Filed 12/5/14

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

WEST HOLLYWOOD COMMUNITY 

HEALTH AND FITNESS CENTER,

Plaintiff and Appellant,

v.

CALIFORNIA UNEMPLOYMENT 

INSURANCE APPEALS BOARD,

Defendant and Respondent.

 B248641

 (Los Angeles County

 Super. Ct. No. BS135715)

APPEAL from a judgment of the Superior Court of Los Angeles County, 

Luis A. Lavin, Judge. Reversed.

Kassinove & Raskin, Edward B. Raskin and Joshua M. Caplan for Plaintiff and 

Appellant.

Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney 

General, W. Dean Freeman and Lisa W. Chao, Deputy Attorneys General, for 

Defendant and Respondent.

* * * * * *
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This appeal requires us to consider whether an employer may obtain judicial 

review of a decision from the California Unemployment Insurance Appeals Board (the 

Board) finding that an applicant for unemployment benefits was an employee, not an 

independent contractor. The Board argues that decision is not subject to judicial 

review because both the California Constitution and the Unemployment Insurance 

Code bar actions whose purpose is to prevent the collection of state taxes. Appellant 

recognizes that actions seeking to avoid a tax are prohibited, but argues that this case 

does not challenge the imposition of a tax. We agree with appellant and reverse the 

judgment.

FACTS AND PROCEDURE

Mario Serban worked as a massage therapist at West Hollywood Community 

Health and Fitness Center, doing business as Voda Spa (Voda Spa). Serban and Voda 

Spa disagree as to the reason why he left that work, but the trial court found Serban 

had good cause to leave, and that finding is not challenged on appeal. Serban and 

Voda Spa also dispute whether Serban was an employee or independent contractor. 

That is the issue Voda Spa seeks to litigate.

1. Employment Development Department Rulings

After leaving his job at Voda Spa, Serban applied for unemployment benefits. 

On April 19, 2011, the Employment Development Department (EDD) sent Voda Spa a 

letter indicating that Serban was an employee. On May 19, 2011, the EDD sent Voda 

Spa notice indicating Serban was an employee and had good cause to leave work. 

Voda Spa appealed from those findings.

An administrative law judge heard the appeal and concluded that Serban was an 

employee. In a separate opinion, the administrative law judge concluded that Serban 

had good cause to leave his work, making him eligible for unemployment benefits. 

Voda Spa appealed from those determinations. The Board affirmed both findings in 

separate opinions. The Board’s decision regarding good cause further indicated that 

“[t]he employer’s reserve account is subject to charges.”
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2. Voda Spa’s Petition for Writ of Mandate Is Denied

Voda Spa sought administrative mandamus pursuant to Code of Civil Procedure 

section 1094.5. Voda Spa sought to challenge both the decision that Serban had good 

cause to leave his work and the finding that he was an employee. The trial court heard 

the former, but granted the Board’s motion to strike all allegations concerning 

Serban’s employment status. On appeal, Voda Spa challenges only the trial court’s 

conclusion that it could not review the Board’s decision that Serban was an employee.

DISCUSSION

We begin with relevant background on unemployment insurance, then discuss 

separately judicial review of the taxation and benefit decisions by the EDD. Finally, 

we consider First Aid Services of San Diego, Inc. v. California Employment 

Development Dept. (2005) 133 Cal.App.4th 1470 (First Aid), which the Board argues 

is dispositive and Voda Spa argues was wrongly decided.

The purpose of the unemployment insurance program is to provide benefits for 

“persons unemployed through no fault of their own, and to reduce involuntary 

unemployment and the suffering caused thereby to a minimum.” (Unemp. Ins. Code,

§ 100.) “To finance state unemployment and disability benefits, California requires 

contributions from both employers and employees. Generally, employers must 

annually contribute to the unemployment fund based on wages paid to their 

employees.” (Hunt Building Corp. v. Bernick (2000) 79 Cal.App.4th 213, 219 (Hunt 

Building Corp.).) “The employer/employee relationship determines who must make 

contributions to the unemployment and disability funds. [Citation.] Where an 

employee performs services for an employer, the employer is required to make 

contributions and withhold taxes; where an independent contractor performs services 

for a principal, the principal is not required to withhold taxes or make contributions.” 

(Ibid.)

“‘The taxing sections of the [Unemployment Insurance Code] are entirely 

separate from those concerning benefits, and . . . the provisions fixing liability for 

payments to the fund are to be considered accordingly.’” (Hunt Building Corp., supra, 
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79 Cal.App.4th at p. 219.) “[T]here are ‘significant substantive and procedural 

differences between the Unemployment Insurance Act’s benefit and taxation 

components.’” (Merchandising Concept Group, Inc. v. California Unemployment Ins. 

Appeals Bd. (2010) 181 Cal.App.4th 1274, 1282.)

