Department of Labor & Industry v. Unemployment Compensation Board of Review , 418 Pa. 471 ( 1965 )

Opinion by

Me. Justice Robeets,

This is an appeal from a finding by the Superior Court that claimant-appellants were not entitled to unemployment compensation benefits under the provisions of the Pennsylvania Unemployment Compensation Law.¹

Claimants are members of Local 591, ILGWU, and are employed as chain machine operators by Talon, Incorporated, in Meadville, Pennsylvania. In 1961, the pertinent year for purposes of this case, the terms and conditions of claimants’ employment were dictated by a contract negotiated through the collective bargaining process between their union and Talon. That contract provided, in part:

“Section 2: Working Schedule (a) Beginning in January 1961, the Chain Machine personnel shall be employed as follows: 1. In January, the Company will adjust personnel, retaining by seniority the number of operators required to maintain production at the level of a normal 40-hour week. 2. Employees with sufficient seniority to remain at work shall be kept as operators until the pay period when their gross earnings received from the Company since January amount to five thousand dollars ($5,000), plus-or-minus fifty dollars ($50). Such operators will then go on layoff for the remainder of the year or until all younger operators have been recalled, and additional ones are required in seniority order. 3. Younger operators on layoff will be recalled in seniority order in sufficient number to maintain production at the level of a normal 40-hour work week for the remainder of the calendar year. 4. At the first of the year, the younger operators will be laid off and older operators recalled in seniority order from layoff to maintain the schedule at a normal 40-hour work week. These operators will continue working until they have received gross earnings of five thousand dollars ($5,000), plus-or-minus fifty dollars ($50), when they will be laid off and younger operators called in, as set forth in Items 2 and 3, above.”

In 1961, claimants reached the specified $5,000 wage limitation in early October. Pursuant to the above contractual arrangement, they were “laid off” and the work which they had been performing was assigned to substitutes with less seniority. Claimants then filed applications for unemployment compensation benefits. In November, the Bureau of Employment Security found them ineligible for benefits because they were unavailable for suitable work under §401 (d)² and because they had voluntarily left work under §402(b) (l)³ of the Pennsylvania Unemployment Compensation Law.

Section 401(d) provides: “Compensation shall be payable to any employe who is or becomes unemployed, and who — ■ .... (d) Is able to work and available for suitable work . . . .”

Section 402(b) (1) provides: “An employe shall be ineligible for compensation for any week— .... (b)(1) In which his unemployment is due to voluntarily leaving work without cause of a necessitous and compelling nature . . . .”

Prom the Bureau’s finding of ineligibility under the above two sections, claimants appealed to the Unemployment Compensation Board of Review which assigned the matter to a referee. After a hearing, the referee reversed the Bureau’s finding of ineligibility under §402(b) (1) (voluntary quit) but affirmed the Bureau’s decision that the employees were ineligible for benefits under §401 (d) (availability for work). Claimants then appealed the referee’s decision to the Board of Review which reversed the referee and held that the claimants were eligible for benefits. The Bureau of Employment Security appealed the Board’s decision to the Superior Court⁴ which reversed the Board and found claimants ineligible for benefits under both sections, reaching thereby the same result as the initial determination by the Bureau. 203 Pa. Superior Ct. 336, 201 A. 2d 310 (1964). Claimants, joined by Talon, filed a petition for allocatur which we granted.⁵ 203 Pa. Superior Ct. xxxix.

Careful review of the record, the briefs and the oral arguments in this case convinces us that the order of the Superior Court must be affirmed on the ground that claimants voluntarily left work and that unemployment compensation benefits are therefore precluded under §402 (b) (1) of the Act.

