MODERN BARBER COLLEGES v. CALIFORNIA EMPLOYMENT STABILIZATION COMMISSION (1946)

The appellant filed a complaint in the Superior Court against the respondents, California Employment Stabilization Commission and its members, seeking a writ of mandate to compel respondents to set aside and vacate the decision of the respondent commission holding that the petitioner is an employer and that certain persons are employees of petitioner, and to clear the books and records of respondent commission by removing and cancelling any charges made against the petitioner therein. A demurrer to the complaint was sustained without leave to amend and judgment for respondents followed from which this appeal is prosecuted.

The complaint alleges that petitioner is a corporation engaged in teaching the barber trade as a duly and regularly approved barber college under the laws of this state; that E. M. Robinson owns all of its capital stock and operates its business as if no corporation had been formed; the employment by the school of two instructors from 1936 to 1941 and on one instructor since that date; the employment of a part time bookkeeper; that students of the school practice barbering on paying patrons as a part of their course of instruction and are given 25 per cent of the money paid by patrons for whom they so render service; that the respondents have found that E. M. Robinson, who owns all of the assets of petitioner, the two instructors, the part time bookkeeper, and the students who receive commissions for services rendered in their practice barbering are employees of petitioner; and that none of such persons are employees within the meaning of the California Unemployment Insurance Act. The complaint further alleges the attempt of respondents to collect from petitioner over $3,000 alleged to be due as taxes from petitioner and said alleged employees under the terms of such act.

It may be conceded, without deciding those questions, that some or all of such persons are not employees within the meaning of the California Unemployment Insurance Act and that the respondent commission has erroneously determined that they are employees and has erroneously assessed unemployment taxes upon their earnings. Even if such concession is made it is the position of respondents that the action in its present form is prohibited by the terms of section 45.10 of the Unemployment Insurance Act (Gen.Laws 8780d) which reads: ‘No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action or proceeding, in any court against his State or against any officer thereof to prevent or enjoin under this act the collection of any contribution sought to be collected; but after payment of any such contribution under protest * * * the employer * * * may bring an action * * * for the recovery of contributions so paid under protest.’

We are convinced that the position of respondents is sound. By this action appellant is seeking the issuance of a writ of mandate to compel the California Employment Stabilization Commission to correct its records by cancelling its determination that contributions are owing from the appellant. If the writ of mandate so prayed for were to issue it would prevent the collection of such contributions in direct violation of the quoted provision of sec. 45.10.

In Louis Eckert Brewing Co. v. Unemployment R. Comm., 47 Cal.App.2d 844, 119 P.2d 227, the court reversed a declaratory judgment determining that the plaintiff corporation was not an employer under the Unemployment Insurance Act on the ground that sec. 45.10 precluded the remedy. The court said at page 846 of 47 Cal.App.2d at page 228 of 119 P.2d: ‘The effect of section 45.10 is to preclude a judgment such as the trial court undertook to enter in this case. The commission herein could not properly undertake to enforce a tax against plaintiff corporation as an employer in defiance of an adjudication that the latter did not maintain that relationship with the other parties. A declaratory judgment is an adjudication, not an abstraction. Collier Advertising Service, Inc., v. City of New York, D.C., 32 F.Supp. 870. Public officials must respect the court's declaration and follow its interpretation of the law. Socony-Vacuum Oil Co. v. City of New York, 247 App.Div. 163, 287 N.Y.S. 288.’

This reasoning applies with even greater force to the present proceeding. The effect of the writ of mandate if granted would be to compel the cancellation of the determination that a tax is due, thus effectively preventing the collection of the tax, in defiance of the express prohibition of sec. 45.10 of the act. If this petitioner may, without first paying the tax, have a judicial determination in a mandamus proceeding that no tax is in fact due, then every putative employer would be entitled to the same remedy and the legislative purpose embodied in sec. 45.10 would be entirely frustrated. It was doubtless this consideration that moved the legislature to include expressly in sec. 45.10 the words ‘or writ of mandate’ in the enumeration of prohibited actions for the prevention of the collection of contributions.

Cases like Bodinson Mfg. Co. v. California Employment Comm., 17 Cal.2d 321, 109 P.2d 935, which involved a determination of the correctness of the action of the commission in awarding benefits under the act, are not in point. Nor is Seaside, etc., Hospital v. California Emp. Comm., 24 Cal.2d 681, 151 P.2d 116. In the latter case the court allowed a recovery of taxes already paid in a mandamus action but plainly intimated that such an action would not lie to prevent the collection of a tax. At pages 684, 685 of 24 Cal.2d, at page 118 of 151 P.2d the court said:

‘Section 45.10 is obviously designed to prevent the use of injunctive process against tax collections, and to provide an adequate remedy in lieu thereof—payment of the tax under protect—which would safeguard the employer's interests without interfering with the normal functioning of the act. The provision seems reasonable, and no attack is made by petitioner on its application to any case coming within its terms. However, the present proceeding does not fall within the statutory language.

