Gig workers in Wisconsin

On March 26th of this year, the Wisconsin Supreme Court decided that further review in Amazon Logistics v. LIRC, 2024 WI 15, was premature. As a result, the court of appeals decision in Amazon Logistics v. LIRC, 2023 WI App 26, 407 Wis.2d 807, 992 N.W.2d 168, remained in place.

Before getting to that appeals court decision and what it means, the terrain for gig workers (also called self-employed workers or independent contractors) has been in a topsy-turvy legal world. Gig workers, after all, typically include drivers for Uber, Lyft, Door Dash, and Amazon, all of whom became suddenly very important during the Covid-19 pandemic. And so, some review of what has been happening the past few years in the law both in Wisconsin and elsewhere is needed.

The significance of this issue is that companies that mis-classify their employees as gig-workers avoid paying essential workplace taxes like unemployment or even minimum wages for their workers. This failure to abide by basic workplace requirements has become a major workplace problem, a problem often called mis-classification.

Employers in an increasing number of industries misclassify their employees as independent contractors, denying them the protection of workplace laws, robbing unemployment insurance and workers’ compensation funds of billions of much-needed dollars, and reducing federal, state and local tax withholding and revenues, while saving as much as 30 percent of payroll and related taxes otherwise paid for “employees.”

Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries (26 Oct. 2020). See also the excellent amicus brief Legal Action of Wisconsin filed before the Wisconsin Supreme Court in the Amazon Logistics case (detailing the economic and consumer problems unemployment insurance addresses).

The “flexibility” companies like Uber and Lyft tout for their gig-economy workers are, in fact, crafted algorithms, social designs, and behavioral tricks to shape, manage, and oversee their workers’ schedules, availability, and activities. See Noam Scheiber, How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons (2 Apr. 2017) (describing Uber’s use of “psychological inducements and other techniques unearthed by social science to influence when, where and how long drivers work”), Sarah Mason, High Score, Low Pay: Why the Gig Economy Loves Gamification (20 Nov. 2018) (detailing the “gamification” techniques and algorithms used by Uber and Lyft to manage their drivers), Alex Rosenblat, When Your Boss is an Algorithm (12 Oct. 2018) (describing Uber’s use of algorithms to manage its workforce), and Rebecca Smith, Flexibility in the On-Demand Economy (June 2016) (“In the end, a job with Uber or other on-demand companies comes with roughly the same degree of freedom as a job with a staffing agency or as a substitute teacher or day laborer: while a worker is ostensibly free to decide not to work on a particular day, she may not get a call the next time she wants to work, and she may be short on cash at the end of the month.”).

Other states

Mis-classification of gig workers has been a major issue in numerous states. Here is a sampling of what has been happening in those other states.

In California, the birthplace of the gig-economy via transportation network companies, the issue has bounced between legislation, courts, and ballot initiatives. Legislation to classify these drivers as employees, AB5, was passed and affirmed after a court challenge. People v. Uber Techs., Inc., 56 Cal.App.5th 266, 270 Cal.Rptr.3d 290 (Cal. App. 2020). A California ballot initiative sponsored by gig-economy companies called Prop 22, however, partially repealed AB5 for Uber and Lyft drivers, until a court ruled that Prop 22 violated California state constitution requirements. Castellanos v. California and Protect App-based Drivers, Alameda County Superior Ct. Case No. RG21088725 (slip op., 20 Aug. 2021). That decision has since been appealed, see Castellanos v. State of California, 89 Cal.App.5th 131, 305 Cal.Rptr.3d 717 (2023), and an additional decision from the California Supreme Court is expected this year.

Note: The economic advantage of “gig-workers” to gig companies cannot be overstated. Drivers’ median net take-home earnings–in California(!)–are just $6.20 per hour under Prop 22. Drivers who pay for health insurance out of pocket earn nearly half of that.

In Pennsylvania, Lowman v. Unemployment Comp. Bd. of Review, 235 A.3d 278 (Pa. 2020), held that that was NO driver control or independence for Uber drivers.

Uber describes itself as “a technology company” with a “mobile app based marketplace that matches up transportation providers with individuals looking for rides,” N.T. (Referee Hearing), 10/29/2015, at 6. Translated into practice, Uber creates an inventory of passengers and it utilizes drivers, like Lowman, to service that inventory on demand.

* * *

[But, a]lthough the Driver App allows a driver to provide rides for remuneration, Uber generated the passenger leads, unilaterally determined the passenger fares and the driver’s percentage, collected the fares, retained its service fee, and then paid Lowman. Agreement, ¶¶ 4.1-4.8.

Uber exercised total control over the provision of service because Lowman personally had to fulfill the passenger assignment. He could not hire a substitute driver to provide a ride to a passenger identified by Uber. Agreement, ¶ 5.2.

