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STATEMENT OF LEONARD E. McCHESNEY, ASSISTANT SECRETARY AND MANAGER OF INSURANCE, HANNA MINING CO., REPRESENTING LAKE CARRIERS' ASSOCIATION

Mr. McCHESNEY. Mr. Chairman, my name is Leonard F. McChes

ney.

I am assistant secretary and manager of insurance of Hanna Mining Co., Cleveland, Ohio.

My appearance here is on behalf of the Lake Carriers' Association of which Hanna Mining Co. is a member.

Lake Carriers' Association is an organization of vessel companies engaged in the transportation of bulk commodities between ports on the Great Lakes. In all, the association has 25 members owning or operating a total of 212 merchant vessels under U.S. flag. The vessels enrolled in the association aggregate more than 1,703,610 gross tons of shipping and constitute better than 98 percent of all commercial vessels under American flag now engaged in trade and commerce on the Great Lakes.

I shall summarize the statement which we have furnished the committee, and I request that the statement in full be included in the record for the committee's consideration.

Senator TALMADGE. Without objection the statement will be inserted in the record and you may summarize it.

Mr. McCHESNEY. Since 1943, Lake Carriers' Association has maintained a special unemployment compensation study committee. Since the committee's inception I have served as chairman.

ELIMINATION OF SECTION 123 URGED

My appearance here on behalf of Lake Carriers' Association relates solely to section 123 of H.R. 15119, the Unemployment Insurance Amendments of 1966 as passed by the House.

Section 123 would amend section 3305 of the Internal Revenue Code of 1954 in such a manner as to empower the Secretary of Labor to deny to maritime emplovers (as well as other employers in whom the Federal Government has a special jurisdictional interest) the tax credit against the Federal unemployment tax for amounts paid into a State unemployment compensation fund should the Secretary of Labor find that the unemployment compensation law of such State is inconsistent with any one or more of the conditions set forth in section 3305 (f). Lake Carriers' Association strongly urges the elimination of section 123, because it would impose a drastic and unwarranted penalty on Great Lakes vessel operators and would operate unfairly against Great Lakes seamen. Section 123 has no practical application to any employers except Great Lakes vessel operators in the State of Ohio, as will hereafter be shown.

THE STATED PURPOSE OF SECTION 123

When the unemployment insurance amendments were originally introduced in the House (H.R. 8282), the explanatory statement prepared by the Department of Labor stated, with respect to section 123 (then sec. 206 of H.R. 8282), pages 23-24, that while, as a matter of

Federal law, States were given permission to levy unemployment taxes on maritime employment, specific conditions were prescribed in order to preclude discriminatory treatment of either maritime employers or maritime workers. It was then asserted that one State was failing to provide seamen equal protection and this failure affects a substantial proportion of the seamen engaged in Great Lakes shipping. It then asserted in justification of the proposed section that no State should be given authority to collect unemployment taxes from maritime employers under conditions which violate the nondiscriminatory requirements of Federal law.

When the Secretary of Labor, Hon. W. Willard Wirtz, testified before the House Committee on Ways and Means, he was asked specifically the State to which the explanatory statement referred and the precise manner in which the law of such State was discriminatory as against Great Lakes seamen. The Secretary replied that the law of the State of Ohio treats maritime workers differently from the way it treats other seasonal workers in two respects. Stated Secretary Wirtz:

There are two differences. One is the use of a 40-week definition of "seasonal employment" in this industry as compared with a 36-week definition in all others. And secondly, that the seaman must, under the present situation, work more time outside this particular employment to become entitled to ordinary unemployment insurance than is true of other seasonal workers.

Such being the stated purpose of section 123, we urge that such section be eliminated for the reason that the arguments advanced by the Secretary of Labor are not valid and Ohio law is in no way discriminatory against seamen. Indeed, if anything, it favors seamen. In substance, we maintain that the alleged shortcomings of the Ohio law in devising an unemployment compensation system as it applies to Great Lakes seamen, do not in fact exist.

Since 1946, the Department of Labor has been trying to secure from Congress the authority granted by section 123 with respect to vessel operators on the Great Lakes. In 1946, the Department contended that the Ohio law was discriminatory because it did not provide for a combination of wage credits in the case of seamen but allowed such combination in all other cases. Congress thereupon amended the law to require the seamen be allowed to combine seasonal and nonseasonal wage credits, and Ohio changed its law accordingly. The next major assault by the Department upon the Ohio law took place in 1961, when the Department recommended a provision similar to section 123 with respect to vessel operators on the Great Lakes. The administration's unemployment compensation reform bill in 1963 contained no provision dealing with this subject matter but the provision reappeared in 1965, and it is pursuant to the 1965 recommendations that section 123 is included in the bill. We wish to emphasize that insofar as Great Lakes vessel operators are concerned, the Ohio law has remained in effect unchanged for the last 18 years. A real discrimination would not have been permitted to continue in effect for so long a period by Congress.

