Pay That Worker Deferred to Flexible Spending Account Does Not Count As ‘Wages’ in Determining Unemployment Eligibility
The Ohio Supreme Court ruled today that earnings deposited into a flexible-spending account for reimbursement of medical costs under an employer’s “cafeteria” plan do not qualify as remuneration to determine an employee’s unemployment-compensation eligibility.
Written by Justice Judith Ann Lanzinger, the Supreme Court’s ruling affirmed a decision by the Second District Court of Appeals.
Claudia Bernard’s employment with the Wakeman Educational Foundation ended in January 2010. She applied to the Ohio Department of Job and Family Services (ODJFS) for state unemployment compensation benefits.
ODJFS denied her application based on its finding that Bernard‘s average weekly wages during 2009 were less than the $213-per-week minimum required to qualify for benefits. In calculating Bernard’s average weekly wages, the department did not count $900 per month in earnings that was deducted from her paychecks and deposited into a pre-tax medical spending account.
Bernard appealed to the Ohio Unemployment Compensation Review Commission (UCRC), arguing that the uncounted $900 per month was compensation for work she performed. She maintained that the deposit of a portion of her earnings into a flexible spending account did not change the legal status of that compensation as “wages” to be counted in determining her eligibility. The UCRC rejected Bernard’s argument and affirmed the state’s order denying unemployment benefits.
Bernard appealed the UCRC’s ruling to the Miami County Court of Common Pleas and then to the Second District Court of Appeals. Both courts denied her appeals. In a 2-1 opinion, the Second District held that certain statutory language relied upon by the UCRC in its ruling was ambiguous, but that the agency’s interpretation of the statute should be deferred to unless that interpretation is “unlawful, unreasonable, or against the manifest weight of the evidence.”
Bernard sought and was granted Supreme Court review of the Second District’s decision.
In the opinion affirming the judgment of the court of appeals, Justice Lanzinger cited R.C. 4141.282(H) that provides the standard of review: “[i]f the court finds that the decision of the commission was unlawful, unreasonable, or against the manifest weight of the evidence, it shall reverse, vacate, or modify the decision, or remand the matter to the commission. Otherwise, the court shall affirm the decision of the commission.”
Justice Lanzinger rejected Bernard’s argument that the unemployment statutes must be construed in an applicant’s favor to provide benefits. She wrote that “we have never read R.C. 4141.46 to say that courts must interpret statutes and regulations with deference to the interpretation of the affected party and against the interpretation of the state agency charged with enforcement of the statutory/regulatory scheme.”
“Instead, we have explained that ‘courts … must give due deference to an administrative interpretation formulated by an agency that has accumulated substantial expertise, and to which the General Assembly has delegated the responsibility of implementing the legislative command.’”
Because the definition of “remuneration” was ambiguous and it was reasonable for the ODJFS to find that payments under a cafeteria plan such as Bernard’s should be excluded to determine eligibility when they were excluded for federal unemployment tax purposes, the court affirmed the administrative decision.
Joining Justice Lanzinger in the lead opinion were Chief Justice Maureen O’Connor and Justice Judith L. French. Justice Terrence O’Donnell concurred in judgment only.
Justice Sharon L. Kennedy wrote a concurring opinion, which was joined by Justice O’Donnell, in which she agreed with ODJFS that the taxable remuneration statutes are not ambiguous.
“Because deference to an agency’s interpretation of a statute is not necessary when applying an unambiguous statute, I would affirm the judgment of the appellate court by applying the statutes as written, and I would not address R.C. 4141.46 or other laws that guide our interpretation of ambiguous statutes.”
Justice Paul E. Pfeifer wrote a dissent. Justice William M. O’Neill dissented without opinion.
In his dissent, Justice Pfeifer noted that “this issue is much more complicated than it should be. To me, compensation is compensation.”
He wrote that he would reverse the appeals court’s judgment and “liberally construe ‘remuneration’ to include Bernard’s entire compensation package.”
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2012-0717. Bernard v. Unemp. Comp. Rev. Comm., Slip Opinion No. 2013-Ohio-3121.
Miami App. No. 2011-CA-16, 2012-Ohio-958. Judgment affirmed.
O’Connor, C.J., and Lanzinger and French, JJ., concur.
O’Donnell and Kennedy, JJ., concur in judgment and concur separately.
Pfeifer and O’Neill, JJ., dissent.
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