In the virtual world in which Uber operates, it monitored and supervised Lowman’s provision of driving services.

Lowman, 235 A.3d at 304-5. As to drivers being independent of Uber:

When Lowman is providing a ride to a passenger, he must display the Uber decal. The fact that this is mandated by statute and not by Uber is inconsequential. It is evidence of the more fundamental fact that Lowman cannot provide driving services independent of Uber since Pennsylvania law prohibits individuals from providing commercial driving services in personal unlicensed vehicles. 53 P.S. § 5714(f). Further, Lowman could not build his own client base under the auspices of his Uber relationship because his contract limits his communications with customers to the Uber App and are permitted only for the purpose of providing rides through Uber. Agreement, ¶ 2.2. Even with the Driver App activated, whether or not Lowman would have the opportunity to provide a ride service was determined by Uber which, by way of its algorithm, determines which available driver will be offered an assignment. Id. An Uber customer could not seek out Lowman’s services. Thus, Lowman’s ability to develop a separate relationship with clients was not existent. This arrangement is in stark contrast to the luxury limousine drivers in Danielle Viktor who had their own customers, advertised their services and arranged the trips they provided.

Lowman had no ability to set his compensation for providing a ride service. Although under the Agreement, he could negotiate a lower fare than set by Uber, Uber remained entitled to its fee that was set at the higher rate. Agreement, ¶ 4.1. Since the transfer of funds was between the customer and Uber, it is also unclear from the Agreement how the lower rate would be effectuated since the “payment processing functionality” controlled by Uber still must be used. Id. Lowman could not negotiate a higher rate with a passenger. Lowman’s inability to set or negotiate his remuneration weighs against a finding of an independently established business.

Lowman, 235 A.3d at 306 (emphasis in original). As to drivers having the ability to determine their own hours of work, the court in Lowman concluded:

the fact that Uber allows all of its licensed drivers to work at their own discretion evidences a decision that there are a sufficient number of individuals with access to the Driver App to ensure that, despite erratic schedules, there will always be a driver available to service passengers requesting Uber’s service. The fact that Uber’s business model does not require regularly scheduled work hours from its workforce does not translate into an automatic independent contractor relationship.

Lowman, 235 A.3d at 307.

For New York, Uber Techs., Inc. v. Comm’r of Labor (In re Lowry), 189 A.D.3d 1863, 138 N.Y.S.3d 238 (N.Y. App. Div. 2020) likewise held that Uber exercised control and discretion over the services of their drivers.

Uber controls the drivers’ access to their customers, calculates and collects the fares and sets the drivers’ rate of compensation. Drivers may choose the route to take in transporting customers, but Uber provides a navigation system, tracks the drivers’ location on the app throughout the trip and reserves the right to adjust the fare if the drivers take an inefficient route. Uber also controls the vehicle used, precludes certain driver behavior and uses its rating system to encourage and promote drivers to conduct themselves in a way that maintains “a positive environment” and “a fun atmosphere in the car.”

In re Lowry, 138 N.Y.S.3d at 241-2.

Florida charted a different path. In Raiser LLC (Uber) v. Dep’t of Econ. Opportunity (Ewers, McGillis, and Hutton) (3 Dec. 2015), aff’d McGillis v. Dep’t of Econ. Opportunity, 210 So.3d 220 (Fla. App. 2017), Florida found that Uber drivers were NOT employees, using an analysis similar to what the Commission in Wisconsin employed in Ebenhoe, discussed below.

Lyft and Uber drivers and app-based workers in Wisconsin

In Ebenhoe v. Lyft Inc., UI Dec. Hearing No. 16002409MD (LIRC Jan. 20, 2017), the Commission held that the requirements for being a driver for a transportation-network company set forth in Wis. Stat. § 440.41 meant that the drivers for companies like Lyft and Uber were not employees for the purposes of unemployment law and that they were independent contractors pursuant to Wis. Stat. § 108.02(12)(bm).

the statutes specifically provide that a transportation network company such as Lyft does not control, direct, or manage the work of a participating driver such as Ebenhoe, but instead provides a technology platform through which a participating driver pays a fee to be connected to a passenger. Given this expression of legislative intent, the commission finds that Ebenhoe does not perform services for Lyft within the meaning of Wis. Stat. § 108.02(12)(a).

Ebenhoe. The reasoning of this decision is less than stellar, however, as the Commission’s reference to the then newly passed network transportation law in Wis. Stat. §§ 440.40 et seq. was not accompanied with much legal reasoning about how this law specifically applied to the basic definition of employee in Wisconsin unemployment law and the six-of-nine conditions test for an independent contractor in Wisconsin unemployment law (these conditions are discussed below).