1. Judicial Review of Tax Decisions

The superior court has no power to grant a writ of mandate to prevent the 

collection of state taxes. California Constitution, article XIII, section 32 (section 32) 

provides: “No legal or equitable process shall issue in any proceeding in any court 

against this State or any officer thereof to prevent or enjoin the collection of any tax. 

After payment of a tax claimed to be illegal, an action may be maintained to recover 

the tax paid, with interest, in such manner as may be provided by the Legislature.”

The longstanding prohibition is based on “the dangers inherent in delaying 

collection of needed public revenue . . . .” (Pacific Gas & Electric Co. v. State Bd. of 

Equalization (1980) 27 Cal.3d 277, 282.) “The policy behind section 32 is to allow 

revenue collection to continue during litigation so that essential public services 

dependent on the funds are not unnecessarily interrupted. [Citation] ‘Any delay in the 

proceedings of the officers, upon whom the duty is devolved of collecting the taxes, 

may derange the operations of government, and thereby cause serious detriment to the 

public.’” (Id. at p. 283.) “Procedural due process does not require judicial

determination of tax liability before collection of a tax [citations]; and . . . it is 

established that the government may effect collection of taxes by summary 

administrative proceedings [citation].” (Dupuy v. Superior Court (1975) 15 Cal.3d 

410, 416.)

Section 32 “bars ‘not only injunctions but also a variety of prepayment judicial 

declarations or findings which would impede the prompt collection of a tax.’” 

(California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247-

248.) Similar to the constitutional prohibition, Unemployment Insurance Code section 

1851 governs unemployment insurance contributions and provides: “No injunction or 

writ of mandate or other legal or equitable process shall issue in any suit, action or 
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proceeding, in any court against this State or against any officer thereof to prevent or 

enjoin the collection of any contribution sought to be collected under this division.”

Several cases have applied these principles in the context of unemployment 

taxes. In Louis Eckert B. Co. v. Unemploy. R. Com. (1941) 47 Cal.App.2d 844, the 

court held that a corporation could not obtain a declaratory judgment that it was not an 

employer within the meaning of the Unemployment Insurance Act. In that case, the 

Unemployment Reserves Commission was “about to tax” the corporation seeking 

declaratory relief. (Id. at p. 845.) The court held that the predecessor to 

Unemployment Insurance Code section 1851 precluded the lawsuit. (Louis Eckert B. 

Co., at p. 846.) “The commission herein could not properly undertake to enforce a tax 

against plaintiff corporation as an employer in defiance of an adjudication that the 

latter did not maintain that relationship with the other parties.” (Ibid.) The employer 

must pay the tax under protest and then sue to recover the amount paid. (Id. at p. 847.)

Interpreting a section similar to section 32, in Modern Barber Col. v. Cal. Emp.

Stab. Com. (1948) 31 Cal.2d 720 (Modern Barber Colleges), our high court considered 

a mandamus petition to compel the commission to vacate its finding that certain 

persons were employees of Modern Barber Colleges, “and to cancel the charges made 

against the petitioner [Modern Barber Colleges] by virtue of these findings.” (Id. at 

p. 722.) Judicial review was not available because Modern Barber Colleges had not 

paid its taxes. (Id. at pp. 722, 723.) The high court reasoned as follows: “It is obvious 

that a judgment directing the commission to vacate its findings would in effect amount 

to a declaration by the court that the relationship did not exist; the commission after 

such a judgment could not ‘properly undertake to enforce a tax against plaintiff

corporation as an employer in defiance of an adjudication that the latter [asserted

employer] did not maintain that relationship with the other parties.’” (Id. at p. 723.) 

The court held: “Since the net result of the relief prayed for herein would be to 

restrain the collection of the tax allegedly due, the action must be treated as one having 

that purpose.” (Ibid.)
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More recently in California Logistics, Inc. v. State of California, supra, 161 

Cal.App.4th 242, the court applied this rule to an employer’s effort to seek review of 

the employee independent contractor determination after the EDD sent “a ‘Proposed 

Notice of Assessment’ in the amount of $1,287,898.90.” (Id. at p. 246.) The employer 

alleged that it could not afford to pay the proposed assessment and that if it were 

required to pay the assessment prior to challenging the EDD’s determination, it would 

be denied judicial review. (Ibid.) The court reiterated the policy that: “‘A taxpayer 

ordinarily must pay a tax before commencing a court action to challenge the collection 

of the tax. This rule, commonly known as “pay first, litigate later,” is well established 

and is based on a public policy reflected in the state Constitution, several statutes, and 

numerous court opinions.’” (Id. at p. 247.) “‘A taxpayer may not go into court and 

obtain adjudication of the validity of a tax which is due but not yet paid. [¶] The 

important public policy behind this constitutional provision “is to allow revenue 

collection to continue during litigation so that essential public services dependent on 

the funds are not unnecessarily interrupted.” [Citation.] “The fear that persistent 

interference with the collection of public revenues, for whatever reason, will destroy 

the effectiveness of government has been expressed in many judicial opinions.”’” 

