Feb. 2, 2015 – Neenah Foundry Co. filed for reorganization in federal bankruptcy court, and the plan was confirmed in 2010. But the company cannot reduce its unemployment insurance contribution rates as a “new” employer, a state appeals court has ruled.
Under Wisconsin law, unemployment contribution rates are based on the employer’s “experience rating,” which is tied to the strength of the employer’s business. Neenah Foundry’s rate increased as the business moved towards bankruptcy reorganization.
Neenah Foundry argued that the reorganization rendered it a “new” employer with a more favorable experience rating and a reduced contribution rate. But Wisconsin’s Labor and Industry Review Commission (LIRC) rejected that classification.
In Neenah Foundry Co. v. LIRC, 2014AP1113 (Jan. 29, 2015), a three-judge panel for the District II Appeals Court ruled that LIRC was correct to conclude that Neenah Foundry was not a new employer under the state’s unemployment insurance law.
Under the law, employers who make asset transfers can become new employers for purposes of determining an unemployment insurance contribution rate. But if the transferee is a “mandatory successor,” the transferee employer is not a new employer.
“Stated another way, a mandatory successor must retain the adverse experience rating,” Judge Paul Lundsten wrote for the three-judge panel.
Neenah Foundry argued that the reorganization resulted in asset transfers and the transferee employer was not a mandatory successor. Alternatively, it argued that federal bankruptcy law preempted LIRC’s mandatory successor determination.
The appeals court assumed, without deciding, that Neenah Foundry “transferred” assets under the reorganization plan but ruled that the reorganized Neenah Foundry was a mandatory successor and not eligible for the reduced insurance contribution rate.
Under Wis. Stat. section 108.16(8)(e), an employer is a mandatory successor if “the transferor and transferee are owned, managed, or controlled in whole or in substantial part, either directly or indirectly by legally enforceable means or otherwise, by the same interest or interests.” Neenah Foundry said it was not owned by the same interests.
Granting great weight deference to LIRC, the appeals court noted that while the entities that owned and controlled Neenah Foundry changed upon reorganization, Neenah Foundry retained six of its eight top executives, including its chief operating officer.
“Thus, LIRC focused on who ‘managed’ Neenah Foundry before and after the Chapter 11 proceedings instead of who ‘owned’ or ‘controlled’ Neenah Foundry before and after those proceedings,” wrote Judge Lundsten, noting this interpretation was reasonable.
The panel said Neenah Foundry incorrectly assumed that only board members, not executive officers, “manage” a corporation within the meaning of the statute.
“Plainly, a company’s executive officers typically engage in the management of a company and, under a broad interpretation of the statute, are persons with an interest in the company, even if they also serve the interests of others,” Lundsten wrote.
The panel also ruled that federal law didn’t preempt LIRC’s determination, rejecting Neenah Foundry’s argument that state agencies are preempted from using a pre-reorganization history to determine the unemployment contribution rate that applies.
Neenah Foundry’s adverse experience rating was based on employee layoff history, the panel explained, not delinquent contributions, and bankruptcies discharge debt.
It said the adverse experience rating is not a debt “interest” and the Wisconsin Department of Workforce Development was not a “creditor” under the bankruptcy code.