THE B. F. GOODRICH COMPANY vs. DIRECTOR OF THE DIVISION OF EMPLOYMENT SECURITY.

GOODMAN, J. By this action the plaintiff attacks the method used by the Division of Employment Security

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(division) in adjusting the contributions previously paid by the plaintiff under the Employment Security Law. G. L. c. 151A. The adjustments were occasioned by payments from the Federal government to the Commonwealth as reimbursement for unemployment compensation benefits which the division had paid to the plaintiff's former employees who had also been eligible, when their jobs were terminated, for allowances under the Trade Expansion Act of 1962 (sometimes herein referred to as the Act) (Pub. L. 87-794, 76 Stat. 872 [1962], codified in 19 U.S.C. Sections 1801 et. seq. [1964]), to be discussed hereafter in this opinion. The action was heard on the pleadings, a "partial stipulation of facts" (filed in two parts), and three exhibits (letters between the parties). Judgment was entered dismissing the complaint, and the plaintiff appealed; it contends that the accounting procedure followed by the division in making the adjustment was in violation of the provisions of Section 323(g) of the Trade Expansion Act of 1962, 19 U.S.C. Section 1942(g), which provided for such reimbursement [Note 1] and that -- apart from the Act -- the accounting procedure as applied in this case was arbitrary and capricious in violation of the State and Federal Constitutions. We affirm the judgment.

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We first outline generally the method of calculating the contributions payable by employers under the Unemployment Compensation Law during the relevant period. [Note 2] Such contributions required of employers covered by that law (see G. L. c. 151A, Section 8) are pooled in an unemployment compensation fund so that they are "available to pay benefits . . . irrespective of the source of such moneys" (G. L. c. 151A, Section 48, as amended by St. 1966, c. 560, Section 5) and are deposited in an unemployment trust fund in the United States Treasury to the credit of the Commonwealth. See G. L. c. 151A, Section 50(b), and 42 U.S.C. Section 1104. The contributions, paid quarterly by an employer during each calendar year, are a percentage of so much of his payroll as is subject to the Unemployment Compensation Law (G. L. c. 151A, Section 14, first par.). The percentage (the rate of contribution) applicable during a calendar year is computed on the September 30 (the "computation date," G. L. c. 151A, Section 14[a][3], designated as Section 14[a][4] prior to St. 1972, c. 594, Section 1) of the previous year and is determined for each employer under an experience rating system by which each employer's rate of contribution is affected (within limits) by the amount of unemployment benefits paid to his terminated employees -- the greater the amount of benefits paid out, the higher the rate, thus, it has been thought, giving an employer an incentive to minimize unemployment in his business. [Note 3]

The rate of contribution for each employer depends on a number of variables. In the first instance, it depends on the ratio of the total unemployment compensation fund

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available for benefits on the computation date to the total wages taxable under the Unemployment Compensation Law during the twelve-month period immediately preceding the computation date. See G. L. c. 151A, Section 14(h), as in effect prior to St. 1973, c. 829, Section 2. That ratio determined which of nine categories, each containing a number of rates -- so called "experience rates" (also sometimes referred to as merit rates) -- was to be applicable during the ensuing calendar year. See G. L. c. 151A, Section 14(i), as appearing in St. 1961, c. 614, Section 4 [Note 4] (see now St. 1977, c. 720, Section 21). Generally, the higher the ratio, the lower the range of experience rates. The particular experience rate to be paid by an employer is calculated from a bookkeeping account kept for that employer called the "employer's account." G. L. c. 151A, Section 14(c). Each employer's account is credited with his contributions (G. L. c. 151A, Section 14[d][1]), and charged with payments made to his former employees (G. L. c. 151A, Section 14[d][3], as in effect prior to St. 1976, c. 473 Section 5). Contributions are credited as of the date they are paid, and benefit payments are charged as of the date they are made. The employer's account is also charged with refunds he receives as a result of claims for adjustments he has made (G. L. c. 151A, Section 14[d][2] [Note 5]). The ratio of the balance of the employer's account on the computation date preceding the calender year in question to that employer's total taxable payroll during the twelve months immediately preceding the computation date is termed his "reserve percentage" (G. L. c. 151A, Section 14[a][2]) and determines which of the

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experience rates contained in the applicable category is to be assigned to that employer as his contribution rate. Generally, the higher the reserve percentage of an employer's account, the lower the experience rate assigned to that employer.

