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Department proposals, 2021 edition, and going back to 2019

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At the 18 March 2021 meeting of the Advisory Council, the Department began introducing its own proposals for changing unemployment law. More proposals are expected. These first proposals are appearing first because they were originally put forward during the last legislative session. The pandemic, however, meant that these proposals were never acted on.

Some of these proposals are innocuous. Others combine difficult and complex issues with a less than forthright explanation. What follows are these first proposals, their 2019 versions, and an assessment of what is going on.

D21-01, Creating an administrative fund

Here, as in D19-09, the Department seeks to create a permanent administrative fund for its own use.

As explained in the 2021 and 2019 proposals on this issue, there already exists an administrative account under Wis. Stat. § 108.20 that contains the interest and penalties paid by employers who fail to submit timely tax reports and payments.

This account, however, “lapses” at the end of a legislative session, and so any funds in this account gets transferred to general state funds rather than remaining a specific unemployment income/expense item.

The proposal here is to change the administrative account into an administrative fund that cannot “lapse,” so that these funds remain available to the Department. As explained in the fiscal impact:

The most recent lapse expenditures of employer interest and penalties monies occurred in SFY16 and SFY17 of approximately $2.67 million and $2.23 million respectively. This proposal would result in an additional $2 – $3 million in funds remaining within the UI program during years where lapse is in effect.

D21-01 at 3.

In past years, the interest and penalties employers paid were apparently so small that a lapse into the general fund was inconsequential. Now, with these interest and penalties numbers over $2 million, the amount is sizable and worth hanging on to.

Left unexplained by the Department here is why the interest and penalties paid by employers have of late increased so much. The Department’s targeting of small employers for unpaid tax liabilities has noticeably increased the last few years. But, members of the Advisory Council are left to guess why the Department now has $2+ million in this administrative account.

Note: The administrative fund/account here is separate from the Program Integrity Fund under Wis. Stat. § 108.19(1s) and the interest payment fund under Wis. Stat. §§ 108.19(1m) to (1q) when paying interest on federal loans to the unemployment trust fund. As of February 2021, the Department’s program integrity fund was nearly $16 million.

D21-02, Appropriations and technical fixes

This proposal and is predecessor, D19-08, involve hundreds of small changes in wording and statutory references.

In part, these changes are needed in light of the creation of an administrative fund in D21-01. This 2019 memo lists the changes being proposed.

D21-03, REDA for reimbursable employers

Through D15-04, the Department created a reimbursable employer fund to cover benefit charges that arise from identity theft. Because reimbursable employers pay dollar-for-dollar for any benefits paid to a claimant, benefits paid because of identity theft mean that there is no actual claimant from whom the stolen benefits can be recouped. See The first of the DWD-sponsored proposals have appeared in legislation (22 Oct. 2015), DWD/Advisory Council bill going forward (29 Jan. 2016), and 2015 Wis. Act 334 § 73.

From an initial set aside of $2 million for this identity theft fund, there is today around $1.9 million still available.

The Department now proposes here and in D19-01 to use some of these funds to reduce the taxes reimbursable employers pay for covering situations when other reimbursable employers lack the available funds for covering the unemployment benefits owed to claimants.

Note: These shortages from reimbursable employers most often arise when the reimbursable employer closes unexpectedly, leading to its former employees filing claims for unemployment benefits but no employer available for reimbursing the Department for the benefits paid out.

When such shortages arise, the remaining reimbursable employers are charged an additional fee called the reimbursable employer debt assessment or “REDA” to cover this shortage.

The Department proposes that a limited amount of the reimbursable employer identity theft fraud funds set aside in the balancing account be made available to recover uncollectible reimbursements instead of assessing the REDA (or to reduce the amount of the REDA). This would greatly reduce administrative costs to the Department and non-profit reimbursable employers and relieve those employers of having to pay the REDA. The Department proposes that the identity theft fraud funds be used to pay the REDA only if the use of those funds would not reduce the balance of the funds below $1.75 million. This would ensure that the bulk of the identity theft fraud funds are available for restoring identity theft charges.

