Carmichael v. Southern Coal & Coke Co.

Background

Two out-of-state corporations that operate a coal mine and a paper mill in Alabama sued state officials to stop collection of payroll contributions required by Alabama’s Unemployment Compensation Act. A three-judge federal district court blocked the state from collecting the law’s employer contributions. The companies argued the state law violated the Fourteenth Amendment (due process and equal protection), was an unconstitutional surrender of state power, and was coerced by the federal Social Security Act.

Reasoning

The Court said the Alabama levy is a kind of tax within the state’s traditional power and that the legislature has wide latitude to choose who to tax and who to exempt. The majority found the law serves a legitimate public purpose — relief of unemployment — and the classifications and exemptions had reasonable bases like administrative convenience and economic policy. The Court also held the federal Social Security Act did not coerce the state into passing the law and that depositing the state fund in the federal Unemployment Trust Fund did not surrender state sovereignty. As a result, the Supreme Court reversed the lower court and allowed Alabama to collect the contributions.

Real world impact

Alabama may continue collecting employer payroll contributions and use them to pay unemployment benefits to covered workers. Employers with eight or more employees and those in excluded categories are directly affected. The decision upholds state authority to set up cooperative state-federal unemployment programs and preserves wide legislative discretion in designing such schemes.

Dissents or concurrances

Justice Sutherland (joined by two others) dissented, arguing the pooled-fund structure is arbitrary and unfair to employers who do not create unemployment and that states could use individual employer accounts instead.