S T A T E 0 F

C 0 U R T

REBEKAH BARNETT,

Plaintiff-Appellant,

-v-

GOOD HOUSEKEEPING SHOP and MICHIGAN EMPLOYMENT SECURITY COMMIS SI ON,

Defendant - Appellant.

0 F

________________________ !

JEANNE MIRER (PZ5853) Attorney for Plaintiff-Appellant

FRANK_J. KELLEY, Attorney General of the State of Michigan L 0 U IS J. C A R U S 0 ( P 116 9 5) Solicitor General E. J. SETLOCK (PZOZ34) Assistant Attorney General A ~to~neys for Defendant-Appellee M1ch1gan Employment Security Commission

S.S. No . 8 .0. No. 03 ~ .

M I c H I G A N BJS- 535'Cft- {_p, 0 tjj:Y' A P P E A L S

No. 58582

BEFORE : T . M. Burns, P . J., Beasley and C.W. Simon*, JJ.

PER CURIAM

At issue lS th e plaintiff's right to receive

unemployment benefits after her termination from employment with

de fend ant , Good Hous_ekeeping Shop.

The employees of the Good Housekeeping Shop, in part

t hrough payroll deduction, were insured for medical disability .

Plaintiff , ·an office supervisor of defendant Good Housekeeping

Shop for 1 2 years, went on medical lenve beginning on August 20,

19 76 . The leave ended on June 24 , 1977. During that time

* Circuit judge, sitting on the Court of Appeals by assignment .

·-p 1 a inti f f r e c e i v e d rl i s a b i 1 i t y bene f i t s from the ins u ran c e p 1 a n

for 26 weeks. Defendant did not allow plaintiff to return to her

job after her illness and notified her that her employment was

being terminaterl.

Plaintiff then applied for umemployment compensation

from defendant and Mich iga n ~nployment Securities Commission

(MESC) . The Commission determined that plaintiff was in•2ligible

to r~ceive unemployment benefits because the disability payments

received by her did not constitute "wages." Section 46 of the

Michigan Employment Security requires claimants to have earned

wages in at least 14 of the 52 weeks preceding filing of a

benefit claim. MCL 421.46; MSA 17.550. It is the Commission's

position that benefits derived from an insurance plan are not

"\\"ages", but if benefits are paid directly by the employer they

constitute wages for six months . HCL 421.44(5)(a),(5)(c); MSA

1 7. 4.48 ( 5 ) (a) , ( 5 ) (c) .

Plaintiff asserts that the act denies equal protection

of the laws by considering disability benefits paid directly by

an ernployer to be "•11ages" when determining . eligibility for

unemployment benefits, while excluding from "wages" sums paid an

6nployee through a disability plan~

Because this case presents an issue of first impression,

and because the trial court 1 s determination hinged on its finding

that the act was constitutional, we will undertake a

constitutional analysis of the act, applied to these facts.

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............ .

Section 44 of the act, MCL 421.44; MSA 17.548,

specifically excludes from wages:

"The amount of a pavment, including an amount paid by an employer for insurance or annuities or into a fund, to provide for such a payment, made to, or on behalf of, an employee or any of the employee's dependents under a plan or syste.rn established by an employer which makes provision for the employer's employees generally, or for t he employer's employees generally and their ~~ployees, or for a claim or classes o f the employer's employees and the i r depend en t s , on account of ret i rem en t , s i c k n e s s or accident disabil~ty, med1.cal or hospitalization expenses in connection with sickness or accident disability, or dea th." MCLA 421.44(5)(a); MSA 17.548(5)(a). (Emphasis added).

HO'vTever, payments made directly by the empl oyer are not wages

after six months:

"A pa~ent on account of sickness or accident dis­ability, or med1.cal or hospital1zation expenses in connect1.on with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of 6 calendar months following the last calendar month in which the employee worked for the employer." ( Entphas is added) .

After ·examination of the record before us, we conclude,

as did the trial judge, that the legislature did have a r ational

basis for making the distinction contained in section 44, and

affirm.

Our Supreme Court has pointed out that the guarantee of

~qual protection of the laws is not one of a equality of

operation or application of any state legislation upon a l l

citizens of the state. Hence, l aws do not need to effect every

man, woman, and child exactly a like to avoid the constitutional

prohibition against inequality. The qua 1 i ty of operation of

statutes does not mean indis c riminate operations on persons

merely as such, but on persons accordi ng to their circumstances .

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Equal protection in its guarantee of like treatment to all

similarly situated citizens permits classification which is

reasonable and not arbitrary and which is based upon material and

substantial differences which have reasonable relation to the

object or persons dealt with and to the publi c purpose or

purposes sought to be achieved by the legislation involved. The

equal protection -clause does not forbid discrimination with

respect to things that are different. Gauthier v Campbell, Wyant

& Cannon Foundry Co, 360 Mich 510, 514; 104 NW2d 182 (1 960 ). We

find, as did the trjal court , that the l egislative purpose in the

distinction of section 44 is to encourage the es tab lishment of

plans and systems which would financially aid workers when they

are ill and disabled and for which unemployment benefits are not

payable because the individual employee s are not qualified unde r

section 28 of t h e act, because they are not able and available

for work due to the sickness or disability .

The legislature's intention lS expressed in the

definition of "wages"- described ln section 44 ( 1) and section

44(2) of the act, allowing payments received under s ection

44(2)(c) to be defined as wages and those received under section

42(2) (a ) to be excluded from wages. Thus, an employee who

receives section 42(2)(c) payments away from work on account of

sid~ness and disablity may count those payments as wages f or

purposes of calculating credit weeks necessray to establish

e 1 i g i b i 1 it y for an em n l o ym en t com pens t ion , s h o u 1 d an em p 1 oy e e

lose his or her job when returning from a leave absence for:- some

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other reason. An employee who receives section 44(2)(a) payments

while away from work on a.ccount of sickness and disability may

not count those payments as wages to establish eligibility for

unemployment compensation.

The act encourages employers to establish wage

continuation plans by this differential treatment of payments

made on account of sickness or disability as "wages" or

"non-wages." In ex c 1 u d in g section 4 4 ( 2 ) ( a ) payments from

''wages 11, an employer is also excluded from paying unemployment

taxes on the se payments. This is an inducement to the employer.

If payments made under plans or sys·tems were considered "wages 11

for employers or employees, or both, the overall amount of the

employer's contribution to the fund, due to the additional charge

to his experience account as well as increased experience rating,

an addition to the increa sed financial consequences of added FICA

taxes and so forth, would diminish the i ncentive to provide for a

plan of payments as wage continuation for employees who are sick

or disabled, and a r e unable to work or qualify for unemployment

compensation benefits.

As a discouragement to employers who do not set up plans

or systems which would give the wag e continuation payments to

sick and disabled employees, section 44 ( 2) (c) payments made for

the first six months are deemed "wages" anc1 therefore subject to

the unemployment taxes. In this situation, the employer has

complete control over who receivc~s ra.yments and in whnt amount;

when, f~~ how long and for what purpose. Unless a plan o r system ·

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·~·

is set up to. the contrary, the payments are deemed to be made in

behalf of personal services rendered by the employees and thus, a

form of remuneration.

Thus, the act's classifications are based on proper

distinguishing characterist i cs bearing a reasonable relationship

to the object of.the legislation. Moreover , all persons of the

same class are included and affected alike .

AFFIRMED .

/S/ Thomas M. Burns /S/ William R. Beasley /S/ Charles w. Simon

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