Note: this lack of analysis is likely because this transportation network legislation did not actually address Wisconsin unemployment law but reflected little more than a copy-and-paste of California-based legislation. The concept of transportation network companies was a classification created by Uber and Lyft in 2013 in California to excerpt themselves from traditional labor and employment laws in that state. Anthony Ha, California Regulator Passes First Ridesharing Rules, A Big Win for Lyft, SideCar, and Uber (19 Sept. 2013) and Veena Dubal, A Brief History of the Gig (4 May 2020); see also Maya Pinto & Rebecca Smith, Rights at Risk: Gig Companies’ Campaign to Upend Employment as We Know It (25 Mar. 2019).

In Wisconsin unemployment law, unemployment coverage is primarily determined by whether a person is an employee or not pursuant to Wis. Stat. § 108.02(12)(a). See also Wis. Stat. § 108.02(12)(e) (the definition of employee determines the tax liabilities of employing units and the benefit eligibility of claimants). Under this statute, an employee is defined as “any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit.” Wis. Stat. § 108.02(12)(a) (emphasis supplied). So, individuals providing driving services who are paid via a smart app by their passengers still qualify as employees under this definition. The only question under Wisconsin unemployment law is whether these employees qualify as independent contractors for unemployment purposes.

This focus on employee status, furthermore, is why wages received by true independent contractors are NOT offset against a claimant’s weekly benefit rate (while sales commissions in excluded employment, for example, are offset). See Treatment of Wages and Other Types of Income in the Base Period and the Benefit Year from the Employers’ Handbook. Wisconsin may be the only state that does NOT offset independent contractor earnings against weekly unemployment benefits.

Despite the problems with Ebenhoe, it was the relevant law when an appeals court in Wisconsin took up the case of tutors who worked through a smart app. In an unpublished decision (and so not precedent) called Varsity Tutors LLC v. LIRC, 389 Wis.2d 377, 936 N.W.2d 418 (App. Ct. 2019), the appeals court found that app-based tutors had complete independence and control over the tutoring they did via the app. Moreover, these tutors were not providing any essential services for the Varsity Tutors company itself, as the company was only a digital platform or marketplace.

Varsity generates revenue by facilitating business relationships between students and tutors. However, that does not transform Varsity’s business into a tutoring business. As stated, Varsity’s business provides a digital platform to connect students who want to be tutored with qualified tutors who want to teach them.

Varsity Tutors at ¶32. The app-based economy in this decision is paramount, regardless of why the app exists in the first place (to provide tutoring services) or the mechanics of how the app-based business actually functions.

Note: An actual marketplace, like Craiglist or, e.g., the classified ads, does not dictate terms about how sellers and buyers connect and purchase. This basic characteristic about “marketplaces” is ignored by the appeals court in Varsity Tutors. Even a stock exchange does not set the price for the equities that are being traded, whereas these app-based businesses control nearly every facet of the services/product at issue. See The gig is up on 21st-century exploitation (29 April 2021), and If Uber Wants It, It’s Bad.

On March 17, 2022, the Commission re-visited the status of Lyft drivers and ruled that they were employees under Wis. Stat. § 108.02(12)(a) for purposes of unemployment law and that the provisions of Wis. Stat. § 440.41 concerning network transportation companies were not applicable. See Wilson v. Lyft Inc., UI Dec. Hearing No. 21011105MD (LIRC Mar. 17, 2022).

Note: The Commission remanded this case for further hearings to determine whether the driver was an independent contractor or not under Wis. Stat. § 108.02(12)(bm), but Lyft dropped its appeal.

In subsequent decisions, the Commission has found various network transportation drivers to be employees and not independent contractors. See Vanderloop v. Lyft Inc., UI Hearing No. 21016680MD (LIRC Sept. 23, 2022), Lindsey v. Lyft Inc., UI Hearing No. 21011523MD (LIRC Sept. 23, 2022), Urbina v. Roadie Inc., UI Hearing No. 21013172MD (LIRC July 8, 2022) (app-based delivery driver was employee of delivery company), Turcotte v. Roadie Inc., UI Hearing No. 21011171MD (LIRC June 30, 2022) (same). As such, Ebenhoe, which held that gig-worker drivers were independent contractors, has been reversed.

These Commission decisions, however, only addressed benefit eligibility for the drivers of these companies. They did NOT address at all any liability for unemployment taxes by these companies. Amazon Logistics addresses that issue.

Note: In Wisconsin, benefit eligibility decisions for claimants are handled separately from unemployment tax liability decisions for employers. This separate decision-making for these issues does NOT occur in most states. As to the strategic issues that this separation between benefit eligibility and tax liability entails, see this sample brief (determinations of employee status involve multiple proceedings where the interests of claimants and employers can shift to a significant extent, but claimants and employers rarely consider these strategic matters during the course of these multiple proceedings). In Amazon Logistics, the employer ignored this essential issue. But, as detailed below, the appeals court failed to hold the company accountable for this basic mistake.

