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.
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.
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.
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.
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.
At the 18 March 2021 meeting of the Advisory Council, the Department presented its first eight proposals. These first eight proposals included the proposals that the Advisory Council originally approved of in 2019 (but which were not enacted because of the pandemic).
At the 15 April and the 20 May 2021 meetings of the Advisory Council, the Department presented another 18 proposals — D21-09 thru D21-26. Yikes. Here are those proposals, with links to the actual proposals that appeared at the May 2021 Advisory Council meeting.
D21-09, Employee Status solely determined by unemployment law
The Department seeks to amend the definition of employee and self-employment.
The Department proposes to amend sections 108.09(2)(bm) and 108.09(4s) to provide that all issues of unemployment insurance employee status may only be determined under Wisconsin unemployment statutes and rules. This proposal will provide consistency in determining individuals’ eligibility for unemployment benefits and employers’ unemployment insurance tax liability by limiting the employee status inquiry to the provisions of the unemployment insurance law.
D21-09 at 2. The actual proposed changes seem to do little more than re-arrange statutory wording, however. At present, current unemployment law prohibits consideration of licensing requirements or other state or federal law in determining employee status. So, there is a change in wording being proposed, but I cannot determine what substantively is being changed. The Department’s rationale seems to be that administrative law judges are over-turning initial determinations that held claimants to be employees (and so, concluding that the claimants truly were independent contractors) because those administrative law judges were looking to laws outside of unemployment law.
the appeal tribunal shall not take administrative notice of or admit into evidence documents granting operating authority or licenses, or any state or federal laws or federal regulations granting such authority or licenses.
So, the actual goal of this proposed change is unclear at the moment.
This proposals adds a provision — required by federal law — to prevent employers from re-organizing themselves and thereby reducing their tax rate significantly and restoring a positive account balance as a “new” employer — a practice called SUTA dumping.
SUTA dumping is a major problem that can easily “cost” thousands of dollars (and maybe even tens of thousands) per employer, especially when extended beyond one year. The proposed penalties are a $5,000 forfeiture, a possible $10,000 civil penalty, and possible criminal charges as a class A misdemeanor (up to 9 months in jail and up to a $10,000 fine).
So, these penalties are chump change and unlikely to discourage any employer but the smallest from SUTA dumping. A large employer who might save $70,000 or more in three years will not bat an eye at these proposed penalties.
Moreover, the penalties for claimant concealment are much more severe. Alongside the financial penalties that claimants incur for the claim-filing mistakes, per 2017 Wis. Act 147 the criminal penalties for claimant concealment are:
For benefits up to $2,500: An unclassified misdemeanor with a fine up to $10,000, imprisonment up to nine months, or both.
For benefits up to $5,000: A Class I felony, for which the penalty is a fine upto $10,000, imprisonment up to three years and six months, or both.
For benefits up to $10,000: A Class H felony, for which the penalty is a fine up to $10,000, imprisonment up to six years, or both.
For benefits over $10,000: A Class G felony, for which the penalty is a fine up to $25,000, imprisonment up to 10 years, or both
And, unlike claimant concealment, actual and specific intent to commit SUTA dumping needs to be proven. Proposed Wis. Stat. § 108.16(8)(mm)3 will read:
For the purposes of this paragraph and par. (m), “knowingly” means having actual knowledge of or acting with deliberate ignorance of or reckless disregard for the statute violated.
D21-10 at 3. Claimant “intent” for the purpose of unemployment concealment is shown for any claim-filing mistakes by the following factors:
a. Whether the claimant failed to read or follow instructions or other communications of the department related to a claim for benefits. b. Whether the claimant relied on the statements or representations of persons other than an employee of the department who is authorized to provide advice regarding the claimant’s claim for benefits. c. Whether the claimant has a limitation or disability and, if so, whether the claimant provided evidence to the department of that limitation or disability. d. The claimant’s unemployment insurance claims filing experience. e. Any instructions or previous determinations of concealment issued or provided to the claimant. f. Any other factor that may provide evidence of the claimant’s intent.
Wis. Stat. § 108.04(11)(g)2 (setting forth a claimant’s duty of care to provide accurate and complete responses to Department inquires).
These standards are hardly comparable. They should be. They need to be.
Work-share has been one of the few unemployment success stories in Wisconsin during this pandemic. In light of federal changes to work-share programs during the pandemic, this proposal seeks to expand work-share options and flexibility in light of those federal changes so that more employers and employees can take advantage of these benefits.
This proposal is a no-brainer and should have been adopted months ago.
The Department wants to hear about other changes needed to work-share efforts in Wisconsin. Other than a reduction in the complicated paperwork (a universal complaint for work-share), contact me with your suggestions. I will pass them on to the Advisory Council.
D21-12, Secretary waiver of provisions for the sake of funding flexibility
This proposal expands the general savings clause (the Department’s secretary can waive compliance with any specific state requirement should that state requirement be found to conflict with federal law) to also allow the Department secretary to waive requirements that prevent the state from taking full advantage of federal funding opportunities (like immediately waiving the waiting week when the pandemic struck, as the legislative delay costs Wisconsin employers’ millions of dollars).
D21-13, Initial tax rates for construction employers
Unemployment taxes have been declining so rapidly in Wisconsin that the initial tax rates for construction employers — one of the few booming industries from before and during the pandemic — are now lower than the initial rates of non-construction new employers.
D21-13 at 1. Because construction work is generally seasonal work, initial tax rates in construction should in theory be higher than for general, non-construction employers. The Department’s solution is to amend “the initial tax rate for construction employers to be the greater of the initial rate for non-construction employers or the average rate for construction industry employers as determined by the department on each computation date, rounded up to the next highest rate.” D21-13 at 2.
Until construction work no longer has seasonal layoffs because of winter, this proposal makes sense.
Current regulations, however, still prioritize in-person hearings over hearings by phone. In this proposal, the Department wants:
to amend chapter DWD 140 to provide that, while parties may continue to request in-person hearings, it is the hearing office’s discretion whether to grant that request. The Department also proposes to clarify language in DWD chapter 140 regarding hearing records, Department assistance for people with disabilities at hearings, and to correct minor and technical language in DWD chapter 140.
D21-14 at 2. As currently worded, the proposal simply justifies what the Department wants to do and provides no actual reasons or justification for these changes. For instance, the Department lacks space for in-person hearings because the Department previously closed three out of four hearing offices.
Even more troubling, the substances of the proposed changes is lacking. Wis. Admin. Code § DWD 140 is THE set of regulations for how hearings are conducted. Any changes to this chapter could have long-term repercussions to claimants and employers about what happens at unemployment hearings and their access to the hearing files connected to these cases.
When presenting this proposal, the Department indicated that the changes to DWD 140 are needed as well as to DWD 149 to reflect the Department’s current practices in responding to open records requests. So, it begs the question of what exactly is in conflict between these regulations and the Department’s current hearing practices. Wis. Admin. Code DWD 149.03 provides:
(1) Claimants and employing units. Except as otherwise provided under s. DWD 140.09, the department shall make the following records available to the following persons upon request:
(a) An unemployment insurance record concerning an individual is available to that individual.