The Department also proposes to increase the minimum amount of the REDA from $10 to $20, which would reduce the administrative costs of assessing the REDA.

What is left unsaid in this proposal is whether the Department will stop its collection efforts against reimbursable employers who have defaulted and created the uncollectible debt in the first place.

D21-04, Changing the timing of DWD reports

This proposal and its predecessor, D19-19, are less complicated than they seem.

The Department is responsible for releasing three reports and conducting one event — the public hearing. Here is the current schedule:

  • public hearing every two years (usually in November) of even numbered years
  • fraud report released annually in March of each year
  • financial outlook report released in April on odd years every two years
  • Advisory Council report released in May on even years every two years

Essentially, the Department wants to shift the financial outlook report to being released in May every two years on even numbered years. Because the financial report is shifted to even-numbered years, the Department wants to move up the Advisory Council report to January. The new schedule would be:

  • public hearing every two years (usually in November) of even numbered years
  • Advisory Council report released in January on even years every two years
  • fraud report released annually in March of each year
  • financial outlook report released in May on even years every two years

The impetus for this change is so that most of the reports and information become available when unemployment legislative proposals are brought before the legislature. Right now, an odd-numbered year, is when those proposals first appear and are developed. Next year — an even-numbered year — is when those proposals are likely to be brought before the legislature. Apparently, the Department wants to use the Advisory Council report and the financial outlook report to support whatever proposed legislative changes are being pushed for at the time.

As a consequence, the focus of the Department’s efforts with this change is being pointed to a specific legislative session, rather than any general, long-term view of the unemployment system as a whole.

D21-05, Avoiding DOR debt collection

As many claimants can already attest, the Department is incredibly effective at debt collection.

In this proposal and its 2019 version, D19-22, the Department proposes to exempt itself from Wis. Stat. § 71.93(8)(b), which requires state agencies to enter into an agreement with the Department of Revenue for collecting long-term debts.

Given how effective the Department has been at collecting unemployment debts and the tools available to it — offsets against unemployment benefits, interception of tax refunds, liens against real estate and cars, wage garnishments, levies of bank accounts, and re-payment plans — debt collection by the Department of Revenue adds unnecessary layers and additional fees. So, this proposal makes sense.

D21-06, Excluding appeal tribunals from the definition of departmental error

Revamping departmental error has been a constant item on the Department’s agenda. Over the past decade, the Department has changed unemployment law to excuse its mistakes rather than actually correcting its actions and policies. Here is what the Department has done so far:

This new proposal dates back to when the SSDI eligibility ban was enacted and was originally set forth in D19-07.

Recall that the original SSDI eligibility ban was poorly drafted, see D12-05, and the Commission held in Gary Kluczynski, UI Hearing No. 14400214AP (30 May 2014) that this original ban on receiving unemployment benefits only applied to the week in which SSDI benefits were received. In D15-01, the Department proposed the eligibility ban that we have today.

Between D12-05 and D15-01, the Department challenged the Commission over Kluczynski and other SSDI recipients it and appeal tribunals had originally found eligible for unemployment benefits under D12-05. The Department won many of those cases in circuit court, and the Commission then changed its mind and agreed with the Department that SSDI recipients were not eligible for unemployment benefits.

But, when the Department began seeking to recoup unemployment benefits against SSDI recipients, the Commission held that it and appeal tribunals had gotten the law wrong and so these SSDI claimants did not need to repay the unemployment benefits they had received. The Department then took this repayment issue to the appeals court and lost decisively in DWD v. LIRC (Morse), 2017 WI App 68:

DWD’s argument is that it should be permitted to recover the overpayments if there was a reasonable basis for DWD’s mistake. In essence, DWD contends that a departmental error stemming from a misinterpretation of law should not preclude overpayment recovery if the misinterpretation was reasonable.