In arriving at our determination of these appeals, we are aided considerably by the guidelines set forth in the Legislature’s declaration of public policy found in §3 of the Act.⁶ That section is not merely a perfunctory preface but is, rather, the keystone upon which the entire Act rests and the basis upon which the individual sections of the Act must be interpreted and construed. Barclay White Co. v. Unemployment Compensation Bd. of Review, 356 Pa. 43, 50 A. 2d 336 (1947), cert. denied, 332 U.S. 761, 68 S. Ct. 63; Harris Unemployment Compensation Case, 185 Pa. Superior Ct. 235, 138 A. 2d 207 (1958); Fazio Unemployment Compensation Case, 164 Pa. Superior Ct. 9, 63 A. 2d 489 (1949); Michalsky Unemployment Compensation Case, 163 Pa. Superior Ct. 436, 62 A. 2d 113 (1948). More particularly, the relationship between §3 and §402(b) (1) is close and complementary, calling for the construction of §402(b)(1) in the light of the fuller, more comprehensive, and more explicit language of §3. Dept. of Labor and Industry v. Unemployment Compensation Bd. of Review, 148 Pa. Superior Ct. 246, 24 A. 2d 667 (1942), allocatur refused, 148 Pa. Superior Ct. xxiii; Labor and Industry Dept. v. Unemployment Compensation Bd. of Review, 133 Pa. Superior Ct. 518, 3 A. 2d 211 (1938), allocatur refused, 133 Pa. Superior Ct. xxxiii.

The §3 declaration of public policy persuades us that legally sustaining the program of planned unemployment agreed upon by Talon and claimants would contravene the language and intent of §402(b)(1). Such a determination would also violate the policy upon which the Act is based and would surely provide a method by which the effectiveness of the program of unemployment compensation benefits would eventually be nullified.

An examination of the §3 declaration of public policy reveals that the Act is aimed at conditions arising out of “involuntary unemployment”, the very concept with which §402(b) (1) is concerned. The use of the word “involuntary” in the declaration of public policy section is enlightening because the Legislature equates that word with the phrase “through no fault of their own.” Can it reasonably be said that claimants in the instant case found themselves unemployed “through no fault of their own”? Obviously not. The terms of their employment contract were considered by them, voted upon by them, and agreed upon by them with their employer through their union bargaining agents.⁷

Clarification of the word “involuntary” further particularizes the kind of situation which the Act is designed to alleviate. It is to provide protection against the “hazards of unemployment.” Clearly this refers not to unemployment arranged, agreed upon, and sanctioned by the employer and employee but, rather, to unemployment which is attendant upon the vicissitudes-of the economic climate.⁸ The purpose of the Act is to prevent the worker from becoming the innocent pawn of forces and movements beyond his control. Suffice it to say that this is a large enough undertaking without increasing the burden upon the unemployment compensation system by adding to its protective cover situations of “unemployment” devised by the employer and his employee which, by contract, are made virtually certain to occur and reoccur at regular intervals. Surely, at this stage of experience with the system, it must be obvious that a great and basic difference exists, economically and legally, between the nature of involuntary unemployment as contemplated by the Act and that “unemployment” continuously and deliberately planned and created by the contract arrangement involved at Talon.

It has been pointed ont that one of the purposes of the Unemployment Compensation Law was to encourage the reduction of unemployment through the incentive of reduced employer contributions to the unemployment compensation fund for those who achieve a stabilization of employment in their businesses. See Sturdevant Unemployment Compensation Case, 158 Pa. Superior Ct. 548, 563, 45 A. 2d 898, 906 (1946). Although we recognize that this secondary aim must not take precedence over the paramount objective of providing relief to employees who leave work through no fault of their own, we are equally convinced that the employer and employee must not be permitted to create “unemployment” in order to secure payments from the unemployment compensation fund by means of a contractually agreed upon system which does not discourage unemployment but actually creates and fosters it on a periodic and continuing basis.

In concluding that claimants voluntarily left their employ within the meaning of §402(b)(1), we take cognizance of Gianfelice Unemployment Compensation Case, 396 Pa. 545, 153 A. 2d 906 (1959), which claimants urge upon us as authority for the proposition that their labor agreement with Talon has no bearing upon the issue of the voluntariness of their leaving. That case, however, is completely distinguishable from the instant case both on its facts and its underlying policy rationale and can not be deemed to be controlling in the instant situation.

Gianfelice involved a man who, having attained the age of 68, became subject to the terms of an employer-union contract under which an employee, after reaching the age of 68, could continue work only with the consent of the employer. Not obtaining that consent, claimant filed for unemployment compensation benefits shortly after his 68th birthday. In holding that this retirement provision of claimant’s employment contract did not make the retirement voluntary, the Court’s decision carefully and wisely limited the language in the case to its facts.

In Gianfelice the Court felt that the labor agreement was entered into in order to restrict the employer’s right to dismiss at will until the employee reached a certain age and that it could not be said that by seeking this protection against arbitrary dismissal by the employer, the employee voluntarily quit once he reached the age where his employer could dismiss at will.

Here the situation is exactly the opposite. Employees who, on the basis of seniority, would ordinarily have the right to work as long as work existed, gave up that right and agreed that upon reaching the $5,000 wage mark, they would relinquish their positions to junior employees.⁹

Unlike Gianfelice, the instant case does not present a situation where an employee merely becomes available for retirement against his will. Instead, what is presented here is a planned, intentional system of unemployment devised for the purpose of seeking to create eligibility for benefits from the unemployment compensation fund. The retirement situation in Gianfelice can in no way be analogized to the contrived periodic “lay-offs” involved here and the contemplated inclusion of payments from the unemployment compensation fund in the claimants’ yearly employment benefits. This “lay-off” comes not as the result of any considerations for the proper performance of work or the lack of work¹⁰ but, instead, upon the mere receipt of $5,000 in wages, an arbitrarily fixed amount, in any one year. In addition, re-employment was not only certain in this case, but guaranteed by contract on a regular, scheduled basis.

The §3 clarification of the word “involuntary” as meaning “through no fault of their own” brings out a major distinguishing characteristic between the present case and Qianfelice. In the latter case it could be said that claimant lost his position through no fault of his own. Indeed, the agreement which he, through his union, entered into, prolonged the period during which retirement and unemployment would not occur. The agreement made him secure in his job until he reached a certain age, at which time he could be retired. In the instant case, on the other hand, we find not an effort to prolong the happening of an inevitable event which gives rise to unemployment but the creation of a new kind of event, a new condition which will, by mutual consent, automatically result in laying off workers. Surely then, it can not be said that claimants were laid off through no fault of their own. It was their ratification of the employment agreement which created the entire set of circumstances of which they now claim to be the “victims.” It was part of their agreed plan that upon reaching the $5,000 wage limit they would assume the very status of which they now complain.

Therefore, the factual circumstances involved in this case,¹¹ along with the totally dissimilar consequences which flow from the contract here,¹² make reliance upon the Gianfelice decision inappropriate.¹³

As the §3 declaration of public policy notes, the foundation of the unemployment compensation system upon which the efficacy and, indeed, the source of life of the program rests, can be found in the principle of the accumulation of financial reserves. The principle of accumulations is based upon the theory that by contributions of employers throughout the state, a reserve fund can be accumulated. From this fund, workers who are unemployed through no fault of their own may receive payments to cushion the hard economic blow which unemployment nearly always inflicts. The life of the system literally depends upon the existence of a fund out of which those payments can be made. Quite obviously, the fund can not remain healthy and viable if sums are removed not only to relieve the economic distress which accompanies unemployment due to natural fluctuations of the economy, but also are removed recurrently, systematically, and by calculated design as an aspect of an employer-employee contract.¹⁴

The fund must be used only in accordance with its statutorily stated purpose. It must not be used as an integral part of an employer-employee contract which is deliberately designed to provide the employer with a readily available labor force¹⁵ and to defray the cost of such undertaking by withdrawals from the common trust fund which is contributed to by all covered employers in Pennsylvania for the benefit of involuntarily separated employees.¹⁶ Neither the employer nor the employee — alone or together — may remold the unemployment compensation system to serve their private interest in securing payments of benefits from the common fund by agreement as here attempted.

