G&A Outsourcing, Inc. v. Texas Workforce Commission

          On Appeal from the 98th District Court Travis County, Texas Trial Court Cause No. D-1-GN-14-005431

          Panel consists of Justices Wise, Jewell, and Hassan.

          MEMORANDUM OPINION

          MEAGAN HASSAN JUSTICE

         G&A Outsourcing, Inc., G&A Outsourcing II, L.L.C., and G&A Outsourcing III, L.L.C. (collectively, "Appellants") appeal the decision of the district court, which affirmed the Texas Workforce Commission's ("TWC") denial of Appellants' request for an unemployment tax refund. TWC denied the refund request after rejecting Appellants' applications for a partial transfer of compensation experience under the relevant Labor Code provisions. For the reasons below, we affirm.

         Background

         The Texas Unemployment Compensation Act and Transfers of Compensation Experience

         The Texas Unemployment Compensation Act ("TUCA") levies an unemployment tax on employers to fund Texas's unemployment benefits. See Tex. Lab. Code Ann. § 204.002 (Vernon 2015). The applicable tax rate is based in part on an employer's "compensation experience," which measures how frequently the employer's former employees collect unemployment benefits. See id. §§ 204.041-.044 (Vernon 2015). Employers whose former employees generate more claims for unemployment benefits generally have a higher compensation experience rating and a higher tax rate. See G&A Outsourcing IV, L.L.C. v. Tex. Workforce Comm'n, No. 03-16-00752-CV, 2017 WL 3585219, at *1 (Tex. App.- Austin Aug. 17, 2017, no pet.) (mem. op.).

         Compensation experience is calculated annually based on an employer's "benefit ratio:" its chargebacks (the amount of unemployment benefits paid to former employees) divided by its taxable wages over the preceding three-year period. Tex. Lab. Code Ann. §§ 204.021 (Vernon 2015), .044. When an employer transfers all or part of its business to another employer with whom it shares common ownership, section 204.083 requires the employer to also transfer its compensation experience:

The transfer of the predecessor employer's compensation experience to the successor employer is required if the predecessor employing unit transfers, through any means, all or part of the organization, trade, or business, to the successor employer and there is substantially common ownership of the entities.

Id. § 204.083 (Vernon 2015).

         Following a section 204.083 transfer of compensation experience, two sections govern the computation of the successor employer's tax rate:

• Section 204.0851 provides the general scheme to calculate the tax rate of successor employers following section 204.083 transfers. See id. § 204.0851 (Vernon 2015). Rates calculated pursuant to section 204.0851 count the predecessor employer's compensation experience simultaneously against both the predecessor and successor employers. See id.

• Section 204.085 calculates the tax rate for successor employers following certain partial acquisitions "if the commission determines that the part of the organization, trade, or business transferred is definitely identifiable and segregable and that compensation experience can be specifically attributed to that part of the organization, trade, or business . . . ." Act of June 18, 2005, 79th Leg., R.S., ch. 1315, § 6, 2005 Tex. Gen. Laws 4123, 4125 (amended 2015) (current version at Tex. Lab. Code § 204.085).^[1] If these requirements are met, only a portion of the predecessor employer's compensation experience is counted against the successor - the portion attributable to the business the successor employer acquires. See id.

         With this statutory scheme in mind, we turn to the facts of the underlying dispute.

         Facts and Procedural History

         Appellants G&A Outsourcing, Inc. ("G&A"), G&A Outsourcing II, L.L.C. ("G&A II"), and G&A Outsourcing III, L.L.C. ("G&A III") are commonly-owned professional employment organizations ("PEOs"). PEOs are retained by employers to provide payroll administration and other services necessary to running a business. PEOs issue payroll checks to the employers' employees and remit the unemployment taxes due on the employers' payrolls.

         G&A provided PEO services to approximately 187 employers. In December 2010, G&A transferred 79 employers to G&A II and 55 employers to G&A III. The parties do not dispute that this transfer required a full transfer of G&A's compensation experience under section 204.083.

         In August 2011, Appellants filed applications under section 204.085 for a partial transfer of G&A's compensation experience to G&A II and G&A III based on the employers the successor entities acquired. After TWC pointed out inaccuracies in Appellants' data, Appellants filed amended versions of their partial transfer applications. TWC denied Appellants' amended applications.

         Appellants sought a Rule 13 administrative hearing to contest the applications' denials. In its written decision following the hearing, TWC concluded the applications were properly denied because Appellants "submitted inaccurate data."

         Appellants paid the taxes due based on TWC's denial of the partial transfer applications and requested a refund of the alleged overpayment. TWC denied the refund, citing its Rule 13 decision. Appellants filed the underlying action to recover the alleged overpayment.

         Appellants filed in the trial court a motion to compel the deposition of a TWC representative. The trial court signed an order denying Appellants' motion to compel. The parties proceeded to a bench trial in March 2018 and the trial court signed a final judgment concluding TWC properly denied Appellants' request for a refund of unemployment taxes.

         The trial court entered findings of fact and conclusions of law, which it amended in June 2018. Appellants timely appealed to the Third Court of Appeals and their case was transferred to ...