Or, who should be in charge for the sake of middle-class prosperity, Mr. Potter or George Bailey?
Unemployment is a key economic indicator, as the rate is tied to whether companies are hiring or laying off workers. The whole point of unemployment benefits, after all, is economic insurance for businesses so that their customers continue to have money to buy the things they need, like food and housing.
The decreased and irregular purchasing power of wage earners in turn vitally affects the livelihood of farmers, merchants and manufacturers, results in a decreased demand for their products, and thus tends partially to paralyze the economic life of the entire state. In good times and in bad times unemployment is a heavy social cost, directly affecting many thousands of wage earners. Each employing unit in Wisconsin should pay at least a part of this social cost, connected with its own irregular operations, by financing benefits for its own unemployed workers. Each employer’s contribution rate should vary in accordance with its own unemployment costs, as shown by experience under this chapter.
Bruce Thompson of Data Wonk fame crunches the numbers and comes up with the unsurprising result that:
Over the years, there have been a substantial number of studies that found the nation did better economically with Democratic presidents than with Republicans. Wikipedia does a good job of summarizing the studies and what they found.
The only real surprise noted by Thompson is why public opinion polling continues to show that many people think the economy performed better under Republican leadership. It’s almost as if the Mr. Potters of the world have convinced the people to ignore the George Baileys and even to blame poor George for what Mr. Potter has been doing all this time.
The only real monkey-wrench in the economy right now is the rising cost in housing. While accelerating rents certainly are a problem, the “Mr. Potters” of the world are who created this housing problem in the first place. So, they certainly are not going to do anything to make housing more affordable.
Turning the battleship that represents housing around to point to lower rents is not going to happen over night, not even for George Bailey or his brother, the war hero. But, certainly the only chance for that happen is with the George Baileys, at least in our current political climate.
There is no doubt any longer that the 40% administrative concealment penalty that the Department charges for unemployment fraud is highly profitable to the Department.
Note: The 40% administrative penalty is actually two separate penalties: a 15% penalty that goes back into the unemployment trust fund and a 25% penalty that goes into a separate program integrity fund.
The program integrity fund has mushroomed in size with the Covid-19 pandemic, as all of those unemployment benefits that were paid out have become an effective mechanism for charging unemployment fraud for unintentional claim-filing mistakes and thereby tacking on additional administrative concealment penalties. From its creation in December 2015, the program integrity fund has risen to over $36 million by March of this year.
The “dedication” of the Department to charging these administrative concealment penalties became obvious from testimony during various hearings in 2022 and early 2023, when Department program integrity staffers revealed that the Department applied the 40% administrative concealment penalties as early as December 2020 to Pandemic Unemployment Assistance (“PUA”) benefits.
At that time, the U.S. Dep’t of Labor had explicitly directed that PUA benefits were NOT subject to administrative concealment penalties, because the U.S. Dep’t of Labor understood at that time that PUA benefits were like Disaster Unemployment Assistance (“DUA”) benefits. SeeUIPL No. 16-20 Change 2 (21 July 2020) at I-9 (states may not impose a 15% fraud penalty or their own disqualification period because provisions set forth in 20 CFR § 625.14 for DUA benefits govern and did not allow for such additional fraud penalties).
Note: DUA benefits are FEMA-funded and so not an unemployment benefit at all, an important point that will be revisited below.
Another note: In UIPL No. 16-20 Change 4 (8 Jan. 2021) at I-24 to I-25, the U.S. Dep’t of Labor reversed course by concluding that Section 251 of the Trade Adjustment Assistance Extension Act of 2011 (TAAEA), Pub. L. 112-40 (2011) applied to PUA benefits, as PUA benefits qualify as an “unemployment compensation program of the United States” for which a minimum 15% administrative concealment penalty must be charged. In UIPL No. 20-21 (5 May 2021) at 4-5, the U.S. Dep’t of Labor expanded application of administrative concealment penalties to include PUC, MEUC, and PEUC benefits as well as PUA benefits.
So, the Department had decided to charge administrative concealment penalties for PUA benefits WHEN the U.S. Dep’t of Labor had explicitly directed states to NOT charge administrative concealment penalties for PUA benefits and BEFORE the U.S. Dep’t of Labor had reversed course and determined that PUA benefits should be subject to administrative concealment penalties.
In light of the Department’s “dedication” to charging administrative concealment penalties, the Department also began charging its administrative concealment penalties to Lost Wages Assistance that claimants received (according to Department program integrity staffers, the Department made the decision to charge administrative concealment penalties for Lost Wages Assistance in August 2020, more than a month before any Lost Wages Assistance was even paid out to claimants in Wisconsin).
Furthermore, the Department charged these administrative concealment penalties in many cases without any notice, as the first UCB-27 forms in 2021 that set forth over-payments for Lost Wages Assistance failed to disclose the administrative concealment penalties the Department was charging.
And, there certainly was no way to appeal these alleged over-payments, as the UCB-27 forms were not themselves appealable, only notices that could be “objected” to.
As already observed, however, the Department was and is “dedicated” to charging administrative concealment penalties. As a result, only a few people who had representation have managed to challenge these administrative concealment penalties for Lost Wages Assistance.
On September 27, 2022, an appeal tribunal decision was issued finding that the claimant intentionally concealed work and wages from the department while working as a self-employed real estate agent. The decision resulted in a $1,200 overpayment of LWA benefits. [The appeal tribunal had also concluded that 40% administrative concealment penalties applied to Lost Wages Assistance because concealment penalties always apply when there is unemployment fraud.]
The issue presented in this case is whether the department may assess a 40% penalty on the LWA overpayment because of the concealment of the hours worked and income received by the claimant from his self-employment.
The commission finds that the Department does not have the legal authority to charge a penalty on fraudulently obtained LWA benefits. The LWA program is not an unemployment benefit program, and the associated benefits are not unemployment benefits.
Note: Ex. 7 at U78; Hearing Tr. at 39 (Department witness testified that “LWA is not an unemployment benefit.”)[.] The LWA program was created by a Presidential Memorandum on August 8, 2020, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act[,] 42 U.S.C. § 5174 (the “Stafford Act”).
As such, the legal authority that requires a penalty to be charged on fraudulently obtained regular unemployment benefits and the federally provided pandemic unemployment benefits does not extend to the LWA program and benefits.
Note: The Department of Labor (“DOL”) initially advised states that a fraud penalty could not be charged on Pandemic Unemployment Assistance (“PUA”) benefits that were obtained fraudulently. UIPL 16-20, Change 2, Attachment I, I-9, issued July 21, 2020. However, the DOL subsequently changed its stance on whether a penalty could be charged on PUA benefits that were obtained fraudulently. UIPL 16-20, Change 4, issued January 8, 2021. The DOL provided further guidance that informed states that the fraud penalty must be charged to all CARES Act unemployment benefits obtained fraudulently. This included PUA, Federal Pandemic Unemployment Compensation (“FPUC”), Mixed Earners Unemployment Compensation (“MEUC”), and Pandemic Emergency Unemployment Compensation (“PEUC”) benefits. UIPL 20-21, p 4-5[,] issued May 5, 2021. As justification for this change, the DOL cited Section 251(a) of the Trade Adjustment Assistance Extension Act of 2011 (“TAAEA”) (Pub. L. 112-40), which created section 303(a)(11) of the Social Security Act (“SSA”) (42 U.S.C. § 503(a)(11)). Section 251(a) of the TAAEA applies to unemployment benefit programs. 42 U.S.C. § 503(a)(11) states, “At the time the State agency determines an erroneous payment from its unemployment fund was made to an individual due to fraud committed by such individual, the assessment of a penalty on the individual in an amount of not less than 15 percent of the amount of the erroneous payment.”
The claimant was paid LWA for weeks 31, 33, 34, and 36 of 2020 in the amount of $1,200.00 [$300 each week], for which the claimant was not eligible and to which the claimant was not entitled, and that the payment of such benefits was due to. Fault on the part of the claimant and/or repayment would not be contrary to equity and good conscience, and that recovery of the benefits paid shall not be waived, within the meaning of Section 262 of the Continued Assistance for Unemployed Workers Act of 2020.
The department may not assess an administrative penalty equal to 40% of the LWA overpayment.
The Department’s “dedication” to administrative concealment penalties would not be denied, however. And so, the Department appealed the Commission decision to circuit court. But, it turned out that the circuit court was not as dedicated to administrative concealment penalties as the Department. The court initially observed:
This case involves the legality of a $480 penalty the Department of Workforce Development (“Department”) assessed against [the claimant] for his inappropriate receipt of $1200 in disaster relief funds stemming from his concealment of real estate commissions earned during four weeks in 2020. It is a fair assumption that, even with rigid adherence to electronic document protocols to prevent waste, the litigants have incurred more than $480 in paper costs addressing this penalty.