Amazon Logistics

Amazon Logistics is the first public and published Wisconsin case in which unemployment tax liability for gig-economy employers was at issue. In this case, the delivery-coordinating company for purchasers of products from Amazon.com contended that the delivery drivers who drove their own cars and worked through a smartphone-based app were independent contractors rather than employees. As a result, the company claimed, it did not have to pay unemployment taxes for these drivers.

Note: Employers in Wisconsin only pay unemployment taxes on the first $14,000 in wages paid to their employees in a calendar year. Given the current tax schedule, most employers in Wisconsin pay little. Data from a 2019 financial report indicated that 95% of Wisconsin employers had a positive reserve balance, that based on changes in experience rating, 35% of the employers experienced a reduction in unemployment taxes of $103 on average per employee (while 34% of employers saw a tax increase per employee of $56.70 on average), and that all industrial sectors, other than utilities, experienced a decline in unemployment taxes from 2018 to 2019. Dividing the total unemployment tax revenue of $530,300,000 in 2019 by the number of employers in 2019 (140,395 employers), the average unemployment tax being paid per employer that year was $3,777.20. As covered employment (the number of employees in Wisconsin) in 2019 was 2,854,373, dividing the total taxes paid that year with this number of employees means that the unemployment taxes paid per employee in 2019 on average was $185.78. In other words, unemployment taxes in Wisconsin cost employers generally less than $200 per employee per year.

A person’s status as an independent contractor or a statutory employee is determined by statute and not by the terms of a private agreement. Roberts v. Industrial Commission, 2 Wis.2d 399, 86 N.W.2d 406 (1957), see also Knops v. Integrity Project Management, UI Hearing No. 06400323AP (12 May 2006), Wis. Stat. § 108.02(12)(bm) (conditions to establish status as independent contractor must be met “by contract and in fact”), and Wis. Stat. § 108.12 (“[n]o agreement by an employee to waive the employee’s right to benefits or any other rights under this chapter shall be valid.”). In other words, employers cannot determine on their own whether a person is an independent contractor or not.

Note: The current independent contractor test in Wisconsin unemployment law arose from an extensive report in 2009 from the Department’s Unemployment Insurance Advisory Council.

The test to determine whether a person is an independent contractor or not for purposes of Wisconsin unemployment law has two parts. First, there must be a determination that the person performs services free from control or direction by the company in question. For Wisconsin, there are several factors that can be used to determine whether there is control or direction, including:

• Whether the individual is required to comply with instructions concerning how to perform the services.
• Whether the individual receives training from the employing unit with respect to the services performed.
• Whether the individual is required personally to perform the services.
• Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the employing unit.
• Whether the individual is required to make oral or written reports to the employing unit on a regular basis.

In Amazon Logistics, it was accepted that the company did NOT exercise any control or direction over its drivers (but cf. the Pennsylvania decision in Lowman discussed above), so that first part of the test was met.

But, in Wisconsin a lack of control or direction does NOT resolve the issue of independent contractor status. A second test must still be met–whether six-of-nine conditions have been demonstrated by the putative employer for the employees in question.

• (a) The individual advertises or otherwise affirmatively holds himself or herself out as being in business.
• (b) (1) The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual, and (2) uses his or her own equipment or materials in performing the services.
• (c) The individual operates under multiple contracts with one or more employing units to perform specific services.
• (d) The individual incurs the main expenses related to the services that he or she performs under contract.
• (e) The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
• (f) The services performed by the individual do not directly relate to the activities conducted by the employing unit retaining the services.
• (g) The individual may realize a profit OR suffer a loss under contracts to perform such services.
• (h) The individual has recurring business liabilities or obligations.
• (i) The individual is not economically dependent on a particular employing unit with respect to the services being performed.

Any six conditions will satisfy this test, but as noted in the sample brief, numerous conditions can only be met through evidence presented by the individual in question (conditions a, b, c, d, and probably h and i as well). Or, at least that was the law.

When the Commission first ruled in 2020 in Amazon Logistics, it found that only one condition–(d)–was met. The appeals court, on the other hand, found that five conditions–(b), (d), (e), (g), and (h)–were met (and so was just one short of the required six), meaning that the drivers were not independent contractors.