(b) An unemployment insurance record concerning an individual’s work for an employing unit is available to that employing unit.
(c) An unemployment insurance record concerning a determination to which an employing unit is identified as a party of interest under s. 108.09, Stats., is available to that employing unit.
(d) An unemployment insurance record concerning an employing unit’s status or liability under ch. 108, Stats., is available to that employing unit.
In legal circles it is generally understood that phone hearings favor employers, as employer witnesses can gather in one room and share a set of notes during their testimony without an administrative law judge witnessing those notes being passed.
Finally, for comparison, here is a 1998 Department notice (from a 2000 training about unemployment hearings) about opting for a phone hearing. If the Department is going to go forward with this change, it should address these points it put forward in 1998 for why phone hearings are problematic.
Currently, summer camp counselors are generally ineligible to receive unemployment benefits because they are usually full-time students. But, summer camps must still pay unemployment taxes for the wages paid to summer camp counselor.
This proposal applies the federal definition of excluded employment for camp counselors to state law.
The result of this change is that summer camps will no longer pay unemployment taxes for the wages paid to their summer camp counselors. And, some summer camp counselors who are not students may lose the ability to include their summer camp wages in establishing a benefit year.
This proposal repeals the drug testing provisions the Walker administration kept trying to institute. Recall that the drug testing efforts came in three parts: (1) voluntary employer testing and reporting, (2) mandatory testing of claimants based on to-be-determined federally designated occupations for testing, and (3) mandatory testing of claimants based on a future, state-based list of designated occupations. Only the voluntary employer testing and reporting was ever implemented.
The big news here is that as of 31 March 2021, the Department has received 171 drug test reports (either a failed test or failing to take a test) from potential employers. Previously, the Department had reported none or just a couple of voluntary testing reports from employers. In any case, the impact of these 171 voluntary employer reports remains nil. “No claimants have been determined to be ineligible for UI benefits under the pre-employment drug testing statutes and rules and denied benefits because of the employers’ reports of a failed or refused drug test as a condition of an offer of employment.” D21-16 at 1. So, there has been no opportunity for claimants to maintain their eligibility by enrolling a drug treatment program at the state’s expense.
Because employers have no idea of whether a job applicant is receiving or not receiving unemployment benefits OR because employers are failing to provide the necessary drug-testing paperwork and follow the necessary protocols for reporting a drug test OR a combination of these two factors, the voluntary drug testing has been a complete bust. In more than five years, this effort has not led to a single disqualification or enrollment in a drug treatment program. Ending a program that is doing nothing should make sense.
D21-17, Repeal of the substantial fault disqualification
This proposal seeks to repeal the substantial fault disqualification. There are two issues with this proposal, however.
Second, court decisions in Operton v. LIRC, 2017 WI 46, and Easterling v. LIRC, 2017 WI App 18, have limited the scope of substantial fault in important ways from how the Department applies this disqualification. But, the Department continues to ignore those court precedents. Indeed, as of May 2021, I have come across two cases of employees disqualified for substantial fault because of unintentional mistakes where the mistakes in question are nearly identical to the mistakes in Operton (inadvertent job mistakes) and Easterling (unintentional mistakes while attempting to satisfy employer demands).
D21-18, Expansion of the relocating spouse quit exception
This proposal restores this quit exception to allow any claimant who has to quit a job because his or her spouse has to relocate. Prior to 2013, Wisconsin allowed claimants to receive unemployment benefits when they had to relocate because of a spouse transferring to another job for any reason. In proposal D12-19, the Department limited this quit exception to the spouses of military personnel who had to relocate.
So, this proposal restores the expansive nature of this quit exception.
The problem here, like with substantial fault, is that the Advisory Council previously rejected this Department proposal to limit this quit exception to the spouses of military personnel. Here is what the Advisory Council actually agreed to back in 2013. So, this proposed change should be included as a matter of course in the council’s agreed-upon bill.
The waiting week was enacted as part of the 2011 budget act, 2011 Wis. Act 32 and without any input from the Advisory Council.
The concept of a waiting week exists because state unemployment agencies originally could not act quickly on a claim for benefits, and so a waiting week was needed to give the state agency time to process the necessary paperwork. With the advent of claim-filing by phone, however, that additional time was no longer needed. The waiting week effectively became a vehicle for reducing the total amount of benefits paid out to a claimant, since claimants did not receive any unemployment benefits for the first week of their claim.
The Department estimates that the waiting week costs claimants $26.1 million each year. D21-19 at 3. Given the purpose of unemployment benefits to provide immediate economic stimulus to workers in time of need after losing their jobs, a waiting week makes no sense.
D21-20, Repeal of the lame duck work search and work registration changes
In light of Wisconsin’s partial wage formula, a claimant with a weekly benefit rate of $370 could in theory have as much as $574 in wages and still qualify for at least $5 in unemployment benefits. D21-21 at 1. In other words, the partial wage formula indicates that anyone with $575 or more in wages would NOT receive any unemployment benefits.
As a consequence, the $500 cutoff actually discourages some work, as any employee who receives $500 or more in wages loses all unemployment benefits. For instance, a person with a WBR of $370 who earns $550 in wages would receive $22 in unemployment benefits that week, if the $500 wage cap was eliminated.
In other states, the gap between earnings and unemployment eligibility is called an “earnings disregard.” In some of these states, a worker who earns just $200 in a week loses unemployment eligibility dollar for dollar, so the earnings disregard in those states is sizable. See Massachusetts, for example, in this table. Because of Wisconsin’s partial wage formula, the earnings disregard in Wisconsin is limited to this $500 wage cap and only applies for claimants receiving the highest weekly benefit rate.
So, at present this $500 wage cap has a very limited effect. But, should the weekly benefit even be increased, it will become a major problem. And, as indicated in the next proposal, Wisconsin now has the second-lowest weekly benefit rate in the mid-west. So, this artificial cap needs to go if Wisconsin is going to raise its weekly benefit rate.
Finally, as noted by the Department, D21-21 at 3, the eligibility ban when working 32 or more hours in a week remains in place.
Currently, Wisconsin has the second-lowest maximum weekly benefit rate 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
A listing of the weekly benefit for all the states is available here.
Note: this data is different from what the Department reports in its proposal, and these numbers are current as of October 2020. These numbers have changed since then. Ohio, for instance, currently has a maximum WBR of $498 and $672 with dependents.
The highest WBR available is in Massachusetts, at $823 ($1,234 with dependents). The second highest is in Washington state at $790.
This proposal sets forth a series of increases in the weekly benefit rate.
For benefits paid for weeks of unemployment beginning on or after January 2, 2022, but before January 1, 2023, the maximum weekly benefit is capped at $409.
