AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS v. UNEMPLOYMENT INSURANCE APPEALS BOARD (1995)

In this opinion, we hold that administrative law judges (ALJs) have the authority to award interest on unemployment insurance compensation benefits which are initially denied but are ultimately awarded to a claimant upon administrative review.   In so holding, we affirm a superior court judgment to the same effect.

I. BACKGROUND

A. California Unemployment Insurance Compensation Program.

The California unemployment insurance program is part of a national system of unemployment reserves which are designed to provide insurance for workers “unemployed through no fault of their own, and to reduce involuntary unemployment and the suffering caused thereby to a minimum.”   (Unemp.Ins.Code, § 100.)   An unemployment insurance claimant applies to the Employment Development Department (EDD) which investigates the claim and makes an initial eligibility determination.   If EDD denies the application, a claimant is entitled to file an administrative appeal (“first-level” appeal) which is heard by an ALJ who works for the California Unemployment Insurance Appeals Board (Board).¹

If the ALJ rules in the claimant's favor, EDD is ordered to pay benefits retroactive to the date on which they should have been paid, absent the original erroneous determination by EDD.   If the ALJ affirms the denial of benefits, the claimant may then appeal to the Board itself (“second-level” appeal).   If the claimant is still dissatisfied, review in superior court is the remaining recourse.

B. The Precedent Benefit Decision, AFL–CIO Lawsuit and Superior Court Ruling.

In September 1993, the Board issued a Precedent Benefit Decision,² In the Matter of Tony Z. Kalem (1993) Cal.Unemp.Ins.App.Bd. Precedent Benefit Dec. No. P–B–476.   In that decision, the Board determined that ALJs were not authorized to award interest on retroactive unemployment compensation benefits.

American Federation of Labor and Congress of Industrial Organizations (AFL–CIO), acting as an “interested organization” under Unemployment Insurance Code section 409.2, filed a complaint for declaratory relief, challenging the Precedent Benefit Decision.   Following AFL–CIO's motion for judgment on the pleadings, the trial court determined that the Kalem Precedent Benefit Decision was invalid and that ALJs did have “the power and the duty” to award interest on retroactive benefits.   Judgment was entered in favor of AFL–CIO.   The Board appeals from that judgment.

 Because the issue on appeal is purely a legal one, we make our determination de novo.  (Lacy v. California Unemployment Ins. Appeals Bd. (1971) 17 Cal.App.3d 1128, 1134, 95 Cal.Rptr. 566.)

C. Arguments.

 The Board first notes that the state “cannot be compelled to pay interest in the absence of statute or contract.”   The Board then tacitly concedes that Civil Code section 3287, subdivision (a), constitutes statutory authority for an award of interest on retroactive unemployment compensation benefits.³  However, the Board argues that such interest can only be awarded by a court because the Legislature has not expressly given ALJs the power to award interest.   The Board acknowledges that Division Six of the Second District reached a different conclusion in Knight v. McMahon (1994) 26 Cal.App.4th 747, 31 Cal.Rptr.2d 832 with reference to the authority of ALJs to award interest on retroactive in-home supportive services (IHSS) benefits under the Welfare and Institutions Code.   However, the Board argues that Knight was incorrectly decided and asks us to rule that ALJs have no authority to award interest on retroactive unemployment insurance compensation benefits.   The specific ways in which the Board contends the Knight court erred are discussed in part II, infra.

II. ANALYSIS

A. Knight v. McMahon.

In Knight v. McMahon, supra, 26 Cal.App.4th at p. 754, 31 Cal.Rptr.2d 832, the Court of Appeal reached the conclusion described in part I.C. by first noting that public assistance recipients are clearly entitled to interest on retroactive benefits under the authority of Tripp v. Swoap (1976) 17 Cal.3d 671, 685, 131 Cal.Rptr. 789, 552 P.2d 749 (disapproved on other grounds in Frink v. Prod (1982) 31 Cal.3d 166, 180, 181 Cal.Rptr. 893, 643 P.2d 476).   The Knight court then pointed out that “[i]nterest is not a supplemental benefit but rather a part of the underlying benefit to which a recipient is entitled.”  (Knight v. McMahon, supra, 26 Cal.App.4th at p. 754, 31 Cal.Rptr.2d 832.)

The Knight court then noted that the same rationale which applies to allowing IHSS recipients to receive interest on retroactive benefit payments supports the concept that interest awards should be made at the administrative level.  “Allowing the matter of interest to be decided at the administrative hearing not only prevents courts from being burdened with matters that can be resolved adequately in administrative fora, but also prevents delay and unnecessary expense in vindication of legal rights through a multiplicity of proceedings.  [Citations.]”  (Id., at pp. 755–756, 31 Cal.Rptr.2d 832.)   The Knight court then pointed out that Dyna–Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 241 Cal.Rptr. 67, 743 P.2d 1323 does not compel a different result because the Dyna–Med court simply ruled that, in the absence of express legislative authority to do so, administrative agencies may not award punitive damages.  (Knight v. McMahon, supra, 26 Cal.App.4th at p. 756, 31 Cal.Rptr.2d 832, citing Lentz v. McMahon (1989) 49 Cal.3d 393, 403–404, 261 Cal.Rptr. 310, 777 P.2d 83.)