In reaching this decision, the appeals court altered prior Commission case law as to condition (b), where the individuals perform most of their services and whether they use their own equipment or the equipment of their putative employer, condition (e), the requirement that individuals redo unsatisfactory without compensation or face penalties for that unsatisfactory work, condition (g), whether the individuals can realize a profit or suffer a loss under contracts to perform their services, and condition (h), whether individuals have recurring business liabilities or obligations. 2023 WI App at ¶¶40-67, ¶¶80-94, ¶¶102-119, and ¶¶120-135, respectively.

Previously, condition (b) was closely tied to “business-oriented” purposes for any location or equipment. In Amazon Logistics, the appeals court held that both parts were met by delivery drivers who mainly operated away from Amazon’s central warehouse (since they made their deliveries) and who used their own vehicles and smartphones to perform the deliveries in question, regardless of whether that equipment was also used for personal matters outside of the business-related purpose.

Note: Amazon Logistics essentially “won” this condition by requiring its drivers to supply their own personal equipment and property for the benefit of the deliveries Amazon needed to be done, and the appeals court accepted this requirement as valid for this condition.

For condition (e)–consequences for unsatisfactory work–the Commission had required that there be actual evidence of this consequence for this factor to be met. The appeals court, on the other hand, found that this condition could be established by contract alone, and that Amazon Logistics met this condition through a provision in its agreement with its drivers that they defend and indemnify the company for any damages arising from their “unsatisfactory work.”

Note: Yes, Amazon Logistics demanded in its agreement with its drivers that they defend and pay for any losses connected to any issues with their delivery work. In practice, this indemnification makes no sense, since individual drivers cannot in any way defend a multi-million dollar company. But, the appeals court seized on this theoretical indemnification in the agreement to conclude that this condition was met, ignoring the statutory requirement that these conditions be shown “by contract and in fact.” Wis. Stat. § 108.02(12)(bm). As shown in the hearing with the testimony of the one driver who did appear, the consequences for unsatisfactory work was account deactivation (i.e., termination of work), as with employees in general, and not indemnification by the drivers of the company. See Commission Amazon Logistics at 4.

Condition (g) addressed the business risk at stake for the individual. This condition examined whether, under a contract for the worker’s services, there can be a profit, as well as whether there can be a loss under that same contract. Previously, the mere possibility of a loss was not the test. As noted in Alsheski v. Codeworks, Inc., UI Hearing No. 09403672AP (26 Feb. 2010), in assessing whether a realistic possibility of loss exists, the proper evaluation was whether there was a genuine business risk if the services were completed as contracted, and “not whether, given the universe of possibilities, something could occur that could result in a loss.” Because employees usually are paid for services being performed and not for a product being produced or provided, employees generally do not have “a business risk” at stake.

This factor is essentially no longer based on actual risks, as the appeals court in Amazon Logistics held that the potential or reasonably speculative risks from possible car repairs or accidents for the delivery drivers was enough to show a possible loss and so satisfy this condition.

As to condition (h), previously the Commission required that the recurring expenses at issue had to be predominately business-related expenses and not just personal expenses that could also be used for a business-related purpose. Now, according to the appeals court, the general expenses of operating a car–i.e., car insurance and maintenance–and needing a smartphone and a monthly data plan for this work satisfied this requirement. In short, some kind of expense for the “business” that is recurring will now satisfy this requirement, even when that expense is also a basic personal expense, like a car and a smartphone.

So, Amazon Logistics held that there was unemployment tax liability for gig-economy companies. But, the decision also significantly weakened the legal tests at issue and represents a significant departure from what is happening in other states (other than in Florida) in regards to gig-economy workers.

Also, left unaddressed in the Amazon Logistics decision was the complete absence of testimony regarding the thousands of delivery drivers at issue. It has been long-standing precedent at the Commission that employers cannot without careful planning seek to have just a few employees testify on behalf of a larger cohort. MSI Services, Inc., Hearing No. S0600129AP (5 September 2008) (the testimony of certain individual workers is not properly considered to represent the testimony of a larger group of workers in the absence of stipulation by the parties, or competent evidence, that the employee witnesses are indeed representative), see also Start Renting Inc., UT Hearing No. S0800059MD (15 May 2009). Yet, in Amazon Logistics the employer presented testimony from just one driver and almost entirely relied on the employer’s managers (and just two managers at that) to present evidence about the drivers. For the Commission, such “evidence” was specious:

The petitioner argued that its witnesses had the best and most comprehensive evidence regarding the delivery partners at issue. The commission disagrees. The best and most comprehensive evidence regarding the delivery partners at issue would have come directly from the delivery partners themselves, but the petitioner did not call any delivery partners to testify and did not stipulate to having one delivery partner’s testimony be taken as “representative” of all the others. In the absence of a stipulation or ruling to that effect, it was necessary that sufficient proof be presented as to each delivery partner whose status is at issue. Results Plus Inc., UI Dec. Hearing Nos. S0400231AP and S0400282AP (LIRC Nov, 8, 2006). The testimony given by the petitioner’s witnesses does not sustain the burden of proof which was placed on the petitioner by statute. The testimony of the petitioner’s former area manager waa largely based on hearsay, speculation, and conjecture. Commission decisions must be based on factual findings supported by credible and substantial evidence. Wis. Stat. § 108.09(7)(f).

