The opinion of the court was delivered by: STERN
These consolidated cases present the novel question whether a New Jersey tax law requiring employers of merchant seamen to withhold monies from their employees' wages and turn the funds over to the state is in violation of the federal Shipping Commissioners Act, 46 U.S.C. § 601.
On October 5, 1978, plaintiff William Sipe was engaged by defendant Amerada Hess Corporation, a Delaware corporation with its principal place of business in New Jersey, to serve as an able-bodied seaman on the company's vessel The Hess Voyager. Sipe was employed at a regular monthly wage of $ 874.95 per month plus found and bonus.
He was dismissed by Amerada Hess less than four weeks later, on October 31, 1978, at the scheduled conclusion of the voyage. When he received his wages, Sipe discovered that $ 19.68 had been withheld by Amerada Hess in compliance with New Jersey state tax laws.
Similar experiences were encountered by the other plaintiffs. Donald Henderson, Jr., served as a third mate aboard the S.S. Baltimore from September 23, 1979, to November 7, 1979. The vessel is owned by Sea-Land Service, Inc., a Delaware corporation with its principal place of business in New Jersey. Henderson was paid at a rate of $ 1,664.18 per month plus found and bonus. When he was discharged at Port Elizabeth, New Jersey, he learned that $ .54 had been withheld from his wages by Sea-Land.
Finally, Ralph Notargiacomo served on the S.S. American Legion, a vessel owned and operated by defendant United States Lines, Inc., a Delaware corporation with its principal place of business in New Jersey. After a voyage that lasted from September 1, 1979, to October 16, 1979, Notargiacomo was discharged at the Port of Yokohama, Japan. He was paid an ordinary seaman's wage of $ 798.33 per month plus found and bonus, and.$ 13.48 was withheld from his earnings by his employer.
On March 14, 1980, plaintiffs, on behalf of themselves and all other seamen similarly situated, filed three separate actions in law and admiralty naming as defendants their respective employers. Each of these complaints was predicated on the same legal theory and sought similar relief, and all three plaintiffs were represented by the same counsel. The complaints alleged that defendants' withholding of monies from plaintiffs' wages for payment to the State of New Jersey
violated the federal Shipping Commissioners Act, 46 U.S.C. § 601, which provides "(t)hat no part of the wages due or accruing to a ... seaman ... shall be withheld pursuant to the provisions of the tax laws of any State...." Plaintiffs sought not only reimbursement for the deductions but the penalty set forth in 46 U.S.C. § 596, which requires employers to pay seamen a penalty of two days' pay for every day that full payment has been denied if the monies were withheld "without sufficient cause." Although the individual withholdings of the three plaintiffs constitute small sums of money, the challenged state statute affects thousands of seamen. The refunds and penalties, if applicable to the entire class, would be enormous. Plaintiffs also sought to enjoin the employer defendants from making any future deductions from the wages of their employee seamen for purposes of complying with any New Jersey state tax law.
Because these three cases raised identical legal issues and sought the same forms of relief, this Court, on July 10, 1980, entered an order consolidating the three actions for all purposes. Subsequently, in August 1980, separate third-party complaints were filed by defendants United States Lines, Inc., and Amerada Hess Corporation naming as third-party defendants the State of New Jersey; the New Jersey Department of Labor and Industry, and its Commissioner, John J. Horn; and the New Jersey Division of Unemployment and Disability Insurance, and its Director, Joseph S. Viviani (the "state defendants"). In these third-party complaints, defendants Amerada Hess and United States Lines allege that they withheld monies from plaintiffs' earnings as agents for the State of New Jersey, according to the dictates of New Jersey law, and on the advice of New Jersey officials that the withholding was proper. The third-party complaints allege that if the withholding is deemed unlawful, the State of New Jersey, and not the employer shipping companies, must be held liable.
On September 26, 1980, the Court granted a motion by defendant Sea-Land Service, Inc., to join the state defendants named in the third-party complaints as parties defendant pursuant to Fed.R.Civ.P. 19(a).
Defendants now move to dismiss the complaints pursuant to Fed.R.Civ.P. 12(b) (6). The shipowners contend that New Jersey state law is consistent with section 601, and that the withholdings required by New Jersey are authorized by a provision of the federal statute dealing with unemployment compensation laws, 26 U.S.C. § 3305(f). Plaintiffs have filed cross-motions for summary judgment.
This case requires an examination of the interplay of federal and state statutes which protect unemployed workers, and a federal statute which protects the rights of merchant seamen.
A. Federal and State Unemployment Laws
Despite the onslaught of the Great Depression, prior to 1936 few states had enacted unemployment compensation laws. State legislatures feared that the additional burden which such legislation would impose on employers would place their states at a competitive economic disadvantage. Such fears were alleviated in 1936 when Congress passed the Social Security Act. That act established a system which encouraged states to enact unemployment compensation laws. It provided for grants-in-aid to the states to defray the expense of administering unemployment compensation laws (Title III) and the imposition of a uniform payroll tax on all covered employees against which a credit of up to 90 per cent was allowed for contributions made by such employers pursuant to state unemployment compensation statutes (Title IX). Title IX, also called the Federal Unemployment Tax Act, permitted a state to enact whatever type of unemployment law it desired so long as it complied with minimum federal statutory requirements. 26 U.S.C. § 1603.
Among the elements of discretion left to each state was the decision whether to require contributions from employees as well as from employers. See Steward v. Davis, 301 U.S. 548, 593-94, 57 S. Ct. 883, 893-94, 81 L. Ed. 1279 (1937).
The Legislature of any State in which a person maintains the operating office, from which the operations of any American vessel operating on navigable waters within and without the United States are ordinarily and regularly supervised, managed, directed and controlled, may require such person and the officers and members of the crew of such vessel to make contributions to its unemployment fund under its State unemployment compensation law approved by the Secretary of Labor under section 3304 and otherwise to comply with its unemployment compensation law with respect to the service performed by an officer or members of the crew on or in connection with such vessel to the same extent and with the same effect as though such service was performed entirely within such State.
The Act was intended to ensure that seamen would not be treated less favorably than other workers. See H.R.Rep. No. 2526, 79th Cong., 2d Sess. 9.
New Jersey's first unemployment compensation law was enacted in 1936, L.1936, c. 270 (N.J.Rev.Stat. §§ 43:21-1 et seq.). It provided for contributions by both employers and employees, and for the withholding of contributions from the employees' wages. The statute followed the federal lead by excluding seamen and their employers from its coverage. See N.J.Rev.Stat. § 43:21-19(h)(7)(C). In 1945, the New Jersey legislature amended section 7 of its unemployment compensation law to delete the exclusion of seamen from coverage. L.1945, c. 73, p. 374, Sec. 3. The amendment followed a Supreme Court decision holding that the exemption of employers of seamen from the federal Social Security Act did not operate necessarily to exempt such employers from state unemployment taxes. Standard Dredging Corp. v. Murphy, 319 U.S. 306, 63 S. Ct. 1067, 87 L. Ed. 1416 (1943).
N.J.Stat.Ann. § 43:21-7(d) now sets forth the rate at which workers employed by New Jersey employers are taxed for purposes of unemployment compensation and disability,
and establishes the means by which the required contributions shall be collected:
Each employer shall, notwithstanding any provision of law in this State to the contrary, withhold in trust the amount of his workers' contributions from their wages at the time such wages are paid, shall show such deduction on his payroll records, shall furnish such evidence thereof to his workers as the division may prescribe, and shall transmit all such contributions, in addition to his ...