The amount of the penalty, however, is not the issue. The issue is the Department’s authority to assess it, and in order to resolve that issue, the Court must harken back to the strange and surreal period known as the COVID-19 pandemic.
* * *
The Department essentially makes two arguments supporting its authority to assess a penalty on overpaid LWA payments. First, it contends that the provisions of the CARES Act specifically authorize the Department to assess a penalty, and those provisions can and should apply to the LWA, as well. Second, the Department argues that, because [the claimant’s] LWA benefits were paid from the Wisconsin Unemployment Trust Fund, the Department is authorized to charge a 40% penalty—and in fact the Department is statutorily required to impose that penalty—under Wis. Stat. § 108.04(11)(bh).
The court rejects both claims. First:
Unlike the CARES Act programs, however, LWA is not an unemployment program. The source of the program, the guidance associated with it, and the testimony of the Department’s own witness before the appeal tribunal, establish this. None of the authorities cited by the Department specifically authorizes the Department to charge a penalty on LWA overpayments, nor does the State Plan agreement with FEMA authorize imposition of a penalty.
Second, as to payment of Lost Wages Assistance coming from the unemployment trust fund through a decision by the Department to pay Lost Wages Assistance from the trust fund rather than following federal guidance:
LWA, however, is not an unemployment insurance program, but a major disaster assistance program, and thus [California Dep’t of Human Resources Development v. Java, 402 U.S. 121 (1991)] provides no support for the Department’s actions. Moreover, the USDOL was clear in its guidance that states could not use funds in their unemployment account in the Unemployment Trust Fund to process funding for LWA payments. (Doc. 38 at 96 of 134 (UIPL 27-20, Change 1)). Simply because the Department ignored that guidance and inappropriately paid [the claimant’s] LWA benefits from the Unemployment Trust Fund does not then bootstrap the Department’s authority to treat the payment like an unemployment payment and assess the penalty otherwise required by § 108.04(11)(bh). Organizations, particularly publicly traded corporations, can get into big trouble for pulling a stunt like the Department pulled in funding the LWA payments from an unauthorized account. In this Court’s view, state agencies should be held to a higher standard, not a more lenient one, when accounting for and disbursing public funds.
The tragedy here is that the Department’s illegal “dedication” to administrative concealment penalties has already won out. As the above-chart demonstrates, the Department has likely collected hundreds of thousands of dollars in administrative concealment penalties tied to Lost Wages Assistance that it will NOT be refunding to anyone, despite this court decision. Indeed, many do not even know about these illegal collections by the Department because they never received notice in the first place.
On March 26th of this year, the Wisconsin Supreme Court decided that further review in Amazon Logistics v. LIRC, 2024 WI 15, was premature. As a result, the court of appeals decision in Amazon Logistics v. LIRC, 2023 WI App 26, 407 Wis.2d 807, 992 N.W.2d 168, remained in place.
Before getting to that appeals court decision and what it means, the terrain for gig workers (also called self-employed workers or independent contractors) has been in a topsy-turvy legal world. Gig workers, after all, typically include drivers for Uber, Lyft, Door Dash, and Amazon, all of whom became suddenly very important during the Covid-19 pandemic. And so, some review of what has been happening the past few years in the law both in Wisconsin and elsewhere is needed.
The significance of this issue is that companies that mis-classify their employees as gig-workers avoid paying essential workplace taxes like unemployment or even minimum wages for their workers. This failure to abide by basic workplace requirements has become a major workplace problem, a problem often called mis-classification.
Employers in an increasing number of industries misclassify their employees as independent contractors, denying them the protection of workplace laws, robbing unemployment insurance and workers’ compensation funds of billions of much-needed dollars, and reducing federal, state and local tax withholding and revenues, while saving as much as 30 percent of payroll and related taxes otherwise paid for “employees.”
The “flexibility” companies like Uber and Lyft tout for their gig-economy workers are, in fact, crafted algorithms, social designs, and behavioral tricks to shape, manage, and oversee their workers’ schedules, availability, and activities. See Noam Scheiber, How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons (2 Apr. 2017) (describing Uber’s use of “psychological inducements and other techniques unearthed by social science to influence when, where and how long drivers work”), Sarah Mason, High Score, Low Pay: Why the Gig Economy Loves Gamification (20 Nov. 2018) (detailing the “gamification” techniques and algorithms used by Uber and Lyft to manage their drivers), Alex Rosenblat, When Your Boss is an Algorithm (12 Oct. 2018) (describing Uber’s use of algorithms to manage its workforce), and Rebecca Smith, Flexibility in the On-Demand Economy (June 2016) (“In the end, a job with Uber or other on-demand companies comes with roughly the same degree of freedom as a job with a staffing agency or as a substitute teacher or day laborer: while a worker is ostensibly free to decide not to work on a particular day, she may not get a call the next time she wants to work, and she may be short on cash at the end of the month.”).
Other states
Mis-classification of gig workers has been a major issue in numerous states. Here is a sampling of what has been happening in those other states.
In California, the birthplace of the gig-economy via transportation network companies, the issue has bounced between legislation, courts, and ballot initiatives. Legislation to classify these drivers as employees, AB5, was passed and affirmed after a court challenge. People v. Uber Techs., Inc., 56 Cal.App.5th 266, 270 Cal.Rptr.3d 290 (Cal. App. 2020). A California ballot initiative sponsored by gig-economy companies called Prop 22, however, partially repealed AB5 for Uber and Lyft drivers, until a court ruled that Prop 22 violated California state constitution requirements. Castellanos v. California and Protect App-based Drivers, Alameda County Superior Ct. Case No. RG21088725 (slip op., 20 Aug. 2021). That decision has since been appealed, seeCastellanos v. State of California, 89 Cal.App.5th 131, 305 Cal.Rptr.3d 717 (2023), and an additional decision from the California Supreme Court is expected this year.
Uber describes itself as “a technology company” with a “mobile app based marketplace that matches up transportation providers with individuals looking for rides,” N.T. (Referee Hearing), 10/29/2015, at 6. Translated into practice, Uber creates an inventory of passengers and it utilizes drivers, like Lowman, to service that inventory on demand.
* * *
[But, a]lthough the Driver App allows a driver to provide rides for remuneration, Uber generated the passenger leads, unilaterally determined the passenger fares and the driver’s percentage, collected the fares, retained its service fee, and then paid Lowman. Agreement, ¶¶ 4.1-4.8.
Uber exercised total control over the provision of service because Lowman personally had to fulfill the passenger assignment. He could not hire a substitute driver to provide a ride to a passenger identified by Uber. Agreement, ¶ 5.2.
In the virtual world in which Uber operates, it monitored and supervised Lowman’s provision of driving services.
Lowman, 235 A.3d at 304-5. As to drivers being independent of Uber:
When Lowman is providing a ride to a passenger, he must display the Uber decal. The fact that this is mandated by statute and not by Uber is inconsequential. It is evidence of the more fundamental fact that Lowman cannot provide driving services independent of Uber since Pennsylvania law prohibits individuals from providing commercial driving services in personal unlicensed vehicles. 53 P.S. § 5714(f). Further, Lowman could not build his own client base under the auspices of his Uber relationship because his contract limits his communications with customers to the Uber App and are permitted only for the purpose of providing rides through Uber. Agreement, ¶ 2.2. Even with the Driver App activated, whether or not Lowman would have the opportunity to provide a ride service was determined by Uber which, by way of its algorithm, determines which available driver will be offered an assignment. Id. An Uber customer could not seek out Lowman’s services. Thus, Lowman’s ability to develop a separate relationship with clients was not existent. This arrangement is in stark contrast to the luxury limousine drivers in Danielle Viktor who had their own customers, advertised their services and arranged the trips they provided.
Lowman had no ability to set his compensation for providing a ride service. Although under the Agreement, he could negotiate a lower fare than set by Uber, Uber remained entitled to its fee that was set at the higher rate. Agreement, ¶ 4.1. Since the transfer of funds was between the customer and Uber, it is also unclear from the Agreement how the lower rate would be effectuated since the “payment processing functionality” controlled by Uber still must be used. Id. Lowman could not negotiate a higher rate with a passenger. Lowman’s inability to set or negotiate his remuneration weighs against a finding of an independently established business.
Lowman, 235 A.3d at 306 (emphasis in original). As to drivers having the ability to determine their own hours of work, the court in Lowman concluded:
the fact that Uber allows all of its licensed drivers to work at their own discretion evidences a decision that there are a sufficient number of individuals with access to the Driver App to ensure that, despite erratic schedules, there will always be a driver available to service passengers requesting Uber’s service. The fact that Uber’s business model does not require regularly scheduled work hours from its workforce does not translate into an automatic independent contractor relationship.