My statement thereupon sets forth the provisions of the Ohio law. Briefly, Ohio establishes a 40-week season for Great Lakes navigation beginning with the fourth Sunday in March and limits payment of unemployment compensation benefits to seamen within the season. The law specifically provides that if an individual's employment consists of both employment on a vessel and with shoreside employers, his wage

credits may be combined, but if more than 50 percent of such individual's total weeks of employment during his base period is as a seaman, his eligibility for benefits is limited to the 40-week navigation season. We then discussed the existing requirements of the Federal law. Section 3305 (f) of the 1954 Internal Revenue Code authorized the legislature of any State in which a vessel operator maintains his operating office and from which his vessels are regularly managed and controlled, to require such operator to make contributions to its unemployment fund, notwithstanding that the services of the seamen on such vessels were not performed entirely within the State. Granting this permission, Congress provided that:

The permission granted by this subsection is subject to the condition that such service shall be treated, for purposes of wage credits given employees, like other services subject to such State unemployment compensation law performed for such person in such State ***.

In explaining this provision, this committee in its report to the Senate, said:

The committee believe, therefore, it would be inadvisable to lay down a blanket prohibition against discrimination or to attempt to fix standards for the benefit of seamen. There has been included in the bill, however, a provision which enunciates the principle of no discrimination as compared with other employees of the same employer as regards wage credits (S. Rept. 1862, 78th Cong. 2d sess.). The committee also had this to say in this same report:

The provision is not intended to preclude treating certain maritime service, notably that on the Great Lakes, as seasonal employment, and denying compensation based on such service for unemployment occurring outside the season, if this is done on terms comparable to those applied to other seasonal occupations in the State.

From this we conclude that it is abundantly clear that while a maritime employer is required to treat seamen employees in the same manner as his other employees as regards wage credits, this does not mean that the employer is precluded from treating seamen employees as seasonal, even though the employer's other employees-that is, shoreside personnel-may be nonseasonal.

We then show that a 40-week season for Great Lakes seamen, coupled with a maximum season of 36 weeks in any other occupation, does not result in a discrimination against seamen, particularly where there is no evidence that any seasonal industry in Ohio is unable to qualify as a seasonal industry by reason of the 36-weeks limitation. We contend it is immaterial whether the duration of operation of the seasonal industry is specified in law or is fixed administratively, so long as the duration specified is reasonable and in accordance with the facts. We then set forth the facts upon the basis of which the Ohio Legislature specified a 40-week season for Great Lakes navigation.

The other reason advanced by the Secretary of Labor for contending that Ohio law discriminates against seamen was that seamen were not treated as favorably as shoreside employees in the matter of combination of wage credits. We deny that this was ever the case under Ohio law, and show that in any event, it cannot possibly be the case at the present time, because we point out that at the present time seamen are the only employees in Ohio who are permitted to combine seasonal and nonseasonal wage credits. This was decided by the Ohio Board of Review last year in the case of In re Claim of Ned F. Babcock, et al. The decision in this case is appended to our statement.

Thus, seamen have a distinct advantage over other seasonal employees in Ohio, and the alleged discrimination against seamen arising out of the combination of wage credits does not exist.

Our statement then asserts that the enactment of section 123 would place a serious burden on Ohio, as well as the vessel operators in Ohio, should the Secretary of Labor attempt to establish discrimination against seamen, and this is particularly so where, as we have shown, discrimination does not in fact exist.

Reference is then made to the debate of the bill on the floor of the House, where the chairman of the Ways and Means Committee stated that the committee made do decision whatever concerning the alleged discrimination against maritime employees, and that what the committee was attempting to do was supply an enforcement provision which is now lacking in the law in those cases in which it might be determined that discrimination did in fact exist. Our statement then further showed that if section 123 should be enacted, it might be construed us requiring that seamen be deprived of the advantage they now have of being able to combine seasonal and nonseasonal wage credits, so that they will be treated in the same manner as other seasonal employees in Ohio. The Lake Carriers contend that if section 123 were so construed, this would be unfair to seamen.