The division also maintains a single "solvency account" (G. L. c. 151A, Section 14[c]) to which is credited all revenue received by the fund which is not credited to an employer's account. This includes, e.g., interest on earnings of the fund (G. L. c. 151A, Section 14[e][1]), any restitution by an employee of benefits improperly paid him (to be "credited . . . when such restitution is made," G. L. c. 151A, Section 14[e][4], as appearing in St. 1953, c. 397), [Note 6] and any balance in an employer's account if he ceases to be subject to the Unemployment Compensation Law (G. L. c. 151A, Section 14[e][2]). When such a balance is negative (i.e., the unemployment compensation payments to the employer's former employees have exceeded the employer's contributions) the negative balance is charged to the solvency account. Also charged to that account are any other disbursements from the unemployment compensation fund not chargeable to any particular employer's account (G. L. c. 151A, Section 14[e][7]), including, e.g., unemployment benefits which are paid under an extended benefits program (G. L. c. 151A, Section 30A) and which, therefore, do not affect the employer's account (Section 30A[6]).

The solvency account provides a mechanism by which the disparity among employer's accounts is somewhat alleviated by keeping their reserve percentages within limits -- between minus three percent and plus thirteen percent under Section 14(e)(5) and (6) (as in effect prior to St. 1977, c. 720, Sections 18 and 19 which changed those percentages to minus nine percent and plus fifteen percent,

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respectively). Thus, Section 14(e)(5) (as unamended) of G. L. c. 151A provided that whenever as of any computation date an employer's account had a negative balance such that its reserve percentage was below minus three percent, an amount sufficient to bring the negative balance of the account to an amount equal to minus three percent of the employer's total taxable payroll during the twelve months preceding that computation date was to be credited to the employer's account and charged to the solvency account. Similarly, Section 14(e)(6) (as unamended) provided that whenever as of any computation date an employer's account had a balance such that its reserve percentage was above thirteen percent, an amount sufficient to reduce the balance of the account to thirteen percent of the employer's total taxable wages during the twelve months preceding that computation date was to be charged to the employer's account and credited to the solvency account. This yearly recomputation also tends to minimize the effect of very favorable and very unfavorable experience rates over a long period so that the current experience rate more nearly reflects recent unemployment and payroll.

Further, when as of any computation date the balance of the solvency account is less than one-half of one percent of the total taxable payrolls reported by all covered employers for the twelve months preceding that computation date all such employers must, in addition to contributing to the unemployment compensation fund in accordance with their respective experience rates, make an additional uniform contribution ranging from one tenth of one percent to one percent, depending on the state of the solvency fund. G. L. c. 151A, Section 14(j). [Note 7]

We now summarize the facts concerning the adjustment which the division made under the procedure outlined

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above and which the plaintiff claims was illegally computed. At the end of 1969 the plaintiff closed a plant in Watertown for the manufacture of footwear and terminated the jobs of its employees there. Many of them filed for and were paid unemployment compensation which was charged against the plaintiff's employer's account in accordance with G. L. c. 151A, Section 14(d)(3). At least some of the plaintiff's former employees also applied for weekly "trade readjustment allowances" pursuant to Section 322(a) of the Trade Expansion Act of 1962, 19 U.S.C. Section 1941(a). [Note 8] To the extent that these employees became entitled to such allowances, the division was reimbursed for the unemployment compensation it had paid them.

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See Section 323(g) of the Act, 19 U.S.C. Section 1942(g), set out in note 1, supra. The reimbursements, which (it appears from the briefs, see note 19, infra) the division had received by September 30, 1972, totalled $591,954.11. Section 332(a), 19 U.S.C. Section 1972(a) (1970), required that those reimbursements be "credited to the account of such State in the Unemployment Trust Fund . . . and be used only for the payment of cash benefits to individuals with respect to their unemployment . . . ."

Those reimbursements were not actually credited to the plaintiff's employer's account until June, 1973, when they were credited as of September 30, 1972. As a result, when the plaintiff's contribution rate for calendar year 1973 was originally calculated, the September 30, 1972, balance of the plaintiff's employer's account was $3,689.33, and the account's reserve percentage as of that date was only six-tenths of one percent. The record does not disclose the contribution rate assigned to the plaintiff on the basis of those computations.

