (employment service) and insurance functions
under a single local office manager in each community.
The latter step facilitates the use of all personnel in
the activity where it Is most needed.
One more valid criticism of the department is that
It has become topheavy In organization. “There has been
82
some criticism of the organization above the local office
level on the ground that it constitutes too large a part
of the organization: too many generals, not enough pri
vates. "7 This results in a stream of 1 1 directives,M very
often in conflict, from headquarters to the field offices.
Under the present arrangement, there is uncertainty as to
the particular individual or individuals who are respon
sible for general supervision of the department and for
executing policy.
All of these difficulties in the department make
it more difficult for the claims examiners to determine
whether or not a claimant is qualified for benefits. Keep
ing in mind these difficulties, the next sub-section will
cover the problems of disqualification of claimants.
Disqualification from benefit payments. After
determining (1) that the claimant is in covered employ
ment, (2) has sufficient earnings to entitle him to bene
fit payments, and (3) is eligible for benefits by being
’ ’able to and available for work," the claimant may still
be disqualified for a number of other reasons. While dis
qualifications are really a further extension of determin
ing availability they are treated separately because they
7 Allen, o£. cit., p. 101.
83
raise special problems.
Some of the more important conditions which may
render a claimant ineligible for benefits on the ground of
not being available for work are as follows:
1. Is unwilling to accept work
2. Is self-employed
3. Is attending school
4. Is on vacation
5. Limits wages acceptable to those above pre
vailing rates
6. Restricts hours or conditions of work
unreasonably
7* Removes to an area where job opportunities
are few
8. Removes to an area where there are many jobs
but none In his usual occupation
9. Lacks transportation to work
10. Refuses several offers of suitable employment
11. Refuses to accept referrals to jobs
12. Has domestic responsibilities restricting
hours of work
13- Is unable to work because of physical condition
1^. Is pregnant
15. Refuses to take an oath and sign an affidavit
required by a municipal loyalty check program
84
o
Disqualifications0 not connected with availability
for work, which may render a claimant Ineligible to
receive benefit payments, together with the number of dis
qualifications for each cause in 1949, are as follows:
1. Voluntarily quitting employment without good
cause— 51>909
2. Discharge for misconduct— 9,419
3. Refusal of suitable employment— 8,170
4. Wilful misstatements in order to obtain
benefits— 1,954
5. Failure to register for work during period of
disqualification— 4,5 6 7
6. Trade dispute— 7,487
7. Failure of claimant to seek work on his own
behalf— 8 ,2 5 7
8. Miscellaneous and other causes— 10,399
In the same year, there were 63,519 denials re
sulting from claimants1 unavailability for work. The 1949
total was 165,681 disqualifications.^
Q
0 Disqualifications as used herein refer to the
common term applied to penalties for refusing suitable
employment, voluntary quitting, discharge for misconduct,
etc. It does not include availability for work which is
an eligibility condition frequently called a disqualifi
cation.
9 Department of Employment* Employment Security News
Letter, January-March, 1950, P* 4.
85
These various conditions for disqualification are
to be found in the considerable body of precedent laid
down in decisions by referees, by the Appeals Board, and
by the courts. The claims examiners must have a knowledge
of all the possible conditions for disqualification in
order to do a proper job of administration. Yet, these
various conditions for disqualification are not to be
found written down in any one place. Some of the condi
tions of course are to be found in the Act. A few more
are to be found in Title 22 of the California Administra
tive Code which is the rule book for the administration of
unemployment insurance. Some other conditions are to be
found in Department directives. The rest must be sought
out in the volumes of referee decisions, Appeals Board
decisions, and Court rulings.
Much would be accomplished by providing a "hand
book" for the claims examiners with the possible condi
tions for disqualification set down in detail. The
claimant’s appearance, his statements, or his replies to
well-chosen questions may suggest a more detailed inter
view. It is also possible, sometimes, to avoid the pro
cessing of an invalid claim, which if processed, would
further burden the whole system. When expert personnel is
not available, or when long lines of claimants impose
pressure on personnel, the quality of work naturally
suffers. Additional staffing, improved supervision, and
better training of claims examiners will provide for more
adequate control over payments. “Above all it cannot be
emphasized too strongly that the successful administration
of an employment compensation act presupposes a well-
10
trained and efficient personnel.”
Of recent origin is a review procedure recently
adopted by the department to reduce the likelihood of
making payments to persons not legally entitled to them.
The local offices check claims in which five payments have
been made to determine if the claimant is still qualified.
A second review is made of claims in which ten weekly pay
ments have been made by roving units composed of personnel
specially selected for that purpose. Though less familiar
with local conditions, they possess the advantage of
broader background, as well as highly specialized experi
ence in determination review. The scheme should be help
ful, not only in cutting off unjustified payments, but also
in the study of conditions peculiar to various districts
and in suggesting improvements in local office procedure.
A. E. Wegner, “Administrative Problems," Law
and Contemporary Problems,(Duke University School of Law,
January 1936), P* 122.
87
II. RE-EMPLOYMENT AS A CONTROL MEASURE
The Employment Service is a vital part of the pro
gram. Fully utilized, it cam render an invaluable service
to the community. By providing an organized clearing
house for the labor market, it can help to realize the
objective, socially and economically so important, of
placing the right worker in the right place. To the
extent that this is accomplished, unemployment is reduced
and economic efficiency Increased. At the same time import
ant support is provided for the effective operation of the
unemployment insurance program, since often, the offer of
a Job is one of the best ways to test a claimant’s availa
bility.
Prior to World War II the State Employment Service
was poorly organized and on the whole, despite a willing
staff, ineffective. Placement statistics were notoriously
unreliable, employers had little or no confidence in the
organization and there was little or no interchange of
information between local offices. During World War II
the employment service was taken over by the U. S. Employ
ment Service and was concerned ehiefly with the operation
and enforcement of War Manpower controls. Necessary and
important as these services were, they did little to
endear the Department to either employers or workers,
88
both of whom sometimes resented the restrictions imposed
on their activities. In November, 1946, the employment
service was returned to the State.
It has been an uphill climb for the Employment
Service to develop worker and employer confidence. To
some degree this is because of old prejudices against the
public employment service and customary use of other means
of getting employees over the years. Many employers are
yet unaware of the Importance of the Employment Service in
the unemployment insurance program.
In the main, the bulk of department placements are
in the less skilled occupations, and undoubtedly always
will be. This factor creates special problems for the
Employment service. There is a tendency for the best job
vacancies to be picked off by people already in the plant
or by their friends.
Through no fault of its own, the (State) Service
is confronted with lhard-to-fill, jobs on the one
side and ’hard-to-plaee1 workers on the other, a
combination which makes it very difficult to satisfy
everybody concerned.11
In spite of the progress made, much remains to be
done. Much more emphasis should be placed on the import
ance of building employer confidence. It is recommended
* L1 L. G. Reynolds and Joseph Shister, Job Horizons
(New York: Harper and Brothers, 1949), P* ^2.
that the department issue periodically (weekly), a mimeo
graphed list of job applicants with brief descriptions of
their qualifications as is the practice with many private
employment agencies. Similarly a greater effort should be
made to post all job opportunities for those who:,are unem
ployed. The department has vast information on job oppor
tunities and job applicants which have not been generally
available. The best way to establish confidence in the
employment service is to provide jobs for the unemployed,
and provide qualified workers for needy employers.
Statistics now appear to be carefully compiled and
accurately reported. Separate offices in larger cities
for such categories of workers as industrial, commercial,
casual, and so on, have increased the efficiency of the
department in meeting the needs of the employers. Sub
stantial progress has been made in the development of
placement service, but this activity presents perhaps the
greatest opportunity for further development*
III. ' POWER OP THE ADMINISTRATIVE SECTION TO AMEND
Section 90 of the Unemployment Insurance Act pro
vides the manner in which general and special rules and
regulations for the administration of the act shall be
adopted, amended or rescinded. The Director of the
90
Department of Employment has the power and authority in
the first instance to formulate rules and regulations.
These rules and regulations shall become effective in ten
days after filing with the Secretary of State and publish
ing in newspapers of general circulation in the State,
unless an appeal is made to the Appeals Board. Proposed
rules or regulations shall not become effective until the
Appeals Board has heard them and has finally approved the
same. In addition the Appeals Board may adopt rules on
hearing appeals and other matters falling within the
jurisdiction of the Appeals Board.
Within the Department there is also an Employment
Stabilization Commission made up of five members, three
members of the Appeals Board and the chiefs of the Divi
sion of Public Employment Offices and Benefit Payments,
and the Division of Accounts and Tax Collections of the
Department of Employment. The functions which rest with
the Commission are to exercise delegated discretionary
legislative authority— adopting rules and regulations
having the force of law, changing the tax rate under pre
scribed conditions and reducing or suspending benefit pay
ments in an emergency. It also has authority to make
studies and it reports proposals for legislative changes
to the legislature.
Such a commission should be a sort of * ’little
91
legislature." As the present Commission is now set up,
each of the three members from the Appeals Board "wear two
hats,” and the other two members “wear three hats." All
of them have full-time responsibilities apart from their
duties as commissioners.
In contrast to the practice followed in some
states, the present administration in California has appar
ently made little or no overt attempt to initiate legis
lation affecting the unemployment insurance program.
Elsewhere, directors have been known to take the lead in
revising state laws. In New York this function is per
formed by a tripartite Advisory Council (representing the
workers, employers, and the department and the general
public) which makes recommendations as a part of its
annual report.
It is recommended that the California Commission's
membership be enlarged so that the membership would
reflect the special points of view of those directly
affected by its actions and the point of view of the gen
eral public. It should include as ex-officio members, the
director and deputy director of the department to repre
sent the technical and administrative points of view, but
its total membership should be large enough so that the
ex-officio members would not be able to dominate the
92
12
Commission.
The Department has inherent power to recommend
legislative changes, but unfortunately uses this power very
seldom. The majority of changes perhaps should be ini
tiated by the men of the Department since they after all
are expert in their work. But although it would be desir
able to make more use of such expert knowledge, it seems
practically Impossible to do so here except in minor tech
nical revisions. "So powerful are the political pressures
at Sacramento, and so bitter the partisan wrangling, that
it would be political suicide to appear to take sides on
13
. . . issues.*1
However valid this charge may be, the silence of
the Department does not meet the need for affirmative,
nonpartisan recommendations which are sometimes essential
to progress.
IV. EDUCATIONAL PROGRAM AS A CONTROL MEASURE
There is one area in which it seems that adminis
tration could make an important additional contribution to
the program. As long ago as 1945, attention was called to
12
Employment Stabilization, op. cit., p. 87.
Allen, op. cit.. p. 102.
93
the great need for an effective educational program to pro
vide workers, employers, and citizens in general with
i i t
needed information. The result was that the legislature
enacted an addition to the law directing the Commission to
”establish a bureau, section, or unit” for this purpose.
Accordingly, two public relations representatives were
appointed, one in each of the great metropolitan areas of
the State. They have done a highly competent piece of
work in acquainting workers and employers of their rights
and responsibilities under the Act. Mention has been made
of the publication by the Los Angeles public relations
16
representative for assistance to employers. In addition,
the local representative conducts classes for employers
and employer representatives on how the system works, the
various forms and reports required, and their responsibili
ties under the Act.
Two men, however capable, cannot be expected to
accomplish this purpose effectively throughout the State.
Though there may well be difference of opinion regarding
the amount of additional expense which is justified, any
broad view of the program must lead to the conclusion that
Unemployment Insurance, 19^5* op* cit., p. 108.
California Unemployment Insurance Act. Sec. 8 5.
^ jcf. ante, p. 14.
94
this is an objective of major importance. The problem
seems less a financial one than one of organization.
There are already well-informed, experienced employees in
the local offices located throughout the state. To be
sure, they would need additional training and guidance in
order to become effective public relations representatives.
No doubt also, there are already heavy demands upon their
time. Perhaps, then, it is a matter of emphasis and direc
tion. The question here raised is whether any less effort
constitutes adequate discharge of the Department's respon
sibility under the Act.
The lack of knowledge and understanding among
employers, workers and the general public regarding the
program, constitutes a major weakness. °The situation is
due largely to unnecessary complexities, but calls for
more effective public Information efforts. The responsi
bility for correcting this weakness rests with the State
Administration.
V. CONCLUSIONS
The methods by which the Department of Employment
may exercise control over payments, protect the
Allen, op. cit., p. 131
unemployment fund from abuse, preserve the integrity of
the insured worker, and enlist the support of employers
and the public, are found in four major areas.
The first area is the local office or working level
of the Department of Employment. It is here that the
claims examiners determine which of the hundreds of persons
applying for benefits are eligible to receive them. It is
with the claims examiners that the question of qualifica
tion for or disqualification from benefit payments Ini
tially lies. The claims examiners are responsible for
determining (l) that the claimant is in covered employment,
(2) has sufficient earnings to entitle him to benefit pay
ments, (3) is eligible for benefits by being able to and
available for work, and (4) is not disqualified by rules
governing conditions of disqualification.
To Improve this area of administrative control over
benefit payments it is recommended that employment service
personnel be trained to do claims examiners work so that
they may assist claims examiners during periods of peak
load. It is recommended further that additional staffing,
improved supervision, and better training of claims exam
iners be provided in order to exercise more adequate con
trol over payments.
The second major area in which methods of control
over benefit payments are to be found is the Employment
Service. The offer of a job is one of the best ways to
test a claimant's availability for work. The Employment
Service has made good progress from a poor beginning, but
mueh remains to be done. To strengthen this area, it is
recommended that the Employment Service issue a mimeo
graphed list of job applicants, and make a greater effort
to post all job opportunities for those who are unemployed.
The third area is the power of the administrative
section to amend the rules and regulations pertaining to
control over benefit payments. The power to amend rules
and regulations rests in the first instance with the
Director of the Department of Employment. This power
rests finally with the Employment Stabilization Commission.
The Employment Stabilization Commission should be required
to make affirmative, nonpartisan recommendations to the
legislature for the needed legislative changes in the law.
The Department of Employment has an educational
program which constitutes the fourth major administrative
area for the control over benefit payments. There are at
present only two public relations representatives in the
Department to undertake the educational program. These
two men have done a competent piece of work in acquainting
workers and employers of their rights and responsibilities
under the Act. It is recommended that experienced
97
employees in the local offices throughout the State be
assigned as public relations representatives. It is
recommended that additional funds be provided to expand
the Department's educational program.
CHAPTER V
CALIFORNIA UNEMPLOYMENT INSURANCE APPEALS MACHINERY
To safeguard the program and the rights of inter
ested parties, the appeals procedure is provided. Either
the employer, in whose interest it is to prevent improper
payments, or the claimant, who believes that he has been
unjustly denied benefits, may appeal from the decision of
the local office claims examiner to a referee. No fees
are required and almost no red tape is involved. Further,
appeal from the referee’s decision is provided by the
Appeals Board.
