Appeals from the Orders of the Unemployment Compensation Board in cases of In re: Claims of Catherine Latella, No. B-189407; Antoinette Uliano, No. B-189409; Evelyn B. Drake, No. B-189408; Margaret Capello, B-189991; Thelma Goldian, No. B-190046; Jack Kopf, No. B-190043; Joseph H. Nash, No. B-190708, and Mary Oberholzer, No. B-191329.
Jerome H. Gerber, with him Elliot A. Strokoff, Handler and Gerber, P.C., for petitioners.
John T. Kupchinsky, Associate Counsel, with him Richard L. Cole, Jr., Chief Counsel, for respondent.
President Judge Crumlish and Judges Rogers, Blatt, Williams, Jr. and MacPhail. Opinion by Judge Williams, Jr.
This is an appeal of Catherine Latella and seven similarly situated claimants*fn1 from Unemployment Compensation Board of Review (Board) decisions which affirmed referees' decisions upholding the Office of Employment Security's (OES) deduction of claimants' social security old age payments from their unemployment compensation weekly benefit rates in
accordance with Section 404(d)(iii) of the Unemployment Compensation Law, (Law).*fn2 We reverse.
Claimants, all of whom were age 62 or over, were laid off by their respective employers due to lack of work. At various times during 1980, each claimant applied for unemployment compensation benefits. Although the OES determined claimants to be eligible for benefits under Section 404(d)(iii) of the Law, 43 P.S. § 804(d)(iii), each claimant's weekly benefit rate was reduced by the amount of social security payments received.*fn3
Section 404(d)(iii) provides in pertinent part:
(d) [E]ach eligible employe who is unemployed . . . shall be paid . . . compensation in an amount equal to his weekly benefit rate less . . .
(iii) an amount equal to the amount of a governmental or other pension, retirement or retired pay, annuity, or any other similar periodic payment which is based on the previous work of such individual.
The practical effect of Section 404(d)(iii) is to offset unemployment compensation benefits by the amount of pension or other retirement benefits received by an individual on a dollar-for-dollar basis. Section 404(d)(iii) tracks the language of the 1976 Federal Unemployment Tax Act (FUTA) amendment, codified at 26 U.S.C. § 3304(a)(15),*fn4 disqualifying specific types of
wage replacement income. Section 3304(a)(15) is one of the minimum federal criteria set forth in 26 U.S.C. § 3304(a) to which a state must conform for its unemployment program to be certified by the Secretary of Labor.*fn5
Claimants primarily contend that Section 404(d)(iii) of the Law denies them equal protection in violation of Article III, Section 32 of the Pennsylvania Constitution. Claimants further allege that Section 404(d)(iii) violates Article II, Section 1 of the Pennsylvania Constitution because "the Legislature has . . . delegated the right to determine weekly benefits to those who control public (and private) pension funds"; that the retroactive application of the provision is contrary to the clear wording of Section 404(d); that the pension offset provision impairs the obligation of contracts in violation of Article 1, Section 10 of the United States Constitution; and that individuals entitled to maximum unemployment compensation benefits under Part E of the "Benefits Table"*fn6 found at Section 404(e)(1) of the Law, 43 P.S. § 804(e)(i), cannot have their annual unemployment compensation balance reduced by the designated disqualifying income.
Claimants allege that the pension offset provision violates the equal protection guarantee of Article III, Section 32 of the Pennsylvania Constitution*fn7 by mandating
the deduction of pension income, but not the deduction of alternative income such as rents, royalties, dividends and interest from unemployment compensation benefits. Individuals receiving disqualifying pension income are thus more harshly treated than beneficiaries in receipt of non-disqualifying alternative income.
Before evaluating claimants' equal protection claim it must first be noted that it is axiomatic "that there is a strong presumption in favor of the constitutionality of an act of the legislature and the burden lies heavily upon one challenging the act to show that it clearly, plainly and palpably violate[s] the Constitution." Wallace v. Unemployment Compensation Board of Review, 38 Pa. Commonwealth Ct. 342, 347, 393 A.2d 43, 46 (1978). Accordingly, "every presumption must be indulged in favor of the constitutionality of a statute and the burden is heavy upon one who challenges it." Gilman v. Unemployment Compensation Board of Review, 28 Pa. Commonwealth Ct. 630, 634, 369 A.2d 895, 897 (1977) (citation omitted). Claimants clearly have not met this burden.
Since the classification created by Section 404(d)(iii) is economic, impinges upon no fundamental interest, and does not operate to the peculiar disadvantage of a suspect class,*fn8 the standard for review for
evaluating claimants' equal protection challenge is one of minimal scrutiny. See, e.g., Martin v. Unemployment Compensation Board of Review, 63 Pa. Commonwealth Ct. 629, 439 A.2d 207 (1982); Bievenour v. Unemployment Compensation Board of Review, 42 Pa. Commonwealth Ct. 616, 401 A.2d 594 (1979); Wallace.
Under the "minimal scrutiny" standard, legislation is upheld if it classifies affected persons in a manner rationally related to legitimate governmental objectives. Id. at 347, 393 A.2d at 46. Thus, under the relatively relaxed standard applicable here, the classification established by Section 404(d)(iii) must be upheld under the equal protection provision of the Pennsylvania Constitution "if it bears some rational relationship to the legitimate purpose of the legislation." Id. at 347, 393 A.2d at 46 (emphasis in original) (citation omitted); see generally, Dandridge v. Williams, 397 U.S. 471 (1970); Ohio Bureau of Employment Services v. Hodory, 431 U.S. 471 (1977).
In order to determine whether the classification established by Section 404(d)(iii) is rationally related to legitimate governmental objectives, the purposes and objectives of the Unemployment Compensation Law must be reviewed.
Section 404(d)(iii), and similar pension offset provisions rationally advance two legitimate government objectives: (1) the promotion of the fiscal integrity of the unemployment compensation fund; see, Novak v. Unemployment Compensation Board of Review, 73 Pa. Commonwealth Ct. 148, 457 A.2d 610 (1983); McKay v. Horn, 529 F. Supp. 847, 861 (D.N.J. 1981); Cabais v. Egger, 527 F. Supp. 498, 502 (D.D.C. 1981), rev'd in part on other grounds, 690 F.2d 234 (C.D. Cir.
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); Rivera v. Patino, 524 F. Supp. 136, 146 (N.D. Calif. 1981); and (2) the elimination of the payment of duplicative, "windfall" unemployment benefits to those who, primarily because of their retirement eligibility, are receiving adequate wage replacement income and thus experiencing greater economic security than ...