On the authority of Section 323(g)(2) the division undertook to "determin[e] whether or not [the plaintiff was] entitled to a reduced rate of contributions" if the reimbursed payments of unemployment compensation were "disregard[ed]" in computing the rate for 1973. In making that determination the division applied the total $591,954.11 to recompute the plaintiff's 1973 experience rate by adding the reimbursement to the plaintiff's employer's account as of September 30, 1972. That action resulted in increasing the balance of the account as of that computation date to $595,643.94 and the account's reserve percentage to 95.2 percent. The reserve percentage being in excess of thirteen percent, the division, pursuant to G. L. c. 151A, Section 14(e)(6), transferred $514,358.06 from the plaintiff's employer's account to the solvency account; that action reduced the balance in the plaintiff's account as of September 30, 1972, to $81,285.88 and the account's reserve percentage to exactly thirteen percent. The division then redetermined the plaintiff's experience rate for the

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calendar year 1973, with the result that the plaintiff's total contribution rate was reduced from the rate which the plaintiff had originally been assigned to 2.1 percent.

On June 27, 1973, the plaintiff applied to the division (see G. L. c. 151A, Section 18) for a refund of allegedly excessive contributions it had paid in 1971, 1972, and the first quarter of 1973 on the basis of contribution rates which had reflected charges to its employer's account for benefits paid its former employees but which had not reflected any credits for the Federal reimbursements. Interpreting Section 323(g) of the Trade Expansion Act, 19 U.S.C. Section 1942(g), to authorize such refunds in addition to the recomputation of future experience rates, the division, on August 17, 1973, refunded $43,448.42 to the plaintiff. Pursuant to G. L. c. 151A, Section 14(d)(2) (see note 5, supra), that amount was charged to the plaintiff's employer's account as of the date of the refund.

The resulting decrease in the balance of the plaintiff's employer's account reduced the account's "reserve percentage" (see pages 787-788, supra) to less than thirteen percent on the following computation date, September 30, 1973, as of which date the plaintiff's contribution rate for calendar year 1974 was computed. The contribution rate thus assigned the plaintiff for the calendar year 1974 was 3.7 percent, rather than the minimum contribution rate for that year of 2.3 percent. The plaintiff complains that the refund should have been charged on the same computation date that the reimbursement was credited. In that case the resulting credit ($591,954.11 minus $43,448.42) to the employer's account would have still yielded a reserve percentage well over thirteen percent, and the plaintiff would have been entitled (after the transfer to the solvency account pursuant to G. L. c. 151A, Section 14[e][6]) to the minimum contribution rate rather than the 3.7 percent rate actually assigned -- which resulted from the charge of the refund to a computation date subsequent to the computation date on which the reimbursement was credited. We see nothing (1) in the Trade Expansion Act

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or (2) in the Federal and State Constitutions which required the division to adopt an adjustment method urged by the plaintiff rather than the procedure it followed.

1. The Trade Expansion Act. The plaintiff's argument here is that the Act obligated the division to "pass through to the plaintiff the benefit of reimbursement" -- or, otherwise stated, to maximize the effect of the reimbursement on the plaintiff's contribution rate. We see no such obligation. Section 323(g) of the Act provided that the reimbursed unemployment compensation payments "may be disregarded under the State law" (emphasis supplied); and the word "may" is generally permissive. Farmers & Merchs. Bank v. Federal Reserve Bank, 262 U.S. 649, 662-663 (1923). Anderson v. Yungkau, 329 U.S. 482, 485 (1947). See United States v. Thoman, 156 U.S. 353, 359 (1895); City Bank & Trust Co. v. Board of Bank Incorporation, 346 Mass. 29, 31 (1963); John Donnelly & Sons v. Outdoor Advertising Bd., 369 Mass. 206, 212-213 (1975); Young's Court, Inc. v. Outdoor Advertising Bd., 4 Mass. App. Ct. 130, 133-134 (1976). Cf. Hecht Co. v. Bowles, 321 U.S. 321, 326-329 (1944). It is, of course, true as the above cited cases indicate and as the plaintiff argues, that where the context and the intent of the draftsman indicate otherwise, "may" is construed as equivalent to the mandatory "shall" or "must." Here, however, an examination of the various provisions of the Act indicates that "shall" is consistently employed in contradistinction to "may" where a command is intended. [Note 9] See Farmers & Merchs. Bank v. Federal Reserve Bank, 262 U.S. at 663, & n.6, and Brennan v. Election Commrs. of Boston, 310 Mass. 784, 786 & n.1 (1942). Indeed,

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"shall" is used twice to indicate a command in Section 323(g)(1) -- once to mandate reimbursement generally and once to require that the Secretary of Labor compute the amounts of reimbursements.