The internal appeals machinery of the Department
provided by the Unemployment Insurance Act consists of a
higher authority, or Appeals Board, and a lower authority,
or staff of referees. The Appeals Board consists of three
members appointed by the Governor, subject to the approval
of the Senate, the appointment being for four years, stag
gered terms ending at sixteen month intervals. Each mem
ber of the Appeals Board receives a salary of $12,000 per
year.1 The law does not require that members of the
Appeals Board have legal training, although since the
1 California Unemployment Insurance Act, 1949,
Sections 77 and 7 8.
99
Board was established in Its present form In 19^3, its
membership has always included at least one attorney at
law.
The Appeals Division includes the Appeals Board,
its clerical staff and assistants, the referees and their
supervisors, and the clerical staff with assistants. All
personnel of the Appeals Division are appointed by the
Appeals Board. The Appeals Board appoints a chief referee
who must be a member of the California Bar. The duties of
the chief referee are to supervise the activities of ref
erees, and maintain review of the decisions of referees
not appealed. This is done in order to uncover those
decisions which appear inconsistent with the law and estab
lished Judicial decision. Such cases are then sent to the
O
Appeals Board for further hearing.
As provided in Section 82 of the Act, the Appeals
Board has jurisdiction over any appeal pertaining to the
payment of a benefit claim, the collection or computation
of a tax contribution, or the propriety;of a charge against
an employer's reserve account, where such an appeal is pro
vided for in the act. Its decision is final, except for
such action as may be taken by judicial tribunal as per
mitted or required by law. With respect to claims for
2 Ibid., Section 78.1.
100
benefits, the claimant and any employers required to be
notified of a determination of the claimant’s eligibility,
may appeal to a referee within seven days of service of
notice of determination of such eligibility, and shall be
afforded a hearing before a referee. Appeal from referee
t
decision to the Appeals Board may be made within ten days
of such decision.
The internal appeals machinery of the Department
of Employment, apart from being important to fair and
equitable administration of the law, is very important in
the control over payments since it lends consistency to
claims examiners determinations of eligibility. Further,
the appeals machinery interprets legislative intent, pub
lic purpose, and gives effect of law in the precedent it
lays down.
I. HEARING AND DECISION BY REFEREE
No matter how carefully the Act is drawn and how
good the administration, there are bound to be discrepan
cies. Whatever the statute may imply, much must be left
inevitably to the discretion of those charged with its
administration. Training, experience, and objective atti
tude, a thoughtful appreciation of what is socially and
economically desirable— all these are needed. Being human,
101
examiners must be expected to differ on their ideas and
opinions and, consequently, in their decisions. Unques
tionably, there are divergencies, because it is very dif
ficult to apply general principles to specific cases.
The greatest shortcomings of the appeals machinery
at present is the extended delays in rendering decisions
in peak periods. Delays in decisions on appeals have most
unfortunate consequences. A claimant for benefits who
appeals from an examiner’s determination, is not paid until
a referee decides his case. By delay in the referee's
decision, he may be denied the benefits that the law
intends he should have during the time he needs them most
desperately. If the initial determination is in favor of
the claimant, but is appealed by an employer, the claimant
receives benefit payments until the referee decides against
him, in which ease, the longer the delay, the more he col
lects to which he is not entitled. The payments are theo
retically supposed to be paid back. But in actual prac
tice, if he is not guilty of fraud, repayment is con
sidered contrary to public policy, and the Trust Fund
absorbs the error.
The importance of the appeals machinery to the
control of payments is indicated by the volume of cases
handled, and their disposition. These are given for a
two year period ending December 31, 19^8, in Table II.
102
TABLE II
UNEMPLOYMENT INSURANCE BENEFIT APPEALS*
January 1, 1947 to December 31, 1948
Classified by Appellant and the effect on claimant’s interest
Referees Appeals Board
Number Per cent Number Per cent
Appeals by claimants
Benefits denied
Benefits granted
Total appeals
by claimants
12,537
9, 519
22,956
57
43
100
3,705
401
4,106
90
10
100
Appeals by employers
Benefits granted 1 ,8 2 2 70 518 70
Benefits denied 786 30 232 30
Total appeals
by employers 2 ,6 0 8 100 4 ,8 5 6 100
TOTALS 24,664
---
4 ,8 5 6
---
* Employment Stabilization, p. 1 8 3.
103
The number of eases in which appeal was made from
an initial determination by a claims examiner in a local
office to a referee during a two-year period ending
December 1948 was 38,4l4.^ There were 24,664 decisions
rendered by the referees during the same period. The num
ber of decisions involving appeals by the claimant was
22,956. In 12,537 of these cases (approximately 57 per
cent) the claimants were denied benefits by the referees.
In 9,519 cases (approximately 43 per cent) benefits were
granted to the claimant. The remaining 2,608 cases de
cided by the referees during the same period involved
employer appeals. In 1,822 cases (approximately 70 per
cent) the decision was against the employer's interest and
the referee affirmed the original determination granting
benefits to the claimant. In 786 cases (approximately 30
per cent) the claimant was denied benefits and the deci
sion was in favor of the employer. In about 54 per cent
of all eases appealed to a referee, benefits were denied.
The average time for decision on an appeal is
slightly less than six weeks in the referee section.^ The
ideal situation would be for each appeal to be decided
3 cases not disposed of are generally withdrawals,
or dismissals of appeals, or carried over to a subsequent
period.
^ Employment Stabilization, op. cit.. p. l8l.
104
before any party could suffer anything from delay. It is
suggested that the Department develop a pool of referees,
for emergency appointment only, from among the members of
the bar in each locality.^ Another source for referees to
serve in emergencies would be non-partisan faculty members
of Universities and Colleges in the local area, as is done
for arbitrators in trade disputes. The addition of from
one to a dozen referees for an emergency period in the
localities in which heavy overloads appear would do much
toward keeping down backlogs with a surplus of referees
between peak loads.
II. PROCEEDINGS OF THE APPEALS BOARD
Benefit cases. Within ten days after the decision
by the referee, an appeal may be taken to the Appeals
Board, which is the highest administrative review. Either
the claimant or the employer, if dissatisfied with the
decision, may make further appeal. Any further review
requires an action or special proceedings in court. Very
few benefit cases have ever been taken to court by a
claimant. A few more cases have been taken to court by
employers, some going as fair as the State Supreme Court.
5 Ibid., p. 41.
105
The place of the courts and their activities in connection
with unemployment insurance are treated in Chapter VII.
Since the decisions of the Appeals Board are ordin
arily accepted as final, the more than 5,000 cases so far
decided constitute a sizeable body of precedent. In each
case there is a definite expression of the meaning of the
law applied to a specific set of circumstances, often with
some explanation of the rationale involved.
Tax cases. In addition to acting on benefit cases
the Appeals Board acts directly on disputed tax cases.
All employers that come within the provisions of the act
are required to make contributions to the fund according
to the rates set forth in the law. Section 4l.l of the Act
requires the Director to furnish each employer subject to
the Act: (l) an itemized statement of the charges to his
account, and (2) a statement of his account showing the
credits and charges, the net balance of his reserve and
his contribution rate for the ensuing year. Employers are
afforded an opportunity to protest to the department any
item affecting his tax rate, or the tax rate Itself, on
this statement within sixty days. The department is
required to give notice to the employer of its action on
the protest. Within 30 days of a disallowance of a protest
the employer may file a petition for review with the
106
Appeals Board.
If any employer feels he does not come within the
provisions of the Act, i.e., that his employees are not in
covered employment, and is assessed for taxes by the
Director, he may likewise file protest and appeal to the
Appeals Board.
The original determination is made by the Appeals
Board itself for collection or computation of a tax con
tribution, or the propriety of a charge against an employ
er* s reserve account. Referees act only as hearing offi
cers and to take evidence.
Decisions of the Appeals Board must be rendered
within sixty days after the filing of the appeal. If the
Appeals Board issues a decision allowing benefits they
will be paid regardless of any further action taken by the
Department, the Appeals Board, or any other administrative
agency, and regardless of any proceedings in the courts.^
If such decision is finally reversed or set aside, no
employer's account is charged for benefits paid.
All meetings, hearings, and proceedings of the
Appeals Board are open to the public, and all decisions
and orders are written, giving the facts upon which the
7
Matson Terminal Inc. v. California Employment
Commission, 24 C(2dl) 6^5 (I$44).
107
Q
decision is based.
III. DECISIONS OP THE APPEALS BOARD
What was said about delay of decisions by referees
is even more true in the case of the Appeals Board. The
average time for decision on an appeal to the Appeals Board
is somewhat in excess of six weeks. In a great many cases,
the Appeals Board in rendering its decision has exceeded
the 60-day statutory period. Further, in several cases
the date of the decision has been back-dated in order to
comply with the statutory requirement. Delay in rendering
decisions on the part of the Appeals Board is even more
significant to control overpayments than in the case of
referee decisions. If a claimant is not entitled to bene
fits, but a referee erroneously finds in his favor, he is
paid benefits until the Appeals Board decides against him,
in which case, the longer the delay, the more he collects
to which he is not entitled. The payments he has received
in the interval are then set up as so-called Moverpayments'*
which he is theoretically supposed to pay back. But in
actual practice, if he is not found guilty of fraud, it is
usually decided by the department, under section 6k of the
Act, that recovery of such payments is contrary to public
^ California Unemployment Insurance 19^9, Secs 80,81.
108
policy, and. the unemployment fund absorbs the cost of the
error. Such delay in decision rendering is responsible
for some payments which should not have been paid.
Although the funds involved are not substantial,
they could become considerable in a period of heavy unem
ployment. In such a period the load on the appeals machine
ery would be heavy. Delay on decisions probably would be
longer and the resulting drain might turn out to be sub
stantial. In a two year period ended December 1948, more
than 90 days were required by the Appeals Board to render
decisions on 2,861 cases. (Approximately 59 per cent of
Q
the total cases.)
It is therefore recommended that where the payment
of benefits is involved pending a final decision by the
Appeals Board, such payments be suspended until the Appeals
Board has rendered its decision.
The number and nature of benefit decisions rendered
by the Appeals Board indicates its significance to the
control of payments. The total number of cases appealed
from referees or claims examiners to the Appeals Boatfd in
a two year period ending December 1948 was 4,8 5 6. Of this
total 4,106 involved appeals by the claimant, and in 3*705
^ Employment Stabilization, op. bit., p. l8l.
cases (approximately 90 per cent) the claimants were denied
benefits, while in 401 cases (approximately 10 per cent)
benefits were granted to the claimant. The remaining 750
cases decided by the Appeals Board involved employer
appeals, and in 518 cases (approximately 70 per cent) the
decision was against the employer's interest and granted
benefits to the claimant, while in 232 cases (approximately
30 per cent) the claimant was denied benefits and the deci
sion was in favor of the employer.1^ In 3,937 eases of
the total 4 ,8 5 6 cases, benefits were denied the claimants
(approximately 8l per cent).
These figures indicate that there are some people
who try to get money from the unemployment insurance fund
to which they are not entitled. Table III reviews the
benefit decisions of the appeals machinery of the Depart
ment of Employment for the two year period ending December
31, 1948.
In this two year period, there were 24,664 appeals
from claims examiners' determinations, many by claimants
and a few by employers. Of the total, 13,323 claimants
were denied benefits, or about 55 per cent. In the Appeals
Board there were 4,856 appeals from referee decisions or
claims examiners determination, again many by claimants and
10 Ibid., p. 183.
110
TABLE III
UNEMPLOYMENT INSURANCE BENEFIT APPEALS*
January 1, 1947 to December 31, 1948
Classified by effect on benefit payments
Referees Appeals Board
Number Per cent Number Per cent
Benefits denied 13,323 55 3,937
81
Benefits granted 11,341 45 919 19
Total 24,664 100 4,856 100
* Employment Stabilization, op. cit., p. 183*
Ill
a few by employers. Of this total 3,937 claimants were
denied benefits; or about 8l per cent. All of this indi
cates that there are some people who will go to great
lengths to obtain payments from the unemployment insurance
fund. Nearly one-third of the claimants denied benefits
by referee took their cases to the Appeals Board, when
less than 10 per cent were valid claims.
It is significant to note that of the total deci
sions by referees, appeals by employers represented only
about 10 per cent, and of the total decisions by the
Appeals Board, appeals by employers represented only 15
per cent of the total appeals.
Employers have the responsibility for; providing
prompt, accurate, and complete information regarding former
employees, without which sound decisions cannot be made.
As indicated above, too often they are remiss in the per
formance of their duties. Too often they are unfamiliar
with the law and neglectful of their responsibilities in
its administration. It appears that the responsibility
for the loss of funds rests partly with the employers.
As far as procedure goes, the appeals machinery
Is well designed to avoid injustices and Improper payments
which might result from erratic or arbitrary administrative
rulings. It Is difficult to see what further safeguards
could be provided.
112
Its primary shortcomings lie In the length of
time required to render decisions. Obviously benefits do
not serve their proper purpose if granted such a long time
after a claim has been filed. The solution to the problem
Is not found in curtailing the amount of time which is
necessary for the Appeals Board to decide a disputed case,
but rather in curtailing wherever possible, the number of
cases which are appealed. It has therefore been suggested
that a tri-partite tribunal be established at the first
appeals level in lieu of the referee system.-^1 It would
be made up of a representative from labor, one from indus
try and one from the department. It is contended that the
percentage of appeals to the Appeals Board would be greatly
reduced, particularly where the members concur in a deci
sion, because it is believed that the individual claimant
would be more satisfied that a proper decision of his
rights had been made. Further, It is said, this plan will
foster participation of the public, labor, and employers
In the program.
Local appeal tribunals at the first appeal level
with labor and management representation are found in the
laws of more than one-half of the States today, and the
11 Unemployment Insurance, 1945. op. cit., pp.
104-05.
113
experience of these states has been favorable. It is held
that similar tribunals in California would, in addition to
decreasing the number of appeals, encourage the various
local communities to take a greater Interest in the ad
ministration of unemployment insurance in this State and
develop a better understanding of the meaning and purpose
of the law. They would at the same time insure proper
application and interpretation of the Unemployment Insur
ance Act. It is recommended here that such a tri-partite
tribunal should be tried as an experiment in one of the
metropolitan areas of the state before it is adopted on a
state-wide basis and incorporated into law.
IV. CONCLUSIONS
A two level appeals procedure is provided at pres
ent to safeguard the program and the rights of the inter
ested parties. The appeals machinery consists of a higher
authority, or Appeals Board, arid a lower authority, or
staff of referees. Either the claimant or the employer
may appeal from the decision of the local office claims
examiner to a referee. Prom a referee's decision appeal
may be made to the Appeals Board, which is the highest
administrative review. In addition to acting on benefit
cases the Appeals Board acts directly on disputed tax
114
cases. In tax cases referees act only as hearing officers
and to take evidence.
As far as procedure goes, the appeals machinery is
well designed to avoid injustices and improper payments
which might result from erratic or arbitrary administra
tive rulings. Its primary shortcomings lie in the length
of time required to render decisions. Obviously benefits
do not serve their proper purpose if granted such a long
time after a claim has been filed.