Lowman, 235 A.3d at 307.
For New York,Uber Techs., Inc. v. Comm’r of Labor (In re Lowry), 189 A.D.3d 1863, 138 N.Y.S.3d 238 (N.Y. App. Div. 2020) likewise held that Uber exercised control and discretion over the services of their drivers.
Uber controls the drivers’ access to their customers, calculates and collects the fares and sets the drivers’ rate of compensation. Drivers may choose the route to take in transporting customers, but Uber provides a navigation system, tracks the drivers’ location on the app throughout the trip and reserves the right to adjust the fare if the drivers take an inefficient route. Uber also controls the vehicle used, precludes certain driver behavior and uses its rating system to encourage and promote drivers to conduct themselves in a way that maintains “a positive environment” and “a fun atmosphere in the car.”
Lyft and Uber drivers and app-based workers in Wisconsin
In Ebenhoe v. Lyft Inc., UI Dec. Hearing No. 16002409MD (LIRC Jan. 20, 2017), the Commission held that the requirements for being a driver for a transportation-network company set forth in Wis. Stat. § 440.41 meant that the drivers for companies like Lyft and Uber were not employees for the purposes of unemployment law and that they were independent contractors pursuant to Wis. Stat. § 108.02(12)(bm).
the statutes specifically provide that a transportation network company such as Lyft does not control, direct, or manage the work of a participating driver such as Ebenhoe, but instead provides a technology platform through which a participating driver pays a fee to be connected to a passenger. Given this expression of legislative intent, the commission finds that Ebenhoe does not perform services for Lyft within the meaning of Wis. Stat. § 108.02(12)(a).
Ebenhoe. The reasoning of this decision is less than stellar, however, as the Commission’s reference to the then newly passed network transportation law in Wis. Stat. §§ 440.40 et seq. was not accompanied with much legal reasoning about how this law specifically applied to the basic definition of employee in Wisconsin unemployment law and the six-of-nine conditions test for an independent contractor in Wisconsin unemployment law (these conditions are discussed below).
In Wisconsin unemployment law, unemployment coverage is primarily determined by whether a person is an employee or not pursuant to Wis. Stat. § 108.02(12)(a). See alsoWis. Stat. § 108.02(12)(e) (the definition of employee determines the tax liabilities of employing units and the benefit eligibility of claimants). Under this statute, an employee is defined as “any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit.” Wis. Stat. § 108.02(12)(a) (emphasis supplied). So, individuals providing driving services who are paid via a smart app by their passengers still qualify as employees under this definition. The only question under Wisconsin unemployment law is whether these employees qualify as independent contractors for unemployment purposes.
This focus on employee status, furthermore, is why wages received by true independent contractors are NOT offset against a claimant’s weekly benefit rate (while sales commissions in excluded employment, for example, are offset). SeeTreatment of Wages and Other Types of Income in the Base Period and the Benefit Year from the Employers’ Handbook. Wisconsin may be the only state that does NOT offset independent contractor earnings against weekly unemployment benefits.
Despite the problems with Ebenhoe, it was the relevant law when an appeals court in Wisconsin took up the case of tutors who worked through a smart app. In an unpublished decision (and so not precedent) called Varsity Tutors LLC v. LIRC, 389 Wis.2d 377, 936 N.W.2d 418 (App. Ct. 2019), the appeals court found that app-based tutors had complete independence and control over the tutoring they did via the app. Moreover, these tutors were not providing any essential services for the Varsity Tutors company itself, as the company was only a digital platform or marketplace.
Varsity generates revenue by facilitating business relationships between students and tutors. However, that does not transform Varsity’s business into a tutoring business. As stated, Varsity’s business provides a digital platform to connect students who want to be tutored with qualified tutors who want to teach them.
Varsity Tutors at ¶32. The app-based economy in this decision is paramount, regardless of why the app exists in the first place (to provide tutoring services) or the mechanics of how the app-based business actually functions.
Note: An actual marketplace, like Craiglist or, e.g., the classified ads, does not dictate terms about how sellers and buyers connect and purchase. This basic characteristic about “marketplaces” is ignored by the appeals court in Varsity Tutors. Even a stock exchange does not set the price for the equities that are being traded, whereas these app-based businesses control nearly every facet of the services/product at issue. SeeThe gig is up on 21st-century exploitation (29 April 2021), and If Uber Wants It, It’s Bad.
On March 17, 2022, the Commission re-visited the status of Lyft drivers and ruled that they were employees under Wis. Stat. § 108.02(12)(a) for purposes of unemployment law and that the provisions of Wis. Stat. § 440.41 concerning network transportation companies were not applicable. SeeWilson v. Lyft Inc., UI Dec. Hearing No. 21011105MD (LIRC Mar. 17, 2022).
Note: The Commission remanded this case for further hearings to determine whether the driver was an independent contractor or not under Wis. Stat. § 108.02(12)(bm), but Lyft dropped its appeal.
In subsequent decisions, the Commission has found various network transportation drivers to be employees and not independent contractors. SeeVanderloop v. Lyft Inc., UI Hearing No. 21016680MD (LIRC Sept. 23, 2022), Lindsey v. Lyft Inc., UI Hearing No. 21011523MD (LIRC Sept. 23, 2022), Urbina v. Roadie Inc., UI Hearing No. 21013172MD (LIRC July 8, 2022) (app-based delivery driver was employee of delivery company), Turcotte v. Roadie Inc., UI Hearing No. 21011171MD (LIRC June 30, 2022) (same). As such, Ebenhoe, which held that gig-worker drivers were independent contractors, has been reversed.
These Commission decisions, however, only addressed benefit eligibility for the drivers of these companies. They did NOT address at all any liability for unemployment taxes by these companies. Amazon Logistics addresses that issue.
Note: In Wisconsin, benefit eligibility decisions for claimants are handled separately from unemployment tax liability decisions for employers. This separate decision-making for these issues does NOT occur in most states. As to the strategic issues that this separation between benefit eligibility and tax liability entails, seethis sample brief (determinations of employee status involve multiple proceedings where the interests of claimants and employers can shift to a significant extent, but claimants and employers rarely consider these strategic matters during the course of these multiple proceedings). In Amazon Logistics, the employer ignored this essential issue. But, as detailed below, the appeals court failed to hold the company accountable for this basic mistake.
Amazon Logistics
Amazon Logistics is the first public and published Wisconsin case in which unemployment tax liability for gig-economy employers was at issue. In this case, the delivery-coordinating company for purchasers of products from Amazon.com contended that the delivery drivers who drove their own cars and worked through a smartphone-based app were independent contractors rather than employees. As a result, the company claimed, it did not have to pay unemployment taxes for these drivers.
Note: Employers in Wisconsin only pay unemployment taxes on the first $14,000 in wages paid to their employees in a calendar year. Given the current tax schedule, most employers in Wisconsin pay little. Data from a 2019 financial report indicated that 95% of Wisconsin employers had a positive reserve balance, that based on changes in experience rating, 35% of the employers experienced a reduction in unemployment taxes of $103 on average per employee (while 34% of employers saw a tax increase per employee of $56.70 on average), and that all industrial sectors, other than utilities, experienced a decline in unemployment taxes from 2018 to 2019. Dividing the total unemployment tax revenue of $530,300,000 in 2019 by the number of employers in 2019 (140,395 employers), the average unemployment tax being paid per employer that year was $3,777.20. As covered employment (the number of employees in Wisconsin) in 2019 was 2,854,373, dividing the total taxes paid that year with this number of employees means that the unemployment taxes paid per employee in 2019 on average was $185.78. In other words, unemployment taxes in Wisconsin cost employers generally less than $200 per employee per year.
A person’s status as an independent contractor or a statutory employee is determined by statute and not by the terms of a private agreement. Roberts v. Industrial Commission, 2 Wis.2d 399, 86 N.W.2d 406 (1957), see alsoKnops v. Integrity Project Management, UI Hearing No. 06400323AP (12 May 2006), Wis. Stat. § 108.02(12)(bm) (conditions to establish status as independent contractor must be met “by contract and in fact”), and Wis. Stat. § 108.12 (“[n]o agreement by an employee to waive the employee’s right to benefits or any other rights under this chapter shall be valid.”). In other words, employers cannot determine on their own whether a person is an independent contractor or not.
The test to determine whether a person is an independent contractor or not for purposes of Wisconsin unemployment law has two parts. First, there must be a determination that the person performs services free from control or direction by the company in question. For Wisconsin, there are several factors that can be used to determine whether there is control or direction, including:
Whether the individual is required to comply with instructions concerning how to perform the services.