For benefits paid for weeks of unemployment beginning on or after January 1, 2023, but before December 31, 2023, the maximum weekly benefit is capped at 50% of the state’s annual average weekly wages.
For benefits paid for weeks of unemployment beginning on or after December 31, 2023, the maximum weekly benefit is capped at 75% of the state’s annual average weekly wages, or the maximum weekly benefit amount from the previous year, whichever is greater.
Wisconsin’s weekly benefit rate relative to the wages being paid in this state has never been all that good and has become essentially a token reimbursement in the last few decades.
Using the average weekly Wisconsin wage of $951 in 2019, the maximum WBR in 2023 would be $475, and in 2024 the maximum WBR would be $713. So, this proposal would basically make the maximum weekly benefit rate actually useful and relevant again in Wisconsin.
D21-23, Expanded flexibility in searching for suitable work
Here, the Department proposes two changes. First, the Department wants to expand the canvassing period from six weeks to eleven weeks.
The canvassing period is the time when you can reject a job offer which is a lower grade of skill or at a significantly lower rate of pay (less than 75%) than you had on one or more recent jobs without losing your eligibility for benefits. SeeTips for filing for unemployment benefits in Wisconsin for more information about your canvassing period.
Second, the Department proposes expanding the trial time period for quitting a job without being disqualified from receiving unemployment benefits from 30 days to ten weeks (the original time period). The Advisory Council originally approved of the change from ten weeks to 30 days.
This trial time period provides various ways for an employee to still qualify for unemployment benefits when quitting a job regardless of the employee’s actual reason. The main reason found in this category usually is that the job fails to meet established labor market standards (e.g., wages are 25% or less than what is normally paid in that specific labor market for that occupation). But, any reason that would have allowed the employees to refuse the job offer in the first place as well as any reason for quitting the job with good cause applies here. Only the last reason — having good cause for quitting the job — is still available to employees after the trial period has expired.
D21-24, changing the SSDI eligibility ban to an offset
This proposal was previously discussed here, along with the entire history of the Department’s SSDI eligibility ban qua offset. Whether as an eligibility ban or an offset, it still makes no sense. There should be no SSDI offset, just like there should be no SSDI eligibility ban.
Here is hoping the Advisory Council can fix this crazy proposal and end this discrimination against the disabled.
At present, large employers (those with annual unemployment taxes of $10,000 or more) must e-file their reports and e-pay their unemployment taxes.
This proposal would mandate e-filing and e-pay for ALL employers.
The problem is that many one or two person LLCs and other self-employed individuals have no conception of unemployment taxes and the reports that need to be filed. Given the lack of broadband access in the state, this mandate for these small employers is likely difficult to impossible to implement.
Without a broad-based, educational media campaign, this mandatory e-filing will accomplish little more than allowing the Department to levy administrative penalties against small employers who have no idea what is going on and fail to provide their forms and payments via e-file and e-pay. The fact that implementation will be delayed until the Department actually has the technology in place to support this proposal offers little assurance. In short, this proposal should be rejected out-of-hand. After all, those who push for ease-of-use indicate that multiple kinds of access need to be maintained and fully supported. So, mandatory e-filing and e-pay actually runs counter to making unemploymeny more modern and easier-to-use.
This proposal seeks to replace the token employer penalties for mis-classifying construction workers (1) with penalties that at least some have some dentures to them and (2) to expand this issue to all industries rather than limiting it to just construction.
The Advisory Council at the urging of Mark Reihl, then the head of the carpenters’ union in Wisconsin (and now division director for unemployment) originally approved the original penalties proposed by the labor caucus.
$500 civil penalty for each employee who is misclassified, but not to exceed $7,500 per incident.
$1,000 criminal fine for each employee who is misclassified, subject to a maximum fine of $25,000 for each violation, but only if the employer has previously been assessed a civil penalty for misclassified workers.
$1,000 civil penalty for each individual coerced to adopt independent contractor status, up to $10,000 per calendar year.
D21-36 at 1.
With this proposal, the Department explains:
The proposal removes the $7,500 and $10,000 limitations on these penalties and provides that the penalties double for each act occurring after the date of the first determination of a violation. The proposal also removes the limitations on the types of employers to which the penalties apply, allowing them to be assessed against any type of employer that violates the above prohibitions.
(b) The department shall consider the following nonexclusive factors in determining whether an employer described under par. (a) knowingly and intentionally provided false information to the department for the purpose of misclassifying or attempting to misclassify an individual who is an employee of the employer as a nonemployee:
1. Whether the employer was previously found to have misclassified an employee in the same or a substantially similar position. 2. Whether the employer was the subject of litigation or a governmental investigation relating to worker misclassification and the employer, as a result of that litigation or investigation, received an opinion or decision from a federal or state court or agency that the subject position or a substantially similar position should be classified as an employee.
Under this standard, it is well nigh impossible to charge an employer with mis-classification for a first-time violation. On the other hand, claimants are given no such leeway for their claim-filing mistakes. As noted above with proposal D21-10 (SUTA dumping), claimants who have filed for unemployment insurance previously and been given notice to read the claimants’ handbook are presumed to know everything about how to file an unemployment claim and to not make any claim-filing mistakes. But, here, employers are not liable for mis-classification (a far more serious problem economically) until after their first instance of mis-classification. In other words, these mis-classification penalties can only apply to employers when prosecuted a second time for the same mis-classification. Having two bites of the apple sure is nice.
Either employers should be held to the same claim-filing standards as employees, or the intent requirements used against employees for their claim-filing mistakes needs to be seriously redone.
The pandemic rages on, and unemployment remains an economic lifeblood for hundreds of thousands in Wisconsin.
Yet, unemployment has also been a dangerous option for some time now, because the Department considers any claim-filing mistake to be fraudulent. When a mistake is discovered, the Department presumes the mistake was intentional, and the claimant must then explain why that mistake was actually not intentional and just an accident.
The Department considers any apology for a mistake, an admission that you lacked awareness or knowledge of the unemployment issue, or a failure to look up the relevant information in the claimant handbook or the Department website as an admission of guilt. Despite the statutory requirement that unemployment concealment (aka fraud) must still be intentional Wis. Stat. § 108.04(11)(g)(1), the Department mandates that claimants have “a duty of care to provide an accurate and complete response to each inquiry made by the department in connection with his or her receipt of benefits” Wis. Stat. § 108.04(11)(g)(2).
By this same law, Wisconsin does not allow physical or mental disabilities to excuse a claim-filing mistake (unless the claimant has provided specific notice to the Department of that disability in some not yet provided mechanism) while also mandating that claimants have a responsibility to read all information the Department makes available on its website or during the on-line only claims-filing process. Id. In this way, Wisconsin uses one part of state statutes to over-ride another part — that the mistake be intentional in the first place — in order to charge concealment with almost every claim-filing mistake made.
