House Study Bill 261 HOUSE FILE BY (PROPOSED COMMITTEE ON COMMERCE, REGULATION AND LABOR BILL BY CHAIRPERSON JENKINS) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act relating to the unemployment rate of contribution of a 2 person who acquires an organization, trade, or business and 3 providing penalties. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 3165HC 81 6 kk/pj/5 PAG LIN 1 1 Section 1. Section 96.7, subsection 2, paragraph b, Code 1 2 2005, is amended to read as follows: 1 3 b. (1) If anenterpriseorganization, trade, or business, 1 4 or a clearly segregable and identifiable part of anenterprise1 5 organization, trade, or business, for which contributions have 1 6 been paid is sold or transferred to a subsequent employing 1 7 unit, or if one or more employing units have been reorganized 1 8 or merged into a single employing unit, and the successor 1 9 employer, having qualified as an employer as defined in 1 10 section 96.19, subsection 16, paragraph "b", continues to 1 11 operate theenterpriseorganization, trade, or business, the 1 12 successor employer shall assume the position of the 1 13 predecessor employer or employers with respect to the 1 14 predecessors' payrolls, contributions, accounts, and 1 15 contribution rates to the same extent as if no change had 1 16 taken place in the ownership or control of theenterprise1 17 organization, trade, or business. However, the successor 1 18 employer shall not assume the position of the predecessor 1 19 employer or employers with respect to the predecessor 1 20 employer's or employers' payrolls, contributions, accounts, 1 21 and contribution rates which are attributable to that part of 1 22 theenterpriseorganization, trade, or business transferred, 1 23 unless the successor employer applies to the department within 1 24 ninety days from the date of the partial transfer, and the 1 25 succession is approved by the predecessor employer or 1 26 employers and the department. 1 27 (2) Notwithstanding any other provision of this chapter, 1 28 if an employer sells or transfers its organization, trade, or 1 29 business, or a portion thereof, to another employer, and at 1 30 the time of the sale or transfer, there is substantially 1 31 common ownership, management, or control of the two employers, 1 32 then the unemployment experience attributable to the sold or 1 33 transferred organization, trade, or business shall be 1 34 transferred to the successor employer. The transfer of part 1 35 or all of an employer's workforce to another employer shall be 2 1 considered a sale or transfer of the organization, trade, or 2 2 business where the predecessor employer no longer operates the 2 3 organization, trade, or business with respect to the 2 4 transferred workforce and such organization, trade, or 2 5 business is operated by the successor employer. 2 6 (3) Notwithstanding any other provision of this chapter, 2 7 if a person is not an employer at the time such person 2 8 acquires an organization, trade, or business of an employer, 2 9 or a portion thereof, the unemployment experience of the 2 10 acquired organization, trade, or business shall not be 2 11 transferred to such person if the department finds such person 2 12 acquired the organization, trade, or business solely or 2 13 primarily for the purpose of obtaining a lower rate of 2 14 contribution. Instead, such person shall be assigned the 2 15 applicable new employer rate under paragraph "c". 2 16 In determining whether an organization, trade, or business 2 17 or portion thereof was acquired solely or primarily for the 2 18 purpose of obtaining a lower rate of contribution, the 2 19 department shall use objective factors which may include the 2 20 cost of acquiring the organization, trade, or business; 2 21 whether the person continued the acquired organization, trade, 2 22 or business; how long such organization, trade, or business 2 23 was continued; and whether a substantial number of new 2 24 employees was hired for performance of duties unrelated to the 2 25 organization, trade, or business operated prior to the 2 26 acquisition. The department shall establish methods and 2 27 procedures to identify the transfer or acquisition of an 2 28 organization, trade, or business under this subparagraph and 2 29 subparagraph (2). 2 30 (4) The predecessor employer, prior to entering into a 2 31 contract with a successor employer relating to the sale or 2 32 transfer of theenterpriseorganization, trade, or business, 2 33 or a clearly segregable and identifiable part of the 2 34enterpriseorganization, trade, or business, shall disclose to 2 35 the successor employer the predecessor employer's record of 3 1 charges of benefits payments and any layoffs or incidences 3 2 since the last record that would affect the experience record. 3 3 A predecessor employer who fails to disclose or willfully 3 4 discloses incorrect information to a successor employer 3 5 regarding the predecessor employer's record of charges of 3 6 benefits payments is liable to the successor employer for any 3 7 actual damages and attorney fees incurred by the successor 3 8 employer as a result of the predecessor employer's failure to 3 9 disclose or disclosure of incorrect information. The 3 10 department shall include notice of the requirement of 3 11 disclosure in the department's quarterly notification given to 3 12 each employer pursuant to paragraph "a", subparagraph (6). 