It has been recommended that the Department of
Employment develop a pool of referees, for emergency
appointment only, to meet the heavy demands during peak
periods. This pool could be made up from members of the
bar, or from faculty members of Universities and Colleges,
in each local area.
It appears that a large number of invalid claims
are appealed from the referee decisions to the Appeals
Board. The length of time for decision on an appeal to
the Appeals Board is greater than that of the referees.
In many cases, the Appeals Board has exceeded the statutory
period in rendering its decision. The solution to this
problem is to curtail the number of cases appealed to the
Appeals Board. It is recommended that a tri-partite tri
bunal be established at the first appeals level in lieu of
the referee system. It is believed that the individual
115
claimant would be more satisfied that a proper decision of
his rights had been made.
The internal appeals machinery of the Department
of Employment is important to fair and equitable adminis
tration of the law. In addition, it is very important in
the control over benefit payments since it lends consis
tency to claims examiners determinations of eligibility,
interprets legislative intent, and gives the effect of law
to the precedent it lays down.
CHAPTER VI
FRAUD AND INVESTIGATION SECTION
In the early years, the law made no special provi
sion for investigation of illegal collections of unemploy
ment insurance benefits. The federal authorities made no
budget allocation for a specialized handling of illegal
collection of benefit payments. Prior to 19^6, a few
people were taken from other duties in the central office
and assigned to review cases of suspected illegal collec
tion of money. If prosecution seemed warranted, cases
were referred back to the appropriate local office for
further action. More often than not, the local office did
not have sufficient time, money, and proper personnel to
pursue the matter.
Realizing that the drawing of illegal benefits was
probably running into substantial amounts of money and
feeling that something should be done about it, the 19^5
Senate Interim Committee recommended the creation of an
investigation staff.1 *
The failure to adequately police the law . . .
has created a general attitude that there is no harm
in making a false statement in order to obtain
1 19^5 Senate Interim Committee, Unemployment
Insurance, op. cit., p. 109.
117
benefits ... It must be recognized that a liberal
law, such as unemployment insurance, requires strict
enforcement in order to survive.2
Acting on the recommendation of that Committee,
the legislature in the 19^5 session amended the law to
require that a special investigation section be set up in
the Department of Employment. Section 86 of the Act pro
vides that:
There shall be created under the Division of
Public Employment Offices and Benefit Payments a
field investigation staff (whether separate from
or part of any existing bureau, section or unit
relating to investigation throughout the State of
all violation of this act, to the end that the pro
visions of this act are more adequately and strictly
enforced.
The Fraud and Investigation Section was established
in March, 19^6. For nearly a year the section operated
with a skeleton crew and was concerned mostly with organi
zational problems. In spite of early organizational diffi
culties, and the relatively short time the group has been
functioning, it has thoroughly justified its existence.
James 0. Reimel is the present head of the investigating
unit. One official at the local office said; "The idea of
the fraud investigating unit started under his [Reimel]
hat and has now covered the state.”
2 Ibid.• P- 109.
118
I. ORGANIZATION AND FUNCTIONS
Organization. The Fraud and Investigation section
is under the supervision of a supervising investigator who
is administratively responsible to the Director of the
Department. The supervisor maintains headquarters and his
headquarters staff in Sacramento. For operational purposes,
the State is divided into five areas with area headquar
ters in Sacramento, San Francisco, Fresno, Los Angeles,
and Santa Ana. Each area office is managed by an area
investigator who is responsible to the supervising inves
tigator. Area offices have a staff of investigators and
clerical help, varying in size according to local needs
and funds available. At the end of 1950 there were fif
teen persons assigned to the Los Angeles area, several of
whom are investigators.
The staff at central office headquarters directs
the operation of the section and coordinates its activi
ties with those of other sections of the department. It
maintains personnel and other control records and stands
ready to furnish field Investigators with whatever inform
ation or assistance they may need. It also plans and
directs special activities and investigations.
Area offices, directly responsible to headquarters
in Sacramento, are under the direction of the area
119
investigator who plans and controls the activities within
his Jurisdiction. The area is the working level of the
section, there being no local office subdivisions. It
devolves upon the area office to investigate and dispose
of, in one way or another, all cases of law violation
reported to it.
Functions of the Fraud and Investigation Section.
The functions of the Fraud and Investigation Section are,
in general, to investigate and prosecute, if found neces
sary, all alleged violations of the California Unemployment
Insurance Act. Among other things, the section is specif
ically charged with investigation of fraudulent receipts
of benefits, collusion between employers and employees to
defeat the purpose of the Act, and violations of the law
by department personnel. In discharging these duties,
personnel of the section prepare cases for prosecution
and act as witnesses at trials. The section also directs
training programs for other department personnel to
acquaint them with investigating procedures and problems.
The real and ultimate objective of this section is
the prevention of fraud, rather than merely its detection
and punishment. There can be little doubt that the most
effective deterrent to fraud, excepting always the general
attitude of the community, is the knowledge that violations
120
are being discovered and, what is more, punished. One
example of this principle is familiar to everyone. In
vast cities like Los Angeles the motorist is under con
stant temptation to violate the speed laws. But he
usually restrains himself when he knows that traffic
policemen are active and that arrest means the certainty
of a fine or imprisonment. How well the Fraud and Inves
tigation Section performs its functions is perhaps best
answered by a description of its methods and activities.
II. PROCEDURE FOR CONTROLLING FRAUD
Information on alleged violations come to the area
investigator from various sources. The greatest number
originate in local employment offices. Local office per
sonnel become suspicious when claimants fail to report at
their scheduled hour or appear in work clothing. Claims
examiners, through long experience in interviewing, become
adept in cross-questioning of suspicious claimants and, in
the larger offices, specialize in such cases. When there
are definite indications that the claimant is concealing
or misstating facts regarding his availability or his
current occupation, these are reported to the nearest
office of the Fraud and Investigation Section.
Other sources, in their approximate order of
121
importance, are internal audit of payments against wage
records in the central office,^ interested citizens of
the community, and employers. Some reports from citizens
are merely malicious or spiteful, but most of them are
animated by a sincere concern for the public interest, as
well as resentment at apparent abuse of the program.
Employers sometimes and report information to the Depart
ment that their former employees are collecting benefits
while working. The area investigator reviews the reported
information, evaluates the ease and assigns it a priority.
Considerations that enter into the determination of pri
ority are: the likelihood of unfavorable publicity for the
department if action is not taken promptly, the possibil
ity of creating hardships for claimants by not acting
promptly and prospects for successful prosecution.
After designating the appropriate priority, the
case is assigned to a field investigator. The investiga
tion of a case is often time-consuming work and, on the
average, about twelve hours are spent per case. The
person involved is usually requested to appear at an area
office, but frequently these requests never reach him, or
are ignored, making it necessary for the investigator to
^ Internal Audit as a control device is treated in
detail in Chapter VII.
122
seek him out. In cases involving the drawing of benefits
while working, employers must be contacted in order to get
a record of the employee’s daily earnings so that earnings
in a given seven-day week can be determined.
The basic theory of this section is that field
work, at least in the criminal field, should be in the
hands of trained, professional investigators. They have
the necessary familiarity with methods used in evading the
law, the patience and persistence to-obtain the requisite
detailed evidence and, above all, the expert knowledge of
what the courts will accept as evidence.
Upon completion of the investigation, the case is
written up and a recommendation is made as to its disposi
tion. The area investigator reviews the case and, if
prosecution is involved, it is returned to the investigator
for processing the complaint and the follow-up of the
trial.
Since prosecution is handled by existing law
enforcement machinery, it is necessary to establish a rela
tionship with the district attorneys of the State which
would be most productive of the desired results. These
officials try to bring to court only cases in which they
have a better than even chance of winning. They naturally
regard any other policy as a waste of taxpayers’ money, as
well as a possible reflection on their own professional
123
competence. So they are slow to accept or prosecute cases
in which there is doubt of conviction. Only by the most
thorough and careful preparation of every case submitted
for prosecution is it possible to gain their confidence
and cooperation.
The Fraud and Investigation Section, in addition
to maintaining general coverage of the state, conducts
special campaigns against points of concentrated violation.
Here again the analogy with the city traffic squad applies.
Police find it necessary not only to maintain a general
coverage of traffic throughout an entire city, but in
addition to undertake special campaigns when and where
traffic tends to move at illegal speeds. A somewhat simi
lar dual program is employed by the Investigation Section.
It was believed important not to neglect or overlook any
area of the State lest the idea become established that
enforcement activities need not be feared. At the same
time it was recognized that points of concentrated viola
tion develop from time to time under the special condi
tions peculiar to an industry or area.
Intensive investigations. The special campaign,
though no more important to the ultimate objective, is
more formidable. It Is likely also to be more economical
in terms of cost per conviction or disqualification. A
124
good example of such a large-scale investigation was a
campaign carried on in the Bakersfield area in 1948.
Local office reports Indicated that claimants were collect
ing benefits while working in agriculture, possibly on a
large scale. In twenty days five full-time field agents
investigated 143 claimants who had collected five payments
or who had aroused suspicion in some way. They uncovered
thirty-one cases of outright fraud and made forty-six
disqualifications. Of the sixty-six cases in which no
evidence of irregularity was found, twenty-seven did not
return as scheduled on the following week.** It may not
follow that this failure to return the following week was
entirely due to fear of detection by undiscovered offend-
/
ers, but similar experiences elsewhere indicate that
claims do tend to fall off during such mass Investigations
and for some time thereafter.
A particular industry or plant may also become a
center of illegal activities and is best attacked by
investigation on a wholesale basis. Manifestly the pre
ventive effects of all these enforcement activities will
depend upon the extent to which they become known. The
press is for the most part highly cooperative; the
2 t
Department of Employment, Report to Bureau of
Employment Security on Fraudulent Payments TNovember 15,
1948). ““
125
enforcement section has an impressive collection of news
paper publicity from all over the State. Though the effect
cannot be measured, there can be no question as to the
tremendous preventative value of well-publicized convic
tions.
There are many cases in which violations of the
law are indicated that are not prosecuted. Sometimes this
is because of the lack of some bit of necessary evidence,
but more often it is because it is not certain that the
violation was wilful and deliberate. Here, as in the
enforcement of the Internal Revenue Code, the policy of a
democratic government must be to reserve criminal prosecu
tion for the flagrant offenders who clearly acted with
intent to defraud. Where there is any question as to
ignorance of the law or absence of criminal design the
policy of the Department is to disqualify the claimant, and
wherever practicable, to effect restitution of the amount
of overpayment.
III. NATURE AND EXTENT OF FRAUDULENT PRACTICES
There are numerous ways of getting around the law
or regulations and the use of any of them is, of course, a
fraudulent practice. Many claimants, who would not think
of 1 1 dipping'* into the till of the corner drugstore, do not
126
seem to realize that obtaining money by fraudulent means
from the unemployment fund is as surely a crime as if they
stole it. The methods of getting around the law are per
haps as numerous as there are different kinds of people.
Types of fraudulent practices. The classic exam
ple of fraud in unemployment insurance is the case of the
California high school principal who mulcted the fund out
of some $12,000 before he was caught. He set up several
spurious companies with fictitious payrolls on which con
tributions were paid into the fund under fictitious names.
Members of the conspiracy, including an employee of the
Department, collected the benefits which far exceeded the
amounts paid in.-*
Other clever schemes, based upon misrepresentation
of identity but usually less involved that the case
described above, are evolved from time to time and usually
create headlines when discovered. One such scheme was the
case of a man who drew benefit payments while in Jail. He
had been in Jail many times before. He was one of these
unfortunate individuals who would work until he got a few
dollars ahead and then he had to go out and get drunk. He
always ended up in Jail. As a result of knowing him so
5 Allen, o£. cit., p. 57.
127
well and being short of personnel in the San Fernando jail
and needing a janitor, he was made a trusty. He had to go
downtown each Tuesday and pick up janitorial supplies. On
his way he stopped at the Department of Employment and
picked up checks amounting to $182. After he finished his
drunk sentence, he appeared again in court, charged with
fraud. He pleaded guilty, was given a 90-day sentence,
ordered to pay back the $182 and was fined $25. The San
Fernando jail had a janitor for another 90 days.^
Another fraudulent scheme that has been reported
is the claimant's deliberate attempt to discourage a pros
pective employer from hiring the claimant.
One such instance invdlved a stenographer who
was always well dressed when reporting to the local
office to collect her benefits. She was referred
to jobs on several occasions but was never hired,
and, on investigation, it was found that she always
came to the prospective job so inappropriately
dressed and behaving in such a manner that no one
would hire her.7
Such activities are inevitable in any operation in which
large sums of money are disbursed.
The great volume of fraud of the unemployment
insurance program is of a different type, requiring less
6
Assembly Interim Committee on Finance and
Insurance, 1950, Unemployment and Unemployment Insurance,
op. clt., p. 17 2.
^ Employment Stabilization, op. cit., p. 170.
128
brains and less detailed knowledge of the system. There
are almost as many specific ways to cheat the Unemployment
Fund as there are people who cheat it, but the most prev
alent fraudulent practices appear to be of about six gen
eral types:
First, the claimant uses the name and social secur
ity number of someone else, sometimes a dead man, to get
benefits based on the other's wage credit. Or he works
under more than one name and social security number, so
that he can establish wage credits under each, and so
rotate his drawing of benefits between his different iden
tities. Claimants' files are now kept according to social
security number.
Second, the claimant certifies he has not been
working although he has. This is the easiest and most
common of the fraudulent practices. The worker quits his
job with an employer covered by the act, files a claim for
benefits and then obtains work from an employer not sub
ject to the act. These non-subject employers such as
farmers, nonprofit organizations, federal and state agen-
, cies and users of domestic help, do not report wages to
the Department, and internal audits would not uncover a
violation of this kind. Detection depends upon the
Department being informed by an outside source.
Third, the claimant says he has lost his job by
being laid off when he has actually quit or been fired for
misconduct. Prompt reporting of employers to the Depart
ment on the circumstances of separation from employment is
needed to detect and catch this fraud.
Fourth, the claimant avoids work by claiming his
occupation is in work which he is not capable of perform
ing and for which he could not be employed. Or the claim
ant registers for work which is not available in the local
ity, and so cannot be offered to him.
Fifth, the claimant says he is available for work
when he is not. At present, the general practice is merely
to disqualify a person who is not available for work.
After thirteen weeks of disqualification the claimant is
entitled to and can draw benefit payments. It is recom
mended that after the thirteen week disqualification, the
claimant be presumed to be committing fraud if subsequently
he draws benefit payments. The burden of proof that the
claimant is not committing fraud should then rest on the
claimant.
Sixth, the claimant pretends to apply for a job to
which he is referred but deliberately conducts himself in
a way designed to discourage prospective employers from
hiring him.
Extent of fraudulent practices. How extensive is
130
the alleged fraudulent depletion of the California Unem
ployment Insurance Fund? The 19^9 Senate Interim Com
mittee estimated that the loss due to fraud in 19^S
o
amounted to about 30 million dollars. This source held
that about 20 per cent of the total of $146 million bene
fits paid out was obtained by fraud. Department officials
deny that fraudulent payments are so extensive. There is
no information available upon which to base an accurate
determination of the amount of benefits being drawn by
those not entitled to them. The Fraud and Investigation
Section has not made such a determination. However, cer
tain data have been gathered which give strong indication
that the amount of benefits being drawn illegally are of
substantial proportions.