Note: In 2016, the Department re-wrote this section of unemployment law to reflect its practices in pursuing concealment. The Department, however, failed to remove the requirement that concealment still be an intentional act. So, notwithstanding its other changes, a factual finding of intent to defraud is still needed for a charge of unemployment concealment. Domingo Ramos, UI Hearing Nos. 16606402MW and 16606403MW (23 Feb. 2017) (applying new concealment definition, Commission finds that claimant’s job search mistakes were not intentional and so not concealment).
And, here is an expert report, describing how misunderstandings over who is the liable employer or over confusion over misleading questions establish by law that the claim-filing mistakes are unintentional.
And, here is a run-down of the numerous reasons for why concealment should not be found and which the Department has ignored and continues to ignore.
In other words, it is obvious that the Department is NOT following its own law in charging concealment as zealously and as much as it has been doing. The Department ignores this law, moreover, because it can. Claimants have to appeal the initial determinations that charge concealment, and then usually appeal decisions of an administrative law judge who follows Department guidance rather than the law on this issue.
One person I know of failed to report a yoga class she taught on her weekly claims after being laid off from her regular job. She was paid for those yoga class six months after teaching them: $30 a class for 12 classes. So, when she was paid she then contacted the Department about what she should do. The Department charged her with concealment because she failed to report her yoga class wages when she earned them, even though reporting wages when received is NOT fraudulent. Waoh-Tobin v. Banana Republic, UI Hearing No. 16602900MW (18 October 2016).
The kicker is that her failure to report that $30 in wages from teaching a yoga class was inconsequential to her unemployment claim. Under Wisconsin’s partial benefits calculator, the first $30 in wages is NOT counted against the unemployment benefits you receive. So, her mistake literally had zero impact on her weekly unemployment benefits.
But, because the Department charged concealment, she had to pay back her entire weekly benefit amount of $315 a week for 11 weeks (she received no unemployment benefits during her waiting week), plus a 40% administrative penalty, plus a forfeiture of future unemployment benefits — a benefit amount reduction — of $630 a week for 12 weeks. In other words, a $30 mistake for 12 weeks ($360 in toto) that has no actual affect on her weekly benefits, for the purposes of concealment, leads to:
$3,465 concealment penalty
$1,386 administrative penalty
$7,560 forfieture of future unemployment =
$12,411 she needed to repay
But, the combination of all of these penalties is the real story. Here is a table of the amounts the Department has assessed for concealment (based on the Department’s annual fraud reports).
As a percentage of the unemployment benefits being paid out, concealment has become a significant portion of those benefits. Non-fraud over-payments have been around 2% of unemployment benefits paid out for the years 2011 thru 2019. But, over-payments connected to fraud significantly jumped in 2013 when new penalties were introduced and were 9.37% of all benefits paid out in 2014. It is no wonder that the fraud over-payments assessed declined over time after 2014, as folks caught in the concealment trap for their claim-filing mistakes probably stopped filing claims altogether.
Note: After 2015, the Department started using all debt collection tools at its disposal, including levies of bank accounts, liens on cars and real estate, intercept of tax refunds, and even wage garnishments. In late 2018, the Department also reversed the order of how it collected from unemployment benefits. Previously, the Department only applied a benefit amount reduction to unemployment benefits after the concealment and administrative penalties were completely repaid. Now, the Department applies the benefit amount reduction to unemployment benefits first, because it can only collect that over-payment through unemployment benefits. The concealment and administrative penalties can be collected through all other available mechanisms, even when the claimant avoids filing for unemployment benefits.
Incredibly, all the fraud charging did little over time to actually curb fraud or even prevent or discourage mistakes. The percentage of non-fraud over-payments to benefits paid out has remained relatively consistent during these years: from a high of 2.22% in 2011 to a low of 1,74% in 2016. As such, it appears that mistakes are relatively constant even as the claim-filing process has undergone major changes (from being a phone and in-person system in 2011 to an on-line only system starting in 2017). So, it appears that “fraud” is largely a product of Department discretion rather than any actual description of claimants intentionally filing false unemployment claims.
Data on unemployment collections indicates how successfully the Department has “recovered” these amounts from claimants. Collections for fraud as a percentage of benefits paid out jumped to over 2% in 2012, approached 3% in 2013, and was over 4% thereafter (hitting 5.24% in 2016) until 2019, when it dropped to just 3.66%.
The ratio of fraud to non-fraud over-payments was roughly 1-to-1 in 2011, but then began climbing and was more than 2-to-1 in 2015, 2016, and 2017. Hence, “fraud” collections increased and remained high even as the benefits being paid out plummeted. Furthermore, the penalties and collection costs going to the Department only declined slightly after 2016 (an increase from 2015 even as benefits paid declined by nearly $100 million) and was still at $1.7 million in 2019.
These numbers reveal that the Department in its discretion charges fraud to keep its own coffers filled. Like a police officer who is ordered to issue so many speeding tickets a day, the Department is now charging fraud as a departmental imperative rather than trying to assist claimants to make the claim-filing system easier to use.
As of October 5th, the Department reports that 937,378 initial claims have led to 527,897 claimants receiving $3,862,512,543 in PUC, PEUC, PUA, and regular unemployment benefits. That $3.8+ billion already dwarfs the nearly $2.1 billion that was paid out in 2011 for 445,538 claimants for the entire year.
Year Claimants $ Paid
2007 332,982 908,240,298 (only regular UI)
2008 386,574 1,243,700,322 (regular UI and start of EUC benefits)
2009 566,353 3,166,852,114 (regular UI and EUC)
2010 530,886 3,118,412,271 (regular UI and EUC)
2011 445,538 2,076,607,917 (regular UI and EUC)
2012 366,829 1,571,815,129 (regular UI and EUC)
2013 312,325 1,283,637,389 (regular UI and EUC)
. . .
2018 130,710 ~372,300,000 (regular UI)
2019 129,888 ~375,900,000 (regular UI)
With the pandemic and the now hundreds of thousands of new claimants and billions of dollars available for the taking, I fear that the Department is licking its chops in anticipation of how much it can recoup from these unsuspecting folks.
Update (15 Oct. 2020): Thanks to a financial report today and a January financial report, I now have 2018 and 2019 data on how many claimants received unemployment benefits. In these years, the number of claimants and the amount received was around one-third of what existed in 2007. Wow.
In other words, from 2007 to 2018 the unemployment system has changed so much in the intervening years that the number of people managing to receive unemployment benefits and the amount of benefits entering the state economy had been cut by two-thirds.
Now, the unemployment system is supposed to respond to a pandemic-driven economic crisis. Yet, as of the October financial report and the Oct. 13 press release, of the 952,108 initial claims filed, only 546,875 have received regular unemployment benefits totaling $1,229.9 million. This data means that over 400,000 initial claims have NOT been paid.
And, in case you were wondering: the trust fund balance as October 1st is around $1.26 billion.
Update (4 Jan. 2021): Added an image for the post. And, Fox6 has an excellent story and a podcast describing how the Department charges fraud for accidental claim-filing mistakes.