As stated, Wis. Stat. § 108.02(10e)(am)1. defines “[d]epartmental error,” in part, as follows: “A mathematical mistake, miscalculation, misapplication or misinterpretation of the law or mistake of evidentiary fact, whether by commission or omission.” Nowhere in the statute do the words “reasonable” or “unreasonable” appear. We may not add words to the statute’s text. Words excluded from a statutory text must be presumed to have been excluded for a purpose. Heritage Farms, Inc. v. Markel Ins. Co, 2009 WI 27, ¶14 & n.9, 316 Wis.2d 47, 762 N.W.2d 652. “One of the maxims of statutory construction is that courts should not add words to a statute to give it a certain meaning.” Fond Du Lac Cty. v. Town of Rosendale, 149 Wis.2d 326, 334, 440 N.W.2d 818 (Ct. App. 1989). We deduce the legislature’s intent from the words it has chosen. See id. at 332. We reject DWD’s invitation to add additional requirements to these existing statutes. The legislature did not choose to insert adjectives such as “reasonable” or “unreasonable” or “longstanding” to limit the statutory terms “misapplication or misinterpretation of the law.” We have no power to insert what the legislature chose to omit.

Even if we did have such power, we would not exercise it here. First, we see no benefit to the claimants, DWD, LIRC, or the courts, in imposing DWD’s proposed “reasonable misinterpretation” exception to the waiver statute. Such an addition would result in additional litigation about whether an interpretation, though pronounced an error of law by a court, was still “reasonable.” Such a debate would inevitably cause unnecessary and unproductive expenditure of agency and judicial resources. It is a court’s job to interpret statutes. See Ott v. Peppertree Resort Villas, Inc., 2006 WI App 77, ¶11, 292 Wis.2d 173, 716 N.W.2d 127 (describing what a court must do when interpreting statutes). Courts should not be drawn into collateral litigation about whether a wrong interpretation was nonetheless “reasonable.” One person’s “reasonable” (e.g., an agency that wants its money back to pay other benefits) can be another person’s “absurd” (e.g., an unemployed claimant who really needed the money, did not misrepresent anything, was entitled to the benefits under the prevailing statute interpretation, and spent it before the court decision). DWD’s approach, if adopted, would produce the opposite of the certainty and predictability that the administrative system of unemployment benefits was designed to produce. We cannot conclude that DWD offers a more reasonable interpretation of Wis. Stat. § 108.02(10e)(am)1. than LIRC. See DWD, 375 Wis.2d 183, ¶11.

Morse at ¶¶22-4.

So, in D19-07 and now D21-06, the Department wants to overturn Morse without mentioning this court decision at all (and instead indicating that this issue is only a minor and technical dispute between it and the Commission) in order to make sure that any unemployment benefits that ever go to SSDI recipients in the future will always have to paid back. The Department’s explanation for the fiscal effect of this change reveals that this change in the law is very much about SSDI benefits:

To determine the impact of the proposed change, 2015-2017 data was reviewed for LIRC determinations that found departmental error based on appeal tribunal determinations. There were no LIRC decisions that found departmental error in 2016 or 2017 and in 2015, there were approximately 10 determinations. The total overpayment for all affected determinations was approximately $6,560, which claimants would now be required to pay back if departmental error could not be found on appeal tribunal determinations. At an 80% collection rate, this results in an average savings to the Trust Fund of $5,200 annually. Since there were no LIRC decisions that found departmental error [by an administrative law judge] in 2016 or 2017, the Trust Fund savings may be less going forward.

As this explanation indicates, the only cases at issue here are the 2015 and earlier SSDI cases for which the Department wanted to recoup unemployment benefits.

The other problem with this proposed legal change that is not mentioned at all is that the current understanding of departmental error has been in existence for decades and serves as an important check against appeal tribunals for getting basic unemployment law wrong. See, e.g., Parker v. Cady Cheese Factor Inc., UI Hearing No. 05200982EC (12 Aug. 2005) (an interpretation of a statutory provision which disregards a contrary long-standing interpretation by the commission constitutes departmental error).