The results of a few intensive invetigations under
taken by the Fraud and Investigation Section tend to con
firm this inference. In June, 19^7, following complaints
to the department, a quick but intensive survey was con
ducted in the Los Banos office. For two days each claim
ant appearing in the office to certify for benefit payments
was referred to investigators for further questioning.
During the two-day period sixteen claimants for unemploy
ment insurance were questioned intensively with the
8 ^
Employment Stabilization, op. cit., p. 26.
131
following results: one violation admitted, six claims held
ineligible, five claims declared questionable and only
i
four claims cleared as payable.^ in this investigation,
the potential volume of improper payments amounted to more
than 40 per cent of total claims.
On another occasion, the department conducted a
special investigation in the Bakersfield office during
September and October, 1948. The claim load for the
selected day was 283, of which 143 were subjected to an
intensive field investigation, with the following results:
thirty-one fraud cases developed, forty-six claims were
disqualified, and sixty-six claims were cleared as pay
able. In this investigation, it was found that nearly 54
per cent of the claimants investigated, or 27 per cent of
the total claims load, had been drawing benefits to which
they were not entitled. In addition, only 39 of the 66
claims cleared as payable were presented for collection tbs
following week. This indicates that there may be some
claimants who know themselves not to be eligible, even
when the department does not know it.
At Taft, intensive questioning of suspicious
applicants, even without field investigation, resulted in a
54 per cent reduction of the volume of claims in that
office. It may not follow that this was entirely due to
fear of detection by the claimants, but similar experiences
132
elsewhere indicate that claims do tend to fall off during
; such mass investigations and for some time afterward.10
Similar investigations, using a random sampling of
20 cases each, were undertaken in Los Angeles, San Diego,
and San Bernardino. "The incidence of indicated invalid
collection of benefits was 20 per cent in Los Angeles and
San Bernardino, and 45 per cent in San Diego."3’ " 1 '
In the absence of more complete data, the rough
conclusion is that the number of claimants found receiving
benefits, either fraudulently or under questionable cir
cumstances, ranged from 17 per cent up to 71 per cent.
The most intensive investigation revealed that 27 per cent
of the total claimants were drawing benefits to which they
were not entitled.
A Central Office sample audit of claims payments
against wage payments showed that 9 .7 per cent of the
claimants drawing over six payments were working while
drawing payments. This 9-7 per cent was found in a group
which was cheating by the method easiest to detect. This
process would uncover none who were working for the state
or municipality, or a farmer or a housewife. Neither would
10 Employment Stabilization, op. cit., p. 174.
11 Idem.
133
it detect those who were avoiding either a disqualifica
tion or having to go to work by lying or false pretenses.12
While the 1949 Senate Interim Committee's estimate
of 20 per cent of the number of claims paid during 1948
were paid to people who obtained them through fraud is
denied by the officials of the Department; an estimate of
10 per cent hardly seems unreasonable.
One other source which indicates that benefit pay
ments are in excess of what they should be Is given by a
comparison of the average number of weekly benefits to the
average number of workers in covered employment. The fig
ures for significant years are given In Table IV. The war
years are omitted since the number of weekly benefits was
extremely low. The year 1950 Is omitted because of incom
plete data.
Prom these figures it can be seen that the number
of weekly claims since the war is greater both absolutely
and as a per cent than in the years before the war. The
total average per cent of number of benefits to covered
workers for the three years before the war is 5 .5 per cent.
This indicates that the average unemployment was about
5 .5 per cent. The same percentage for the four years
after the war amounted to more than 6 .5 per cent as a
12 Employment Stabilization, op. cit.. p. 175*
134
TABLE IV
AVERAGE NUMBER OF WORKERS IN COVERED EMPLOYMENT
AND AVERAGE NUMBER OF WEEKLY BENEFITS*
Year
Average number
in covered
employment
Average number
of weekly
benefits
Percentage of
number of benefits
to number in
covered employment
1938
1,280,903 52,273
4.1
1939 1,269,097 72,985
5-8
1940 1,384,386 92,746
6.7
1946 2,323,564
157,237 6.7
19^7
2,459,596 133,724 5.4
1948
2,515,469
132,448
5.3
1949 2,425,0 0 0 216,976 8 .8
* Assembly Interim Committee, op. cit., p. 7 6.
135
total; or 6.5 per cent average unemployment. Frictional
unemployment of 6 .5 per cent in a post-war period of full
employment seems to be excessive. Even making the general
allowance of a 5 .5 per cent average frictional unemployment
similar to the pre-war average, there remains another 1
per cent unemployment unaccounted for. Now 1 percentage
point of the total average 6 .5 per cent unemployment of
the post-war years amounts to slightly in excess of 15 per
cent unaccounted for weekly benefits paid.
Department officials would probably discount this
figure by pointing to the fact that there is an average
in-migration of 15,000 workers per month in California.
They would also point to more liberal features of the law
such as wider coverage. On the other hand, the fact is,
fraud existed before the war. Since the war the Fraud and
Investigation and more restrictive eligibility require
ments have been added.
Although none of the above evidence on the extent
of fraud is conclusive, all available evidence seems to
point to an unaccountable loss in the system amounting to
10 or 20 per cent, both in benefits paid and number of
claimants. For 1950 then, the amount of fraud would have
amounted to 20 or 40 million dollars. Since disbursements
of unemployment insurance payments run into hundreds of
millions of dollars in California each year, even a small
136
percentage would amount to a substantial loss in dollars.
IV. CONVICTIONS FOR FRAUD
The Fraud and Investigation Section has now been
operating for a sufficient period of time to permit some
apprisal of its value. There are no figures available
that would give an accurate indication of work load, or
how cases were disposed of prior to July 1, 1947. Com
mencing with that date, when the new investigation section
was fairly well established, reasonably accurate detailed
operating statistics have been maintained. During the
twelve months ending June 30, 1948, there were 1,187
investigations of suspected fraud in connection with unem
ployment insurance. In 8l6 of these cases the investiga
tion section considered that benefits amounting to an
estimated total of over $8 0 ,0 0 0 had been fraudulently
obtained. Because of the lack of conclusive legal evidence,
prosecution was undertaken in only 37^ cases. In 372 of
these cases convictions were obtained.^3
During the last six months of 19^8, there were
1 ,0 6 2 investigations of suspected fraud in connection with
unemployment insurance. In 867 of these cases the
■ * ■ 3 Allen, ojd. cit., p. 59.
137
investigation section considered that benefits had been
fraudulently obtained. Prosecution was undertaken only in
234 cases and 228 convictions were obtained.
For the calendar year 1949, 676 men and women
faced the courts and were convicted for making fraudulent
claims and collections.1^
Seven hundred persons were convicted by California
courts of violating the State Unemployment Insurance Act
16
during the first six months of 1950. Most of those con
victed were sentenced to Jail or fined in addition to
having to make restitution. In addition to sentences by
the courts, the Department assessed 2,237 administrative
penalties against persons who wilfully violated the law.
The bulk of those convicted were guilty of attempting to
draw unemployment insurance while working.
One other detailed account of investigations is
available. During the six months from October, 1949,
through March, 1950, there were 566 convictions for fraud
in the courts. These results were as follows: 231 were
fined $2 8 ,6 1 3 for an average of $124 each; 372 were ordered
^ Employment Stabilization, op. cit., p. 168.
15 Department of Employment, Employment Security
News Letter (January-March, 1950), p. 3-
^ Itid (July-September, 1950), p. 4.
to make restitution of $48,493 or $133 each; 283 were
given an average of 47 days in Jail; 320 were given an
average of 23*5 months probation.^
V. CONCLUSIONS
An examination of all the investigations of the
Fraud Section shows that over 75 per cent involve collec
tion of money to which the claimant is not entitled. The
greatest number of cases was disposed of by recommending
that the Department establish overpayments or that the
claimants be disqualified. These, of course, involve vio
lations of the law or regulations, but the evidence is
insufficient, or the intent to violate not sufficient to
warrant prosecution. Many of these cases involve trivial
sums and, while they cost more to handle than can possibly
be recovered, they must be Investigated. If such viola
tions, no matter how small the sums involved, were allowed
to go unnoticed, illegal practices would probably be more
widespread than they are now.
It is not recommended generally that criminal pen
alties for the frauds be increased. Indications are that
certainty, rather than severity, of penalty is the great
^ Assembly Interim Committee, 1950, p. 171-
139
deterrent. The extent of fraudulent and otherwise illegal
claims indicates that the number of investigators now
available to the Fraud and Investigation section is wholly
inadequate to meet the problem. Intensified activities of
this section in test instances in selected localities have
shown that thorough investigation is a strong deterrent
to fraud. It has been recommended that the size of the
investigating staff be increased.1®
To strengthen and improve the detection and pre
vention of fraud, the following recommendations are made.
1. The law should provide that it shall be a mis
demeanor for a person wilfully to make a false statement
or misrepresentation of fact pertaining to eligibility to
receive benefits, or wilfully to follow a course of action
for the purpose of obtaining benefits which is designed to
discourage a prospective employer from hiring him. The
present practice at the Department is to interpret fraud
as only those cases where payments are actually received
while working.
2. If a person has obtained one benefit payment
by a criminal violation of the Act, it shall be presumed
that all subsequent payments in the same uninterrupted
1 ft
Employment Stabilization, op. cit., p. 42.
140
series of payments were obtained in the same manner.
3. An alphabetical file of claimants should be
kept, because claims are now filed by social security num
bers, and illegal practices, other than those detected
within the Department are usually reported by name, making
it difficult, if not impossible, to proceed with an inves
tigation.
4. The responsibility of investigating the clerks
of the Department should be removed from the investigation
section and placed in some other unit of the Department.
It is felt that shifting this responsibility would lessen
the likelihood of Department personnel being suspicious
of, and uncooperative with, the investigators.
5. Employers should be required to furnish each
separated employee with a statement of the reason for
separation, to facilitate the proper determination for
benefit payments.
These recommendations made by the 1949 Senate
Interim Committee, if adopted, would decrease the inci
dence of fraud and enable the Department to do a more
thorough and effective job in preventing and detecting
fraud than is now possible.
CHAPTER VII
INTERNAL AUDIT AS A METHOD OP CONTROL
One of the most important devices for control over
benefit payments is the internal audit of accounts. This
so-called “figures factory" of business machinery is
located at the Central Office in Sacramento. It performs
the herculean task of maintaining the necessary records.
In brief it accomplishes the following tasks which have to
do with the control of payments. At the end of each cal
endar quarter almost four million earnings reports must be
credited to the individual accounts of workers, and
240,000 payrolls entered in the accounts of employers.
Once each year it is necessary to determine, by rather
complex computations, a new tax rate for each individual
employer. From day-to-day the data necessary to process
every new claim filed in the State must be obtained from
these records.
The internal audit holds "purse string" control
over at least four aspects of benefit payments. First, the
internal audit determines whether or not the claimant has
sufficient earnings to be eligible for benefit payments.
Second, the internal audit determines the amount of weekly
benefit payments and the maximum total benefits a claimant
may collect. Third, it detects duplicate claims filed by
142
one person. Fourth, It detects those cases of fraud where
the claimant is drawing benefit payments while working by
matching benefit payments against earnings of the claimant
as reported by employers.
I. ELIGIBILITY FOR BENEFITS
An unemployed person reporting to the loeal office
of the Department of Employment is required to fill out a
form called a "new claim” in triplicate. The original copy
of the new claim is sent to the Central Office at Sacra
mento. The second copy is sent to the last employer to
notify him that his former employee has applied for bene
fits. The third copy is kept on file at the local office.
Benefits are paid to insured unemployed workers
only under certain conditions. First an unemployed indi
vidual to establish a valid claim for benefits must have
been paid wages in subject employment of at least $300
during his "base period." (Ordinarily, the first four out
of the last five completed calendar quarters preceding the
first day of his benefit year constitute the base period.)1
Second, whenever more than 75 per cent of the individual's
total base period earnings are concentrated in one quarter
1 California Unemployment Insurance Act. 1949,
Section 53* %
143
of his base period, he must also have earned at least
thirty times his weekly benefit amount in his base
period.2 This may be as high as $750.
The internal audit shows whether or not a claim
ants earnings in insured employment are sufficient to
make him eligible for benefits. These earnings require
ments insure that claimants have been workers and that
contributions, like insurance premiums, have been paid into
the reserve fund on behalf of the insured employee.
II. AMOUNT OP WEEKLY BENEFITS AND MAXIMUM TOTAL BENEFITS
Weekly benefit amounts may be as low as $10 or as
high as $25. The amount is determined by the internal
audit at the Central Office. It is determined by a sched
ule based upon earnings in the calendar quarter of highest
earnings within the base period. The intention is to pro
vide benefits of roughly one-half of average weekly earn
ings up to the $25 maximum. The weekly benefit amount on
a claim is determined from the table contained in Section
54 of the Act as follows:
2 ♦« Section 53.
144
TABLE V
WEEKLY BENEFIT AMOUNTS*
Amount of
in highest
wages
quarter
Weekly benefit
amount
$ 75-00
$199.99
$10
200.00 -
219.99
11
220.00
-
239.99
12
240.00 -
259.99 13
2 6 0.0 0
-
279.99
14
280.00
-
299.99
3 0 0.00
-
319.99
16
3 2 0.0 0 -
339.99 17
340.00 -
359.99
18
360.00 -
379-99 19
380.00 -
419-99
20
420.00
-
459.99
21
460.00 -
499.99
22
500.00
-
539.99 23
540.00 -
579-99
24
580.00 and over
25
* Ibid., Section 54.
1%5
The internal audit also determines the maximum
benefit amount a claimant may receive. The maximum amount
is determined by Section 53 of the Act which provides that
a person may receive 26 times his weekly benefit amount.
Therefore, if a person has a weekly benefit amount of $25
it would be possible for him to receive 26 times $25, or
the maximum award of $650.
On the other hand, there is a proviso to the
effect that he may receive 26 times his weekly benefit
amount, but not more than 50 per cent of his earnings in
the base period. Suppose that an individual earned $1000
during his base period, and in the high calendar quarter
he earned $580. He would then be entitled to a weekly
benefit amount of $2 5. Twenty-six times $25 would be $650,
but he cannot receive more than 50 per cent of his $1000
earnings in the base period. Therefore, all he could
receive would be $500, payable at the rate of $25 per week.
III. DETECTION OF DUPLICATE CLAIMS
In the past there have been some workers who would
put In a claim for unemployment insurance in one local
office and then go to another local office in the same
city or another nearby city and put in another claim for
unemployment Insurance. Some workers have been known to
146
procure two social security cards and try to collect bene
fits under each card. If it were not for the internal
audit where an individual account for each worker is main
tained, such procedure would be difficult to detect.