CBS 58 has a report about how Wisconsinites with a BAR are not receiving any of the $600 PUC payment despite guidance that they should receive at least $300 PUC payment each week. The key paragraph from the story:
“We have received verification [from the US Dep’t of Labor] that if somebody has a BAR fine, which is a benefit amount reduction, they are not eligible to receive Federal Pandemic Unemployment Compensation, which is the acronym FPUC or the additional $600 a week, and basically it’s because this person was found to have committed fraud against the system and therefore they would not be able to get those additional benefits due to that bar penalty as a result of committing fraud,” said Emily Savard with the Department of Workforce Development.
Here is the May 8th e-mail message in which the Department announced this policy to its staffers:
From _, Melissa – DWD
Sent: Friday, May 08, 2020 10:46 AM
Subject: FPUC and BAR
If a claimant does NOT receive UI, PEUC or PUA payment for a week because the entire amount is applied to the Benefit Amount Reduction (BAR) the claimant will not receive Federal Pandemic Unemployment Compensation (FPUC) (extra $600).
Eligible to receive a payment under UI, UCFE, UCX, PEUC, PUA, EB, STC, TRA or DUA. FPUC is added after all debts are offset, forfeited, or applied to a benefit amount reduction from the individual’s UI. Individuals whose UI payments are intercepted to pay debts (child support or pverpayments) are eligible for the $600 FPUC payment, even if 100% of their weekly benefit amount is intercepted.
According to the CBS 58 report, the Department asked for additional guidance from the US Dep’t of Labor on this issue. But, why would additional guidance be needed?
A BAR used to be called a forfeiture of future unemployment benefits. Here is how an initial determination in 2016 regarding a “BAR” read:
The claimant shall forfeit $12705.00 of unemployment compensation benefits that become payable during the six year period that ends 02/05/22.
Additionally, the Department may at a later date seek criminal prosecution under Wis. Stats. 108.24.
Forfeiture (the withholding of future payable benefits) is an administrative penalty for intentionally concealing information affecting your unemployment eligibility and is in addition to any overpayment caused by such concealment of information.
And, here is the relevant language for a “BAR” in an initial determination in 2018:
The claimant’s benefit amount shall have a reduction of $1480.00. This reduction remains in effect for benefits and weeks that become payable during the six-year period that ends 02/15/25.
This benefit reduction of future payable benefits is an administrative penalty for intentionally concealing information affecting your unemployment eligibility and is in addition to any overpayment caused by such concealment of information.
There has been NO change in this law, Wis. Stat § 108.04(11), during this time. The only change has been in how the Department characterizes this forfeiture of future unemployment benefits.
But, this change in terminology by the Department is important. Federal guidance for the payment of the $600 PUC payment has the following information about when there is an over-payment of benefits because of a forfeiture and whether the $600 PUC is still paid:
Question: Must FPUC payments be used to offset intrastate state or federal UC overpayments?
Answer: Yes. FPUC payments must be reduced to recover state and federal UC overpayments if the state has a cross-program offset agreement in place with the Secretary under Section 303(g)(2), SSA (42 U.S.C. § 503(g)(2)). However, a state may not offset more than 50 percent from the FPUC payment to recover overpayments for these unemployment benefit programs.
Essentially, the Department is claiming that this change in wording in how it calls this forfeiture of future unemployment benefits — from a forfeiture to a benefit amount reduction or BAR — means that the federal guidance about still paying $300 of the federal PUC payment (and earmarking the other $300 towards the remaining benefit amount reduction) does not apply.
Again, as with eligibility for PUA benefits for the disabled (see the discussion of SSDI in this post), the Department is going out of its way to stymie the whole purpose of the CARES Act: to stimulate the economy by giving folks needed cash to pay for rent and groceries.
As the federal guidance for PUC payments explains:
Question: When is an FPUC payment considered to be overpaid?
Answer: An FPUC payment is an overpayment any time an individual receives an FPUC payment for which the individual was not eligible. For example, if an individual is paid FPUC and the underlying UC benefit payment is subsequently denied and determined to be overpaid, then the FPUC payment is also overpaid. However, if an individual is eligible receive at least one dollar ($1) of underlying benefits for the claimed week, the individual is eligible to receive the FPUC payment for that week.
All the claimants currently under the BAR penalty are seeing in their benefit statements that they are being credited/reduced each week for these BAR/forfeiture penalties. Just like any forfeiture, these funds simply are not being paid out to them. So, why is the Department at least not paying out the $300 PUC as per federal guidance on this issue?
A new year in 2020 brings . . . five more prosecutions of African-Americans for unemployment fraud. Indeed, all five of these new cases involve African-Americans in Milwaukee county.
As noted here, initial appearances for these new cases are slated on election day, Feb. 18th. And, these numbers raise the percentage of cases being against African-Americans to more than 80%.
In 2020 (2020!), how and why can this racial targeting still be going on?
Note: the rationale for NOT pursuing these cases for purposes of restitution is put into doubt when the plea deal for one of these cases is being delayed for several months to allow for restitution to be completed. In this light, it is all too apparent that the Department of Workforce Development and the Department of Justice are filing these cases, in part, as a debt collection tool.
There is a new governor, a new Attorney General, a new secretary at the Department of Workforce Development, and a new division administrator for unemployment. But, African-Americans in Milwaukee continue to be targeted for criminal prosecutions for alleged unemployment fraud. Indeed, even as the number of cases have declined, the percentage against African-Americans have increased.
Several legislators have asked for information about these cases and an explanation for why African-Americans are being targeted for these prosecutions See, for example, this letter. Numerous groups have also raised concerns. Formal, public responses to these and other queries have been ignored, however.
The new head of criminal cases for the Department of Justice did present to the Unemployment Insurance Advisory Council at the council’s April 18th meeting in 2019. At this meeting, Deputy AG Eric Wilson explained that criminal prosecutions would only be filed where the alleged fraud was sizable, where civil remedies were inadequate, and where there was a history of previous fraud. In addition, cases would no longer only be filed in Dane County (forcing residents from Milwaukee County and other parts of the state to travel to Madison for every event in their case) but would be filed in the county where the defendant resides. Seemeeting minutes at 3-5.
Starting in the summer of 2019, the Department of Workforce Development under Caleb Frostman and Mark Reihl and the Dep’t of Justice under Josh Kaul started a new round of these prosecutions being handled by Assistant AG Dan Lennington (click on the table to see details):
While the number of prosections is down from previous years (except for 2016, when there were also 11 prosecutions), the percentage of African-Americans being prosecuted is still around 73%. Anglos make up only 18% of these cases, and persons of color combined constitute 82% of all cases (9 out of 11).
Furthermore, the one defendant outside of Milwaukee County (an African-American women in Manitowac) is still being forced to travel to Dane County for her case. So, the declaration in April of 2019 about no longer requiring defendants to travel to Madison for the convenience of prosecutors only applies to the Milwaukee County cases.
