Labor and Management proposals to “reform” unemployment in 2021

The Unemployment Insurance Advisory Council has been meeting in 2021 over how to reform unemployment in Wisconsin.

To date, a Department summary and the actual written comments from the November 2020 public hearing were reported to council members at the 21 January 2021 council meeting. There has yet to be any discussion or even acknowledgment by council members of the concerns raised at that public hearing.

And, the Department has re-presented its proposals from 2019 and new proposals for 2021, including a revamped SSDI ban (a financial offset in place of an eligibility ban, even though the Department has switched its explanation from one to the other for its own convenience).

At the 15 July 2021 council meeting, labor and management representatives exchanged their own proposals. Labor representatives in general attempt to make unemployment somewhat financially viable in Wisconsin. Management representatives build on prior “reforms” to make unemployment even more difficult and rare. Here is a rundown of those proposals.

Labor proposals

1. Fix the funding for the unemployment trust fund by changing how tax schedules are applied. Currently, the tax schedule to be applied to employers is based on the amount of money in the trust fund (which was $919.2 million as of 10 July 2021). This labor proposal would change the criteria to using an unemployment trust fund health number called an Average High Cost Multiple or AHCM.

• Schedule A = When UI Trust Fund is below .5 AHCM
• Schedule B = When UI Trust Fund is between .5 – 1.0 AHCM
• Schedule C = When UI Trust Fund is between 1.0 – 1.25 AHCM
• Schedule D = When UI Trust Fund is above 1.25 AHCM

Prior to the pandemic, when the trust fund had nearly $1.7 billion, the average high cost multiple was just under 1. In April 2021, when the trust fund still had slightly over $1 billion, the multiple was around 0.5.

2021 Wis. Act 59 is unnecessarily keeping unemployment tax rates at Schedule D for 2021 and 2022, and this labor proposal would also keep the tax rates at Schedule D. Per Wis. Stat. § 108.18(3m), tax schedules are based on the following trust fund balances (as of June 30th of the preceding calendar year):

• Schedule A: less than $300 million
• Schedule B: less than $900 million
• Schedule C: less than $1.2 billion
• Schedule D: more than $1.2 billion

In general, the actual tax rates for Wisconsin employers continued to fall in 2021 from 2020 tax rates because of fewer claims being paid to employees of Wisconsin employers. With fewer claims being paid, employers’ account balances are growing. As a result, employers have been moving to lower tax brackets within Schedule D.

2. Gradually Increase the maximum weekly benefit rate for unemployment benefits to $450 per week.

This proposed change would not take effect for another two years, however.

Current weekly maximum UI benefit   $370
2023 Benefit Year   $20 increase    $390
2024 Benefit Year   $20 increase    $410
2025 Benefit Year   $20 increase    $430
2026 Benefit Year   $20 increase    $450

This increase is half of what the Department proposes in D21-22 and needs to include a repeal of the $500 or more earnings prohibition to be effective, which the Department also proposed in D21-21. For further explanation, see the examination of these Department proposals here. As already noted, Wisconsin’s weekly benefit rate is the second lowest in the mid-west:

State   Max. WBR    Max. w/ dependents
IL        $484           $667
IN        $390           $390
IA        $481           $591
MI        $362           $362
MN        $740           $740
OH        $480           $647
WI        $370           $370

3. Eliminate the one-week waiting period, which is also included in Department proposal D21-19 and previously discussed here.

4. Expand worker mis-classification to all industries and make the penalties identical to claimant fraud. Here, labor representatives support adoption of Department proposal D21-26 and the recommendations of the governor’s misclassificaton task force. As noted in this discussion of the Department’s 2021 proposals, there are administrative and criminal penalties for claimant fraud as well as a different standard of proof for claimant fraud versus mis-classification by employers. It is not clear what the labor representatives are referring to with their proposal about identical penalties.

5. Request the Department to review tax schedules to assess the tax equity of those schedules.

What the labor representatives mean by tax equity is unknown.

Management proposals

1. When upgrading the Department’s mainframe, make sure employers have the ability to verify immediately any work search information that refers to that employer as well as the ability to report immediately any kind of work refusal, a missed job interview, or a decline of a job offer.

Employer’s currently have the ability to report all of this information as well as other kinds of information through the Department’s fraud reporting system.

Also, job search audits done pursuant to Wis. Stat. § 108.14(20) catch the interview and job offer information. This proposal would essentially give employers a direct avenue for challenging claimant eligibility when those claimants are NOT their former employees. For temp companies that have already seen their unemployment tax bills markedly reduced, this proposal secures an additional tool for cutting that tax bill even further. When claimants cannot collect unemployment benefits, then unemployment tax bills decline even further.