The method of detecting duplicate claims is best
described by explaining the procedure used in posting a
new claim. It will be recalled that the original copy of
notice of Mnew elaimM is transmitted to the Sacramento
headquarters. Here an initial claim card— a Hollerith
card— is punched, recording the name, social security
account number, office in which the claim is filed, the
date the claim is filed, and kind of claim. After key
punching, the original copy goes to the permanent new-
claim file. This initial claim card is manually processed
through the wage record files, and results in removing the
records of the four quarters of wages in the base period
of the individual. In their place the initial claim card
is placed in the file.
This card is a very important control card, inas
much as it prevents the filing of duplicate claims for
unemployment insurance, disability insurance under the
state plan, disability insurance under a voluntary plan,
Interstate Arrangement Plan claims, and Interstate Benefit
claims. These different claims may be filed anywhere in
the United States, Alaska, Hawaii, or the District of
147
Columbia. No matter where the person files another claim,
when it reaches Sacramento for processing, the duplicate
claim will run into this control card in the file. If the
control card is misfiled, the duplicate claim will be
noted upon filing the second Central Office claim posting
card.
In the case of a duplicate claim, benefits are
denied at once and the matter Is turned over to the Fraud
and Investigation Section.
IV. MATCHING BENEFIT PAYMENTS AGAINST EARNINGS
Since July 1, 1948 the Central Office has been
making a monthly audit of the records of claimants who
have drawn six or more weekly benefit payments. This pro
cess involves the matching of the claim records with the
employer’s reports of wages paid during the quarterly
period in which the benefits were drawn. This novel
scheme is a very important control device since It detects
cases of outright fraud. Because of the lack of sufficient
funds the scope of this feature of internal audit Is quite
limited. The audit covers a mere token sampling of only
five hundred claimants a month— but what It has shown Is
significant.
From July 1 to December 31> 1948 the records of
148
2,843 claimants were compared with employers1 wage reports
and 1 ,7 3 5 were shown to have had earnings during the quar
ter in which they had drawn benefits. After application
of a formula to eliminate the less likely violators,
employers of 832 claimants were requested to furnish a
detailed breakdown of weekly earnings. Replies from these
employers showed that 276 of the claimants, or 9 .7 per
cent of the total sample had been drawing benefits during
weeks when they had earnings.3 These cases were turned
over to the Fraud and Investigation Section for further
investigation.
This type of audit would, of course, not detect
fraud on the part of claimants who had collected less than
six payments. Nor would it detect any of those people who
had gone to work in nonsubject employment, or those who
were engaging in other illegal practices. Therefore, the
9 .7 per cent would be an indication of only part of the
fraudulent activity in the unemployment insurance program.
V. CONCLUSIONS
The internal audit of accounts as a device for
control over benefit payments is very Important. The
internal audit holds “purse string1 ' control over four
3 Employment Stabilization, op. cit., p. 171.
149
aspects of benefit payments. First, the Internal audit
determines whether or not the claimant has sufficient earn
ings to be eligible for benefit payments. Second, the
internal audit determines the amount of weekly benefit pay
ments and the maximum total benefits a claimant may col
lect. Third, it detects duplicate claims filed by one
person. Fourth, it detects those causes of fraud where
the claimant is drawing benefit payments while working by
matching benefit payments against earnings of the claimant
as reported by employers.
The Federal Government has been reluctant to pro
vide the necessary funds for an adequate program of
internal audit. Limited federal funds were allowed for
the Fraud and Investigation Section only after it was
established by the state. The Social Security Act directs
the Bureau of Employment Security to withhold the payment
of administrative expenses unless the state law provides
for methods of administration such as "to insure full
payment of unemployment compensation when due." Further
more, the Federal agency is authorized to halt payments
for administrative expenses to any state, when it is found
that there is "a denial, in a substantial number of cases,
^ U. S. Social Security Act, Section 303(a).
150
of unemployment compensation to Individual entitled
thereto under such law.1 1 ^
The Social Security Act is not equally specific
about Federal responsibility for assuring that the state
laws provide for administration reasonably calculated to
prevent payment of invalid claims.
In answer to a letter from Governor Warren asking
for more adequate internal audit, a commissioner for Social
Security of the Federal Security Agency wrote to the
effect that because of the fact that funds sufficient to
establish adequate administrative controls has been made
available, the federal agency feels that the State should
finance from its own funds any audit of benefit payments
/ T
which it may desire.
It has been recommended that more funds be made
available for the auditing of records of earnings and
benefit payments in order to detect those claimants who
have drawn wages at the same time £hey are receiving bene
fits.7
It has been recommended further that some states
be provided additional funds to pioneer in sound
5 Ibid., Section 303(b).
^ Employment Stabilization, op. cit., p. 212.
7 Advisory Council on Social Security, o£. cit.,
p. 21.
151
o
administrative practices, such as the internal audit.
It is also recommended that the Federal Social
Security Law provide minimum standards of control over pay*
ments as well as requiring minimum standards for insuring
payment of benefits.
The type of audit done by the Central Office on a
sampling basis, where the records of earnings and benefit
payments for the same period are matched, shows great
promise as a control device. It has disclosed a number of
instances of suspected fraud and should be expanded.
8
Advisory Council on Social Security, op. cit.,
CHAPTER VIII
JUDICIAL CONTROL OP UNEMPLOYMENT INSURANCE PAYMENTS
It will be remembered that under the present
Unemployment Insurance Act an individual whose claim for
benefits is denied by the claims examiner in the local
office has the right to appeal from this initial determin
ation to a referee. Prom the decision of the referee,
further appeal may be taken to the Appeals Board, which is
the highest administrative remedy available. Any further
review requires an action or special proceedings in court.
Through the same procedure any employer can appeal
a claims examiner*s determination of benefits for the
claimant. In addition, this same appeals machinery is
available for employers for appeals from unemployment
insurance tax decisions rendered by the Department. In
disputed tax cases the administrative determination is
made by the Appeals Board in the first and final instance
on the basis of evidence obtained by referee acting in the
capacity of a hearings officer. Further appeal from tax
decisions may be made to the courts.
I. RIGHT OF PARTIES TO JUDICIAL REVIEW
The adequacy of the quasi-judicial procedure of
153
the Department was reviewed in Chapter V. Final Justice,
however, does not rest with the Appeals Division of the
Department of Employment. Any claimant or employer has
the right to make final appeal to the courts of the state.
The internal appeals machinery of the Department is com
posed of referees and members of the Appeals Board. Many
of these members are not lawyers. While Justice is not
dependent upon decisions by lawyers, there is a strong
contention that Justice is more likely to be forthcoming
when based on sound evidence and the rule of law. As far
as the procedure goes, the present system seems to avoid
the injustices and improper payments which sometimes result
from erratic or arbitrary administrative rulings. However,
some individual decisions do not maintain the desired
degree of consistency. When decisions rendered by the
internal appeals machinery are out of line with the law,
or accepted administrative rulings, further appeal must
be available to insure administrative conformity to the
law and Justice in administration of the law.
The need for this further appeal is recognized by
the legislature and is provided for in Section 82 of the
California Unemployment Insurance Act:
If and wherever elsewhere in this act provision
is made for hearing before or an appeal to the com
mission in any matter pertaining to the payment of
a benefit claim, the collection or computation of a
1 5 - M -
contribution, or the propriety of a charge against
an employer's account, such provision shall be con
strued to mean and provide for hearing before or an
appeal to the appeals board. The decision of the
appeals board is final, except for such action as
may be taken by judicial tribunal as permitted or
required by law.
In addition, appeal to the courts which may be
made by a claimant or employer, the Director of the Depart
ment of Employment may appeal a decision. When he dis
agrees with the decision of either a referee of the Appeals
Board, and it appears in the public interest to do so, he
has the right to appeal, to a higher authority. The Direc
tor is responsible for proper administration of the Act
and protection of the funds. It is important that he have
the right to appeal to a higher authority, the same as any
other party to a case.
Appeal to the courts is necessary to safeguard the
program and the rights of interested parties. The dangers
that lurk in proposals to exempt the decisions of the
Department from judicial scrutiny are too great to warrant
the experiment. The long tradition of procedure and the
deep-rooted practice of judicial review are essential to
the protection of rights. The possibility of other
arrangements is not inviting.
155
II. JUDICIAL INTERPRETATION OP THE LAM
The doctrine of judicial review, in a technical
sense, refers to the procedure whereby the courts review
legislation, and administrative rulings in light of the
Constitution and legislative intent. In its broader
aspects the idea of judicial review refers to the power of
the courts to interpret laws. Through this procedure, the
law takes on the meaning the courts give to it. This has
as its basis the common-law tradition of the rule of law
and the development of its meaning by court precedent. In
this respect, judicial review has a definite historical
basis, for through the interpretation of law by the courts
there has developed a continuity of process and principle
that could scarcely have been attained in any other way.
The basic purpose of law is to implement through orderly
channels policies which the public desires.
Decisions of the courts, apart from being important
to fair and equitable administration of the unemployment
insurance law, are very important to control over benefits,
since they lend consistency to administrative rulings.
Further, the courts interpret legislative intent, public
purpose, and give effect of law in the precedent it lays
down.
There are two areas of unemployment insurance in
156
which court decisions have some bearing on the payment of
benefits. The first and most obvious the court renders a
decision on whether or not a claimant is entitled to bene
fit payments. In the second the court decides whether or
not a particular type of employment is covered under the
Unemployment Insurance Act. These cases determine whether
or not certain types of work are insured and thus they
affect the liability of the unemployment insurance system.
Any liberal court decision which tends to expand the cov
erage of unemployment insurance, increases the liability
of the unemployment insurance fund, and tends to increase
benefit payments.
In a somewhat similar manner, decisions rendered
on the validity of claims for benefit payments affect the
liability of the unemployment Insurance system. Such deci
sions tend to extend or narrow eligibility requirements or
give more precise meaning to disqualification. Any deci
sion which eases the eligibility requirements tends to
increase payments, and any decisions which limit the
Department’s powers to disqualify claimants likewise tends
to Increase benefit payments. In each case there is a
definite expression of the meaning of the law applied to a
specific set of circumstances, and with the rationale
Involved.
The remainder of the court cases center on aspects
157
of tax liability. In these cases the question is whether
or not certain employers are subject to the tax provisions
of the Unemployment Insurance Act. Such cases also make
up the majority of all questions submitted to the courts
for decision. While they have no direct bearing on con
trol over benefit payments, they do influence payments in
an indirect manner. These cases affect benefit payments
and the fund liability by further delineating the coverage
of unemployment insurance.
When a court decision makes a particular employer
subject to the tax provisions of the act, it at the same
time makes the employees of that firm beneficiaries of the
Act. Thus, the court, by extending the tax coverage of
the Act, extends the benefit coverage of the Act.
All of the Judicial interpretations do not involve
someone receiving or being denied benefit payments. Many
involve questions of liability for chargebacks to employ
ers or employers’ tax liabilities.
Ill. SIGNIFICANT CASES
An analysis of selected cases on unemployment
insurance shows how the courts have given meaning to the
California Unemployment Insurance Act by interpreting the
law in the light of given circumstances. Space limitations
158
preclude an extensive analysis of judicial interpretations.
However, an examination of a number of significant cases
shows how judicial decisions exercise control over pay
ments.
Problems of coverage. The California Unemployment
Insurance Act defines what employment is subject to the
Act, and in a general way what employment is excluded from
the provisions of the Act. However, questions arise on
fringe issues, which must be decided by the courts.
First, the act provides that service for nonprofit
organizations is excluded from coverage under the provi
sions of Sections 7 (g) and 7 (k) of the Unemployment
Insurance Act; In 1944 the Department of Employment
assessed taxes for unemployment insurance against two hos
pitals. Appeal was made by the hospitals and the cases
were finally considered in the California Supreme Court. 1
The hospitals were supported in part by full-pay and part-
pay patients, and derived a profit from their activities.
The hospitals showed that their excess or profit was used
for charitable purposes. The court held in favor of the
hospitals, giving a broad meaning and liberal interpretation
1 Scripps Memorial Hospital Inc. v. California
Employment Commission, 24~Cal (2d) 669 (19447; and Seaside
Memorial Hospital v.California Employment Commission,
24 Cal (2d) 68l (1944J:
159
of the phrase "operated exclusively for . . . charitable
. . . purposes” as used in Section 7 (g)• The Court
stated, in effect, that a hospital that charges a regular
fee for most of its patients and derives a profit from its
activities, may still be operated exclusively for chari
table purposes so long as its income is devoted to chari
table work.
The question of coverage also frequently arises
for agricultural workers. Are mechanics who work on the
farm solely in order to maintain farm machinery included
or excluded from the provisions of the Act? Are farm
workers who work part time in a packing house included or
excluded? California does not define agricultural labor
by statute. The administrative interpretation of the
California law excludes nearly all regular farm workers.
Howevey, certain services performed off the farm by farm
workers are not excluded. These are too numerous to men
tion, but a typical example is work in a commercial pack
ing house engaged in fruit and vegetable packing. Also,
certain services performed on the farm are not excluded
from unemployment insurance. Some of these services
include mechanics, contractors, and other specialized
skilled work, as well as services performed for an inde
pendent contractor who does work on the farm.
160
The most troublesome coverage provisions are those
involving independent contractors.2 The exact status of
the present California law with respect to independent
contractors is not certain. In one place employment is
defined as service performed for wages or under any con
tract of hire.^ in another place employment is defined as
wages and all remuneration for personal service.^
Earlier judicial interpretations tended to follow
the narrow, common law definition of master and servant.
However, more recent decisions have indicated a broader
meaning for the definition of employment, more in keeping
with the nature and purpose of Social Security legisla
tion. 5
The primary reason why the problems of independent
contractors raise so many issues is the fact that there
are many different types of independent contractors work
ing under many different types of contracts. Examples are
^ California Employment Commission v. Butte County
Rice Growers Association, 25 A. C. 604 (194¥).
^ California Unemployment Insurance Act, 19^9,
See. 6 5.
^ Ibid., Sec. 11.
^ California Employment Commission v. Dowfttown
Shopping News Corp., 24 Cal (2d) 421 (1944); and B. P.
Schulberg Productions Ltd. v. California Employment Com
mission, 6b A. C. A. 93& (19^J.
161
newsboys, insurance salesmen, jockeys, real estate agents,
promoters, salesmen, etc. The only rule used by the
Department is the measure of control the employer exer
cises on the standards of work of the contractor and the
method of payment.
Benefit decisions. Cases in which the main issue
is the claimant’s right to benefit payments are few in
number. In the majority they are brought to the courts by
employers and involve issues in connection with trade dis
putes. Section 56 of the California Unemployment Insur
ance Act provides that:
An individual is not eligible for benefits for
unemployment ... if he has left work because of
a trade dispute and for the period during which he
continues out of work by reason of the fact that the
trade dispute is still in active progress in the
establishment in which he is employed.