And, it gets worse. One 2019 case was almost immediately dismissed by the prosecutor after being filed. In such circumstances, dismissal is usually because the defendant is not competent to stand trial or is deceased (one of the 2018 cases was dismissed soon after filing because the defendant was declared not competent to stand trial). As the Department of Workforce Development charges unemployment concealment/fraud for accidental or unintentional claim-filing mistakes, many, many folks with learning disabilities have been so charged. So, this near immediate dismissal indicates that the Department of Justice is not really applying any new or tougher criteria in deciding which cases to prosecute.
Indeed, the plea deal set for May 29th in one case (delayed by several months to allow for restitution to be complete) indicates that these cases are still largely being pursued as a means of debt collection despite the Deputy AG’s contrary statements back in April 2019 to the Advisory Council.
Finally, there is still no explanation for why African-Americans are being targeted for these cases wholly out of proportion to their presence in the population or even the unemployed. This racial bias has been going on for four+ years now without explanation.
If Lando was in Wisconsin, he would know what is going on here.
On 26 June 2018, the Wisconsin Supreme Court delivered its decision in DWD v. LIRC (Beres), 2018 WI 77, 382 Wis.2d 611, 914 N.W.2d 625. In a short and unanimous opinion, the state supreme court overturned the appeals court and accepted the argument of the Department of Workforce Development that this new misconduct provision added over the objection of the Unemployment Insurance Advisory Council allowed employers to set their own disqualification standard in regards to absenteeism for the purposes of misconduct.
an employer can opt out of the statutory definition of “misconduct” by absenteeism and set its own absenteeism policy, the violation of which will constitute statutory “misconduct.”
* * *
We conclude that the word “unless” in the “unless otherwise specified” clause of Wis. Stat. § 108.04(5)(e) means that an employee will be considered to have been terminated for “misconduct,” and thus disqualified from obtaining unemployment compensation benefits, if the employee violates the statutory definition of absenteeism, except if the employee adheres to the employer’s absenteeism policy specified in the employment manual of which the employee acknowledged receipt with his or her signature in accordance with the statute.
Beres, 2018 WI 77 at ¶19 and ¶23.
In Stangel v. Spancrete Inc., UI Hearing No.17402720MW (20 July 2018), the Commission applied the matter-of-fact holding of Beres to find that an employee whose absences led to too many points in violation of the employer’s attendance was disqualified for misconduct. The employee’s absences led to too many points under the employer’s attendance policy (regardless of reason for that absence), the Commission found, and so the employee was disqualified from receiving unemployment benefits. The Commission explained:
it makes no sense to allow the employer to adopt its own attendance policy different from the policy set forth in the statute, as described in Beres, but then limit its ability to define the contours of that policy. As an example, it is common for employers to adopt “no-fault” attendance policies, allocating to employees a large number of occurrences intended to cover both traditionally excused absences (e.g., sick days) and unexcused absences. It would greatly undermine the logic of such policies to hold the employer and employee accountable for the number of absences defined in the policy but to then consider only the “unexcused” absences when analyzing the employee’s termination for absenteeism. Thus, when applying the misconduct standard of Wis. Stat. § 108.04(5)(e), any notice and valid reason limitations will be as defined under the employer’s policy, and so long as the termination comports with the terms of that policy the employee’s violation of the policy will constitute misconduct pursuant to Wis. Stat. § 108.04(5)(e).
As noted by the Commission in its briefing in Beres, this employer-determined misconduct for non-intentional absences (in both Beres and Stangel, the employees were absent because of illnesses over which they had no control) ran the risk of Wisconsin being found by the US Department of Labor to no longer be in compliance with federal requirements for unemployment. That lack of compliance could well lead to Wisconsin employers losing a tax credit and seeing their federal unemployment taxes jumping from a 0.5% to 7.0% tax rate — quite a jump.
And, it seems that this risk finally caught the Department’s attention. In January 2019, the Department petitioned for review in an absenteeism case and filed a brief in March reversing its prior position. In this new case, the employee had acquired too many points under the employer’s no-fault absenteeism policy because of injuries related to a car accident and illnesses. Now, the Department argued that because the employee had provided the employer with notice for his valid (i.e., non-intentional absences), the employer’s absenteeism policy did not completely control in determining whether misconduct had occurred.
The commission has come to the conclusion that its reasoning in Stangel was incorrect, because that reasoning does not comport either with the plain language or with the structure of the statute. The notice and valid reason clause addresses absenteeism without qualification; it does not distinguish between absenteeism pursuant to the statutory standard and absenteeism pursuant to an employer’s policy. As for structure, the general statutory construction rule is that qualifying or limiting clauses in a statute are to be referred to the next preceding antecedent, unless the context or plain meaning dictates otherwise. The alternative of an employer’s policy is a limiting clause immediately following the statutory standard clause, though, and so is not properly read as an independent par.(5)(e) misconduct standard that is not subject to the notice and valid reason clause. The latter clause, by contrast, without question applies to the first clause, the statutory standard, and to the third clause, excessive tardiness. There is no legitimate basis not to apply it to the second clause, employers’ attendance policies, as well.
The commission’s reasoning in Stangel also does not comport with all the other categories of “misconduct,” whether the other specific categories enumerated in Wis. Stat. § 108.04(5)(a)-(g) or the general standard of Wis. Stat. § 108.04(5)(intro.). As the department points out in its brief, all of these standards incorporate intent, recklessness, or some other willful behavior on an employee’s part. To limit the scope of notice and valid reason to how those terms are defined in an employer’s policy would allow, as the instant case shows, the denial of unemployment benefits when the employee has engaged in no culpable behavior.
While this result is laudatory for both employers (no longer facing the risk of losing their federal tax credit) and employees (no longer being disqualified for misconduct when they provide notice of their non-culpable absences), the reasoning seems to contradict the holding in Beres. After all, the Commission made similar if not identical arguments in its briefing in Beres against the Department’s claims in favor of this harsh and unforgiving application of whatever the employer’s own absenteeism and tardiness policy required. SeeCommission’s brief at 36-43; see also the appeals court decision in Beres, 2017 WI App 29 at ¶¶16-20, 275 Wis.2d 183, 895 N.W.2d 77 (Department’s position would lead to disqualification for innocent absenteeism, and so cannot qualify as misconduct when unemployment presumes eligibility when there is no employee fault regardless of how valid the employer policy is). Yet, the Wisconsin Supreme Court rejected that argument for the holding spelled out above (and what the Department then advocated): the employer’s absenteeism policy governs in toto once the employee acknowledges that policy.
In addition, the scope of Miller in over-turning Beres is limited. Miller only applies to the employees who give notice of their absences. Employees unable to provide notice will still be disqualified even if they are absent through no fault of their own (e.g., a car accident or illness that render them unconscious).
As previously noted, the absenteeism provision at issue here arose under suspicious circumstances. A legislative fix through the Advisory Council needs to be taken up if an actual fix for this problem is to take hold. The Commission’s decision in Miller is at most partial and temporary.