Whether the individual receives training from the employing unit with respect to the services performed.
Whether the individual is required personally to perform the services.
Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the employing unit.
Whether the individual is required to make oral or written reports to the employing unit on a regular basis.
In Amazon Logistics, it was accepted that the company did NOT exercise any control or direction over its drivers (but cf. the Pennsylvania decision in Lowman discussed above), so that first part of the test was met.
But, in Wisconsin a lack of control or direction does NOT resolve the issue of independent contractor status. A second test must still be met–whether six-of-nine conditions have been demonstrated by the putative employer for the employees in question.
(a) The individual advertises or otherwise affirmatively holds himself or herself out as being in business.
(b) (1) The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual, and (2) uses his or her own equipment or materials in performing the services.
(c) The individual operates under multiple contracts with one or more employing units to perform specific services.
(d) The individual incurs the main expenses related to the services that he or she performs under contract.
(e) The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
(f) The services performed by the individual do not directly relate to the activities conducted by the employing unit retaining the services.
(g) The individual may realize a profit OR suffer a loss under contracts to perform such services.
(h) The individual has recurring business liabilities or obligations.
(i) The individual is not economically dependent on a particular employing unit with respect to the services being performed.
Any six conditions will satisfy this test, but as noted in the sample brief, numerous conditions can only be met through evidence presented by the individual in question (conditions a, b, c, d, and probably h and i as well). Or, at least that was the law.
When the Commission first ruled in 2020 in Amazon Logistics, it found that only one condition–(d)–was met. The appeals court, on the other hand, found that five conditions–(b), (d), (e), (g), and (h)–were met (and so was just one short of the required six), meaning that the drivers were not independent contractors.
In reaching this decision, the appeals court altered prior Commission case law as to condition (b), where the individuals perform most of their services and whether they use their own equipment or the equipment of their putative employer, condition (e), the requirement that individuals redo unsatisfactory without compensation or face penalties for that unsatisfactory work, condition (g), whether the individuals can realize a profit or suffer a loss under contracts to perform their services, and condition (h), whether individuals have recurring business liabilities or obligations. 2023 WI App at ¶¶40-67, ¶¶80-94, ¶¶102-119, and ¶¶120-135, respectively.
Previously, condition (b) was closely tied to “business-oriented” purposes for any location or equipment. In Amazon Logistics, the appeals court held that both parts were met by delivery drivers who mainly operated away from Amazon’s central warehouse (since they made their deliveries) and who used their own vehicles and smartphones to perform the deliveries in question, regardless of whether that equipment was also used for personal matters outside of the business-related purpose.
Note: Amazon Logistics essentially “won” this condition by requiring its drivers to supply their own personal equipment and property for the benefit of the deliveries Amazon needed to be done, and the appeals court accepted this requirement as valid for this condition.
For condition (e)–consequences for unsatisfactory work–the Commission had required that there be actual evidence of this consequence for this factor to be met. The appeals court, on the other hand, found that this condition could be established by contract alone, and that Amazon Logistics met this condition through a provision in its agreement with its drivers that they defend and indemnify the company for any damages arising from their “unsatisfactory work.”
Note: Yes, Amazon Logistics demanded in its agreement with its drivers that they defend and pay for any losses connected to any issues with their delivery work. In practice, this indemnification makes no sense, since individual drivers cannot in any way defend a multi-million dollar company. But, the appeals court seized on this theoretical indemnification in the agreement to conclude that this condition was met, ignoring the statutory requirement that these conditions be shown “by contract and in fact.” Wis. Stat. § 108.02(12)(bm). As shown in the hearing with the testimony of the one driver who did appear, the consequences for unsatisfactory work was account deactivation (i.e., termination of work), as with employees in general, and not indemnification by the drivers of the company. SeeCommission Amazon Logistics at 4.
Condition (g) addressed the business risk at stake for the individual. This condition examined whether, under a contract for the worker’s services, there can be a profit, as well as whether there can be a loss under that same contract. Previously, the mere possibility of a loss was not the test. As noted in Alsheski v. Codeworks, Inc., UI Hearing No. 09403672AP (26 Feb. 2010), in assessing whether a realistic possibility of loss exists, the proper evaluation was whether there was a genuine business risk if the services were completed as contracted, and “not whether, given the universe of possibilities, something could occur that could result in a loss.” Because employees usually are paid for services being performed and not for a product being produced or provided, employees generally do not have “a business risk” at stake.
This factor is essentially no longer based on actual risks, as the appeals court in Amazon Logistics held that the potential or reasonably speculative risks from possible car repairs or accidents for the delivery drivers was enough to show a possible loss and so satisfy this condition.
As to condition (h), previously the Commission required that the recurring expenses at issue had to be predominately business-related expenses and not just personal expenses that could also be used for a business-related purpose. Now, according to the appeals court, the general expenses of operating a car–i.e., car insurance and maintenance–and needing a smartphone and a monthly data plan for this work satisfied this requirement. In short, some kind of expense for the “business” that is recurring will now satisfy this requirement, even when that expense is also a basic personal expense, like a car and a smartphone.
So, Amazon Logistics held that there was unemployment tax liability for gig-economy companies. But, the decision also significantly weakened the legal tests at issue and represents a significant departure from what is happening in other states (other than in Florida) in regards to gig-economy workers.
Also, left unaddressed in the Amazon Logistics decision was the complete absence of testimony regarding the thousands of delivery drivers at issue. It has been long-standing precedent at the Commission that employers cannot without careful planning seek to have just a few employees testify on behalf of a larger cohort. MSI Services, Inc., Hearing No. S0600129AP (5 September 2008) (the testimony of certain individual workers is not properly considered to represent the testimony of a larger group of workers in the absence of stipulation by the parties, or competent evidence, that the employee witnesses are indeed representative), see alsoStart Renting Inc., UT Hearing No. S0800059MD (15 May 2009). Yet, in Amazon Logistics the employer presented testimony from just one driver and almost entirely relied on the employer’s managers (and just two managers at that) to present evidence about the drivers. For the Commission, such “evidence” was specious:
The petitioner argued that its witnesses had the best and most comprehensive evidence regarding the delivery partners at issue. The commission disagrees. The best and most comprehensive evidence regarding the delivery partners at issue would have come directly from the delivery partners themselves, but the petitioner did not call any delivery partners to testify and did not stipulate to having one delivery partner’s testimony be taken as “representative” of all the others. In the absence of a stipulation or ruling to that effect, it was necessary that sufficient proof be presented as to each delivery partner whose status is at issue. Results Plus Inc., UI Dec. Hearing Nos. S0400231AP and S0400282AP (LIRC Nov, 8, 2006). The testimony given by the petitioner’s witnesses does not sustain the burden of proof which was placed on the petitioner by statute. The testimony of the petitioner’s former area manager waa largely based on hearsay, speculation, and conjecture. Commission decisions must be based on factual findings supported by credible and substantial evidence. Wis. Stat. § 108.09(7)(f).
Commission Amazon Logistics at n.22. This lack of actual evidence on these issues–probably because these positions were touted as app-based and so part of the new, gig-economy–was lost in the legal decision-making.
As to the continuing consequences of gig-work, John Oliver is already on it:
Jake has been on a tear with economic news for Wisconsin, and it has been too long since I provided an update on this front. So, I’m going to piggyback off of his efforts.
In general, Wisconsin has seen both solid job AND wage growth the past few years.
While the beginning of 2023 saw a slight slow down, the latter half of 2023 saw significant income growth in the state, especially when compared to other Midwestern states.
As Jake points out, however, the annual numbers for Wisconsin have not been that impressive.
But on an annual basis for growth in earnings, we are not as impressive – smack-dab in the middle of the Midwest at 4.6%. We also lagged the US rate of 5.6% for earnings growth. Likewise, our annual income growth of 4.4% falls behind the U.S. rate of 5.2%, which leaves us at 41st in the nation (although we are also penalized due to Wisconsin’s lower population growth vs the rest of the US).
In large part, Jake shows that this “growth” is tied directly to the population “growth” in Wisconsin. Within the state over the last three years, over 20,000 people have left Milwaukee county for other parts of the state (mostly neighboring counties). So, there has been essentially some shuffling of the state’s population “cards.” As a whole, Wisconsin is really only gaining people in Dane and Milwaukee counties (with the out-migration in Milwaukee county essentially canceling out the gains in this one county).
Dane County also gained nearly 6,500 people from international migration, and Milwaukee County added nearly 7,700. Those two counties make up well more than half of the nearly 25,000 that net immigration has added to the state’s population since 2020.