Recently, a bakery worker1s union called a strike
against one bakery for the sole purpose of procuring an
amendment of a master contract between the union and the
baker’s association. There was an understanding between
the members of the baker's association, known to the
union, that if a strike was called against one bakery the
others would close their plants. The calling of the strike
against the one bakery resulted in a shutdown in other
bakeries in the association. Employees of the bakeries
other than the struck bakery applied for unemployment
162
insurance benefits. The California Supreme Court held
that the Department of Employment was in error when it
awarded benefit payments to those workers. The Court
reasoned that since the union knew of the baker's associa
tion agreement, and "where the act of calling a strike
against the one bakery resulted in a shutdown in other
bakers of the association,1 1 they in effect "voluntarily
£
excluded themselves from unemployment benefits."
A leading case in connection with benefit payments
is the Mark Hopkins Hotel Case.^ in 1937, fifty-five San
Fransisco hotels entered into collective bargaining agree
ments with the San Francisco Local Hotel and Restaurant
Employees International Alliance and Bar Tenders League of
America. On July 1, 1941, these agreements expired, but
were extended to August 30, 1941, pending negotiation of a
new contract.
When no new agreement was reached upon the
expiration of the extension of the old agreement,
the union established picket lines at four of the
hotels and subsequently took strike action against
various other hotels that were members of the asso
ciation until eighteen of them were struck and
their premises picketed.°
6 d . R. McKinley et al, jv. California Employment
Stabilization Commission, 34 Cal (2d) 239 (1949).
7 Mark Hopkins, Inc. v. California Employment
Stabilization Commission, 24 Cal (2d) 744 (1949).
8 Ibid., p. 747.
163
The unions sought to provide employment in other
hotels and restaurants for their members. Thirty-four
members obtained employment and then soon after became
unemployed. The strike had not ended and these workers
applied for unemployment insurance payments. They admit
tedly left their original employment voluntarily because
of the trade dispute. They contended that their original
trade dispute disqualification under Section 56 of the
Unemployment Insurance Act was terminated by their subse
quent employment.
The claims examiner denied them benefits on the
grounds that they were still disqualified by the provi
sions of Section 5 6. Referees affirmed the initial deter
mination. The Appeals Board, however, reversed the refer
ee decisions and awarded benefits holding that the proxi
mate cause of the claimant's unemployment was the loss of
his most recent work and not the trade dispute. The
employers petitioned for writ of mandamus to compel the
Department to vacate its decision and to refrain from
charging the benefits paid to their accounts. Evidence
was submitted showing that some of the claimants were
engaged in picketing and other strike activities while
drawing benefit payments.
The California Supreme Court rendered its decision
in favor of the employers and granted the writ. The Court
164
held that the action of the union in getting their mem
bers employment for short periods was merely a device to
enable their members to claim unemployment insurance bene
fits. They said in effect that it was not the purpose of
unemployment insurance to support strikers and strike
activities of unions.
Tax issues. The issue in these cases is whether
or not certain employers are subject to the tax provisions
of the Act. These cases are very similar to coverage pro
vision cases. The question in these cases is usually
whether or not the employer is required to pay taxes to
unemployment insurance. However, the real issue in these
cases is the same as in questions on coverage— that of
employer and employee relationship. The question usually
revolves around the problem of whether the employee is an
employee as defined in the Act, or whether he is an inde
pendent contractor.
In a recent case (1946), the Court considered the
status of certain real estate salesmen. The Department of
Employment took action for the collection of insurance
contributions from a real estate broker who had real estate
salesmen working for him. The Department held that the
broker had the right to discharge his salesmen and was
therefore the employer of them, and was subject to the Act.
165
The California Supreme Court held that independent con
tractor relationship existed between the parties and that
the broker was not subject to the tax provisions of the
Act.^
The court reasoned that since the broker did not
control the manner and means by which the real estate was
sold; and since the broker did not bear any of the expen
ses of the salesmen in selling the property; and since the
method of payment was by job rather than by the time put
in on the work; no employment relationship existed.
Rather, the relationship between the salesmen and real
estate broker was an independent contract relationship.
In a more recent case (19^7) the court reversed
itself. An owner of race horses took action to recover
contributions paid under protest, on the remuneration
received by free-lance jockeys performing services for
him. The owner contended that the jockeys were paid for
each race and were hired separately for each race. He
contended further that he had no control over the activi
ties of the jockeys when they were engaged in a race, and
that jockeys could race for more than one owner. The
® California Employment Stabilization Commission
v. Morris, 26 Cal (2d) o!2 (1946TI
166
Court held that the jockeys were employees.^ The Court
reasoned that the owner had the right to control the acti
vities of the jockeys except when he was prevented from
doing so by the rules of the racing board, or by the inac
cessibility of the jockeys while they were actively
engaged in a race. Further, it held that the jockeys
would not be rehired if they failed to follow instructions
of the plaintiff.
The decision to hold horse-race owners and jockeys
subject to the Act is a liberal interpretation of the cov
erage provisions of the Act. The fact is that free-lance
jockeys are free to race for one horse owner in one race
and a different owner in the next race. In addition, they
are paid separately for each race.
IV. CONCLUSIONS
It is evident from these cases that judicial
interpretation of the California Unemployment Insurance
Act is significant to the control over benefit payments
when they render decisions with respect to claims for
benefits, coverage provisions, and tax provisions.
The decisions of the courts clarify the legislative
Q
^ H. N. Isenberg v. California Employment
Stabilization Commission, 30 Cal (2dJ34 (1947).
167
Intent of certain parts of the law and give the effect of
law to administrative decisions. It seems that coverage
provisions for similar cases which are limited in one year
ean be extended in another year by the Judiciary. It is
recommended that for coverage problems, that a statutory
standard or test be provided in the law for the purpose of
determining whether or not a service performed is in sub
ject employment.
CHAPTER IX
OTHER SOURCES OP CONTROL OVER PAYMENTS
Other sources of control over payments are those
of employers, workers and the general public. These
sources are at present not too effective, but possess
latent possibilities. The real purpose of unemployment
insurance is not to benefit workers alone. True, the
primary benefactor of the system is the unemployed worker.
It Is designed to prevent widespread and long continuing
unemployment, and to this end it benefits workers, employ
ers, and the general public. No social insurance can be
effective unless those who are entitled to participate
know their rights and obligations. The many complicated
and technical provisions of the California Unemployment
Insurance Act make it extremely difficult for individuals
to understand their rights and duties under the law.
It must be recognized that some benefit claimants
are trying to collect benefit payments not due them. A
primary problem is to identify and eliminate these Hfree-
riders'* who help to bring the whole system into disrepute;
to discover their intent and eliminate them before they
have had an opportunity to impose on businessmen or the
unemployment insurance fund. The Department of Employment
can do the necessary policing Job against malingerers
169
after they are inside the system and are drawing benefits.
To keep out all the work-shy claimants is difficult, but
most of them can be kept out if the full cooperation of
employers, workers (particularly organized labor), and the
general public is given. The methods of control over pay
ments available to employers, workers and the general pub
lic, and the recommendations on how to improve outside
participation will be examined in the following pages.
I. EMPLOYER CONTROL OVER PAYMENTS
Many individual employers in this State are funda
mentally opposed to unemployment insurance and as a result
they level considerable criticism on the system and its
operation. The majority of employers, however, are in
favor of the principle of unemployment insurance and aware
of its benefits, if properly and fairly administered. Yet
some of them have a feeling that there is something wrong
with the present system and its operation. Some of them
wonder why there are claims for unemployment insurance in
an era of full employment. Most of them realize that when
production is at high levels and employment is at high
levels, the labor market is most dynamic, too, and fric
tional unemployment is also at its highest. Yet, they can
hardly understand why benefit payments are so large and why
170
the solvency of the unemployment fund is endangered. Even
more difficult for the average employer to understand is
why he enjoyed a reduced tax rate in a year (19^9) of
recession and adjustment, only to have his tax rate
increased after the crisis was over.
When these employers read in the papers about
abuse of the program, their criticisms of unemployment
insurance in general and of its administration in particu
lar was heavy. In one respect, the recent experience with
unemployment insurance program has been beneficial. This
experience has tended to focus attention on the program.
Only recently have employers been making efforts to under
stand the mechanics of the program, and their role in it.
Employers have been discovering the ways they can exercise
control over payments.
It is generally agreed that the cost of the unem
ployment insurance program is ultimately borne by the con
sumer through a higher price for the product. Although
this may be true, the cost of unemployment insurance is
important to the employer since it will affect the compe
titive price of his product. Therefore, every employer
should be interested in the ways he may reduce the cost
of unemployment insurance.
Duties and responsibilities of employers. The
171
major requirements that the law imposes on employers is to
register with the Department of Employment, make contribu
tions to the fund, keep the necessary wage records, and
post notices concerning worker benefit rights and other
matters prescribed by authorized regulations. The law
requires little else of employers, but at the same time it
provides employers with the right to exercise control over
benefit payments. The Act provides for a complete system
of notices which the Department is required to send to
employers and claimants in order that they may all exer
cise their rights and provileges provided for under the
Act.
The first notice is of a new claim. The second
copy of this card is sent to the last employer to notify
him that a former employee has filed a claim for unemploy
ment Insurance. This notice is sent to the last employer
because he is the only one having information as to the
reason the worker left his job. The Department does not
try to influence the information the worker gives as to
why he left his last employment. Suppose the worker
states that he was "laid-off” because of insufficient
work, whereas he was really fired for misconduct. Unless
the employer notifies the Department of the real reason
for the worker’s separation, the claimant will be paid
benefit payments when he is not entitled to them. The
172
employer is not required by law to respond to the notice
of new claim. Unless the employer undertakes his respon
sibility and reports the true circumstances of separation,
the unemployment fund may be liable for benefit payments
up to $6 5 0.
Serving practically the same purpose is the second
notice called the notice of an additional claim filed.
This is used where a person originally filed a new claim
for unemployment insurance, drew benefit payments one or
two weeks, secured employment again, lost his new employ
ment, and returned to the unemployment office to reopen
his current claim. Under these circumstances the Depart
ment is required to notify the last employer of the filing
of a claim. If the last employer has any information
indicating a question of eligibility he must, within three
days after receiving the notice, give such information to
the Department. Where workers voluntarily quit their jobs
without good cause or are discharged for misconduct con
nected with their most recent work, the last employer has
full responsibility to report the circumstances surround
ing the case. This is essential in order to protect his
own account, and to protect the accounts of all other
employers in the base period.1
A claimant may have more than one employer during
a base period.
173
The last employer might, on receipt of either of
these forms, protest the eligibility of a claimant for a
number of reasons, many which employers ordinarily over
look or fail to consider. Such good reasons include:
1. Voluntary quitting without good cause
2. Leaving to become self-employed
3. Discharge for misconduct connected with his
most recent work
4. On a paid vacation and there has been no
severance of the eraployer-employee relation
ship
5. Refusal of suitable employment
6. Leaving his work because of a trade dispute
7. Illness or physical disability
8. On a requested leave-of-absence granted by
the employer
9. Leaving because of domestic circumstances or
personal affairs
10. Leaving to attend school, college, or univer
sity
11. Pregnancy
Many of the above reasons for leaving employment bring up
a secondary eligibility factor; namely, is the claimant
available for work.
Another form is called notice of initial or amended
174
Initial computation. This form is sent to each base
period employer, advising him of the fact that a claim has
been filed by a former worker. The employer cannot make a
direct appeal from this notice. If there is a question of
eligibility, the protest must first be made in writing,
and the Department must in turn make a determination. It
is from the determination that the base period employers
can appeal. All the employers in the base period receive
this form, giving the name of the worker, the amount of
wages by quarter earned with that particular employer, the
maximum amount of benefits payable, the weekly benefit
amount and the local office in which the claim was filed,
as well as the date on which the claim was filed.
Other notices of determination of eligibility are
the follow-up of the first three notices. There are three
of these, DE 1080, DE 1080C and DE 1080E. They are used
to notify both employer and claimant of the Department
determinations of eligibility. The first form, 1080
covers periods of indefinite disqualification, where the
Department does not know how long the disqualification
will continue.2 The second form, 1080C covers a period
of disqualification which has been defined in the law.
2 An example would be disqualification due to a
trade dispute.
175
Form 1080E covers tile case when the Department does not
agree with the employer, and does not disqualify the claim
ant. These forms are used to notify the claimant and the
employer who has questioned the eligibility of the worker
that the claimant is eligible or is not eligible for the
period of time shown. If either party adversely affected
feels that his rights have not been protected, he has
seven days after the receipt of this form within which to
file an appeal with a referee.
Fifth, is the notice of no- action taken. Suppose
a worker files for unemployment insurance, and the employer
protests the payment for some reason or other and the
worker does not return to the Department. If the worker
does not return, his new claim card is transferred to the
inactive file. The notice of no action taken is then
sent to the employer advising him that action cannot be
taken on the employer’s protest because the claimant has
not appeared to claim benefits since the protest was
received.
The sixth form is used to notify employers in the
base period who request that they be notified of the
filing of any ’ ’additional claims” by a former worker. It
is also used to notify employers that this former worker
is available for work, if the employer is desirous of re-
employing the former employee. This form is also used to
176
notify the employer of the consummation of a disqualifica
tion, i.e., that the person has served the disqualifying
period and now appears eligible. Unless the employer sub
mits other information on the claimant's eligibility, the
claimant will receive benefit payments.
This form is also utilized to notify an employer
protesting payment of unemployment insurance that the
information submitted is not of a disqualifying nature.
Assume that a worker voluntarily quits one employer without
good cause and the following day goes to work for another
employer. Then, he works for the latter employer, say for
three months. If the first employer should make a protest
of eligibility because the worker voluntarily quit without
good cause several months ago, the department could util
ize this form. The information submitted by the first
employer concerning the voluntary quitting would have no
bearing on the case as there was subsequent employment
before the filing of a claim.
The next form is notice that information submitted
is not factual. Employers often send notices that the
former employee was discharged for cause; that he is to
the best of the employer's knowledge and belief not
available for work; that he is not seeking work; and other
such vague statements. More specific facts are needed and
through this form the employer is requested to give more
177
specific facts. If the employer has facts bearing on the
claimant’s eligibility it is his responsibility to report
them promptly to the department.
The final form treated here is the statement of
charges to an employer’s reserve account. This statement
is issued annually. It includes the employer's account
number, the claimant's name and social security number,
the dates on which the claims were filed and the amounts
charged to the employer's reserve account. Any protest
against the charges upon this form must be made within 60
days of the date of issue which appears on the form. If
the employer did not appeal from determinations at the
time they were made by the Department, then the employer
can not appeal from the charges on this statement. How
ever, if the initial determination was appealed, and the
Department has mistakenly paid the benefits, the employer
can appeal from the charges against his reserve account.
Charges against an employer's reserve account affect the
tax rate he must pay. This will be discussed more fully
in the following section.
These forms, discussed above, constitute those
concerning unemployment insurance payments. In addition,
employers receive forms in connection with employment
service which have important implications on the control
over benefit payments.
178
Employer participation while not mandatory is very
important in the control of payments. By actively parti
cipating in the program, employers can protect their own
accounts and the accounts of other employers against
improper charges and thereby keep their tax rates down.
It requires the participation of all employers.
The merit rating and employer»s reserve account.
