[ Previous Page]  [ Home Page ]

The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 5980

September 17, 1981

EMPLOYMENT SECURITY LAW:

Receipt of bonus pay as disqualification for benefits

An unemployed person is not disqualified for receipt of unemployment benefits, if otherwise qualified, where the employee receives a bonus payment from a holiday and vacation fund in lieu of vacations.

Honorable Tom Alley

State Representative

State Capitol

Lansing, Michigan

You have requested my opinion as to whether moneys received by employees from a fund maintained by a labor organization into which the employer, pursuant to a collective bargaining agreement, makes vacation and holiday payments are considered vacation pay so as to disqualify the unemployed worker from receiving employment security compensation payments.

The Michigan Employment Security Act, 1936 Ex Sess PA 1, Sec. 48; MCLA 421.48; MSA 17.552, provides in pertinent part:

'All amounts paid to a claiment by an employing unit or former employing unit for a vacation or a holiday, and amounts paid in the form of retroactive pay, or in lieu of notice, shall be deemed remuneration in determining whether an individual is unemployed under this section and also is determining his benefit payments under section 27(c), for the period designated by the contract or agreement providing for the payment, or if there is no contractual specification of the period to which such payments shall be allocated, then for the period designated by the employing unit or former employing unit: . . ..' 1980 AACS No 2, R 421.302, states:

'When an employer is entitled to designate, pursuant to section 48 of the Michigan employment security act, vacation pay to a period of layoff, forced vacation, or other separation, the employer shall either deliver to the affected employee and to the employee's bargaining representative, if any, on or before the employee's last day of work, written notice of such designation stating that such designation may render the employee ineligible for unemployment benefits during the designated period or shall post such notice conspicuously in easily accessible places frequented by employees and deliver a copy thereof to the employee's bargaining representative, if any. However, as to an individual laid off prior to the time of designation, posting of the notice shall not substitute for the requirement of delivery of the notice to such individual by mail.'

It should be observed that the Michigan Employment Security Act, 1936 Ex Sess PA 1; MCLA 421.1 et seq; MSA 17.501 et seq, has vested the Michigan Employment Security Commission with the responsibility for determining entitlement to unemployment benefits. Each claim for benefits must be decided upon its own facts.

What constitutes the kind of payment which the statute authorizes an employer to designate or allocate to a period of layoff in such a manner as to render the claimant ineligible for benefits is set forth in Brown v LTV Aerospace Corp, 394 Mich 702, 710; 232 NW2d 656, 660-661 (1975), in footnote 8:

'This Court has recognized that whether or not the employer has the discretion to determine if there is to be vacation or payment in lieu of vacation is crucial to the question whether allocated payments are treated as disqualifying vacation pay or as bonuses. Renown Stove Co v Unemployment Compensation Commission, 328 Mich 436; 44 NW2d 1 (1950); Hubbard v Unemployment Compensation Commission, 328 Mich 444; 44 NW2d 4 (1950); Rich Manufacturing Corp v Lindsey, 376 Mich 241; 137 NW2d 140 (1965). The rule emanating from these decisions appears to be that if the employee possesses the option to take payment in lieu of vacations, then the employer's allocation of funds will be treated as a bonus and the employee is eligible for receipt of unemployment compensation benefits. However, if the employer retains sole discretion, then allocation by the employer will be treated as disqualifying vacation pay if the other requirements of Sec. 48 are met. In Renown Stove Co v Unemployment Compensation Commission, 328 Mich 436, 433; 44 NW2d 1 (1950), this Court describes this rule in the following language:

"It will be noted that under the contract the employer did not have the option of laying employees off for 1 or 2 weeks, declaring the layoff to be a vacation and designating the 40 or 80 hours' pay in lieu of vacation provided for in the contract, to be, in fact, vacation pay; on the contrary, the option rested with the employees to elect whether they would take vacation with pay or a bonus of 40 or 80 hours' pay in lieu of vacation with pay. The employees covered by this contract exercised their option and elected to receive a bonus as they had a right to do under the contract. The payment so received was, therefore, a bonus and not vacation pay and, in consequence, the employees involved did not receive a vacation with pay.'

'In the instant case, LTV, unlike the employers in Renown Stove Co (under one of the two contracts involved in this case), Hubbard and Rich, had the sole discretion to determine whether they would be vacations or payments in lieu of vacations.'

The Court held that if the employee possesses the option to take payment in lieu of vacation, then the employer's allocation of vacation allowances will be treated as a bonus. It further held that if the employer retains sole discretion as to when the vacation will be taken, then the allocation by the employer of the vacation allowance will be treated as a vacation payment and disqualifying if the other requirements of Section 48 of the Act are met.

In this connection, it should be observed that although bonuses are wages under 1936 Ex Sess PA 1, Sec. 44, as last amended by 1977 PA 277; MCLA 421.44; MSA 17.548, for unemployment tax purposes, 1936 Ex Sess PA 1, Sec. 48, supra, provides that they shall not be considered wages for the purpose of an offset against benefits payable for a week for which a bonus is paid.

Thus, if the employee possesses the option to take payment in lieu of vacations, the employer's allocation will be treated as a bonus and the employee is not disqualified for receipt of unemployment benefits, if otherwise eligible. If the employer retains sole discretion, then allocation by the employer will be treated as disqualifying vacation pay if other requirements of 1936 Ex Sess PA 1, supra, are met.

It is my opinion, therefore, that the moneys received from such fund are in the nature of a bonus since the employer does not have discretion to determine if there is to be a vacation or payment in lieu of vacation and receipt of the bonus will not result in the reduction of unemployment benefits to otherwise eligible employees.

Frank J. Kelley

Attorney General


[ Previous Page]  [ Home Page ]