* * *
Dane [nearly 6,000 births] and Milwaukee [nearly 7,000 births] Counties are also on the right side of the third leg of population changes, which is the “natural change” of births vs deaths. Both Dane and Milwaukee have sizable gains in this category, and the counties that house Green Bay and (most of) Appleton have also added more than 1,000 people in the 2020s through more births than deaths.
But the state as a whole has had over 2,300 more deaths than births, with much of those losses over this 3-year period being chalked up to the thousands of excess deaths that happened during the pandemic years of 2020 and 2021. I’ll also note that this has mitigated some of the gains through migration that some of Wisconsin’s counties have seen, with Waukesha County suffering the largest number of losses.
This slow population growth has been putting a crimp on job growth. Jake explains that the February 2023 drop in the state’s unemployment rate from 3.2% to 3.0% “was entirely due to those 4,900 people leaving the Wisconsin labor force.”
The charts Jake has for jobs in general, construction, manufacturing, and the leisure and hospitality sectors in Wisconsin all show rapid growth in 2022 and much slower job growth in 2023. The ceiling created by an aging/retiring workforce and less young people in the state is essentially capping job growth after a post-pandemic rebound, particularly in the construction and manufacturing sectors. Long-term economic growth, then, will be tied to growing the state’s workforce. As Jake explains:
It seems to me that we had two strong years of job growth in 2021 and 2022, but 2023 saw that slow down. While we are still adding jobs, and having a 3.0% unemployment is unquestionably a good thing, we need to make sure that we are expanding our capacity and attractiveness to workers and families to want to come here and stay here. Or else we could well stagnate in 2024, and be limited in how much more we can keep this good thing going.
The good news is that the labor shortage has led to significant wage growth in 2021 and 2022 in the state, something that had been missing throughout the 2010s. Whether that growth in wages can keep pace with the rising cost of housing in Wisconsin is another issue that needs addressing.
Last week, the Wisconsin Supreme Court issued its decision in Catholic Charities v. LIRC, 2024 WI 13. At issue in this case was whether the Catholic Charities entities would be exempt from paying any unemployment taxes (and their employees no longer eligible for unemployment benefits when laid off) because the Catholic Charities entities are, like churches themselves, operated for faith-based reasons.
In general, churches and their affiliated non-profit entities are exempt from income and property taxes. Pursuant to Wis. Stat. § 108.02(15)(h), employment with religious institutions is generally exempted from covered employment and so any “wages” paid these employees are not subject to unemployment taxes. Because these employees of religious institutions are not in covered employment, they also cannot claim unemployment benefits when laid off from these jobs. This exemption exists, in part, to maintain a separation between church and state.
Note: This separation between church and state is extended to ministers and rabbis and other church leaders who are themselves exempt from Social Security taxes. More on this exemption possibly expanding below.
The employees at these Catholic Charities entities, however, are not ministers or priests. They are not even employees of any church organization. Rather, the employees of these Catholic Charities entities at issue in this case provide job placement, job coaching, other services, and even work opportunities to individuals with disabilities or those with limited income through funding either from government grants or private contracts. The employees of these entities and their managers have no religious training or requirements. The church’s own administration of these entities is limited to providing general managerial oversight.
The standard, decades old test in unemployment law for determining whether the religious exemption applies to there entities and their employees is whether (a) there is a religious motivation or purpose behind the organization/employer and (b) the services–the activities of the workers at issue–are primarily religious in nature.
The arguments in this case FOR the religious exemption are three-fold:
The statutory exemption applies to any entity that serves a religious purpose, according to the sponsoring religious organization. Whether the services being performed by the employees are religious in nature or not is immaterial to whether the religious exemption should apply.
Constitutional requirements to prevent excessive state entanglement with religious entities and to prevent state limitations on church autonomy here require the religious exemption.
Requiring the employees of the Catholic Charities entities to perform religious work of some kind as part of the charitable services they provide discriminates against religious orders that do not proselytize during their charitable endeavors.
If the employers receive an exemption to Wisconsin’s unemployment insurance program, that same exemption would become equally available to the numerous religiously-affiliated hospitals and colleges operated within the State. These institutions include Ascension Wisconsin (the State’s second-largest health system, which has undergone several round of layoffs since reportedly employing more than 21,000 people in 2016), Marquette University (which recently reduced its more than 2,900 employees by roughly 10%), and SSM Health Hospital System (with more than 2,000 employees in Madison, plus six additional locations in Ripon, Fond du Lac, Waupun, Baraboo, Janesville, and Monroe). All of these employees would be at risk of losing their unemployment benefits overnight, if this Court accepts the employers’ argument.
In this case, the employers perform completely secular functions, receive government funding, and do not require employees or program participants to be Catholic (or religious at all). . . . there is nothing religious about the operations of the employers themselves. The only sense in which the employers are “religious” is indirectly, through their parent entity’s affiliation with the Catholic Church. None of these features distinguish the employers from Wisconsin’s numerous other religiously-affiliated nonprofits.
Under the employers’ argument, any religiously-affiliated organization that can draw a connection between its operation and the religious mission of its parent entity would become exempt. Such connections would be trivially easy to make for Wisconsin’s religiously-affiliated hospitals and colleges.
In a 4-3 opinion, the Wisconsin Supreme Court applied long-standing statutory requirements and principles to find that the Catholic Charities entities are NOT providing religious services on behalf of their employer and so are not exempt from the unemployment system.
First, the Catholic Charities entities are not statutorily exempt, as they “offer services that would be the same regardless of the motivation of the provider, a strong indication that the sub-entities do not ‘operate primarily for religious purposes.'” Catholic Charities at ¶64.
Second, determining whether the services at issue are religious in nature or not does NOT unnecessarily entangle the state and courts into religious matters. “The Establishment Clause does not treat religion as a third rail that courts cannot touch.” Catholic Charities at ¶81.
Examining both the motivations and activities of the organization requires minimal judicial inquiry into religion, as there is no examination of whether CCB’s or the sub-entities’ activities are consistent or inconsistent with Catholic doctrine. A court need only determine what the nature of the motivations and activities of the organizations are——not whether they are “Catholic” enough to qualify for the exemption.
Catholic Charities at ¶85. The majority opinion explains that for centuries courts have examined the activities of religious entities to determine if they should be exempt from taxes, and courts will continue to do so in unemployment matters. Catholic Charities at ¶¶86-94.
Neither does the examination of the services at issue somehow violate church autonomy. The Catholic Charities entities contend “that viewing their motives and activities separate from those of the church penalizes their ‘choice to be ‘structured as separate corporations’–a religious decision grounded in church policy and internal governance.” Catholic Charities at ¶99. Yet, no state law or practice prevents any of the Catholic Charities entities from engaging in activities that are primarily religious in nature. Because the Catholic Charities entities are not doing anything that is overtly religious, under the law they are the same as an actual, non-religious entity. As a result, there is no alleged violation of church autonomy.
Note: This lack of religiosity in their services makes sense. Few people would partake of a “charity” if they were subject to religious proselytizing and tests for using that “charity,” and so the religious purpose at issue with these Catholic Charities entities of providing support for the less fortunate would be undermined by overt religious messaging. This “choice” is transformed into alleged discrimination against the Catholic Church for having to make this choice.
Third, the Catholic Charities entities’ claim of being discriminated against them also fails for the majority. The entities complain that they are being treated as taxable entities because they have chosen not to be overtly religious in their activities. For the majority, this claim is a non-starter, as there is no evidence in the record to show that the Catholic Church has been limited in some way by unemployment taxes (and eligibility for its employees) from exercising its religious faith. Catholic Charities at ¶¶103-7.
In a LONG and bitter dissent, Justice Grassl Bradley solidifies her position as the Jim Jordan of Wisconsin justices. She accepts all three claims for the religious exemption and decries what she understands to be legally and factually wrong reasoning in the majority opinion that all but declares an anti-Catholic bias for disagreeing with her.
The majority’s misinterpretation of the exemption renders the statute in violation of the First Amendment of the United States Constitution as well as the Wisconsin Constitution. By focusing on whether a nonprofit primarily engages in activities that are “religious in nature,” the majority transforms a broad exemption into a denominational preference for Protestant religions and a discriminatory exclusion of Catholicism, Judaism, Islam, Sikhism, Hinduism, Buddhism, Hare Krishna, and the Church of Latter Day Saints, among others. The First Amendment forbids the government from such discrimination and commands neutrality among religions in the provision or denial of a government benefit.
Catholic Charities at ¶113. The dissenting opinion goes on for nearly another 100 paragraphs and 70+ pages. During oral argument and throughout this dissent, every observation or comment from Justice Grassl Bradley drips with the admonition that discrimination against the Catholic Church is occurring here through the alleged “second-class” treatment of these Catholic Charities entities. They have to be exempt, according to Justice Grassl Bradley, because they are church-affiliated, and it is discrimination to hold otherwise.