We then point out certain additional factors which demonstrate that the seasonal nature of Great Lakes navigation should not be eliminated. We show that the average weekly wage for Great Lakes seamen in 1964 and this means total wages divided by 52 weeks, which includes the 12 weeks during the winter when the Great Lakes seaman receives nothing was $188.43 as compared with the average weekly wage of all covered employment in Ohio of $115.63. In fact, the average weekly wage for Great Lakes seamen is, with one minor exception, higher than the average weekly wage in any other industry in Ohio, and in no other State do average weekly earnings exceed those of the Great Lakes vessel industry. During the 40-week season, a Great Lakes seaman devotes about the same amount of time to his job as does a shoreside employee working 52 weeks. The main difference is that most shoreside employees are not asked to work Saturdays, Sundays, and holidays, while Great Lakes seamen work all days during the season but are not required to work at all during the 12-week winter interval. The seaman's leisure time, therefore, comes to him in one 12-week stretch, while the leisure time of shoreside workers comes 2 days each week throughout the entire year. Indeed, if the contentions of the Secretary about the 40-week season were valid, and the seasonal nature of the industry eliminated, it would be somewhat like paying unemployment benefits for Saturdays, Sundays, and holidays, to a shoreside worker with a full-time job."

We then show that if the restriction on payment of benefits to Great Lakes seamen were removed, the total benefits paid to seamen under Ohio law would exceed $3.48 million a year with the maximum employers' contribution being only one-seventh of that amount. This would result in the Great Lakes navigation industry being subsidized by every other industry in Ohio.

Finally, we urge that if section 123 is retained in the bill, the judicial review provisions of the bill be broadened to authorize maritime employers to initiate review proceedings, because it is the maritime employers who are the real parties in interest.

Mr. Chairman, that completes my testimony, and I thank you for the privilege of appearing before the committee.

(The prepared statement of Mr. McChesney follows:)

STATEMENT OF LEONARD E. McCHESNEY, APPEARING ON BEHALF OF LAKE

CARRIERS' ASSSOCIATION

My name is Leonard E. McChesney. I am Assistant Secretary and Manager of Insurance of the Hanna Mining Company, 100 Erieview Plaza, Cleveland, Ohio. My appearance here is on behalf of Lake Carriers' Association, of which Hanna Mining Company is a member.

Lake Carriers' Association is an organization of vessel companies engaged in the transportation of bulk commodities between ports on the Great Lakes. In all, the Association has 25 members owning or operating a total of 212 merchant vessels under United States flag. The vessels enrolled in the Association aggre gate more than 1,703,610 gross tons of shipping and constitute better than 98% of all commercial vessels under American flag now engaged in trade and commerce on the Great Lakes.

Since 1943, Lake Carriers' Association has maintained a special Unemployment Compensation Study Committee. Since the Committee's inception I have served as Chairman.

ELIMINATION OF SECTION 123 URGED

My appearance here on behalf of Lake Carriers' Association relates solely to Section 123 of H.R. 15119, the "Unemployment Insurance Amendments of 1966" as passed by the House. Section 123 would amend Section 3305 of the Internal Revenue Code of 1954 in such a manner as to empower the Secretary of Labor to deny to maritime employers (as well as other employers in whom the Federal Government has a special jurisdictional interest) the tax credit against the Federal unemployment tax for amounts paid into a state unemployment compensation fund should the Secretary of Labor find that the unemployment compensation law of such state is inconsistent with any one or more of the conditions set forth in Section 3305(f). Lake Carriers' Association strongly urges the elimination of Section 123, because it would impose a drastic and unwarranted penalty on Great Lakes vessel operators and would operate unfairly against Great Lakes seamen. Section 123 has no practical application to any employers except Great Lakes vessel operators in the State of Ohio, as will hereafter be shown.

THE STATED PURPOSE OF SECTION 123

When the "Unemployment Insurance Amendments" were originally introduced in the House (H.R. 8282), the explanatory statement prepared by the Departmentof Labor stated, with respect to Section 123 (then Section 206 of H.R. 8282), pages 23–24, that while, as a matter of Federal law, states were given permission to levy unemployment taxes on maritime employment, specific conditions were prescribed in order to preclude discriminatory treatment of either maritime employers or maritime workers. It was then asserted that one state was failing to provide seamen equal protection and this failure affects a substantial proportion of the seamen engaged in Great Lakes shipping. It then asserted in justification of the proposed Section that no state should be given authority to collect unemployment taxes from maritime employers under conditions which violate the nondiscriminatory requirements of Federal law.

When the Secretary of Labor, the Hon. W. Willard Wirtz, testified before the House Committee on Ways and Means, he was asked specifically the state to which the explanatory statement referred and the precise manner in which the law of such state was discriminatory as against Great Lakes seamen. The Secretary replied that the law of the State of Ohio treats maritime workers differently from the way it treats other seasonal workers in two respects. Stated Secretary Wirtz:

"There are two differences. One is the use of a 40 week definition of 'seasonal employment' in this industry as compared with a 36 week definition in all others. And secondly, that the seaman must, under the present situation, work more time outside this particular employment to become entitled to ordinary unemployment insurance than is true of other seasonal workers."

Such being the stated purpose of Section 123, we urge that such section be eliminated for the reason that the arguments advanced by the Secretary of

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