Essentially, the Department’s proposed change to departmental error would mean that administrative law judges could ignore longstanding Commission precedent, and the consequences of that ignorance would fall exclusively on claimants. Under the Department’s proposed change in the definition of departmental error, waiver of any over-payments for the actions of administrative law judge’s would no longer be available to claimants who rely on administrative law judge’s getting unemployment law right in the first place.

I cannot think of anything more detrimental to the cause of justice and the purpose of unemployment benefits as vital economic assistance than this proposed change.

D21-07, Clarifying the effect of criminal convictions when charging concealment

In this proposal, the Department seeks to address the situation of a claimant who is charged criminally for unemployment fraud before the Department has alleged unemployment concealment.

In some circumstances, however, criminal prosecution may result in a court-ordered restitution order or judgment when the Department has not issued an administrative determination that a debt is owed. Examples could include submitting forged documents to the Department with the expectation that the forger would receive a benefit; submitting false unemployment benefit claims by using a fictitious employer scheme; or filing benefit claims using stolen identities.

D21-07 at 1. This concern is at present completely hypothetical, but the Department’s ever zealous push for pursuing unemployment concealment against claimants means that it is always thinking through the angles and procedures for these kinds of cases.

So, the Department wants to make sure that its concealment cases are NOT affected by any criminal cases and that claimants criminally guilty of concealment can not later contest that guilt to the Department. To accomplish this goal, the Department wants a change in law so that any criminal proceeding will serve as issue preclusion for the Department’s own concealment case against the claimant.

Section 108.101(5) of the statutes is created to read:

Notwithstanding sub. (4) [no other legal matter is binding for purposes of unemployment law], a final order or judgment of conviction for a crime entered by a court is binding on the convicted person in an action or proceeding under this chapter that relates to the criminal conviction. A person convicted of a crime is precluded from denying the essential allegations of the criminal offense that is the basis for the conviction in an action or proceeding under this chapter.

D21-07 at 1. In making this proposal, the Department does not intend “this proposal to change the Department’s practice with respect to nearly all cases referred for criminal prosecution. The Department intends to continue to refer most cases for prosecution after its administrative determination is final.” D19-20 at 2 (emphasis supplied).

Given that a person found guilty of criminal unemployment fraud will likely face prison as well as steep financial penalties, the goal here of later going after the claimant administratively for unemployment concealment seems to either be overkill or an admission that the Department cannot coordinate a criminal prosecution with prosecuting attorneys to make sure that the criminal case includes all relevant administrative issues from the Department’s perspective.

D21-08, Fiscal agents and family care employment

Like the departmental error proposal, this proposal hides a great deal of complexity and numerous other issues.

The aging of boomers and the push in Wisconsin for family members to provide care for their aging parents through numerous state support programs has led many, many folks to obtain “work” as family caregivers or to hire in-home caregivers to supplement what the children are doing.

A quirk in state law, however, allows the companies that facilitate this family care to avoid being identified as employers. Instead, the parents who are receiving this care are identified as the employers of their children and other caregivers for the purpose of unemployment law.

Note: This quirk in state law also applies to parents providing care of their adult children, though the specific statutes at issue are different.

Most parents and their children never know about the parent being the employer of record because the “notice” of this issue is provided in small print on one of many forms they complete when starting out with this family care. Because the parents are the employer of record, however, they are supposed to pay unemployment taxes for the wages paid their caregivers. Needless to say, most of these “employers” never pay the unemployment taxes that are owed.

For the most part, no one discovers this problem until after the parent has passed away. Then the children and hired caregivers file unemployment claims because they are now out of a job and looking for new work.

The family members who provide care to their parents are excluded from receiving any unemployment benefits pursuant to Wis. Stat. § 108.02(15)(km), which defines excluded employment as a family member providing personal care or companionship to another family member.