Chief Justice Ziegler joins the dissent but for the most caustic paragraph. Justice Hagedorn, while agreeing with the statutory argument and the principle that remedial statutes like unemployment law should no longer be understood or interpreted as remedial, cannot join in the diatribes of Justice Grassl Bradley.
Note: All three dissenting justices adopted the position of a few US Supreme Court justices that remedial statutes like unemployment law should no longer be considered remedial when interpreting these laws. This change is an about face from the Wisconsin justices’ expansive understanding of unemployment eligibility in Operton v. LIRC, 2017 WI 46, 375 Wis.2d 1, 894 N.W.2d 426.
As noted already, this case should have been a simple and straight forward application of long understood principles. But, the US Supreme Court has of late prioritized Christian exceptionalism in legal matters. Exemptions from discrimination law for religious/Christian reasons have been expanded, see303 Creative LLC v. Elenis, 600 U.S. 570 (2023), Kennedy v. Bremerton School District, 597 U.S. 507 (2022), and religious entities now get access to government funds regardless of their religious activities, seeTrinity Lutheran Church of Columbia, Inc., v. Comer, 582 U.S. 449 (2017).
There really is no factual or legal support for any of the statutory or Constitutional claims being made here. But, the discrimination claim treads new ground and may well find support at the US Supreme Court. This argument transforms faith-based activities of any organization into religious activities, and there is seemingly no stopping point in what can be considered as religious activities.
The claim here turns a customer/clientele issue about what the people seeking charitable services want into a problem of state action about a government entity “discriminating” against a religious entity. It is a remarkable switch in focus that has far reaching consequences beyond just unemployment law. Where the issue of a religious entity having access to non-religious government funding was discrimination in Trinity Lutheran Church, now the application of a tax to the secular activities of a religious entity is also discrimination.
For a court to find a religious exemption on faith-based preferences alone, pretty much all general state tax and workplace law is under the microscope. Not only could religious entities performing non-religious services exempt themselves from unemployment taxes (and their employees from unemployment benefits), but this reasoning could be extended to Social Security benefits and all other employment taxes and workplace regulatory efforts. There is only a small leap from the ministers and rabbis currently exempt from Social Security taxes to making all employees of all religious entities exempt from all workplace regulations and laws, especially when the scope of the religious exemption is based on little more than the faith of that entity.
A petition for review to the US Supreme Court in this case is a given. Should Supreme Court review be accepted, the attorneys for the Commission and the Department should expect a very difficult time, as the angry dissent by Justice Grassl Bradley will now be the starting point for further analysis.
That is shame and maybe even a tragedy. For decades, the basic requirement of paying unemployment insurance for employees of all stripes and persuasions went without question. The Covid-19 pandemic demonstrated throughout the nation (not so much in Wisconsin, unfortunately) that unemployment benefits are the most effective and far reaching economic stimulus available. So, unemployment should remain fully funded and available to everyone. The effort in this case is to limit the scope and impact of unemployment by carving out major exceptions to its coverage. Such an outcome could have lasting and unsettling consequences to this economic engine.
Help make government unemployment insurance forms easier to use — and get a $50 Visa gift card for your feedback.
The US Dep’t of Labor and Nava Public Benefit Corporation are looking for individuals who are unemployed or who have recently experienced unemployment to better understand the issues people face when applying on-line for unemployment benefits and completing on-line weekly certifications.
General Information
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Sessions will be held between February and April 2024.
Nava will present the participants with questions from mock unemployment applications and weekly certification forms.
The interviews will either be in-person (New York City or San Francisco Bay Area — in a private room at a public location, such as a public library near your home) or by video conference call.
Virtual interviews will be scheduled as a video call in Zoom. If participating by zoom, participants will need to find a quiet, private place to talk, have a good internet connection, and use their own computer or smartphone.
Responses will be kept confidential and anonymous.
The interviews will be about an hour long.
Interviews will be conducted in English.
To sign up, visit http://bit.ly/government-forms-study and fill out the form. If you have questions send an e-mail message to mayawagoner AT navapbc.com (replace the AT with an @).
The US Dep’t of Labor and Nava want to start scheduling these sessions soon and will begin screening potential candidates from February 26th to March 1st. So, sign up soon if you want to be considered.
This bill specifies that compensated participants in clinical research trials shall not be treated as employees for purposes of minimum wage, worker’s compensation, and unemployment insurance laws.
I am vetoing this bill in its entirety because I object to potentially depriving clinical research trial participants from receiving the protections and benefits to which employees are generally entitled, as well as related legal remedies. Additionally, the changes in this bill create a specific carveout from provisions that could otherwise classify an independent contractor as an employee for purposes of worker’s compensation protections. There continues to be a well-established process that the Department of Workforce Development uses to navigate employee and contractor determinations on a case-by-case basis. The department uses a six-part test for minimum wage, and a nine-part test for unemployment insurance and worker’s compensation benefits. These tests provide a guideline and consistency for classification between the relationships of individuals and employers.
I object to providing a specific carveout for clinical research trials, which may signal to other employers that they may seek similar special treatment for other work or services that would otherwise qualify for worker’s compensation benefits under the law, which may further limit employee protections.
Moreover, I am concerned this bill may cause Wisconsin to fail to conform with federal requirements. Specifically, it could put Wisconsin in nonconformity with the Federal Unemployment Tax Act which may put employer tax credits and Unemployment Insurance administrative grant dollars at risk of terminating.
Finally, neither the Worker’s Compensation Advisory Council nor the Unemployment Insurance Advisory Council has taken a position on the changes in the bill, and these councils should be key stakeholders for recommending such policy changes for enactment.
As evident here, Gov. Evers largely accepts what the Department is proclaiming about this bill. The problem here is that no one but the Department thinks that people involved in lab testing are employees. Does Gov. Evers really think that my daughters, when they participated in UW-Madison College of Education experiments about teaching math, were employees of UW-Madison because of their participation in those experiments? That is the position Gov. Evers has adopted here.
This bill is needed to correct what the Department is doing. The bill, however, needs to be amended, as indicated below, so that it actually accomplishes what it sets out to do.
Update (23 Feb. 2024): There has been legislative action on the assembly companion bill, AB398, as the Assembly has passed this bill and sent it to the Senate for action.
I would encourage passage IF the bill was amended to actually exclude lab tests subjects as employees in unemployment law. For example: an amendment to the definition of employees in Wis. Stat. § 108.02(12) to exclude from the definition of employee an “individual who receives remuneration, a stipend, or 6compensation for being a participant in a clinical research trial as described in s.108.02 (15) (ko).” This exact provision is included in the proposed change to workers compensation law, and so there is no reason why it should not be applied in unemployment law.
In late 2022 and early 2023, a few folks started contacting me about being disqualified or having to repay unemployment benefits they received during the Covid-19 pandemic because of their participation in lab testing studies.
State Representative Rick Gundrum addressed the Council regarding a proposed bill to clarify the employment status of participants in clinical research trials. Rep. Gundrum stated that participants in clinical research trials are volunteers and are not employees of the research organization. Participants receive a stipend for their participation. Rep. Gundrum stated that a clinical trial lasts between three and six months, with the typical participant’s length of stay at the research facility being three to four days. Rep. Gundrum stated that he has heard that DWD considers research trial participants to be employees. Rep. Gundrum stated that the research companies cannot enroll their own employees as participants.
Rep. Gundrum stated that that the draft of LRB 1462 seeks to clarify the relationship between participants and research companies. Under the proposed bill, participants would not be considered employees for purposes of Unemployment Insurance, Workers Compensation, and minimum wage. Rep. Gundrum stated that research organizations in Wisconsin are at a competitive disadvantage with similar firms in other states. The new bill addresses federal conformity issues raised by the Department in last session’s version of the bill.
Ms. Knutson stated that a copy of the LRB Draft is included in members’ packets.
Mr. Manley asked if a participant who is laid off and collecting UI benefits would lose their benefits.
Representative Gundrum stated that he does not think that participants would lose their benefits but will check further and get back to the Council.
Ms. Knutson stated she would check with staff to determine if the stipends would be considered reportable wages.
At the September 2023 Advisory Council meeting, SB387 was introduced to council members along with the Department’s fiscal estimate.
This bill proposes that a participant in a clinical trial is not an employee for purposes of state wage law and workers’ compensation law and is not in covered employment for purposes of state unemployment law. The Department’s fiscal estimate mostly indicates that the financial effects of the bill are indeterminate (other than an annual loss of $2.8 million in unemployment tax revenue to the unemployment trust fund).
This fiscal estimate also indicates that clinical lab companies would lose their FUTA tax credits because those companies would no longer be in compliance with federal unemployment law, unless those companies voluntarily agreed to have their clinical subjects listed as their employees for purposes of unemployment eligibility (and so, undoing the purpose of this proposed law).
As for unemployment purposes, this bill only addresses half of the problem — covered employment — and ignores the issue of employee status. As I wrote in an e-mail message to Rep. Gundrum in Sept. 2023:
I don’t think think SB387 will work as currently drafted. While it excludes employment for UI purposes, it does not address employee or wage coverage. Per the definitions of wages and employee in 108.02, a person qualifies for UI coverage if he/she performs services for pay for an employer/employing unit.
So, even if there is no employment, these lab volunteers will still have to report their wages and any separations to DWD-UI for these lab experiments. So, while the employer may no longer be paying UI taxes for their lab volunteers, the employers will still have to answer questions about all of their lab volunteers and still report all of these employee issues and wages for anyone who is claiming UI at the time of these experiments.
That is, for this proposal to exclude lab participants in all unemployment matters, the exclusion needs to be in both covered employment and in whether laboratory participants still qualify as employees for purposes of unemployment law.
Note: the definition of employee in Wis. Stat. § 108.02(12)(a) is expansive and applies to any person who performs services for pay for another. So, a lack of covered employment does not mean that unemployment is not involved. SeePiontek v. Cooper Spransy Realty Inc, UI Hearing No. 09003831MD (17 March 2010), aff’dPiontek v. LIRC, 340 Wis.2d 742, 813 N.W.2d 248 (app. Ct. 2012) (a realty agent’s decision to transfer brokerages — i.e., quit one brokerage — disqualified him from receiving unemployment benefits because of his prior layoff from a factory as he was also an employee of the brokerage despite his realty services to that brokerage being in excluded employment).
I also had questions about the $2.8 million in unemployment tax revenues and the FUTA tax coverage problem mentioned in this fiscal estimate. Federal unemployment law does not really address this issue/problem of FUTA tax coverage, and I suggested that specific directive/advice from Region 5 of US Dep’t of Labor on this loss of FUTA tax credits question be sought out.
And, the $2.8 million figure in annual unemployment tax revenue seems much too large and is somewhat unbelievable. Understand that unemployment taxes only apply to the first $14,000 paid to an “employee.” So, a tax payment of $1000 per “employee” would be an extremely high 14% tax rate (for comparison, the highest tax rate applicable in the current Schedule D tax schedule is 12%, and the new employer tax rate for a large business in that schedule is 3.25%).
But, using that $1000 in unemployment taxes per employee figure would mean that clinical lab companies have 2,800 clinical lab “employees” for which unemployment taxes are being paid. The November 2023 jobs report for Wisconsin has all of 416,900 employees in health care and social assistance in the entire state (every hospital, doctor’s office, social worker, and other health-related employee). Using a 3.25% tax rate to get $455 in unemployment tax revenue means that there are nearly 6,200 clinical research subjects in Wisconsin based on the Department’s $2.8 million figure. And, a likely tax rate of 1.05% (for $147 in revenue per “employee”) means there are just over 19,000 participants in lab tests in Wisconsin.
All three of these numbers of clinical research subjects would make them a major job sector of the state economy. Maybe there are a few hundred clinical lab test volunteers every year in Wisconsin. But, are there 2,800 let alone 19,000 such volunteers every year? Given that laboratory research has never been seen as an economic engine in the state’s economy, something is off with the Department’s $2.8 million annual tax revenue figure.
Finally, this whole issue turns on the Department treating participants in lab tests as employees because they are allegedly performing services for pay for another. But, the Department also has explicit guidance that payments for blood and plasma donations do NOT qualify as income. I have yet to see any explanation from the Department that explains how a payment for blood in general is not income but a payment for blood for a laboratory test does count as income for unemployment purposes.
A hearing on AB398, a companion bill to SB387 is scheduled for January 10th before the Assembly Committee on Health, Aging and Long-Term Care. Here is hoping that some of these issues can be ironed out and some real change made with this bill.
In Colleen Koch, PUA Hearing No. 21603562MD (28 Jan. 2022), the Commission held that the Department’s notice for the PUA documentation requirement is legally defective, as the notice lacked notice language for filing the documentation late with good cause. The Department, however, has never corrected its PUA documentation notice. Accordingly, the deadline for satisfying the PUA documentation requirement has been extended indefinitely, since all notices of this requirement are legally defective.
So, all claimants who have allegedly failed to satisfy the PUA documentation should be allowed to resubmit their documentation at any time, as the deadline for submitting the required documentation is legally defective.
Note: A lack of a timely appeal of a PUA documentation determination may still prevent a claimant from getting a second chance to submit the required PUA documentation. For the standards to determine whether a late appeal is allowable or not, see the discussion of late appeals in the unemployment primer.
Note: Why the Department has not applied for a blanket waiver in regards to its inadequate notice per the provisions in UIPL 20-21 (5 May 2021) 7-10 and UIPL 20-21 Change 1 (7 Feb. 2022) at 9-18 (specifically noting that an inadequate notice by the state agency constitutes grounds for a blanket waiver, id. at I-4) for this PUA documentation requirement is a mystery. Given the legally defective notice, this issue would certainly qualify for a blanket waiver, saving both the Department and claimants a great deal of headache.
Full details regarding the PUA documentation requirement (with an update for this information about the defective notice) are available at Documentation for PUA claims.
Unique among the states, Wisconsin implemented PUA benefits during the Covid-19 pandemic with specific restrictions that did NOT match any actual statutory or regulatory requirements. One of these was a primary income test to deny PUA benefits to part-time workers who had other sources of income outside of their pandemic-related job losses.
The Commission’s argument was that the “primary income” of 20 CFR § 625.2(n) is not the same as the “principal income” in 20 CFR § 625.2(s) and (t), that the definition of self-employed individual in 20 CFR § 625.2(n) trumps the definition of an unemployed worker, 20 CFR § 625.2(s), and an unemployed self-employed individual, 20 CFR § 625.2(t), and that the federal program letters continue to maintain the primacy of the “primary income” test for PUA eligibility because subsequent program letters did not directly repeal this “essential” DUA eligibility requirement and because the requirement was still referenced in a US Dep’t of Labor reporting form in UIPL No. 16-20 Change 6 (3 Sept. 2021) at IV-5.
Contra the Commission’s claims, PUA eligibility did not wholesale incorporate DUA regulations. The CARES Act, Pub. L. 116-136, § 2102(h), 134 Stat. 281, 317, codified at 15 USC § 9021(h), indicated that DUA regulations only apply where expressly provided for in this sub-section of the CARES Act, where there was no conflict between the DUA regulations and this sub-section concerning PUA benefits, and then by substituting the terms “COVID–19 public health emergency” for “major disaster” and “pandemic” for “disaster.” In calling for the primary income test from DUA regulations to still apply for self-employed individuals, the Commission ignored the fundamental issue that PUA benefits were explicitly created, in large part, for part-time self-employed individuals who were not eligible for regular unemployment benefits because of their part-time, self-employed status.
When the CARES Act was enacted, eligibility for self-employed individuals was a specific eligibility category left to the discretion of the US Dep’t of Labor to define. See Pub. L. 116-136, § 2102(a)(3)(A)(ii)(I)(kk), 134 Stat. 281, 314, codified at 15 USC § 9021(a)(3)(A)(ii)(I)(kk) (“the individual meets any additional criteria established by the Secretary for unemployment assistance under this section”). This category was first set forth as follows in UIPL No. 16-20 (5 April 2020):
The Secretary has determined that, in addition to individuals who qualify for benefits under the other criteria described above, an individual who works as an independent contractor with reportable income may also qualify for PUA benefits if he or she is unemployed, partially employed, or unable or unavailable to work because the COVID-19 public health emergency has severely limited his or her ability to continue performing his or her customary work activities, and has thereby forced the individual to suspend such activities. For example, a driver for a ridesharing service who receives an IRS Form 1099 from the ride sharing service may not be eligible for PUA benefits under the other criteria outlined above, because such an individual does not have a “place of employment,” and thus cannot claim that he or she is unable to work because his or her place of employment has closed. However, under the additional eligibility criterion established by the Secretary here, the driver may still qualify for PUA benefits if he or she has been forced to suspend operations as a direct result of the COVID19 public health emergency, such as if an emergency state or municipal order restricting movement makes continued operations unsustainable.