‘With respect to the first part of the section, the prohibition is against the use of injunction or other legal or equitable process to prevent the collection of contributions sought to be collected, whereas petitioner is not trying to enjoin or prevent any such collection, but to secure a refund of payments already made. Obviously there cannot be any enjoining or preventing of a payment which has already been made.’

In the case before us no payments have been made and the only purpose of the action is to prevent the collection of contributions assessed against appellant by compelling the commission to cancel the assessments.

It is alleged in the complaint: ‘That your petitioner has no funds with which the demands of the Respondents may be met’, and appellant argues that in the face of that allegation the requirement of sec. 45.10 that it pay the taxes and sue for their recovery would be unconstitutional. It is not alleged that at the times that the taxes accrued petitioner was unable to pay them. Quite to the contrary the complaint alleges: ‘That during all the times herein mentioned and now your Petitioner has never deducted any portion of the commissions paid to the students for the purpose of transmitting the same to the Respondents in the manner and for the purposes provided for in the Unemployment Insurance Act, nor has your Petitioner made contributions to the Respondents as provided in said act for the reason and upon the theory that your Petitioner is not an employer under the act.’ Appellant cannot refuse to pay the taxes when it is able to do so, and later attack the constitutionality of sec. 45.10 because it may have since dissipated the funds necessary to meet the requirements of the act.

Judgment affirmed.

The trial court sustained a general demurrer to the petition without leave to amend. The petition at least states a good cause of action as to the students in the barber school. Section 7 of the Unemployment Insurance Act (Gen. Laws, Act 8780d) declares: ‘The term ‘employment’ does not include: (1)(3)(iii) (when) such service is performed by a student who is enrolled and is regularly attending classes at a school, college or university.' This barber school is one organized under the specific terms of section 6534 of the Business and Professions Code, which defines the institution as a ‘barber school’ or ‘barber college.’ If it was intended to exempt only a school which teaches reading, writing and arithmetic it was for the legislature to so declare. The petition alleges, and the demurrer of course admits, that as to the students in the school the relation of employer and employee does not exist. If the petition prays for more than the petitioner is entitled to that does not cure the error in the order denying leave to amend. Under the facts alleged in the petition the case comes squarely within the rule of Seaside, etc. Hospital v. California Emp. Comm., 24 Cal.2d 681, 151 P.2d 116, 117. That was an action in mandate to review the administrative ruling that the hospital was not exempt under the terms of the employment act and also to order the refund of past contributions. In that case, as on this appeal, the commission relied strongly upon the provisions of section 45.10 of the act reading in part: ‘No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action or proceeding, in any court against this State or against any officer thereof to prevent or enjoin under this act the collection of any contribution sought to be collected.’ (Emphasis ours.) The supreme court said that this section ‘Is obviously designed to prevent the use of injunctive process against tax collections, and to provide an adequate remedy in lieu thereof—payment of the tax under protest—which would safeguard the employer's interests without interfering with the normal functioning of the act.’ At page 684 of 24 Cal.2d, at page 118 of 151 P.2d. The court directed attention to the provisions of the section which prohibit the use of injunction or other remedy ‘To prevent * * * the collection of any contribution sought to be collected.’ At page 685 of 24 Cal.2d, at page 117 of 151 P.2d:

Manifestly the effect of the final judgment in the Seaside case was ‘To prevent or enjoin * * * the collection of any contribution’ levied upon the petitioner subsequent to the final determination that it was not an employer under the Act. A judgment in this case holding that petitioner was not an employer would have the same effect upon subsequent charges. But it would have no effect on prior charges and would not ‘prevent or enjoin’ the collection of such prior charges.

The Seaside case differs from this in that the charges there were paid under protest. But as here the petitioner sought a writ of mandate to require the commission ‘To rule that it was exempt from the operation of the act, that it was entitled to a refund of past contributions, and that corespondents were not entitled to benefits.’ At page 683 of 24 Cal.2d, at page 117 of 151 P.2d. The writ was granted as prayed and the judgment was affirmed in full, the court saying: At page 685 of 24 Cal.2d, at page 118 of 151 P.2d. ‘It thus appears that every necessary administrative step has been taken by petitioner, that the commission has rendered its final decision, and that under section 45.11 it is the duty of the commission to refund the contributions paid, as was ordered by the trial court's judgment herein. The right of petitioner to review by mandamus is therefore clear. See Bodinson Mfg. Co. v. California Employment Comm., 17 Cal.2d 321, 109 P.2d 935; cf. Louis Eckert Brewing Co. v. Unemployment R. Comm., 47 Cal.App.2d 844, 119 P.2d 227, strongly relied upon by appellant, wherein the employer failed to seek a final decision by the commission.’ It is suggested that the supreme court affirmed the judgment only so far as it ordered the refund of contributions paid. But there are no such limitations in the opinion and it must be assumed that the portion of the judgment ordering a correction of the records was also affirmed, since the judgment was affirmed in full. If this is correct the judgment would have the same effect as that sought here—it would prevent the collection of future contributions to be levide, though these were not paid prior to the filing of the petition.

The majority opinion cites with approval Louis Eckert Brewing Co. v. Unemployment R. Comm., 47 Cal.App.2d 844, 119 P.2d 227. That case contains some every bad law. It was a proceeding for a declaratory judgment determining whether the petitioner was in fact an employer under the act. The proceeding was authorized by section 1060, Code of Civil Procedure because of an ‘Actual controversy relating to the legal rights and duties of the respective parties.’ The district court reversed the judgment for petitioner on two grounds—that it was barred by section 45.10 of the employment act, and that the petitioner had failed to exhaust its administrative remedies. On the second ground the case is sound. On the first ground the district court based its reversal on the statement that: at page 846 of 47 Cal.App.2d at page 228 of 119 P.2d. ‘The commission herein could not properly undertake to enforce a tax against plaintiff corporation as an employer in defiance of an adjudication that the latter did not maintain that relationship with the other parties.’ Thus the meet of the decision is that the commission should be permitted to improperly penalize the petitioner and force him to pay unjust taxes with no remedy but a suit to recover those paid under protest. But the reason given for this holding is equally bad—that conditions might change in the subsequent year under which the petitioner would become an employer, thus requiring another court action to determine his status. How this same result would not follow an action to recover prior taxes paid under protest is not explained. Unfortunately our majority has followed the bad reasoning of that opinion.

The clear purpose of section 45.10 is to prevent legal proceedings which restrain the collection of contributions pending the litigation. There is nothing in the language of the section which justifies a conclusion that the legislature intended to deny all parties their legal rights unless they paid the penalty imposed by the commission. The power to grant a writ of mandamus stems from the Constitution (Art. VI, sec. 5). If the legislature must deny this constitutional right to any individual or set of individuals the legislation should be in clear and certain terms. I am satisfied that the legislature did not intend to prohibit the use of mandate as outlined in the majority opinion. Clearly the only purpose of the section is to prevent ‘legal or equitable process' through which the employer could refuse payment while he is litigating the question of his obligation under the act.

Let us assume that a group of employees are dissatisfied with a ruling of the commission that they are employees under the terms of the act. Their employer refuses to make the contributions from their wages under section 44 of the act. There is no means by which the employees could pay the contributions. They certainly should be permitted to seek a judicial determination of their rights through the constitutional remedy of mandate.

But if section 45.10 permits the narrow construction given it by the majority, the right of the petitioner is cleared by section 1094.5 of the Code of Civil Procedure. This was enacted in 1945. Section 45.10 was amended in 1939 to include the provisions here under attack. As the latest expression of the legislature section 1094.5 gives all persons the right to proceed by mandate to inquire ‘Into the validity of any final administrative order or decision made as the result of a proceeding in which by law a hearing is required * * *.’ It is such an order that the petitioner here seeks to review. The petitioner alleges that his final appeal was denied and that he had exhausted all his administrative remedies. If section 1094.5 means anything at all it means that an aggrieved party may seek by mandate a final decision or order of any administrative agency which he contends is a denial of his legal rights under the administrative act.

It is significant that the commission has no faith in the validity or equity of its order. No contributions have been made by petitioner since 1936 and apparently no action has been brought by the commission to enforce payment since the petition alleges that no payments have been made during that entire period. Thus the commission, by an unreasonable and hypertechnical interpretation of the act, has for ten years harassed the petitioner by arbitrary and unfair demands contrary to the purposes of the act.

I do not believe that section 45.10 was intended to do more than prevent process enjoining collection of contributions while litigation was pending. But if the interpretation of the majority is sound the later enactment of section 1094.5 of the Code of Civil Procedure gives the petitioner the right to review the order without compliance with an illegal demand to pay an unjust and invalid contribution.

DOOLING, Justice.

GOODELL, J., concurs.