B. Interest is Properly Recoverable as Part of the Benefit to Which a Claimant is Entitled.

The Board first attacks the Knight court's statement that interest is part of the underlying benefit to which a recipient is entitled.   The Board asserts that “[t]his startling ipse dixit is unsupported by authority and represents a radical departure from accepted legal notions concerning interest”;  the Board goes on to argue that neither the Social Security Act nor any California code specifically provides that interest is considered to be a part of welfare benefits.   The Board is correct that the Social Security Act and California code do not contain such a specific provision.   However, the Board is incorrect in asserting that no authority supports the challenged concept.

In Aguilar v. Unemployment Ins. Appeals Bd. (1990) 223 Cal.App.3d 239, 245, 272 Cal.Rptr. 696, Division One of the Fourth District reviewed Tripp v. Swoap, supra, 17 Cal.3d at p. 681, 131 Cal.Rptr. 789, 552 P.2d 749, and noted that the Tripp court “found interest is not collateral to the amount due under a government benefits program but ․ is related to the extent of recovery.”  [Italics added.]   We agree with the Aguilar court's analysis of Tripp v. Swoap, supra, 17 Cal.3d at p. 681, 131 Cal.Rptr. 789, 552 P.2d 749 and thus conclude that the Knight court properly determined that interest is part of the underlying benefit to which a recipient is entitled where retroactive welfare benefits are awarded.

The Board also argues that, regardless of whether or not interest may properly be considered a part of welfare benefits, interest should not be considered to be an intrinsic part of the award where unemployment insurance benefits are concerned.   The Board bases this argument on the fact that “benefits” are defined under Unemployment Insurance Code section 128 as “money payments payable to an individual ․ with respect to his unemployment and includes unemployment compensation benefits․”  The Board then notes that “compensation” is defined in the Federal Unemployment Tax Act (FUTA) as “cash benefits payable to individuals with respect to their unemployment.”   (26 U.S.C. § 3306(h).)   The Board concludes from the cited definitions that “only the weekly payments calculated for unemployment, not payments made to compensate for delay [interest], are included in the terms ‘benefits' and ‘compensation.’ ”

A nearly identical argument was made by EDD in Aguilar and was rejected by the Court of Appeal.  (Aguilar, supra, 223 Cal.App.3d at pp. 244–245, 272 Cal.Rptr. 696.)   We agree with the Aguilar court's analysis:  there is no inconsistency between FUTA and the payment of interest on retroactive unemployment compensation benefits.

C. Existing Case Law Does Not Compel a Conclusion Contrary to the One Reached by the Knight Court.

The Board's final criticism of Knight is that the Court of Appeal gave “short shrift” to Dyna–Med.   Per the Board, Dyna–Med is significant because it establishes the principle that “an administrative agency generally must stay within the boundaries of its expertise, as reflected in its enabling statutes” and that an administrative agency “cannot make monetary awards beyond its authority.”   The Board also notes that the Supreme Court has similarly determined, as a matter of legislative intent, that the Fair Employment and Housing Commission may not award compensatory damages.   (Peralta Community College Dist. v. Fair Employment & Housing Com. (1990) 52 Cal.3d 40, 49, 276 Cal.Rptr. 114, 801 P.2d 357.)

The Board fails to consider two significant points which distinguish the instant action from Dyna–Med and Peralta Community College Dist.   First, unlike awards of punitive and/or compensatory damages, no discretion is involved in an award of interest.   Once an ALJ determines that retroactive compensation is due, the ALJ must award interest under Civil Code section 3287, subdivision (a).   And second, the calculation of the interest due does not involve judgment—it requires simple arithmetic or reference to established tables.

III. CONCLUSION

In sum, we find the Knight decision well reasoned and find no meaningful distinction between an award of interest on retroactive IHSS benefits and retroactive unemployment compensation benefits.   Accordingly, we hold that ALJs do have the power to award interest on retroactive unemployment compensation benefits.   The judgment is affirmed.

FOOTNOTES

1.   The Board is an agency within EDD;  however, it acts independently in reviewing eligibility requirements.

2.   Precedent Benefit Decisions may be issued when the Board's ruling involves an important issue of law.  (Unemp.Ins.Code, § 409.)

3.   Civil Code section 3287, subdivision (a), provides:  “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt.   This section is applicable to recovery of damages and interest from any such debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision of the state.”

ANDERSON, Presiding Justice.

POCHÉ and REARDON, JJ., concur.