Our interpretation is supported by the legislative history of Section 323(g)(2) of the Act (19 U.S.C. Section 1942[g][2], set out in note 1, supra). That provision originated in the Senate Finance Committee, to which the version of the Trade Expansion Act passed by the House (H.R. 11970, 87th Cong., 2d Sess. [1962], reprinted in 1 Hearings before the Senate Finance Committee on H.R. 11970, 87th Cong., 2d Sess. 2-25 [1962]) had been referred. 108 Cong. Rec. 12233 (1962). The House version contained no provision for the reimbursement generally of unemployment compensation benefits paid to workers receiving trade readjustment allowances; rather, the House bill provided only for trade readjustment allowances to supplement unemployment compensation benefits paid under State law (H.R. 11970, Section 323[c][1]). The House thus evidenced no concern in such a case for the impact of unemployment compensation payments on the contribution rates of employers. [Note 10]

The Senate Finance Committee amended H.R. 11970 to provide that the trade readjustment allowance program be completely federally funded, that if unemployment

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compensation benefits should be paid to workers who would become entitled to trade readjustment allowances, the State would be reimbursed for such payments. See par. (1) of Section 323(g), as amended by the Finance Committee, 108 Cong. Rec. 19573 (1962). An examination of the hearings before the Senate Finance Committee indicates that Federal funding was primarily a response to objections generally to the payment of trade allowances. These objections were made by certain State unemployment compensation commissioners who regarded these payments, over and above unemployment benefits, as discriminatory against unemployed workers not eligible for such allowances and as an intrustion into the State systems which might ultimately result in their federalization. They also took the position that under their unemployment compensation laws payment could not be made to workers entitled to supplementary trade allowances. For these reasons they advocated complete Federal funding of the trade readjustment allowance program as a means of separating that program from State unemployment compensation programs. See Statements of J. Eldred Hill, Jr., Paul A. Raushenbush, and Secretary of Labor Arthur J. Goldberg, 4 Hearings Before the Committee on Finance on H.R. 11970, 1648-1653, 1658-1669, 2088, 2102-2108, 87th Cong., 2nd Sess. (1962). [Note 11] At those hearings, as in the House hearings, there was practically no indication of any concern with the impact of the program on contribution rates. [Note 12] The concern (as indicated in

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Section 323(g)(2) as inserted by the Senate Finance Committee amendment to H.R. 11970 set out in the margin [Note 13]) seems to us rather that any reimbursement to the State should redound to the benefit of the workers and not to the employers. [Note 14] Thus, in its report to the Senate, the Finance Committee stated that by its amendment "[a] State, having been reimbursed, would be authorized to disregard any payments . . . in determining the employer's rate of contribution under the experience rating provisions of the State law, if the State law provides that the worker's rights to unemployment insurance for which reimbursement was made are reinstated to him" -- which again would have an adverse impact on contribution rates. S. Rep. No. 2059, 87th Cong., 2d Sess. (1962), reprinted in [1962] U.S. Code Cong. & Ad. News 3110, 3116. [Note 15] See also the Committee's "technical explanation" of the amendment, S. Rep. No. 2059, reprinted in [1962] U.S. Code Cong. and Ad. News at 3131.

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As passed by the Senate, H.R. 11970 contained the Finance Committee's version of Section 323(g (2). 108 Cong. Rec. 19571, 19876 (1962). The Senate-House Conference Committee, to which the bill was referred (108 Cong. Rec. 19876, 20093 [1962]), agreed to include in the bill a slightly reworded version of Section 323(g)(2) which was eventually enacted into law. 108 Cong. Rec. 22275, 22278 (1962). It made no substantial change in the original Senate version (as the plaintiff concedes in its memorandum) and contains the same conditional permission. This is clear from the sentence reproduced in the margin [Note 16] which appears in the Statement of the Managers on the Part of the House in the conference report accompanying the bill as reported by the conference committee (Conf. Rep. No. 2518, 87th Cong., 2d Sess., reprinted in [1962] U.S. Code Cong. & Ad. News at 3133). And the chairmen of the committees having charge of the bill in both the Senate and the House each made statements indicating a similar understanding. [Note 17]

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Here the division chose to decrease the plaintiff's experience rate on the basis of the reimbursements the division received pursuant to Section 332(a) (19 U.S.C. Section 1972[a]) [Note 18] though it might have chosen to preserve its unemployment compensation fund from erosion as a result of future lower experience rates by using it only in calculating the ratio of the fund to the taxable wages in determining the category of experience rates to be used for all employers. See Teple & Nowacek, Experience Rating: Its Objectives, Problems and Economic Implications, 8 Vanderbilt Law Rev. 376, 384 (1955), which makes the point that "[t]here appears to be a natural antithesis between reduced contribution rates, which has been the situation under experience rating by and large, and the need for reserve accumulations for purposes of assuring the solvency of trust funds."