The merit rating principle, or "experience rating" as it
is sometimes called, is predicated on the idea that if an
employer is able to regularize and stabilize his employ
ment he should be entitled to a reduced rate of contribu
tion. A secondary purpose of the merit rating principle
is to encourage the cooperation of employers in efficient
and effective administration of the program.
Under the merit rating principle the employer’s
tax rate can be reduced by building up and maintaining a
large reserve account. The employer’s balance in the
Unemployment Fund is determined by two factors:
1. Payments into the fund by the employer
2. Charges against the fund by former employees
The Department of Employment established for each
employer what is known as a reserve account. Each
employer's reserve account is credited with the amount of
unemployment insurance taxes paid by the employer. Each
179
employer's account Is charged with the amount of the unem
ployment benefits paid to those claimants having earnings
with that employer during the claimant's base period. If
the claimant has more than one employer, then the charge
is prorated. The employer's reserve account is then
divided by his average annual payroll to give the reserve
ratio. The condition of the employer's reserve ratio as
of June 30 of each year determines his tax rate for the
next full calendar year. To those mathematically in
clined, the relationships of the various parts of the
merit rating may be more clearly expressed as follows:
Total Contributions — Charge-backs = reserve ratio
Average Annual Payroll
The ratio thus obtained determines the reduced tax rate,
if any, according to the schedule in Table VI.
The intermediate schedule and the one now in use
applies whenever the balance in the state Unemployment
Insurance Fund is less than 7*5 per cent of the preceding
year's statewide taxable payroll. At present levels of
employment, such a percentage amounts to approximately
$450 million. The low rate schedule goes into effect in
years in which the reserve fund exceeds 7*5 per cent of
the statewide payroll. It has been in effect in the years
19^8 and 19^9 only. The third schedule is an emergency
180
TABLE VI
UNEMPLOYMENT COMPENSATION CONTRIBUTION RATES
Employer's Reserve Ratio Employer’s Tax Rate
Low Intermediate High
Rate Rate Rate
Less than 6$
6$ but less than 6-1/2$
6-1/2$ but less than 7$
7$ but less than 7-1/2$
7-1/2$ but less than 8$
8$ but less than 8-1/2$
8-1/2$ but less than 9$
9$ but less than 9-1/2$
9-1/2$ but less than 10$
10$ but less than 10-1/2$
10-1/2$ but less than 11$
11$ but less than 11-1/2$
11-1/2$ but less than 12$
12$ but less than 12-1/2$
12-1/2$ or more
2.7 2.7 2.7
2.5 2.7 2.7
2.3 2.7 2.7
2.1
2.7 2.7
1.9 2.5 2.7
1.7 2.5 2.7
1.5 2.5 2.7
1.3
2.0
2.7
1.1 2.0
2.7
• 9 1.5 2.7
.7 1.5 2.7
• 5
1.0
2.7
*3
1.0
2.7
.1 1.0
2.7
.0 1.0
2.7
l8l
schedule and goes Into effect whenever the amount on hand
in the unemployment fund is lees than one and one-half
times the amount of benefits paid during the preceding
calendar year. At present levels of benefit payments such
a percentage would be approximately $250 million.
The intermediate rate was re-imposed on employers
in 1950 and is still in effect. No doubt the reader has
wondered why a fund balance of 7*5 per cent of taxable
payroll is the signal for the increase in the tax rate.
In the worst period of unemployment known, approximately
one-third of the labor force was unemployed. If the trust
fund Is to provide against a drastically sudden return to
that level of unemployment, it should be sufficient to pay
roughly one-third of the working force one-half of their
prior wage rates for one-half year, which would require
approximately one-twelfth of the prior taxable payroll,
less tax income during the shock period. This rough for
mula for the proper amount in the fund is approximately
reflected in the 7»5 per* cent of the prior year's taxable
payroll now used as a signal for an increase of the tax
rate.^
Because the reduced payroll tax is effective only
while unemployment reserves for the state remain above the
^ Employment Stabilization, op. cit., p. 20.
182
prescribed level, it is important that all employers co
operate to preserve the status of the fund. The cost of
unemployment insurance to employers depends upon the size
of the unemployment insurance fund in general, and in par
ticular on the employer’s own. reserve ratio. Every
employer should be interested in the payment of every
unemployment insurance claim. By keeping unwarranted
claims against the fund at a minimum each individual
employer may be able to reduce his own tax rate. In addi
tion, by so doing, the individual employer may in two
ways assist in keeping the cost of unemployment Insurance
down for other employers. First, by preventing unwarranted
charges against his own account the employer thereby pre
vents these charges against accounts of other base period
k
employers. Second, by preventing unwarranted claims
against the fund, the level of the fund is preserved and
all employers enjoy the benefits of the low rate tax
schedule.
There are many specific ways an employer may reduce
unemployment insurance costs. The first, of course, is to
watch the claims. The Department of Employment reports
that a very high percentage of the notices that are sent
^ cf. ante, p. 172.
183
out to the most recent employer are never returned. This
represents a serious oversight on the part of employers
generally and one that should be remedied if the law is
ever to be effectively administered.
Second, the employer should attempt to stabilize
employment. Very often an employer will lay off a few
workers for a short time while some changes are being made
in the plant. They do this to effect some savings in wage
costs. The workers draw benefit payments and the employ
er's reserve account is charged for them. This reduces
the employer's reserve ratio and results in a higher tax
the next year, very often several times larger than the
wages saved.5
It is apparent that any reduction in employee
turnover will thereby reduce the amount of potential
charges against an employer's reserve account. Conse
quently, any of the controllable factors which affect
turnover should be carefully examined with the aim of
reducing potential charges to a minimum.
Employment service. The best cure for unemploy
ment is to find jobs for the unemployed. This is the pur
pose of the employment service of the Department of
5 statement by a representative of The Merchants
and Manufacturers Association.
184
Employment. Many workers do not enjoy permanent employ
ment throughout the year. Seasonal labor demand, varia
tions in industrial activity and the need for constantly
readjusting the working force to the changing business
circumstances cause many workers to be laid off and to
seek new employment several times a year in a period of
high activity.
The employment service is designed to keep the
average lag between jobs to a minimum. A person can find
a job without the help of employment service, but it will
take him longer, on the average, than if he has such help.
The employment service also "tests the good faith" of
claimants for unemployment insurance when they say they
want to work, or are able to work and are available for
work. The employment service has one of the largest and
most diversified active pools of workers in the State.
It is important that employers order workers
through employment offices of the Department. To do so
enables the Department to take workers off the unemployment
insurance rolls and put them in employment, which imme
diately stops benefit payments and charges to any employ
er’ s account. It also helps preserve the status of the
Fund and keep the tax rates down.
Educational programs. Under Section 85 of the
Unemployment Insurance Act the Department of Employment is
responsible for carrying out a program advising both labor
and management of their responsibilities and their rights
under the Act. For this purpose two public information
representatives have been appointed, one for the San
Francisco area and one for the Los Angeles area. The Los
Angeles area representative has prepared a Handbook for
Employers. This book is made up in a looseleaf style so
that it can be amended to conform to changes in the Act.
This book gives a detailed summary of the Act, and explains
the rights and responsibilities of employers under the
Act. In addition this representative-from time to time
conducts two four-hour classes at various public schools
in this area for the purpose of explaining the program to
employers. This program conducted by the Department is
limited by a lack of funds.
To supplement this program, employers’ associa
tions have undertaken educational programs of their own.
These programs are conducted by such associations as the
Personnel and Industrial Relations Association, California
Manufacturers Association, Merchant and Manufacturers
Association, and others. Special pamphlets have been pre
pared for employers, and articles have been written in the
associations’ publications. In addition they also conduct
classes for employers.
186
One particular feature of the Merchants and Manu
facturers Association program is worthy of note. They
have established a free employment service office for the
employers. This office may be used at the time a claim is
received in order to ascertain whether openings are cur
rently listed in the classification of the person filing
the claim. In the case of employees who are laid off for
lack of work, the Merchants and Manufacturers Association
advises the employer to notify the laid-off employees of
the existence of this employment service office. If the
workers should file for unemployment insurance, a check
can then be made by the employer on their diligence in
independently seeking work as required by the law.
These educational programs, mostly of recent ori
gin, have been effective in helping employers to under
stand their duties and responsibilities under the Act. It
seems to be primarily a problem of inducing the employers
to take effective action.
II. CONTROLS BY WORKERS AND BY THE GENERAL PUBLIC
Two other sources of control over benefit payments
are workers (particularly unions) and the general public.
However, it is here that one of the major weaknesses of
the system is to be found. The deplorable lack of
187
knowledge and understanding of the program which exists
among workers and the general public constitutes a real
danger to the program. This situation is due largely to
unnecessary complexities. The complexities of the program
tend to discourage worker and public interest in the pro
gram. Without public understanding and support, a social
program of this nature is extremely vulnerable to attack.
Sincere and constructive criticism is needed and should
be welcomed. However, constant disparagement can be
insidiously dangerous when the public is not in a position
to form an intelligent Judgment. Such a situation calls
for more effective public information efforts.
Union activity. Union activity in connection with
unemployment insurance is centered in the legislative area.
Representatives of labor strive for larger benefits and
other liberalizing amendments to the Act. This activity
tends to equalize the pressure on the legislature, since
employer's representatives are seeking more restrictive
provisions.
Under the present law there are two inherent dan
gers that pose a threat to labor. First, there is the
danger to the security of the worker if the fund should
become exhausted by a recession or by continued abuse.
Second, there is the danger that business, faced with
188
higher tax rates might move to states where tax rates
would be lower, and the workers then would have to follow
the work or be unemployed.
Union activity has not been confined to the poli
tical arena. Unions have been active in notifying members
of their rights to benefits under the unemployment insur
ance program. This, however, is the typical short-run
view on unemployment insurance. A few unions have recog
nized the necessity of taking the long-run view. They
have recognized that the true purpose of the unemployment
fund is an insurance reserve against .the maximum drain in
excess of tax income which might reasonably be expected in
any foreseeable circumstance until the tax rate could be
raised and the tax income again brought into balance with
benefit payments. They have recognized that if the unem
ployment insurance fund is jeopardized in time of full
employment, it will be of little value if unemployment
becomes serious.
Unions as a whole do not sanction improper claims
on the part of their members. It is detrimental to the
unemployment fund and all of the covered workers. In
addition, public criticism against those who get payments
improperly could possibly be reflected back on the unions.
With respect to the campaign against fraud the unions have
been more active. One official of the Department of
Employment related a case of a union member convicted of
fraud. The court required the worker to make restitution,
pay a fine, and serve a period of probation. Soon after
the worker returned to work and was paying his union dues,
the union imposed another fine on him for committing fraud
against the unemployment insurance fund. The Department
official could not recall the particular union involved.
Officials at the Central Labor Councils were unable to
supply the name of the union involved, since they had not
heard of the case. These officials did not approve the
practice, but they did not deny that it could have hap
pened. It seems to this writer that it is unnecessarily
punitive for the unions to impose additional fines on
their members. Rather than impose fines, it is recommend
ed that unions conduct educational programs. Union mem
bers should be educated against abusing the fund.
General public. The general public's interest in
the program should not be overlooked. The general public
has an important place in the detection of fraud. Often a
worker who is successful at obtaining benefits to which he
is not entitled will boast about it to his friends or
neighbors. This source of information on fraudulent prac
tices is a meager one at present. The Department rarely
hears from informants. However it is believed that this
190
source could be a much better one if the public were edu
cated to assume its duty under the Act.
The Department does not require the name of the
informer in order to pursue a case of fraud. However,
many potential informers neglect their duty to the unem
ployment insurance system because they do not want to be
"stool-pigeons." It is important to these people that
they assume their duty and report those people who are
abusing the unemployment insurance program. It is in
reality the general public's unemployment insurance sys
tem, and It is theirs to protect. Any improper payments
made will only reduce the fund, causing taxes to be raised,
which in turn results in higher prices for the products.
The success of the unemployment insurance system depends
on the cooperation of employers, workers, and the general
public.
IV. CONCLUSIONS
Employers, workers, and the general public are
sources of control that have not been fully cultivated.
No social insurance can be effective unless those who are
entitled to participate know their rights and obligations.
Greater participation of employers, workers, and the gen
eral public in the program Is essential to its success.
191
Every means should be sought to encourage participation of
these groups.
The many complicated and technical provisions of
the California Unemployment Insurance Act make it extremely
difficult for individuals to know their rights and duties
under the law. Simplification of the law will greatly
enhance the understanding of it and will thereby encourage
participation. In addition to simplification of the law
the following recommendations are made to cultivate these
other sources of control over benefit payments.
First, the law should require employers to return
to the Department all of the forms affecting a claimant's
determination of eligibility. A recent amendment to New
York's Unemployment Insurance Law imposes a $10 fine for
failure to return certain forms. The law should also
require employers to furnish each separated employee and
the Department with a statement of the reason for separa
tion.
Second, it is recommended that the Department of
Employment extend its educational program and redirect the
emphasis to workers:and the public. The present educa
tional program is directed almost solely to employers.
^ A. H. Raskin, "Jobless Insurance Explained,"
New York Times, April 22, 1951, P* 16.
192
Particularly, the Department should undertake a better pro
gram for instructing workers of their responsibilities as
well as their rights under the Act. While additional
funds for the Department’s educational program are desir
able, the program can be improved with the present funds.
Experienced personnel of the Department should be trained
as public information representatives so that they will be
able to assist in the educational program.
Third, it is recommended that the employer asso
ciations and unions continue and extend their educational
programs. Unions should undertake a more thorough program
of education of their members. The aid of the press should
be enlisted in the unified educational program.
Fourth, the possibility of teaching the provisions
of the program in the high schools should be explored.
Educating the student on the program in high school would
in time simplify the educational program of the Department
of Employment, since the employers, workers, and the gen
eral public of the next generation would have some know
ledge of the program.
Fifth, the Employment Service of the Department of
Employment should be used more extensively by employers.
To do so enables the Department to take workers off the
unemployment insurance rolls and put them in employment,
which immediately stops charges against the Trust Fund.
193
The primary benefactor of the California Unemploy
ment Insurance program is the unemployed worker. However,
the program is designed to prevent widespread and long-
continuing unemployment, and to this end it benefits work
ers, employers, and the general public. The full coopera
tion of workers, employers, and the general public is
essential to the proper control over benefit payments.
CHAPTER X
AN INTEGRATED PROGRAM FOR CONTROL OF BENEFIT PAYMENTS
Unemployment Insurance in California has made real
progress in its first twelve years. Procedures have been
improved. Comparatively speaking, the law has been streng
thened and liberalized. Few states can show a better
record. Although progress has been made, the unemployment
insurance program still bristles with problems. In par
ticular, a better system for control over benefit payments
and reserves is needed. In a program of this nature, pre
cautions must always be taken against "chiseling1 ’ and
fraud. In general, it seems that many worthwhile safe
guards have been established, but others must be developed
and the existing ones must be strengthened. The area
which is in need of the greatest improvement is that of
getting more and better cooperation from employers. Lack
of understanding of the program is the main reason for
employer neglect. Simplification of the law and additional
educational efforts are needed to remove this barrier.