3 13 (5) The contribution rate to be assigned to the successor 3 14 employer for the period beginning not earlier than the date of 3 15 the succession and ending not later than the beginning of the 3 16 next following rate year, shall be the contribution rate of 3 17 the predecessor employer with respect to the period 3 18 immediately preceding the date of the succession, provided the 3 19 successor employer was not, prior to the succession, a subject 3 20 employer, and only one predecessor employer, or only 3 21 predecessor employers with identical rates, are involved. If 3 22 the predecessor employers' rates are not identical and the 3 23 successor employer is not a subject employer prior to the 3 24 succession, the department shall assign the successor employer 3 25 a rate for the remainder of the rate year by combining the 3 26 experience of the predecessor employers. If the successor 3 27 employer is a subject employer prior to the succession, the 3 28 successor employer may elect to retain the employer's own rate 3 29 for the remainder of the rate year, or the successor employer 3 30 may apply to the department to have the employer's rate 3 31 redetermined by combining the employer's experience with the 3 32 experience of the predecessor employer or employers. However, 3 33 if the successor employer is a subject employer prior to the 3 34 succession and has had a partial transfer of the experience of 3 35 the predecessor employer or employers approved, then the 4 1 department shall recompute the successor employer's rate for 4 2 the remainder of the rate year. 4 3 Sec. 2. Section 96.16, Code 2005, is amended by adding the 4 4 following new subsection: 4 5 NEW SUBSECTION. 5. EXPERIENCE AND TAX RATE AVOIDANCE. If 4 6 a person knowingly violates or attempts to violate section 4 7 96.7, subsection 2, paragraph "b", subparagraph (2) or (3), 4 8 with respect to a transfer of unemployment experience, or if a 4 9 person knowingly advises another person in a way that results 4 10 in a violation of such subparagraph, the person shall be 4 11 subject to the penalties established in this subsection. If 4 12 the person is an employer, the employer shall be assigned a 4 13 penalty rate of contribution of two percent of taxable wages 4 14 in addition to the regular contribution rate assigned for the 4 15 year during which such violation or attempted violation 4 16 occurred and for the two rate years immediately following. If 4 17 the person is not an employer, the person shall be subject to 4 18 a civil penalty of not more than five thousand dollars for 4 19 each violation which shall be deposited in the unemployment 4 20 compensation reserve fund created in section 96.9, subsection 4 21 8, and shall be treated as interest earned on moneys in the 4 22 reserve fund. In addition to any other penalty imposed in 4 23 this subsection, violations described in this subsection shall 4 24 also constitute an aggravated misdemeanor. 4 25 For purposes of this subsection, "knowingly" means having 4 26 actual knowledge of or acting with deliberate ignorance of or 4 27 reckless disregard for the requirement or prohibition 4 28 involved. For purposes of this subsection, "violates or 4 29 attempts to violate" includes, but is not limited to, the 4 30 intent to evade, misrepresentation, and willful nondisclosure. 4 31 EXPLANATION 4 32 This bill relates to an employer's rate of contribution for 4 33 unemployment tax where the employer acquires an organization, 4 34 trade, or business of another employer. 4 35 The bill provides that where an employer sells or transfers 5 1 all or a portion of its organization, trade, or business, to 5 2 another employer which has common ownership, management, or 5 3 control with the selling employer, and the selling employer no 5 4 longer performs the same trade or business, then the 5 5 unemployment experience of the selling employer shall be 5 6 transferred to the acquiring employer for calculation of the 5 7 unemployment rate. If the person that acquires the business 5 8 is not an employer at the time of sale or transfer, then the 5 9 business shall be assigned the contribution rate as a new 5 10 employer if the department of workforce development determines 5 11 that the business was acquired for the primary purpose of 5 12 obtaining a lower rate of contribution. The department shall 5 13 make the determination based on objective factors which may 5 14 include an evaluation of the sales price, the continuation of 5 15 the business activity, and whether the employees of the 5 16 original business were hired to perform different work. 5 17 The bill prescribes multiple administrative and criminal 5 18 penalties for violations. An employer who knowingly sells or 5 19 transfers, attempts to sell or transfer, or advises another 5 20 person to transfer or sell its organization, trade, or 5 21 business to another employer with substantially common 5 22 ownership management or control in violation of Code section 5 23 96.7, subsection 2, paragraph "b", subparagraph (2), shall be 5 24 assigned an additional penalty contribution rate of 2 percent 5 25 of taxable wages for at least two years. Persons who 5 26 knowingly acquire an organization, trade, or business for the 5 27 purpose of obtaining a lower rate of contribution in violation 5 28 of Code section 96.7, subsection 2, paragraph "b", 5 29 subparagraph (3), shall be subject to a civil penalty of not 5 30 more than $5,000 for each violation to be deposited in the 5 31 unemployment compensation reserve fund as interest. 5 32 Violations described in the bill are also classified as 5 33 aggravated misdemeanors. An aggravated misdemeanor is 5 34 punishable by confinement for no more than two years and a 5 35 fine of at least $500 but not more than $5,000. 6 1 The bill provides definitions of "knowingly" and "violates 6 2 or attempts to violate". 6 3 LSB 3165HC 81 6 4 kk:rj/pj/5