JUSTICE PAUL E. PFEIFER
January 29, 2014
This case involved a woman named Claudia Bernard, who was employed as a property caretaker by Wakeman Educational Foundation until December 2009. In 2009 Claudia authorized Wakeman to deposit $900 of her monthly earnings into a flexible-spending account so that she could use that money to obtain tax-free reimbursement of medical expenses.
Accordingly, in 2009, Wakeman deposited $10,800 of Claudia’s $17,320 earnings into a flexible-spending account. Unfortunately, on December 31, Claudia was terminated from her job. She subsequently applied for unemployment-compensation benefits with the Ohio Department of Jobs and Family Services (“ODJFS”).
ODJFS ruled that Claudia was required to have earned an average weekly wage of at least $213 for the relevant 20 weeks in order to be eligible for unemployment and that the amounts that went into the flexible-spending account were not “remuneration” as that term is used in the pertinent law.
With the exclusion of those amounts, Claudia’s average weekly wage was only $125, and so her claim was denied on the grounds of insufficient earnings to qualify for unemployment-compensation benefits.
Claudia appealed the decision to the Unemployment Compensation Review Commission, contending that the definition of “remuneration” in the law includes all annual earnings for purposes of determining unemployment-compensation eligibility. But the commission affirmed the ODFJS decision. It concluded that Claudia’s total wages for the year were only $6,520, because the money that had been deposited in the flexible-spending account wasn’t considered wages.
Claudia filed an appeal in court, asserting that the commission’s decision should be overturned because it was unlawful, unreasonable, or against the manifest weight of the evidence. She claimed that the unemployment law entitles her to the benefit of the doubt on which benefits are included as wages because the laws that define “wages” are ambiguous. A law is considered ambiguous when its language is subject to more than one reasonable interpretation.
But the court upheld the commission’s decision. The court of appeals later affirmed that decision. After that, her case came before us – the Ohio Supreme Court. By a six-to-one vote, we affirmed the court of appeals’ judgment.
According to the majority, whether the money deposited into Claudia’s flexible-spending account should be included as remuneration for purposes of unemployment eligibility is not a question with a simple, plain, or clear answer; the laws pertaining to the issue contain ambiguity.
In the pertinent law “remuneration” means “all compensation for personal services, including commissions and bonuses and the cash value of all compensation in any medium other than cash.” But the legal definition of “remuneration” excludes 15 specified payments.
These exclusions are further defined by the federal-unemployment-tax portion of the Internal Revenue Code. One of those exclusions relates to “cafeteria plans.” A cafeteria plan is a fringe benefit that allows an employee to choose between cash and “qualified” benefits, such as those on which an employee does not pay taxes.
The Internal Revenue Code says that “wages” means all remuneration for employment, paid in any medium other than cash, except any payment made under a cafeteria plan “if such payment would not be treated as wages without regard to such plan…”
But the Internal Revenue Code is subject to more than one interpretation. The majority pointed out that even ODJFS and the court of appeals interpreted the language differently. Thus, according to the majority, the problem becomes that the Ohio unemployment law relies on the Internal Revenue Code to flesh out its definition of remuneration.
Nevertheless, the majority opinion stated that regardless of the varying interpretations, “we are to consider whether the Unemployment Compensation Review Commission’s interpretation is reasonable.” According to the majority, the trial judge in this matter succinctly stated the reasonableness of the commission’s interpretation of “remuneration” for unemployment-compensation-eligibility purposes.
The judge said, in part, that the entire Unemployment Compensation Act is funded by an excise tax on employers that is based upon the gross wages paid to employees each quarter. Under the legislative definition, “wages do not include payments under a cafeteria plan if the payments are not treated as wages. For purposes of the excise tax payable by the employer,” flexible-spending account diversions are not considered wages.
The ODJFS determined that earnings that an employee elects to deposit into a tax-free flexible-spending account to obtain reimbursement of medical costs under an employer’s cafeteria plan do not qualify as remuneration for determining the employee’s unemployment-compensation eligibility, and because the majority found that ODJFS’s interpretation of the law was both reasonable and lawful, it affirmed the judgment of the court of appeals.
I cast the dissenting vote because after reading the majority opinion’s interpretations of the laws and cases involved in this case, I was left with one overpowering conclusion: this issue is much more complicated than it should be. To me, compensation is compensation. Under this simple approach, Claudia’s request for unemployment benefits would be based on her total compensation, not just the portion of compensation that was taxable.
We all understand that Claudia allocated some of her remuneration to the cafeteria plan in order to save money on taxes. Many Ohioans make similar decision every day; nobody wants to pay more taxes than necessary.
Claudia might have made a different decision if she had known that her decision would affect her ability to receive unemployment benefits. But how was she to know? No ordinary resident can be expected to understand the interplay between various state laws, IRS notices and bulletins, cases, and definitions implicated in this case. As the majority opinion pointed out, even the court of appeals and the ODJFS interpreted the laws differently.
This case raises two interesting questions. First, do Ohioans know and approve of the fact that some people earn so little that they are not covered by unemployment insurance even though their employer pays into the system? Second, because Claudia’s entire compensation package isn’t remuneration, did her employer improperly pay her less than minimum wage?
I would have reversed the decision of the court of appeals, and I would construe “remuneration” to include Claudia’s entire compensation package.
Paul E. Pfeifer is an American jurist. He served in both houses of the Ohio General Assembly as a member of the Ohio Republican party and is currently an Associate Justice of the Supreme Court of Ohio.