The problem of control over unemployment insurance
payments requires an integrated program. To attack the
problem on one front or piecemeal will result in little
effect. For example, if the Fraud and Investigation Sec
tion was expanded to several times its present size they
195
could detect more cases of fraud than they do now. How
ever, if the claimant is ignorant of the law, or innocent
of intent to defraud it is difficult to recover the funds,
with the result that little is accomplished to control
improper payments. Likewise, a simplification of the law
would be of little use if it was not reinforced by an
educational program. A clarified and simplified law is of
little use if administration is lax.
The following pages will consider an integrated
program for control of benefit payments. The order of the
recommendations is of no particular significance other
than they may permit a progressive understanding of the
whole problem. All of the recommendations are important
and should be seriously considered. It will be noted that
in the preceding pages, some of the recommendations are
competing. That is, they seek to accomplish the same imme
diate end but by different means. In such a case, each of
them should be seriously considered, and the best one
adopted. An attempt has been made to do this in the fol
lowing pages. Some of the minor solutions are omitted
because they seem to be ineffective. Adoption of some of
the recommendations of the earlier pages seem to involve
greater costs than are justified by the results to be
obtained and are therefore omitted.
In judging the desirability of any proposal,
196
consideration should be centered on whether it serves the
purpose of the program to the general benefit of the
people and the economy of California.
I. THE GENERAL FRAMEWORK OF THE INTEGRATED PROGRAM
Unemployment Insurance is considered here as truly
an "insurance” and should be operated as such. To this
end the following program is proposed to effect a better
system of control over benefit payments.
The general framework for these proposals is as
follows:
1. Reconstruct the Unemployment Insurance Act by
removing obsolete and conflicting provisions, clarifying
the legislative intent, and writing the act in understand
able language. '
2. Change the benefit structure, clearly stating
the classes of workers that are entitled to receive bene
fit payments. Covered employment should be clearly defined
such that boundaries of insured workers will be clearly
outlined.
3. Establish better standards of eligibility for
benefit payments and disqualification from benefit pay
ments.
4. Improve administration of the act. Present
197
administration is sound, but it is in need of additional
funds. Certain administrative techniques can be employed
to exercise greater control over payments with present
personnel and funds.
5. Greater cooperation and participation of
employers, workers, and the public is needed. The program
is for the benefit of everyone, not only for unemployed
workers, and the successful operation of the system depends
on the cooperation of everyone.
6. More and better educational programs will give
a better understanding of the program to everyone, and
thereby facilitate the needed cooperation and participa
tion.
II. BASIC CHANGES IN THE LAW
A reconstruction in the Unemployment Insurance Act
is essential to further progress in the program for con
trol over benefit payments. Conflicts and complications
in the law have made the problem of administration diffi
cult. The present law acts as a barrier to public under
standing and participation. It tends to cause referee
decisions, Appeals Board decisions, and court decisions,
to be contradictory and confusing. It also tends to ham
per educational programs.
198
There are a great many changes in the present law
that are desirable but not easily attainable. Certain
basic changes must be undertaken.
1. Redraft the law, putting it into language the
layman can understand.
2. Remove conflicting and obsolete provisions.
3. Inject throughout the law clarifying state
ments of "legislative intent" placed with the
provisions to which they apply.
4. Whenever there has been enough experience to
permit it, reduce the area of interpretation
of the law by using more specific language.
5. Incorporate into the law the rules developed
by judicial decisions or tested regulations
which have the effect of law, so that anyone
can find out what the law is by reading the
act.
These are the basic changes in the law that are
needed. Other desirable changes in the law are indicated
under the proposals that follow.
III. RECONSTRUCT THE BENEFIT STRUCTURE
Many benefit payments are being made now that are
contrary to legislative Intent, such as payments to persons
199
who refuse suitable work. Other benefit payments are legal
within the letter of the law, such as payments to seasonal
and intermittent workers, and should be made Illegal.
Further, the distinction between workers covered under the
Act and workers excluded from the Act is not clear. It is
necessary to define more sharply those who are entitled to
benefit payments and those who are not.
Seasonal workers now covered by unemployment insur
ance should be excluded from the Act, or be required to
meet more restrictive eligibility requirements. One plan
would be to confine the payment of benefits to seasonal
workers to that period of the year established in previous
years as the ’ ’ working season.” Another solution would be
to raise the earnings qualifications. It is suggested that
a worker be required to have earnings in at least two
quarters of the base period, and that his total earnings
in the base period be at least one and one-half times his
high quarter earnings. This would eliminate many of the
seasonal workers and intermittent workers who are not
really attached to the regular labor force.
There should be a statutory standard or test for
the purpose of determining whether or not a service per
formed is in subject employment. Covered employment
should be clearly defined such that boundaries of insured
workers will be clearly outlined.
200
IV. ELIGIBILITY AND DISQUALIFICATION
After the classes of workers that the legislature
Intends to receive benefits have been defined in the law,
then eligibility and disqualification standards should be
established to insure that each covered worker has met
certain minimum qualifications.
First, it would be well to provide that in addi
tion to present eligibility provisions, the claimant shall
be eligible only if:
1. He has registered for employment with the
Department of Employment stating each kind of
work he can do.
2. He does not restrict the kind of work he will
accept if that kind of work is out of season,
or is not available in that locality.
3. He has not left an earlier employment prior to
his most recent employment because of a trade
dispute which is still going on. (Gives
effect to the Mark Hopkins Hotel Case.)
Second, re-define "suitable” work to prevent a
claimant from refusing without disqualification what is
otherwise suitable employment only because it is not in
his usual or last previous kind of work.
Third, require employers to furnish the Department
201
of Employment and each separated employee with a statement
of the reason for« separation to facilitate eligibility
determination.
Fourth, define in more specific terms the defini
tions of voluntarily leaving work and discharge for mis
conduct.
Fifth, provide that a claimant's most recent
employer or any other base-period employer may protest the
eligibility of the claimant.
Sixth, if a person is disqualified for refusing
suitable work more than once, he shall be disqualified for
each refusal.
Seventh, if a claimant goes to work before the
expiration of a disqualification, the disqualification
should not be removed but only reduced by the time worked.
V. IMPROVEMENTS IN ADMINISTRATION
In general, present administration is good. Addi
tional funds are needed to do a more effective job of
policing. The following recommendations are made to
improve present administration:
1. The Department should train claims examiners
and employment service interviewers to be able to do both
jobs. In periods of high employment, claims examiners can
202
be placed on employment service work during slack periods
employment service interviewers can be placed on claims
examiner work.
2. Where possible, reduce the number of top-level
Jobs, and divert the funds and personnel to the working
level jobs.
3. Wherever possible the Department should focus
efforts on employment service. An offer of suitable work
is the only real test of a claimant’s availability.
4. The Fraud and Investigation Section should be
granted additional funds whenever possible. The law should
clearly define fraud so that the Fraud and Investigation
Section can pursue cases other than those in which the
claimant is receiving benefit payments while working.
5. The Department should arrange for a pool of
part-time referees to assist in hearing appeals whenever
the number of appeals increases substantially.
6. Referees should attempt to consolidate hear
ings of appeals in which the alleged material facts are
the same.
7. The Department should increase the public
information activities by placing experienced clerks in
public information service whenever their regular work
load is light.
203
VI. PARTICIPATION OF EMPLOYERS, WORKERS
AND GENERAL PUBLIC
Greater participation of employers, workers, and
the general public in the program is essential to its suc
cess. Every means should be sought to encourage partici
pation of these groups.
First, simplification of the law will greatly
enhance the understanding of it and will thereby encourage
participation.
Second, the Department of Employment should extend
its efforts to instruct the general public on the opera
tion of the Act.
Third, the Department of Employment should under
take a better program for instructing workers of their
responsibilities as well as their rights under the Act.
The fact that employees do not contribute anything to the
unemployment insurance fund should be publicized.
Fourth, the law should "require"'employers to
return to the Department all of the forms affecting a
claimant's determination of eligibility. For example, a
recent amendment to the New York State Unemployment
Insurance Law imposes a $10 fine against employers who
fail to supply information requested by New York's
204
n
, Department of Employment.
Fifth, the law should "require*’ employers to fur
nish the Department and each separated employee with a
statement of the reason for separation. ^
VII. EDUCATIONAL PROGRAMS
Education of employers, workers, and the general
public is one of the most latent sources for control over
benefit payments. The present law is so complex and con
fusing that an educational program is difficult to set up.
The Department of Employment conducts classes for employers
which require four hours to deliver. Most people in the
State do not understand that employers now pay the full
cost of unemployment insurance benefits or that employees
now pay the full cost of disability benefits. In addition,
most people do not fully understand who is entitled to
benefit payments. Nor do they understand under what cir
cumstances benefits are payable. They do not know how
large the benefits are or for how many weeks benefits are
payable.
It is recommended that the Department of Employmert
direct its educational campaign to workers and the public.
1 A. H. Raskin, "Jobless Insurance Explained," New
York Times. April 27, 1951, p. 16.
205
The present educational campaign is directed almost solely
to employers.
Second, it is proposed that unions undertake a
more thorough program of education of their members.
*
Third, it is recommended that employers assist
unions in their educational campaign.
Fourth, it is recommended that the Department of
Employment use as much as possible the present Department
personnel as public relations representatives. These
people are already well informed and experienced in the
many aspects of unemployment insurance.
Fifth, explore the possibility of enlisting the
aid of the press in a unified educational program.
Sixth, explore the possibility of teaching the pro
visions of the program, as well as the provisions of the
other social insurance programs, in the high schools.
Many high school students finish their education knowing
nothing about unemployment insurance. Many of these stu
dents become employees in covered employment soon after
they leave school. If unemployment becomes heavy these
new workers are usually the first ones laid off. They
know very little about unemployment insurance. Educating
the student on the program in high school would in time
simplify the educational program of the Department of
Employment.
20 6
This, then, is the integrated program for the con
trol over benefit payments. The reasons for the recommend
ations and the details of them are to be found in the
chapters of this thesis. It is believed that adoption of
this program could curtail a large number of improper
claims. Reduction of the amount of improper claims may
result in a reduction of taxes paid by employers. In addi
tion, proper control over benefit payments, may eventually
result in wider coverage of unemployment insurance,
increased benefit payments to those workers entitled to
them, and the preservation of the reserve fund for true
unemployment needs.
BIBLIOGRAPHY
BIBLIOGRAPHY
A. BOOKS
Allen, Arthur P., Unemployment Insurance in California.
Los Angeles: The John Randolph Haynes and Dora Haynes
Foundation, 1950. 135 PP«
Altman, Ralph, Availability for Work. Cambridge: Harvard
University Press, l’ 9’ 5°* 34b pp.
Armstrong, Barbara, Insuring the Essentials. New York:
The Macmillan Company, 1932. 717 pp.
Chace, James E., Unemployment Compensation Disqualifica
tions. chicago: University of Chicago, '1945♦ 15 pp.
Fairchild, F. R., E. S. Furniss, and N. S. Buck, Economies.
New York: The Macmillan Company, 1950. 859 pp.
Hughes, Marsile J., Principles Underlying Labor Dispute
Disqualifications^ Washington: Federal Security
Agency, Social Security Administration, 1946. 104 pp.
Lester, Richard Allen, Providing for Unemployed Workers in
the Transition. New York: McGraw-Hill, 1945, 152 pp.
_______, The Case Against Experience Rating in Unemployment
Compensation. New York: New York Industrial Relations
Counselors, 1939* 60 pp.
Reynolds, L. G., and Joseph Shister, Job Horizons. New
York: Harper and Brothers, 1949. 102 pp.
Wade, Ralph J., Handbook for Employers on California1s
Unemployment Insurance Program. Los Angeles:
Personnel and Industrial Relations Association, Inc.,
1949. 130 pp.
Woytinsky, Wladimer, Principles of Cost Estimates in
Unemployment Insurance. Washington: Federal Security
Agency, Social Security Administration, 1948. 174 pp.
B. GOVERNMENT PUBLICATIONS
209
A Study of Seasonal Employment in California. Sacramento:
California Employment Commission, 1939* 185 pp.
California Unemployment Insurance Act, as amended, 19^9.
118 pp.
Employment Stabilization. A report of the Senate Interim
Committee on Employment Stabilization to the 19^9
California Legislature, 19^9. 229 PP.
Loysen, Milton 0., "What's Wrong with Unemployment Insur
ance?" Assembly Dally Journal,California Legislature,
Third Extraordinary Session, 1950, September 20, 1950.
228 pp.
Rules and Regulations on the California Unemployment Com-
pensatlon. Sacramento: California Department of
Unemployment, 1942. 23 pp.
Unemployment and Unemployment Insurance and its Adminis
tration. A report by the Assembly Interim Committee
on Finance and Insurance to the California Legisla
ture, Third Extraordinary Session, 1950. 179 PP*
Unemployment Insurance. A report of the Senate Interim
Committee on Unemployment Insurance to the California
Legislature, 1945. 159 pp.
Unemployment Insurance, A report to the U. S. Senate
Committee of Finance from the Advisory Council on
Social Security. Washington: U. S. Government Print
ing Office, 19^-8• 103 pp.
United States Social Security Act. Public 271. 32 pp.
#
United States Treasury Department, Internal Revenue Code.
665 pp.
C. PERIODICAL LITERATURE
Gall, J. C. and R. S. Smethurst, "A Critical Analysis of
the Federal-State System of Unemployment Compensation,"
Law and Contemporary Problems, January, 1936.
210
Graham, Ross, "Save Your Jobless Pay," Angeles News-
Advertiser, January 11, 1951*
Raskin, A. H., "jobless Insurance Explained," New York
Times, April 22, 1951*
Wegner, A. E., "Administrative Problems," Law and Contemp
orary Problems, January, 1936.
Whitman, Howard, "Chiseler's Holiday," Collier^, 121:13,
June 26, 19^8.
Witte, E. E., "Development of Unemployment Compensation,"
The Yale Law Journal, December, 19^5*
Zeeman, Roy, "Remedies Offered for Sinking Jobless Fund
and Higher Taxes," Los Angeles Times, December 29,
1949.
D. SPECIAL REPORTS
California Department of Employment, Fraudulent Payments.
A report to the Bureau of Employment Security, 1948.
California Department of Employment, Employment Security
News Letter. January-March, 1950; July-September,
1950; and October-December, 1950.
Horwitz, James W., The Risk of Unemployment and Its Effect
on Unemployment Compensation. Business Research
Studies, Vol. XXV, No. 5, July, 1938. Boston: Harvard
University Graduate School of Business Administration.
80 pp.

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Asset Metadata

Creator Lillevick, Robert H. (author)

Core Title The control of unemployment insurance payments in California

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,economics, labor,OAI-PMH Harvest,sociology, public and social welfare

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Anderson, William H. (committee chair), Phillips, E. Bryant (committee member), Pollard, Spencer D. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-438799

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Document Type Thesis

Rights Lillevick, Robert H.

Type texts

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Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA