Concealment problems for employers too

In yesterday’s post, I described how the Department of Workforce Development is turning employees’ claim-filing mistakes into charges of fraud and concealment.  Employers should not think that these new tactics have nothing to do with them, however.

In a case of first impression I recently litigated, the Department charged an employer with aiding and abetting claimant fraud. There were small and big holes to the Department’s case, and the appeal tribunal dismissed the charges. Furthermore, the Department has not appealed these dismissals to the Labor and Industry Review Commission. So, the appeal tribunal decisions dismissing the cases stand.

The facts of the case were that an employee of a truck driving company was let go after an OUI arrest and charge that made the employee ineligible to drive trucks. After the former employee started serving his sentence, the employer arranged for the former employee to do work about the employer’s house as a household employee through the former employee’s Huber release privilege. As the employer did not operate as a household company, it fudged the needed Huber release documents and listed the trucking company as the Huber release employer. Unknown to the employer, the former employee filed unemployment claims while on Huber release and did not report his earnings from the household work.

What was striking about these aiding and abetting charges is that the Department never alleged that the employer here knew about the claimant fraud at issue or that the employer was somehow involved in the claimant’s concealment scheme. Rather, as the administrative law judge explained:

One of the department’s witness, a UI benefit analyst, admitted that the department’s determination, which found that the employing unit had aided and abetted the claimant in unemployment insurance fraud, was not based upon the assertion that the employing unit actually knew the claimant was filing for U1 benefits, but that it was based upon the employing unit’s alleged failure to respond and provide information to the department that constituted aiding and abetting.

In essence, the employer in this case was charged with aiding and abetting claimant fraud for making a reporting error to the Department.  This “aiding and abetting” subjected this employer: (1) to repaying the claimant’s fraud of $5,202 on top of the claimant’s own obligation to repay the $5,202 because of his own concealment and (2) to paying an additional penalty of $8,500 — $500 for each of the claimant’s 17 acts/weeks of concealment . According to the Department in its brief:

In the instant matter, if the department had received only the wage earnings audits completed by Ms. __, CLAIMANT’s work and wages would have remained concealed. By not reporting the work that CLAIMANT performed for EMPLOYER, the employer was attempting to aid and abet CLAIMANT in concealing his wages.
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The wage earnings audit forms are clear. The forms completed by Ms. __ evince more than a simple mistake of fact. The Labor and Industry Review Commission has stated with respect to concealment cases that: “[b]ecause direct proof of a claimant’s intent is rarely available, fraud may be proven by indirect (circumstantial) evidence and reasonable inferences drawn from the facts. There is a rebuttable presumption that parties intend the natural consequences of their actions.” McCleron v. Olson Carpet Tile and Design LLC, Hearing Nos. 13609472MW and 13609473 (LIRC, April 30, 2014).

For the Department, the employer’s alleged failure to provide wage information about the claimant in a departmental audit form constituted aiding and abetting claimant fraud. The problem with this kind of allegation is that an employer’s failure to report information to the Department in a timely fashion is already penalized by the Department. As I wrote in my brief to the appeal tribunal (footnotes removed):

Depending upon whether the benefits were erroneously paid due to fault by “the employer” or “an employer” Wis. Stats. § 108.04(13)(c) imposes different consequences upon an employee who is without fault in the erroneous payment of benefits. If the at issue employer is at fault in the erroneous payment and the employee is without fault, the benefits will be referred to as erroneously paid but will “stand as paid” with no overpayment for the employee to repay. On the other hand, if the at issue employer is not at fault but a different employer is at fault, an overpayment will be created and the employee is responsible for repaying the overpayment pursuant to Wis. Stat. § 108.22(8)(c) even though the employee is without fault. Further, under the latter scenario, the “at fault” employer, will be charged for the benefits erroneously paid and will not be credited those amounts if department recovers the overpayment. See Wis. Stat. § 108.04(13)(e).

Pittman v. Emmpak Foods Inc., UI Hearing No. 04600783MW (3 December 2004). In Pittman, two related employer divisions, Wispak and Emmpak, shared employment records but provided conflicting information that led to an over-payment of benefits. The Commission concluded only one employer existed and the over-payment did not need to be repaid because of employer fault:

Under these rare circumstances, the commission attributes the Wispak fault to Emmpak. As such, while the erroneously paid benefits were not paid due to any fault on behalf the employee, the benefits were not paid “without fault” of Emmpak and the erroneously paid benefits will “stand as paid.” No overpayment will be created.

Id. [Note that 1999 Wisconsin Act 15 amended the wording of Wis. Stat. § 108.22(8)(c) such that employer fault of any kind no longer allowed for waiver of an over-payment. The charging of an over-payment after recoupment to employer accounts because of employer error has not changed, and this penalty remains in force today.] See also Fleming v. Wal Mart Associates Inc, UI Hearing No. 03005241MD (9 March 2004) (allegation that employee misled Department about her discharge not supported by the record, but evidence does show that the employer initially provided inaccurate verbal information when contacted by a claims specialist regarding the reason for the employee’s separation and then failed to timely return, and raise an eligibility issue on, the UCB-16 and UCB-23 reports).

Employer error in responding to departmental requests for information is a common issue. In Weaver v. QTI of Southeastern Wisconsin Inc., UI Hearing No. 10602317MW (2 September 2010), the employer’s drug and alcohol policy could have been mailed or faxed to the department in a timely fashion, and so the employer failed, without good cause, to provide correct and complete information requested by the department during its fact finding investigation, pursuant to Wis. Stat. § 108.04(13). In Givhan v. Christina’s Childcare & Development Center, UI Hearing No. 07603505MW (21 November 2007), benefits used to reduce the forfeiture balance in the amount of $1122 and benefits paid to the employee in the amount of $264 remained charged to the employer’s account because the employer provided inconsistent reasons for the employee’s discharge. In Brunette v. Oneida Tribe Of Indians of Wisconsin, UI Hearing No. 06402964GB (2 May 2007), benefits paid to the employee prior to the end of week 2 of 2007, when the appeal tribunal decision was issued, which amounted to $2655, remained charged to the employer’s reserve account because the employer’s contact number was a general human resources line and not a job line as claimed. In Wickman v. New Berlin Grading Inc., UI Hearing No. 95604172WK (19 January 1996), an employer mistakenly reported sick-pay an employee received as wages. The mistake led to the employee having base period wages to which he was not entitled, and so the over-payment existed because of employer error. In Rathsack v. The Queen Bee, UI Hearing No. 95401613AP (11 April 1996), the employer mistakenly included a back pay award in quarterly reports and so inflated the employee’s benefit year earnings. The resulting over-payment remained charged against the employer’s account.

If anything, the Department’s allegations against the employer constitute nothing more than employer error in responding to a Department request for information. The Department’s aiding and abetting allegation here, however, now adds an additional penalty to all of these cases of employer error. Whenever an employer fails to return a requested report in a timely manner, the employer will face a potential aiding and abetting charge in addition to the already existing penalties for employer error. Accordingly, the Department is essentially adding new penalties to employer errors on top of current penalties. The appeal tribunal should reject this dramatic expansion of unemployment law.

In other words, this case represents a dramatic expansion of employer liability.  If the Department had succeeded in this case, then employers could be liable for additional concealment penalties for nothing more than reporting mistakes whenever claimant concealment has occurred.  Luckily, the employer in this case won this round.  But, who can say the Department will not try again with some other case? If the Department is willing to charge an employer for “concealment” when the facts at best only show that there was a reporting mistake, then employers should be worried about all the concealment changes being debated right now. If employees become strictly liable for their mistakes, employers may suddenly find themselves charged with aiding and abetting those claimant mistakes.

[Updated 21 April 2015 with some edits to improve the writing.]