Commission Amazon Logistics at n.22. This lack of actual evidence on these issues–probably because these positions were touted as app-based and so part of the new, gig-economy–was lost in the legal decision-making.

As to the continuing consequences of gig-work, John Oliver is already on it:

Religious exemptions to unemployment taxes in 2024

Last week, the Wisconsin Supreme Court issued its decision in Catholic Charities v. LIRC, 2024 WI 13. At issue in this case was whether the Catholic Charities entities would be exempt from paying any unemployment taxes (and their employees no longer eligible for unemployment benefits when laid off) because the Catholic Charities entities are, like churches themselves, operated for faith-based reasons.

Note: Articles on the decision have appeared in the Wisconsin Examiner, WisPolitics, and Urban Milwaukee.

In general, churches and their affiliated non-profit entities are exempt from income and property taxes. Pursuant to Wis. Stat. § 108.02(15)(h), employment with religious institutions is generally exempted from covered employment and so any “wages” paid these employees are not subject to unemployment taxes. Because these employees of religious institutions are not in covered employment, they also cannot claim unemployment benefits when laid off from these jobs. This exemption exists, in part, to maintain a separation between church and state.

Note: This separation between church and state is extended to ministers and rabbis and other church leaders who are themselves exempt from Social Security taxes. More on this exemption possibly expanding below.

The employees at these Catholic Charities entities, however, are not ministers or priests. They are not even employees of any church organization. Rather, the employees of these Catholic Charities entities at issue in this case provide job placement, job coaching, other services, and even work opportunities to individuals with disabilities or those with limited income through funding either from government grants or private contracts. The employees of these entities and their managers have no religious training or requirements. The church’s own administration of these entities is limited to providing general managerial oversight.

The standard, decades old test in unemployment law for determining whether the religious exemption applies to there entities and their employees is whether (a) there is a religious motivation or purpose behind the organization/employer and (b) the services–the activities of the workers at issue–are primarily religious in nature.

Note: This test is based on federal requirements. See 26 U.S.C. § 3309(b)(1).

The arguments in this case FOR the religious exemption are three-fold:

1. The statutory exemption applies to any entity that serves a religious purpose, according to the sponsoring religious organization. Whether the services being performed by the employees are religious in nature or not is immaterial to whether the religious exemption should apply.
2. Constitutional requirements to prevent excessive state entanglement with religious entities and to prevent state limitations on church autonomy here require the religious exemption.
3. Requiring the employees of the Catholic Charities entities to perform religious work of some kind as part of the charitable services they provide discriminates against religious orders that do not proselytize during their charitable endeavors.

A dozen or more churches and religious entities along with the Wisconsin Legislature filed amicus briefs in this case in support of the religious exemption. Only one group, the Freedom from Religion Foundation, filed an amicus brief pointing out the obvious consequences of these arguments:

If the employers receive an exemption to Wisconsin’s unemployment insurance program, that same exemption would become equally available to the numerous religiously-affiliated hospitals and colleges operated within the State. These institutions include Ascension Wisconsin (the State’s second-largest health system, which has undergone several round of layoffs since reportedly employing more than 21,000 people in 2016), Marquette University (which recently reduced its more than 2,900 employees by roughly 10%), and SSM Health Hospital System (with more than 2,000 employees in Madison, plus six additional locations in Ripon, Fond du Lac, Waupun, Baraboo, Janesville, and Monroe). All of these employees would be at risk of losing their unemployment benefits overnight, if this Court accepts the employers’ argument.

In this case, the employers perform completely secular functions, receive government funding, and do not require employees or program participants to be Catholic (or religious at all). . . . there is nothing religious about the operations of the employers themselves. The only sense in which the employers are “religious” is indirectly, through their parent entity’s affiliation with the Catholic Church. None of these features distinguish the employers from Wisconsin’s numerous other religiously-affiliated nonprofits.

Under the employers’ argument, any religiously-affiliated organization that can draw a connection between its operation and the religious mission of its parent entity would become exempt. Such connections would be trivially easy to make for Wisconsin’s religiously-affiliated hospitals and colleges.

Amicus, Freedom from Religion Foundation at 14-15 (footnotes omitted) (Note: I was consulted by the Freedom from Religion folks for their amicus brief).

In a 4-3 opinion, the Wisconsin Supreme Court applied long-standing statutory requirements and principles to find that the Catholic Charities entities are NOT providing religious services on behalf of their employer and so are not exempt from the unemployment system.