Besides the personal liability non-acquiescence tax cases discussed in a previous post, the Department also declared on 21 December 2017 that it was “non-acquiescing” to a Labor and Industry Review Commission decision holding that an employer did not aid and abet claimant concealment: In the Matter of National Security and Investigations LLC, UI Hearing No. S1500384AP (6 Dec. 2017) (non-acquiescence 21 Dec. 2017).
NOTE: During the last few years, the Department has been eager to find an aiding and abetting case against an employer. See “Concealment problems for employers too” (15 April 2015) (no aiding and abetting found, in part, because employer unaware of unemployment claims at issue) and Gussert v. Springhetti Landscaping and DWD, UI Hearing Nos. 16400598AP-16400609AP (27 January 2017) (no claimant concealment found in case where Department was alleging aiding and abetting by employer). This case represents the third unsuccessful attempt by the Department at such a case.
In this case, the small employer could not pay the employee anymore because of a shortage of revenue and a lack of timely payment of bills from clients. Given the slow business, the employer told the employee to file a claim for unemployment benefits, and the employee did so.
In those claims, the employee did not report any work for the employer since he was not getting paid for his work. During these weeks, the employer provided alternative compensation to the employee: a canoe, a car for a spouse, cash, use of a debit card, and use of a company vehicle.
The employee eventually quit because of a lack of work. He then filed a wage complaint for unpaid wages against the employer, and a settlement was eventually worked out. After the settlement and resolution of the wage case, the employer informed the Department of unreported wages during the weeks the employee had filed claims for unemployment benefits.
The Department charged the employee with concealment, and no appeal of that charge was filed. The Department also charged the employer with aiding and abetting claimant concealment because the employer told the employee to file a claim for unemployment benefits as work was slow and revenue was behind.
NOTE: That aiding and abetting charge was for $9320 (for what appears to be 25 weeks of benefits at $373 per week) plus another $12500 in additional penalties ($500 for each week of the alleged 25 weeks of concealment) for a total liability to the employer of $21,820.
This accusation was not enough to demonstrate aiding and abetting for the Commission, however. The Commission explained (footnote omitted):
The record shows that the department’s initial finding of aiding and abetting was based on the adjudicator’s impression that the employer instructed [the claimant] not to report hours and wages to the department when filing for unemployment benefits. The employer clearly told [the claimant] to file for benefits while work was slow, but there is no objective evidence in the record that an agreement existed between the employer and [the claimant] to conceal work and wages from the department.
The distinction noted by the Commission here is vitally important. Claimants are entitled to benefits when available work has declined, and so there is nothing wrong with a claimant filing for partial unemployment benefits because of a decline in available work. Indeed, the formula for partial unemployment benefits encourages claims for unemployment benefits by making employees eligible for those benefits even when working numerous hours and receiving substantial pay in a given week.
This basic eligibility criteria certainly casts some shade on what the Department is alleging in this case. Because the Department in this case is essentially claiming that an employer encouraging an employee to file for unemployment benefits because of a lack of available work constitutes aiding and abetting, the Department is turning a basic eligibility issue into a point of liability for both employer and employee whenever there is cooperation between the two.
There is an additional problem with this case for employers: the employer, angry at having to settle a wage case, tried to turn the tables on its former employee by informing the Department about the former employee’s prior unemployment claims. Because the employer and employee were at one time friendly with each other, however, the Department turned their initial lack of hostility into a kind of conspiracy charge about unemployment benefits being paid in lieu of regular wages.
Luckily for the employer, the Commission saw through the dubious nature of this claim (footnote omitted):
Under the facts in this case, the commission finds that the most reasonable inference to draw is that [the claimant] intentionally withheld his time sheets in January, February, March, and April 2014 because it was to his advantage to do so. It was [the claimant’s] understanding, or justification, that he could claim unemployment benefits because he was not getting a paycheck. The unemployment benefits [the claimant] received provided him with money “to live on” and satisfied, at least in part, his child support obligation. Later, after he quit his employment with the employer, [the claimant] attempted to get paid for the hours listed on his time sheets, which had not been previously submitted, by filing a complaint with the state.
The employer unquestionably could have been more diligent in analyzing its unemployment insurance reserve fund balance statements, but the fact that the employer failed to do so does not prove that the employer willingly assisted [the claimant in concealing work and wage information from the department. The employer did not know how partial benefits are calculated and believed that any weekly amount less than $360 was a partial benefit. [The claimant’s] co-worker claimed unemployment benefits during the first four months of 2014, and he reported working for and earning wages from the employer. There is no sound reason why the employer would aid and abet [the claimant] in concealing work and wages from the department while, at the same time, allowing [the claimant’s] co-worker to report work and wage information to the department.
But, any employer should take away from this case the fact that the Department is refusing to accept it as precedent. The Department believes that cooperation between employer and employee about eligibility for unemployment benefits could easily be the basis for an aiding and abetting charge against the employer. As the employer was originally charged with over $21,000 in liability for that alleged aiding and abetting, the danger being created by the Department here is much more than a speculative problem for small employers.
The Department essentially wants to punish employers who think their employees should be eligible for unemployment benefits. Should employers change their mind about that “cooperation,” they face a very real risk of being targeted by the Department.
Mark Sommerhauser’s article about possible changes to criminal prosecution of unemployment fraud has a remarkable chart detailing the roller coaster plunge in unemployment benefits in Wisconsin since the end of the great recession.
In 2018, only $1.11 million in first-week unemployment benefits were paid out in Wisconsin. Here are some numbers to provide some perspective on this decline in unemployment benefits.
At the January 2019 Advisory Council meeting, the financial report included some jaw-dropping numbers regarding the stellar decline in unemployment taxes employers pay and the even steeper drop in unemployment benefits being paid to claimants. Tom McHugh explained during his presentation that benefit payments in 2018 had not been this low prior to 1994.
So, while the amounts of benefits paid are relatively close — a difference of around $8 million — there is a difference of 147,000 initial claims between the two years. These numbers mean that in 2018 the Department paid on average $1403 in unemployment benefits for each initial claim, whereas in 1994 the Department paid on average $942 in unemployment benefits for each initial claim that year.
In part, the lower number in 1994 exists because the maximum weekly benefit that year was only $243, whereas in 2018 the maximum possible weekly benefit rate was $370.
But, this data also includes information about the weeks being claimed versus the weeks that are actually compensated.
Note: changes in the number of initial claims being filed likely exist because of what is being measured: weekly versus monthly claims data.
So, in 2018 there was a drop of nearly 62% in initial claims from 1994 even through the number of covered employees actually increased by more than 500,000. If eligibility for unemployment benefits was the same in 2018 as it was in 1994, there should obviously have been more unemployment claims given the 500,000 employee increase in the eligible labor force. But, rather than an increase in claims in 2018 there has instead been sharp dive in unemployment claims.