(Ibid.) The appellate court concluded that the relief sought in the lawsuit was barred 

by section 32. (California Logistics, Inc. v. State of California, at p. 833.)

These cases show that it is well established a party may not seek judicial review 

of a tax in advance of paying the tax. To challenge a tax, a party must follow these

steps: “(1) the claimant files a claim for refund or credit ([Unemp. Ins. Code,] 

§§ 1178, subd. (a), 1241, subd. (a)); (2) the director of the [EDD] denies the claim for 

refund or credit (§§ 1180, 1222); (3) the claimant files a petition for review with an 

administrative law judge (§ 1222); (4) the administrative law judge reviews the matter 

and renders a decision (§ 1223); (5) the claimant or director of the [EDD] files an 

appeal to the . . . Board regarding the petition for review of the denial of the claim for 

refund (§ 1224); and (6) the . . . Board issues its order or decision regarding the 

petition for review of the claim for refund and serves notice of the decision (§§ 1224, 
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1241, subd. (a)).” (Merchandising Concept Group, Inc. v. California Unemployment 

Ins. Appeals Bd., supra, 181 Cal.App.4th at p. 1281.) The sole procedure to challenge 

a tax is to pay the tax and then file a suit for a refund. (California Logistics, Inc. v. 

State of California, supra, 161 Cal.App.4th at p. 247.)

2. Judicial Review of Benefit Decisions

In contrast to a challenge to a tax decision, a party may challenge a benefit 

decision. When an employer’s reserve account is charged, the employer may 

challenge the charges by means of a petition for writ of mandate. (Interstate Brands v. 

Unemployment Ins. Appeals Bd. (1980) 26 Cal.3d 770, 782.) “‘The imposition of an 

erroneous charge against an employer’s account, with the attendant consequence of his 

having to pay an increased contribution, amounts to a wrongful deprivation of 

property. The petitioner, as a contributing employer, has a vital interest in the status or

condition of its reserve account and since the administrative decision here in question 

may affect its financial responsibility to the unemployment fund a sufficient right of 

property is involved to entitle it to a limited trial de novo as to the propriety of the 

charges made against its account.’” (Id. at p. 776.) An employer has a “direct 

pecuniary interest in any payments made to a claimant which may be charged against 

his reserve account.” (Chrysler Corp. v. California Employment Stabilization Com.

(1953) 116 Cal.App.2d 8, 14.)

Our high court has allowed challenges to a decision regarding benefits. For 

example, in Matson Terminals, Inc. v. Cal. Emp. Com. (1944) 24 Cal.2d 695—an 

employer petitioned for writ of mandamus to prevent enforcement of an order 

awarding unemployment insurance benefits. (Id. at p. 698.) The high court held that 

an employer whose reserve account may be affected by the payment of benefits may 

appeal from the initial determination and the decision of the referee. (Id. at p. 701.) 

“The act thus recognizes his adversary interest in preventing the illegal payment of 

benefits and does not limit his remedy to a protest of charges that have been made to 

his account after the disputed benefits have been paid.” (Id. at p. 702.) “He is a party 

‘beneficially interested’ in the administrative proceeding to determine the award of 
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benefits and retains this status for the purpose of testing before a court of law the 

legality of the commission’s final decision.” (Ibid.)

More recently, in Southwest Research Institute v. Unemployment Ins. Appeals 

Bd. (2000) 81 Cal.App.4th 705, the appellate court ordered that a peremptory writ of 

mandate issue, setting aside the decision of the Board that the corporation be charged 

with unemployment compensation benefits. Such reversal was required because the 

appellate court determined that the worker was an independent contractor, not an 

employee, as had been determined by the Board. (Id. at p. 711.) Similarly, in Metric 

Man, Inc. v. Unemployment Ins. Appeals Bd. (1997) 59 Cal.App.4th 1041, the court 

considered a petition for writ of mandate, seeking to overturn the determination of the

Board that a worker was an employee rather than an independent contractor.

A party seeking to challenge charges to a reserve account must comply with 

Unemployment Insurance Code section 1034. (Unemp. Ins. Code, § 1243.) Section 

1034 provides: “The employer, within 60 days after the date of mailing of any 

statement of charges or credits and charges to the reserve account, or within an 

additional period not exceeding 60 days which may for good cause be granted by the 

director, may file with the director a written protest on any item shown thereon. The 

protest shall set forth the specific grounds on which it is made. No protest may be 

made on the ground that a claimant was ineligible for a benefit payment where the 

employer was notified as required by this division and any authorized regulation of the 

filing of a claim for the benefits or of a determination of the claimant’s eligibility 

therefor and the employer failed to file a timely appeal on the benefit claim, or a final 

decision of an administrative law judge or of the appeals board affirmed the payment 

of the benefits. Except as to corrections made by the director as provided in Section 

1036, the contribution rate and other items shown on any such statement of charges or 

statement of account shall be final unless a protest is filed within the time prescribed in 

this section.” (Italics added.)

