DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 41-99
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	GRACE A. KILBANE Director Unemployment Insurance Service
SUBJECT	:	Unemployment Compensation for Federal Employees (UCFE) Program Coverage for Individuals Paid by Federal Agencies on a Contract or Fee Basis

1. Purpose. To provide revised guidance to State Employment Security Agencies (SESAs) regarding the UCFE program coverage of individuals paid by Federal agencies on a contract or fee basis.

2. References. 5 U.S.C. 8501(1); 5 CFR 831.307; 20 CFR Part 609; and ET Handbook No. 391.

3. Background. The Secretary of Labor has the responsibility for determining if an individual performs "Federal service" as defined at 5 U.S.C. 8501(1) for UCFE program eligibility purposes. This responsibility was delegated to the Assistant Secretary for Manpower (now the Assistant Secretary for Employment and Training) in April 1975, and was redelegated to the Director of the Unemployment Insurance Service in February 1992, (57 FR 13760, April 17, 1992).

   Since 1954, the Department of Labor (the Department) has issued UCFE program coverage interpretations (rulings) upon request from the SESAs and Federal agencies. These coverage rulings determine whether any of the exclusions from "Federal service" at 5 U.S.C. 8501(1) apply to a particular individual or group. In the last ten years, a majority of these requests have dealt with individuals paid by Federal agencies on a contract or fee basis.

   In issuing its determination regarding whether individuals paid on a contract or fee basis byFederal agencies perform "Federal service,": the Department takes into consideration contracts of service, and other indicia of the individual's employment or self-employment. After examining such pertinent materials, the Department first determines if the service being performed by the individual(s) paid on a contract or fee basis by a Federal agency is service performed &qout;in the employ of the United States or an instrumentality of the United States which is wholly or partially owned by the United States, . . ." and, therefore, included under 5 U.S.C. 8501(1). If included under this section of the code, the Department then determines if any of the exclusions from "Federal service" at 5 U.S.C. 8501(1) are applicable, and in particular, the exclusion at paragraph (E). Paragraph (E) of 5 U.S.C. 8501 (1) excludes from coverage as "Federal service" any service performed--

   by an individual excluded by regulations of the Office of Personnel Management from the operation of Subchapter III of chapter 83 [governing retirement coverage for Federal employees] of this title because he is paid on a contract or fee basis.

   In 1991, the Department determined that the exclusion at paragraph (E) of 5 U.S.C. 8501(1) was not applicable for UCFE program purposes after January 8, 1988, when the relevant Office of Personnel Management (OPM) regulations were revised. The revised OPM regulations at 5 CFR 831.307 permitted a Federal employing agency to provide Federal retirement eligibility only if the employing Federal agency exercised an explicit statutory authority to appoint an individual into the civil service by contract, or if there was an intent by the employing Federal agency to appoint the individual into a position in which (s)he would have been subject to OPM regulations governing the retirement of Federal employees and a deposit has been paid in accordance with OPM regulations.

   The Department recently received a request for a UCFE coverage ruling which involved the UCFE program eligibility of an individual hired as a contract guard with the United States Marshals Service. Based upon its 1991 decision, the Department determined that this individual did perform "Federal service" for UCFE program purposes. This determination was in large part based on the position contained in the preceding paragraph. After issuing this ruling, however, the Department, in consultation with OPM legal staff, reviewed its position concerning the exclusion at paragraph (E). As the result of these consultations, the Department is revising its position on the applicability of the exclusion at paragraph (E) of 5 U.S.C. 8501(1).

4. Interpretation. The Department has determined that paragraph (E) of 5 U.S.C. 8501(1) excludes from "Federal service" individuals paid by Federal agencies on a contract or fee basis if they are ineligible for Federal retirement under the revised OPM regulations at 5 CFR 831.307.

   Consequently, an employing Federal agency, either by explicit statutory authority or by intent, must include an individual paid on a contract or fee basis in Federal retirement coverage in order for the individual to perform "Federal service" for UCFE program coverage purposes. Conversely, if the employing Federal agency, by explicit statute or intent, does not include the individual paid on a contract or fee basis in Federal retirement coverage, the OPM regulation at 5 CFR 831.307 effectively excludes the individual from retirement coverage and the exclusion at 5 U.S.C. 8501(1)(E) is also applicable.

5. Effective Date. The revised interpretation contained in this UIPL is effective for all determinations, redeterminations and decisions on appeal made on and after the date of this directive.

6. Effect on Redeterminations, Decisions on Appeal, and Overpayments. 

   1. Redeterminations.  Redeterminations of UCFE claims shall be undertaken by a State or SESA solely under the authority in 20 CFR 609.6(c). The provisions of the applicable State's unemployment compensation (UC) law shall be the sole criterion in determining whether the State or SESA has the authority to make a redetermination of any claim affected by the interpretation contained in this UIPL.

   2. Decisions on Appeal.  Appeals of UCFE claims affected by the interpretation contained in this UIPL shall be undertaken solely under the authority in 20 CFR 609.7. For this purpose, the State UC law includes judicial decisions of the courts of the State in comparable unemployment insurance cases as well as State statutory provisions, and thus is the same as "State law" which is relevant for conformity and compliance purposes under Title III of the Social Security Act.

   3. Overpayments.  Any redetermination or decision on appeal affected by the interpretation contained in this UIPL that results in an overpayment of UCFE benefits shall be handled in accordance with 20 CFR 609.11.

7. Action Required. SESA Administrators are required to:

   1. Follow the interpretation contained in this UIPL on UCFE claims; and

   2. Furnish appropriate staff (including SESA appellate staff) with a copy of this UIPL for their future guidance on UCFE claims.

8. Inquiries.  Direct inquiries to the appropriate Regional Office.