First, the Catholic Charities entities are not statutorily exempt, as they “offer services that would be the same regardless of the motivation of the provider, a strong indication that the sub-entities do not ‘operate primarily for religious purposes.'” Catholic Charities at ¶64.

Second, determining whether the services at issue are religious in nature or not does NOT unnecessarily entangle the state and courts into religious matters. “The Establishment Clause does not treat religion as a third rail that courts cannot touch.” Catholic Charities at ¶81.

Examining both the motivations and activities of the organization requires minimal judicial inquiry into religion, as there is no examination of whether CCB’s or the sub-entities’ activities are consistent or inconsistent with Catholic doctrine. A court need only determine what the nature of the motivations and activities of the organizations are——not whether they are “Catholic” enough to qualify for the exemption.

Catholic Charities at ¶85. The majority opinion explains that for centuries courts have examined the activities of religious entities to determine if they should be exempt from taxes, and courts will continue to do so in unemployment matters. Catholic Charities at ¶¶86-94.

Neither does the examination of the services at issue somehow violate church autonomy. The Catholic Charities entities contend “that viewing their motives and activities separate from those of the church penalizes their ‘choice to be ‘structured as separate corporations’–a religious decision grounded in church policy and internal governance.” Catholic Charities at ¶99. Yet, no state law or practice prevents any of the Catholic Charities entities from engaging in activities that are primarily religious in nature. Because the Catholic Charities entities are not doing anything that is overtly religious, under the law they are the same as an actual, non-religious entity. As a result, there is no alleged violation of church autonomy.

Note: This lack of religiosity in their services makes sense. Few people would partake of a “charity” if they were subject to religious proselytizing and tests for using that “charity,” and so the religious purpose at issue with these Catholic Charities entities of providing support for the less fortunate would be undermined by overt religious messaging. This “choice” is transformed into alleged discrimination against the Catholic Church for having to make this choice.

Third, the Catholic Charities entities’ claim of being discriminated against them also fails for the majority. The entities complain that they are being treated as taxable entities because they have chosen not to be overtly religious in their activities. For the majority, this claim is a non-starter, as there is no evidence in the record to show that the Catholic Church has been limited in some way by unemployment taxes (and eligibility for its employees) from exercising its religious faith. Catholic Charities at ¶¶103-7.

In a LONG and bitter dissent, Justice Grassl Bradley solidifies her position as the Jim Jordan of Wisconsin justices. She accepts all three claims for the religious exemption and decries what she understands to be legally and factually wrong reasoning in the majority opinion that all but declares an anti-Catholic bias for disagreeing with her.

The majority’s misinterpretation of the exemption renders the statute in violation of the First Amendment of the United States Constitution as well as the Wisconsin Constitution. By focusing on whether a nonprofit primarily engages in activities that are “religious in nature,” the majority transforms a broad exemption into a denominational preference for Protestant religions and a discriminatory exclusion of Catholicism, Judaism, Islam, Sikhism, Hinduism, Buddhism, Hare Krishna, and the Church of Latter Day Saints, among others. The First Amendment forbids the government from such discrimination and commands neutrality among religions in the provision or denial of a government benefit.

Catholic Charities at ¶113. The dissenting opinion goes on for nearly another 100 paragraphs and 70+ pages. During oral argument and throughout this dissent, every observation or comment from Justice Grassl Bradley drips with the admonition that discrimination against the Catholic Church is occurring here through the alleged “second-class” treatment of these Catholic Charities entities. They have to be exempt, according to Justice Grassl Bradley, because they are church-affiliated, and it is discrimination to hold otherwise.

Chief Justice Ziegler joins the dissent but for the most caustic paragraph. Justice Hagedorn, while agreeing with the statutory argument and the principle that remedial statutes like unemployment law should no longer be understood or interpreted as remedial, cannot join in the diatribes of Justice Grassl Bradley.

Note: All three dissenting justices adopted the position of a few US Supreme Court justices that remedial statutes like unemployment law should no longer be considered remedial when interpreting these laws. This change is an about face from the Wisconsin justices’ expansive understanding of unemployment eligibility in Operton v. LIRC, 2017 WI 46, 375 Wis.2d 1, 894 N.W.2d 426.

As noted already, this case should have been a simple and straight forward application of long understood principles. But, the US Supreme Court has of late prioritized Christian exceptionalism in legal matters. Exemptions from discrimination law for religious/Christian reasons have been expanded, see 303 Creative LLC v. Elenis, 600 U.S. 570 (2023), Kennedy v. Bremerton School District, 597 U.S. 507 (2022), and religious entities now get access to government funds regardless of their religious activities, see Trinity Lutheran Church of Columbia, Inc., v. Comer, 582 U.S. 449 (2017).