Someone might argue that the workforce in Wisconsin has substantially changed from 1994 to 2018. That explanation does not hold much water.
This chart shows that there have been slight declines in manufacturing from 1994 to 2017 in Wisconsin as a percentage of the workforce (from 25.44% of the workforce to 21.21% of the workforce) as well as in public sector employment (15.06% to 12.84% of the workforce). But, the real changes have not been so much in the makeup of the workforce so much as in the percentage of who belongs to a union. Only private construction has NOT seen a dramatic drop in both union coverage and union membership from 1994 to 2017. And, those drops are by half or more from what existed in 1994. So, the decline in unionization is at least strongly correlated with the decline in Wisconsin employees receiving unemployment benefits in this state.
The other major factor at play with the decline in unemployment benefits is the increased prosecution by the Department for alleging fraud.
As the Department’s fraud allegations are a relatively new phenomena (while unemployment fraud has always existed as a category, prosecutions did not begin in earnest until this last recession), this data cannot provide a look back all the to 1994. But, this data does reveal what the Department has been doing since 2011.
Here, the number of fraud cases as a percentage of total initial claims actually increased in 2013 and 2014, declined in 2015 and 2016, and has held steady at 1.67% of total initial claims in 2017 and 2018.
The over-payments being assessed as percentage of benefits being paid out, however, actually increased slightly in 2018, going from 1.11% of all unemployment benefits paid out in 2017 to 1.18% in 2018.
The decline in collections in 2018 from 2017 was more sizable, dropping from 3.14% of all benefits paid out to 2.58% of all unemployment benefits paid out in 2018.
Noticeably, the collection of over-payments allegedly connected to fraud were in 2018 still more numerous than collections for non-fraud over-payments. Only in 2011, the first year of the Walker administration, was the ratio of fraud to non-fraud over-payment collections well below 100% (at 55.51% that year).
This month, the Department announced that unemployment rates are at a record low of 2.8%. As Jake has described these numbers, this low unemployment rate masks significant job losses in Wisconsin. Wisconsin is trailing the rest of the mid-west in job growth (and the mid-west itself as a region is trailing the rest of the nation in job growth).
The 1994 numbers described above indicate that while the state’s economy has not actually changed all that much from what existed in 1994, the unemployment system itself has markedly change. Even with a maximum weekly benefit rate in 2018 that is $127 higher than what existed in 1994, total unemployment benefits being paid out are about the same in 2018 in absolute dollars (i.e., NOT adjusted for inflation), 24 years later. This stagnation is shocking.
The big change with unemployment during the last eight years or so is the expansive and aggressive charging of unemployment fraud by the Department for accidental claim-filing mistakes. The case law is now over-flowing with decisions about how the Department has charged claimants with fraud for accidental claim-filing mistakes, defended those charges despite all evidence to the contrary, and even sought retribution against those who dared challenge the Department’s wishes on this front.
And, it is obvious to anyone filing unemployment benefits today about how complicated and difficult the claims-filing process has become. It is now all too easy for someone to make an accidental mistake during their weekly claim certification and then find themselves facing charges for unemployment concealment simply for not understanding what is being asked.
Note: this confusion and resulting mistakes ares even more likely when language and technology barriers are considered. Unemployment claims are on-line only now and STILL only in available English.
Finally, the decline in union representation and coverage from 1994 to 2018 indicates that the institutions that could have raised alarms and fought back against these changes to the unemployment system today lack the strength and support to conduct such a fight. As a result, these fundamental and far-reaching changes to the unemployment system have occurred without significant challenges.
Mark Sommerhauser had an article this past Sunday for the Wisconsin State Journal about the push started by the prior administration for charging fraud against claimants for their non-intentional, claim-filing mistakes.
Not surprisingly, the former unemployment administrator, Joe Handrick, talked up how claimant fraud cases were, according to him, always legitimate.
Handrick said he fears those efforts could lose momentum under a provision of Evers’ plan for the next state budget, which calls for eliminating the one-week waiting period. Handrick said the waiting period was crucial in enabling state officials to catch fraudulent applications.
Handrick also rejects claims that some people prosecuted for fraud only made mistakes, saying the department long has distinguished between intentional and inadvertent omissions by claimants that lead to benefit over-payments.
“The things that get assigned as fraud are where the person clearly and intentionally attempts to defraud the people of the state of Wisconsin,” Handrick said. “Only the worst of the worst get referred to district attorneys for prosecution.”
There are two major problems with this statement.
First, the waiting week has absolutely nothing to do with alleged fraud investigations. The waiting week originally existed as a mechanism for delaying payment of unemployment benefits because of administrative difficulties in processing unemployment claims. Since the 1980s, however, that delay has no longer been needed, and now a waiting week’s only purpose is to reduce the unemployment benefits that are paid out. SeeAvoiding Waiting Weeks, “Unemployment Insurance Policy Advocate’s Toolkit” at 56-7.
This claim about waiting weeks is even more surprising in light of the Department’s obvious delays in investigating claim-filing mistakes. Indeed, the Department has gone out of its way to delay investigations and efforts into claim-filing mistakes so as to make the amounts at issue larger when the Department finally gets around to examining alleged mistakes. Furthermore, while other states have instituted practices that actually match claim-filing information with employer’s withholding tax reporting, Wisconsin has refused to implement such an obvious mechanism for catching claim-filing mistakes quickly. See my discussion of Massachusetts and New Mexico in Findings of the unemployment audit (17 Dec. 2014). The Commission as well has observed that the Department’s concealment efforts do NOT prevent improper payments from occurring in the first place and has noted that the Department’s concealment investigations often lead to exceptionally long and unwarranted delays in benefit payments.
Second, Mr. Handrick is ignoring the hundreds of cases in which the Department has alleged fraud for UNintentional claim-filing mistakes. There is a reason, after all, for why the Department wanted the Commission eliminated in the last budget cycle. SeeLIRC’s elimination (1 March 2017). In 2014, only 20% of the Department’s concealment charges that were appealed ended up being affirmed. This evidence indicates that only one out of every five of the Department’s concealment charges are actually based on intentional acts of claimants.
Note: recent cases that have come to my attention indicate that the Department’s appetite for alleging concealment has only increased over the years. SeeThoreson v. Thor’s Wolverine Den LLC, UI Hearing Nos. 18401886MD and 18401885MD (22 Mar. 2019) (claimant who helped brother tend bar for no pay does not have to repay any unemployment benefits and certainly not the $25,000 in alleged concealment charged by the Department because claimant did no work for brother).
In other words, there is a gigantic gap between Handrick’s statements about rampant unemployment fraud and the reality of folks being confused and making accidental mistakes when attempting to navigate a hostile and opaque claim-filing system. No one should be taking Handrick’s statement’s at face value. Luckily, the new Department secretary, Caleb Frostman, indicates in the State Journal article that he wants to make the unemployment claim-filing process friendlier to claimants. Here’s hoping he and the Department get to work on this goal. And soon.