Many, many family members are only finding out about this exclusion when they file for unemployment benefits. And, given the arcane nature of this exclusion, many are paid unemployment benefits by mistake, only to have the Department recoup those unemployment benefits at a later date.

Understandably, non-family members are still eligible for unemployment benefits. But, the parent-as-employer has passed away without paying the unemployment taxes that were due, and any claim against the “estate” for unpaid unemployment taxes is unlikely to get anywhere given that these estates are usually meager to begin with and already claimed by other debts.

In D17-02, the Department addressed this lack of liability for the unpaid unemployment taxes by making the fiscal agents joint and severally liable for the unemployment taxes that are still owed. See also the discussion of D17-02 in Department unemployment proposals in 2017 (24 May 2017). As the Department explained for why joint and several liability for fiscal agents was needed:

Individuals who receive long-term support services in their home through government-funded care programs are domestic employers under Wisconsin’s unemployment insurance law. [Wis. Stat. § 108.02(15)(km)] These employers receive financial services from fiscal agents, who directly receive and disperse government program funds. The fiscal agent is responsible for reporting employees who provide services for the domestic employers to the Department, and for paying unemployment tax liability on behalf of the employer. [Wis. Stat. § 46.27(5)(i)] Currently, approximately 16,000 of the 19,000 domestic employers in Wisconsin receive government-funded care and use a fiscal agent. These employers incur tax liability when fiscal agents fail to file quarterly reports or fail to make tax liability payments. [As of July 2016, the receivables for domestic employers is $44,709.02] It is difficult to collect delinquent tax from domestic employers who use fiscal agents because these employers are typically collection-proof.

D17-02 at 1 (footnotes inserted into text). These numbers — 16,000 out of 19,000 domestic employers — indicate just how significant this issue is.

In D19-03 and now D21-08, the Department is proposing to change the law so that fiscal agents could optionally elect to be the employer-of-record for family members caring for others in their family. That is, family members would no longer be prevented from receiving unemployment pursuant to Wis. Stat. § 108.02(15)(km).

The fiscal impact of this proposed change based on the claim-filing problems that occurred when claims were at a near-record low is sizable.

In 2018, there were approximately 93 determinations excluding wages from benefit claims under 108.02(15)(km). Assuming the individual had no other base period wages this would result in approximately $354,330 in additional benefits paid annually (assuming an average weekly benefit amount of $300 and average weeks paid of 12.7). Adjusting for taxes, this would result in an approximately $233,857 cost to the Trust Fund. However, this does not take into account the additional tax revenue on employee whose wages would no longer be excluded from UI coverage.

In summary, this proposal could result in:

• More tax revenue received and more benefits paid based on previously excluded wages under 108.02(15)(km); however, this amount cannot be established.

• Fewer benefit overpayments based on the 108.02(15)(km) exclusion estimated at $100,000 annually. This is because under this proposal these benefits would now be payable. However, most overpayments are collected (at least 80%) thus this would not have a significant impact on the Trust Fund.

D21-08 at 5-6.

The problem with this proposal is that the change in who is the employer in these cases is an optional change done at the discretion of the fiscal agent. Given how confusing, unknown, and ambiguous this issue is already for parents and their family care-givers as well as what the Department is encouraging here (that fiscal agents voluntarily take on an additional expense at their discretion), this proposed change seems highly unlikely to lead to any practical change at all in regards to family members currently being placed in excluded employment.

Right now, almost all family members think that these fiscal agents are their employers. Family members as caregivers report their hours of work to these fiscal agents, and these fiscal agents are the entities that pay family members for their hours of care for their elderly parents and relatives. Almost none of them understand at all that the parents receiving care are legally an employer responsible for paying unemployment taxes.

So, if this proposal is going to have any actual impact on a very confusing and difficult situation, the switch from parent-as-employer to fiscal agent-as-employer needs to be a mandatory change, not optional.