The division reduced the plaintiff's experience rate, as the plaintiff admits in its complaint, "in technical compliance with the provisions of M.G.L. c. 151A", [Note 19] which did not allow a complete pass-through of the reimbursement in any event. [Note 20] But a reduction as "permitted by the State

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law" is just what Section 323(g)(2) of the Trade Expansion Act authorized. As put in the Senate Finance Committee's report, "[a] state, having been reimbursed, would be authorized to disregard any payments and the periods of unemployment for which they were made in determining the employer's right of contribution under the experience rating provisions of the State law" (emphasis supplied). Sen. Rep. No. 2059, reprinted in [1962] U.S. Code Cong. & Ad. News at 3116.

2. Constitutional issues. We do not accept the plaintiff's contention that the application by the division of the statutory accounting procedure violated the constitutional mandate that (as put in the plaintiff's brief) such application be made "in a fair and systematic way" or -- as also put in its brief -- that it "be reasonable, not arbitrary . . . so that all persons similarly situated shall be treated alike," [Note 21] citing Howes Bros. v. Unemployment Compensation Commn., 296 Mass. 275, 287 (1936), cert. denied, 300 U.S. 657 (1937). The plaintiff makes no argument that the procedure followed violated any provision of G. L. c. 151A, nor does it claim that it was discriminated against vis-a-vis others similarly situated. Its objection is, in the last analysis, to the adoption by that chapter of a method of accounting under which receipts are credited when received and refunds are charged when paid. See Section 14(d)(1)(3) & (e)(4). Thus, the plaintiff objects basically to the adoption in Section 14(d) and (e) of what is in effect a cash basis rather than an accrual basis for employer's accounts and the solvency account. To be sure, this accounting method postpones charging a refund until the computation is made and the refund paid, but we are not persuaded that

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the characterization of such computation as "bureaucratic activity" makes it any the less proper. The plaintiff does not claim any manipulation or bad faith in the administrative processing of the adjustments. Indeed, as set out in its brief, the plaintiff does not "contend here that the [d]ivision was actually able to credit reimbursements and refund overpayments faster than it did, given existing manpower limitations." The logic of the plaintiff's position would require giving retroactive effect to refunds in recalculating experience rates. But the time, labor, and expense in making such reductions are quite obviously what the Legislature sought to minimize by the requirement in subsection (d)(2), which was first added to G. L. c. 151A, Section 14, by St. 1951, c. 763, Section 5 (see subsection [g][2] of Section 14 as appearing in St. 1951, c. 763, Section 5), was later transferred to subsection (d)(2) by St. 1953, c. 397, and was finally cast in its present language by St. 1966, c. 560, Section 2. Such simplification is clearly a proper legislative purpose particularly in connection with the already complicated computation of experience rates. [Note 22] By the addition of Section 14(d)(2) the chapter "presents a simpler and hence a less expensive picture for practical management." Watertown Firefighters, Local 1347 v. Watertown, 376 Mass. 706, 711 (1978). See Fernandez v. Wiener, 326 U.S. 340, 360-361 (1945; McNear v. Director of the Div. of Employment Security, 327 Mass. 717, 720 (1951); Employer's Commercial Union Ins. Co. v. Commissioner of Ins., 362 Mass. 34, 42 (1972); Brockton Hosp. v. Rate Setting Commn., 376 Mass. 569, 572 (1978). See also Conlon Bros. Mfg. Co. v. Annunzio, 409 Ill. 277, 282-283 (1951). Contrast Goldberg v. Kelly, 397 U.S. 254, 264-266 (1970), holding that administrative

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convenience does not justify the termination of public assistance without affording the recipient a hearing prior to termination rather than after termination, and Craig v. Boren, 429 U.S. 190, 197-199 (1976), holding that administrative convenience does not justify gender based classifications. We see no "fundamental unfairness." First Fed. Sav. & Loan Assn. v. State Tax Commn., 372 Mass. 478, 490 (1977).

Judgment affirmed.