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:
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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 an enterprise organization, trade, or business,
1 4 or a clearly segregable and identifiable part of an enterprise
1 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 the enterprise organization, 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 the enterprise
1 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 the enterprise organization, 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 the enterprise organization, trade, or business,
2 33 or a clearly segregable and identifiable part of the
2 34 enterprise organization, 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".
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