The italicized language indicates that a party that fails to challenge the Board’s

final decision when notified of the claim, may not subsequently seek judicial review. 
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The Board argues that “[Unemployment Insurance Code] [s]ection 1034, subdivision 

(a)’s exclusion of protests for charges that were subjects of final administrative 

appeals, however, in no way bars a tax refund action . . . . It simply prevents 

employers such as Voda Spa from having a second bite at the apple to protest charges 

that had already been administratively appealed. [¶] Neither section 1034 nor section 

1243 affects Voda Spa’s ability to make a claim for or sue for a tax refund.” The 

problem with the Board’s argument is that the subject of sections 1034 and 1243 are 

not a tax refund but a challenge to charges to the party’s reserve account. A party with 

sufficient notice (as in this case) that does not challenge the Board’s decision charging 

the reserve account, is foreclosed from later making such challenge.

3. First Aid, Supra, 133 Cal.App.4th 1470

First Aid, supra, 133 Cal.App.4th 1470 blurs the distinction between a tax and a 

benefit. In First Aid, an employer sought mandamus review of a challenge to the 

Board’s decision that a person was an employee rather than an independent contractor. 

(Id. at p. 1477.) That decision occurred in the context of determining whether a 

worker was entitled to unemployment insurance benefits. (Id. at p. 1476.) Extending 

Modern Barber Colleges, First Aid held that mandamus could not be used to challenge 

an administrative determination that persons were employees rather than independent 

contractors even though no tax had been assessed. (First Aid, supra, at pp. 1480-

1481.) The court reasoned that “the net result of the relief prayed for in the challenged 

mandamus proceeding at issue here—reversal of the Board’s finding that [a worker] is 

an employee of First Aid—would be to restrain the collection of unemployment 

insurance contributions allegedly owed by First Aid under the provisions of the 

Unemployment Insurance Code based on the employer-employee relationship the 

Board found exists between First Aid and [its worker].” (Id. at p. 1480.)

We agree with First Aid to the extent it holds that, if the “net result of the relief 

prayed for herein would be to restrain the collection of the tax allegedly due, the action 

must be treated as one having that purpose,” as that is required by Modern Barber

Colleges, supra, 31 Cal.2d at page 723. However, here there is no allegation or 
10

evidence subject to judicial notice that the action is one to restrain the collection of a 

tax allegedly due, or imminently due. Therefore, at this early state in the proceedings, 

we must assume that no tax was assessed or was allegedly due. Therefore, Voda Spa 

may seek judicial review of the Board’s determination that Serban was an employee, 

not an independent contractor.

The Board’s argument that section 32, Unemployment Insurance Code section 

1851, Modern Barber Colleges and First Aid compel a different result, is not 

persuasive. First, the Board acknowledges that “the charge to Voda Spa’s reserve 

account resulting from benefits awarded to Serban is not a tax payment within the 

meaning of article XIII, section 32 or section 1851. The only effect of the charge, is 

the likelihood that Voda Spa’s future reserve ratio will decrease, resulting in a higher 

future contribution rate.”1 Second, this case is different from Modern Barber Colleges

because here, no tax was assessed in contrast to Modern Barber Colleges, in which a 

tax had been assessed and the petitioning party sought to avoid the tax. That 

distinction is important because Modern Barber Colleges was based on applying a 

provision similar to section 32, which prohibits a lawsuit to prevent the collection of a 

tax. Similarly, section 32 and Unemployment Insurance Code section 1851 apply only 

to lawsuits seeking to prevent the collection of a tax. Finally, to the extent First Aid

requires a different result, we conclude that First Aid’s extension of Modern Barber

Colleges improperly blurs the tax/benefit distinction. Because there was no 

assessment in this case, the pay now, litigate later rule, is simply inapplicable.

 

1 The higher an employer’s reserve ratio, the lower the employer’s tax. (Lorco 

Properties, Inc. v. Department of Benefit Payments (1976) 57 Cal.App.3d 809, 813.) 

“‘The reason for this is simply that when an employer’s reserve ratio is high it 

indicates his experience with unemployment has been good and his percentage of 

unemployment relatively low, and this results in a favorable rate of tax.’” (Ibid.)
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DISPOSITION

The judgment is reversed. The trial court is directed to enter a new order 

denying respondent’s motion to strike. The parties are to bear their own costs on 

appeal.

FLIER, J.

WE CONCUR:

BIGELOW, P. J.

GRIMES, J.