UIPL No. 16-20 at I-6 (emphasis supplied). As set forth here, this new category was intended as a catch-all to provide PUA benefits to individuals, particularly self-employed individuals, who could not claim regular unemployment benefits and who might not be eligible for PUA benefits for any of the reasons listed in the statute. Accordingly, the US Dep’t of Labor explained:
The eligibility criteria for PUA are different from DUA. An individual, in addition to having no entitlement to regular UC or EB, must also have no entitlement to Pandemic Emergency Unemployment Compensation (PEUC) under section 2107 of the CARES Act. An individual must self-certify that he or she is unemployed, partially unemployed, or unable or unavailable to work because of a COVID-19 related reason listed in section 2102(a)(3)(A)(ii)(I) of the CARES Act. Unlike DUA, an individual filing for PUA does not need to provide proof of employment or self-employment to qualify, nor does PUA take into account the individual’s principal source of income as part of the self-certification process.
42.Question: UIPL No. 16-20 provides an example of a driver for a ridesharing service who is forced to significantly limit his or her performance of customary work activities because of the COVID-19 public health emergency, such as if a state or municipal order restricting movement makes continued operations unsustainable, indicating that he or she may be eligible for PUA under section 2102(a)(3)(A)(ii)(I)(kk) of the CARES Act. Does this apply to other types of independent contractors?
Answer: Yes. An independent contractor may be eligible for PUA if he or she is unemployed, partially unemployed, or unable or unavailable to work because of one of the COVID-19 related reasons listed in section 2102(a)(3)(A)(ii)(I) of the CARES Act. This includes an independent contractor who experiences a significant diminution of work as a result of COVID-19.
UIPL No. 16-20 Change 1 at I-11. As indicated here, self-employed individuals with a significant loss of work because of the Covid-19 pandemic could qualify for PUA benefits. There was no mention or requirement here concerning a primary or principal income test. Indeed, as explained in this same program letter, a person could be eligible for PUA benefits without any prior income at all.
Even with no wages in the base period, the individual must meet the requirements under section 2102(a)(3)(A)(ii)(I) of the CARES Act — he or she must be unemployed, partially unemployed, or unable or unavailable to work because of one of the COVID-19 related reasons. The individual must have an attachment to the labor market and must have experienced a loss of wages and hours or was unable to start employment following a bona fide job offer.
UIPL No. 16-20 Change 1 at I-6 (emphasis supplied). As stated here, there is no requirement that the pandemic-related job loss be to the individual’s primary or principal source of income. Indeed, it is explicit here that a PUA qualifying individual could even have no previous (base period) income at all from their “part-time” work but still be eligible for PUA benefits.
In two circuit court decisions — one in Vernon county and another in Milwaukee County — circuit courts have now ruled that there is no legal basis whatsoever for a primary income test.
Williams v. LIRC, Milwaukee County Circuit Court Case No. 2022-CV-5868 (slip op., 31 May 2023), provides the most detailed explanation of why the primary income test is wrong for PUA eligibility. Judge Colon (recently appointed to an appeals court position) concludes:
In this case, LIRC erroneously interpreted the applicable statutes in a manner that thwarts the full purposes and objectives of Congress. At all relevant times Williams remained attached to the job market and was able and willing to continue working, but was unable to do so for reasons related to the COVID-19 pandemic. As “an individual who works as an independent contractor with reportable income, she was a self-employed individual within the meaning of the CARES Act. When LIRC applied its overly narrow definition of self-employed individuals, it ignored the Secretary’s criterion that one’s principle source of income has no bearing on PUA eligibility, in direct conflict with the text and purpose of the CARES Act. To hold otherwise would make the language regarding independent contractors superfluous, contrary to legislative intent to provide benefits for workers who “otherwise would not qualify for regular employment,” and contrary to the canon against surplusage.
So, any decision that denied PUA benefits pursuant to a “primary income test” should be revisited. Whether the Department will do so remains unknown. Also unknown is whether the Commission or the Department will appeal these circuit court decisions. Appeals are due the end of August.
For the unemployment bills — AB147, AB149, AB150, and AB152 — recently passed by the legislature, I am urging Governor Evers to veto these bills in this letter.
I understand you are busy with the budget bills recently passed by the legislature.
AB147 (various changes to unemployment eligibility criteria)
These modified criteria have not been vetted or examined in any way, and so what these proposed modifications mean legally and practically is unknown. Indeed, some of the proposed changes already reflect current Department practices for which no legal basis can ever exist (e.g., requiring work registration in states that have no work registration requirements, a requirement the Department currently enforces despite it being impossible to accomplish in those states that lack a work registration process). Finally:
in a pique over the PUA and MEUC benefits and supplemental PUC benefits that were made available during the pandemic, the legislature wants the Joint Committee on Finance to have a voice in whether similar funds and benefits become available in the state in the future. As evident here, the legislators simply fail to understand that Wisconsin has a partial wage formula that encourages people to work while claiming unemployment benefits. Indeed, raising the benefit levels and removing the current $500 cap would probably lead to more people working while collecting unemployment, not less. Apparently, basic economics is not needed for unemployment legislation.
AB149 (mandating already existing employer reporting tools and even more work search audits)
These proposed changes essentially duplicate current Department practices and disqualifications under state unemployment law, while also mandating a level of work search auditing that would be impossible to accomplish without hiring thousands of additional state employees to accomplish such auditing (even at the record low claim-filing occurring in 2023). Current Department policies and practices are to audit some of the work searches for every claimant paid benefits, and the result has been a significant drop in claimants paid unemployment benefits:
In 2022, DWD completed 22,012 work search audits. The audits resulted in 9,045 adverse decisions with benefits denied, including when claimants failed to conduct four valid work search actions. An additional 27,404 adverse determinations were issued for failure to answer the work search question or failure to provide required information on the weekly claim before the claim paid.
Nearly 28,000 claimants in 2022 (out of 263,248 initial claims, or one out of every nine claimants) lost out on benefits because they did not supply required job search information in the first place, even before an audit took place. When one out of every nine people fail to finish something, that reporting requirement is, by definition, NOT easy and understandable.
AB150 (changing unemployment to re-employment)
This bill would essentially transform the Department into a state agency for micro-managing the work search efforts of claimants. In so doing, this proposal creates a big government program to interfere with and control the labor market by directing the unemployed to those industries and jobs where the government itself determines is most important, rather than relying on the labor market itself and employer’s own efforts to recruit workers through wages, benefits, and working conditions that are attractive to those workers. Instead of state government as a backstop and support for private enterprise, this bill seeks to replace private employers’ worker recruitment efforts with a massive and all-encompassing government program. As such, this bill fundamentally misunderstands why private enterprise within regulated limits is an essential component of American society.
AB152 (additional customer service and employee transfer mandates)
As with AB149, this bill either duplicates already existing Department practices or pushes additional hiring/transfers that are a known failure point (because inexperienced staffers cannot be adequately trained in time to provide correct advice and decision-making that is needed during a time of crisis). What is actually needed is simplification and ease of use by reducing the amount of forms and complexity of information now being required by the Department.
What should be required is that DWD be mandated to do cross-matches with the quarterly unemployment tax reports the Department receives from employers in April, July, October, and January of each year for all weekly certifications filed during the previous four months (the Department’s current practice is to do a cross match on employer’s quarterly unemployment tax reports from nine to twelve months after the weekly certifications have been filed).
The Department should also be mandated to do cross-matches with employer’s payroll tax withholding reports submitted to the Department of Revenue on a monthly basis. In this way, any over-payments of unemployment benefits would be minimized to a month or less. Moreover, employers would no longer need to submit UCB-23 Wage Verification/Eligibility reports, as the Department would already have this information from the wage/tax withholding reports from the Department of Revenue.
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Rather than hiring and training attorneys properly, the Department wants to force attorneys who handle environmental regulation cases, discrimination matters, or workers compensation cases into hearing and deciding unemployment cases. What the Department should be focused on is adequate training and hiring, not another kind of quick fix. As I have pointed out elsewhere, the skyrocketing number of denials and over-payments is largely because of inadequate information available to claimants. So, getting claimants educated with concrete, specific advice in place of legalisms so as to avoid all the denials in the first place is what is needed here.
In 2007, weekly certifications for unemployment benefits required answering 11 questions (and which could be done on the phone). By 2017, the number of questions asked on a weekly certification had mushroomed to 120+, which can generally only be answered on-line (for current questions, seeClaim-Filing questions in Wisconsin as of June 2022 (30 May 2023). There is no legal reason for this complexation of the claim-filing process, and efforts at plain-language claim-filing need to return claim-filing to the basic and simple process it once was. These bills propose the exact opposite: to complicate the claim-filing process so that fewer and fewer will be able to navigate the process successfully. Accordingly, these proposed changes should be rejected out of hand.
Wisconsin Unemployment 