In support of their position, claimants also rely upon §701 of the Act¹⁷ which provides that an employee may not waive or release any of his rights under the Act. The applicability of this section only becomes relevant, however, once it is established that the employee has rights to benefits under the Act. In that event, §701 prohibits a waiver of such rights. Obviously this section may not be used to establish the very issue in controversy — that is, whether such rights exist.

In addition, it is significant, as the Court in Gianfelice noted, that although an employee may not waive rights to which he is entitled, neither can the employer and employee “agree that the latter receive benefits when the law precludes such benefits.”¹⁸

The Unemployment Compensation Fund is maintained by all the employers throughout the Commonwealth who are covered by the Act and who contribute to it for the benefit of their employees, see Pennsylvania State Chamber of Commerce v. Torquato, 386 Pa. 306, 125 A. 2d 755 (1956), cert. denied, 352 U.S. 1024, 77 S. Ct. 589 (1957). Any scheme by which an employer and employee attempt to invade that fund for purposes other than those for which it was designed and is being maintained thereby jeopardizes its solvency and destroys its trust characteristics and, therefore, must not be permitted.

The decision of the Bureau and the Superior Court denying benefits to claimants is therefore affirmed on the basis of §402(b) (1) of the Unemployment Compensation Law. In light of our conclusion, we need not consider the second issue raised on this appeal concerning claimants’ availability for work under §401 (d).

Order affirmed.

Mr. Justice Eagen dissents.

1 Act of December 5, 1936, (1937) P. L, 2897, as amended, 43 P.S. §751 et seq.

2 Act of December 5, 1936, P. D. (1937) 2897, §401 (cl), as amended by Act of March 30, 1955, P. L. 6, §4 and Act of December 17, 1959, P. D. 1893, §7, and Act of September 14, 1961, P. L. 1301, §3. The subsection was subsequently amended by the Act of March 24, 1964, P. L. 53, §5, 43 P.S. §801 (d).

3 Act of December 5, 1936, P. D. (1087) 2897, §402 (b)(1), as amended, 43 P.S. §802 (b)(1).

4 Claimants and Talon were permitted to intervene as parties api)ellee.

5 Tbe disposition of tbe claims of 29 other employees of Talon, wbo became unemployed under circumstances similar to those represented by claimants in this ease, are also dependent upon the determination of the instant appeal.

6 Act of December 5, 1936, P. L. (1937) 2897, §3, 43 P.S. §752. “Economic insecurity due to unemployment is a serious menace to tbe bealtb, morals, and welfare of the people of the Commonwealth. Involuntary unemployment and its resulting burden of indigency falls with crushing force upon the unemployed worker, and ultimately upon the Commonwealth and its political subdivisions in the form of poor relief assistance. Security against unemployment and the spread of indigency can best be provided by the systematic setting aside of financial reserves to be used as compensation for loss of wages by employes during periods when they become unemployed through no fault of their own. The principle of the accumulation of financial reserves, the sharing of risks, and the payment of compensation with respect to unemployment meets the need of protection against the hazards of unemployment and indigency. The Legislature, therefore, declares that in its considered judgment the public good and the general welfare of the citizens of this Commonwealth require the exercise of the police powers of the Commonwealth in the enactment of this act for the compulsory setting aside of unemployment reserves to he used for the benefit of persons unemployed through no fault of their own." (Emphasis supplied.)

7 Claimants are bound by tbe agreement negotiated on their behalf by their union representatives. Pusa Unemployment Compensation Case, 178 Pa. Superior Ct. 348, 115 A. 2d 791 (1955); Motley Unemployment Compensation Case, 164 Pa. Superior Ct. 36, 63 A. 2d 429 (1949).

8 Although it was recognized in Sturdevant Unemployment Compensation Case, 158 Pa. Superior Ct. 548, 45 A. 2d 898 (1946), that unemployment could be caused by forces “not directly or solely attributable to economic or depressional causes,” that ease clearly contemplated causes which are outside the control of employer and employee such as the disorganization accompanying wartime mobilization which was involved in that case.