2. End the exclusion of union members from weekly job search requirements. Claimants who are working part-time, starting a new job in four weeks or less, will return to their current employer in the next eight weeks or so, AND union members who register on their union’s out-of-work list are exempt from doing four job searches per week. This proposal would require union hiring halls and union members who are on out-of-work lists with their unions to do four job searches per week through the union hiring hall.

This proposal does not make sense in light of how union hiring halls work. Hiring halls function based on the employers who contact them for available workers. But, that is not the point. Rather, this proposal is to draw media attention to this benefit union members enjoy and thereby create a further divide between them and most other workers in the state.

3. Redefine who an employee and independent contractor is for all fields of law to apply a single, common definition built around gig-work.

This proposal would completely upend almost all workplace law in Wisconsin, as one of the main changes being proposed is a person would be an independent contractor whenever a person signs a contract with an employer that states it is their intent to be independent contractor. In contrast to current law that specifies that such an arrangement can NOT be decided subjectively by the parties to the agreement, the proposal here is to give the parties the unilateral authority to create an independent contractor relationship on their own through a services contract.

Note: In practical terms, this authority is unilateral in the sense that individual employees have little to no bargaining power to set the terms and conditions of their employment.

Various “factors” are proposed to assess if a person is an independent contractor or not, but these factors are written so broadly and with so many loopholes that independent contractor status is all but assured. For instance, the services contract can still include a final schedule for delivery and a range of work hours as long as the time personally spent on providing services is left open. And, if costs for licenses, insurance, and certifications are borne by the person, then all is dandy with this gig-worker arrangement. In short, these criteria are not limitations but a road map for how to craft this independent contractor agreement.

Moreover, only four out of ten of these “factors” are needed for an independent contractor relationship to be established. So, an employer can make plenty is mistakes and still succeed on making their employees into gig-workers. A garbage truck driver, a machinist in a metal shop, and even a police officer could easily meet at least four of these factors and so be classified as independent contractors under this proposal.

Finally, this proposal also contains a poison pill that prevents any county or municipality from limiting this sweeping change to employment status in Wisconsin.

Regardless of any state law, however, this proposal if implemented would be a massive headache for employers, as federal wage and hour law, discrimination law, and collective bargaining law would still classify numerous “independent contractors” as employees for federal purposes. This proposal, in other words, is just plain silly and not serious at all.

4. End the 30-day quit-to-try a new job provision.

This proposal is another change that would greatly benefit temp companies by eliminating one of the main mechanisms employees may still qualify for unemployment benefits after trying out a job and quitting within the first 30 days.

By eliminating this provision, employees of temp companies would have to remain at every assignment regardless of fit, skill, wage, and working conditions until the assignment is ended by the employer to retain any hope of qualifying for unemployment benefits at some future date. Indentured servitude, in short, is making a comeback with this proposal.

5. Link the number of weeks of unemployment benefits available to the unemployment rate.

This proposal has been a bugaboo since 2010, as it essentially undermines the ability and scope of unemployment programs to respond in times of crisis. States that have implemented this linkage, like Florida and North Carolina, have been unemployment disaster zones, in part, because regular unemployment benefits were cut off prematurely during the pandemic.

One major point to unemployment benefits — “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” — is ignored and completely undercut by this proposal. Who would think that the penalties for first degree murder, for instance, should be linked to a state’s crime rate? Yet, management representatives are making a similar linkage here.

6. Numerous misconduct and substantial fault modifications.

For misconduct, management representatives want to add additional disqualifications concerning employer or customer information while also removing a requirement that employees act intentionally for any alleged “violation.” Absenteeism and tardiness violations will also be both more stringent and applicable regardless of actual reason for the absence or tardiness. Finally, employees would be strictly liable for a violation of an employer’s social media policy, once the employees are made aware of that policy.

As previously noted, these changes would directly run afoul federal requirements and loose Wisconsin employers their federal unemployment tax (FUTA) credit.

Note: A state’s administration of unemployment is funded through the Federal Unemployment Tax Act on their payroll (the first $7000 paid to each employee) that employers pay, called FUTA. Should a state be found to be applying the loss of claimant wage credits for “unintentional” misconduct, Wisconsin employers would lose their FUTA tax credit and be subject to the full 6.0% unemployment tax rate rather than just 0.6%.

In regards to substantial fault, management reps want to undue the court decisions in Operton v. LIRC, 2017 WI 46, and Easterling v. LIRC, 2017 WI App 18, by redefining inadvertent error into harmless error that does not also violate an employer’s written policies. In other words, any error that does not qualify as misconduct would now almost assuredly qualify as substantial fault.

Given that the Department still pretty much ignores these court precedents, this substantial fault proposal repeats previous “reforms” that seek align unemployment law with the Department’s current practices rather than accomplish an actual change.