9 Although the employment contract provided for a rehiring of senior employees before the January recall date if the amount of work at Talon required it, and despite the fact that 1961 was a record year for the company, at no time during that year was the full work force of chain machine operators actually employed by the company all at the same time.

10 Despite the fact that the work which claimants had been performing was not discontinued by Talon but merely reassigned to junior employees, appellants have endeavored to convince us that the actual reason for laying off claimants was lack of work. However, claimants’ argument can not erase the fact that this condition of lack of work was created by the “two jjlatoon” system embodied in the labor contract. There will always be lack of work for some employees if an employer makes it part of his employment practice to deliberately recruit almost twice the number of men he needs for the amount of work he has to be done. And when the system, arising out of an employer-employee agreement, creates these unemployed persons, those persons can not be deemed, in the face of that plan, to be involuntarily unemployed. Having authorized the initiation of the program and having participated in its execution, the employees may not be heard to complain of the resulting effect of their agreed scheme upon them.

11 A comparison of the contractual provisions in Gianfelice and those involved here also produces an interesting difference between the two cases. In Gianfelice the contractual arrangement provided: “A participant may remain in service of the Company after his attainment of age 68 or July 1, 1952, whichever last occurs, only with the consent of the company . . . .” It can be seen that that provision leaves it within the discretion of the employer whether the employee is actually laid off.

In the contract involved in this case, however, claimants agreed that when they had received $5,000 in wages for that year, they would “then go on layoff for the remainder of the year.” Their unemployment, therefore, was not the result of a discretionary act by the employer but an automatic consequence of their agreement.

12 Obviously what was here planned was yearly pay of $5,000 plus whatever unemployment compensation sums could be secured during the period October 1 to December 31 of each year.

13 Under the most recent amendments to the Unemployment Compensation Law, the result of the Gianfelice case would be significantly altered. The 1964 amendments reduced or eliminated benefits under the Act where, as in Gianfelice, the claimant was receiving a retirement pension or annuity payments. Act of March 24, 1964, P. L. 53, §6, 43 P.S. §§804(c) (2), 804(d) (4).

14 The fact that the fund is indebted to the federal government in excess of $131,000,000 is persuasive evidence of the need for protecting the solvency of the fund against withdrawals made under the aegis of claims arising out of artificially, albeit artfully, created unemployment. See Bureau of Employment Security, Statistical Information Bulletin No. 161, December, 1964.

15 Claimants’ brief readily admits the purpose of the unique labor contract involved here: “What the agreement did do was to give the junior employees an opportunity to avoid forfeiture of their places on the seniority list and to periodically renew and develop their skills and proficiencies as chain machine operators. This was done so that as the most senior men eventually left active employment those junior could readily achieve a more permanent, stable and desirable place in the labor market. At the same time the employer benefited by having the largest possible pool of highly trained technicians available should its employment needs expand or, in any event, to replace the older men that will eventually be gone.” (Emphasis supplied.)

While the stated purposes behind the contract may have been helpful to the employer and beneficial to some of its employees, reference to the §3 declaration of public policy makes it abundantly clear that the unemployment compensation system was not ereated in order to subsidize such programs to the detriment of eligible beneficiaries and contributing employers.

16 The record shows that Talon, Incorporated, contributed at the maximum 4% rate during the years 1960, 1961, and 1962, and that from 1949 through 1962 its total contributions amounted to $1,822,422 while the total benefits paid to its employees from the fund amounted to $3,230,752.

At all levels of adjudication in this entire proceeding, including the petition for allocatur, the employer urged payment of benefits to cover these contractually agreed “lay-offs” just as though the employer himself was providing an additional “fringe benefit” for its employees, utterly disregarding the trust characteristics of the state-wide unemployment compensation fund.

17 Act of December 5, 1936, P. D. (1937) 2897, §701, 43 P.S. §861.

18 396 Pa. at 554, 153 A. 2d at 911.