There really is no factual or legal support for any of the statutory or Constitutional claims being made here. But, the discrimination claim treads new ground and may well find support at the US Supreme Court. This argument transforms faith-based activities of any organization into religious activities, and there is seemingly no stopping point in what can be considered as religious activities.

The claim here turns a customer/clientele issue about what the people seeking charitable services want into a problem of state action about a government entity “discriminating” against a religious entity. It is a remarkable switch in focus that has far reaching consequences beyond just unemployment law. Where the issue of a religious entity having access to non-religious government funding was discrimination in Trinity Lutheran Church, now the application of a tax to the secular activities of a religious entity is also discrimination.

For a court to find a religious exemption on faith-based preferences alone, pretty much all general state tax and workplace law is under the microscope. Not only could religious entities performing non-religious services exempt themselves from unemployment taxes (and their employees from unemployment benefits), but this reasoning could be extended to Social Security benefits and all other employment taxes and workplace regulatory efforts. There is only a small leap from the ministers and rabbis currently exempt from Social Security taxes to making all employees of all religious entities exempt from all workplace regulations and laws, especially when the scope of the religious exemption is based on little more than the faith of that entity.

A petition for review to the US Supreme Court in this case is a given. Should Supreme Court review be accepted, the attorneys for the Commission and the Department should expect a very difficult time, as the angry dissent by Justice Grassl Bradley will now be the starting point for further analysis.

That is shame and maybe even a tragedy. For decades, the basic requirement of paying unemployment insurance for employees of all stripes and persuasions went without question. The Covid-19 pandemic demonstrated throughout the nation (not so much in Wisconsin, unfortunately) that unemployment benefits are the most effective and far reaching economic stimulus available. So, unemployment should remain fully funded and available to everyone. The effort in this case is to limit the scope and impact of unemployment by carving out major exceptions to its coverage. Such an outcome could have lasting and unsettling consequences to this economic engine.

Legislature pushes a bunch of no-reform unemployment proposals

Update 11 July 2023: Jacob Resnick of Wisconsin Watch has done some digging on the billionaire lobbying groups pushing these no-reform proposals. One of the key quotations from the article:

“One of the fastest ways that we can deal with Wisconsin’s ongoing workforce shortage is to keep people who are still in the labor market, those recently unemployed, productively engaged in the workforce,” Gibbs told members of the Assembly Committee on Workforce Development and Economic Opportunities.

The problem that this billionaires’ lobbyist fails to acknowledge, as noted below, is that unemployment has nothing to do with any worker shortage.

Update 17 April 2023: I testified at the committee hearing on April 12th for most of these bills. For some unknown reason, my written testimony has not been included in the committee materials for any of the bills.

Updated 12 April 2023 (added links to various policy briefs from NELP and a quotation from the 2023 fraud report).

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With the April 2023 election, an incredibly general, state-wide advisory ballot question about people on welfare needing to work passed by wide margins.

The Wisconsin legislature has taken that passage as a message to suddenly revamp and fine tune unemployment eligibility without actually fixing any of the problems with unemployment claim-filing in this state.

First some background.

It is vital to know that unemployment claim-filing is now in 2023 much, much different from what used to occur.

Year    Claimants Paid Benefits     Initial Claims
2007    332,982                     638,548
2008    386,574                     736,245
2009    566,353                   1,125,127
2010    530,886                     826,872
2011    445,538                     722,018
2012    366,829                     613,667
2013    312,325                     550,050
2014    233,129                     488,472
2015    197,070                     423,858
2016    168,006                     385,405
2017    144,727                     305,813
2018    130,710                     279,912
2019    129,888                     287,043
2020    603,459                   1,202,700
2021    295,249                     529,476
2022    116,302                     263,248

As this data reveals, claim-filing in Wisconsin had plummeted just before the Covid-19 pandemic in 2020. In 2018, there was a record low of initial claims filed by individuals, and in 2019 there was a record low in the number of people who were paid unemployment benefits in Wisconsin.

Compare these numbers with what existed in 2007, a “normal” economic year when initial claims and weekly certifications were around 10 questions each and could be filed via a phone call. In that year, there were 638,548 initial claims, and 332,982 claimants were paid benefits that year (more than one out of every ten workers received unemployment benefits that year).

Obviously, the Covid-19 pandemic reversed that trend. But, that reversal was incredibly short-lived. In 2022, new record lows for claimants paid benefits and for initial claims filed in the state were set. Initial claims in 2022 were roughly 89% of the number of initial claims filed in 2019, and paid claimants in 2022 were under 90% of 2019 levels. And, this trend of ever declining unemployment has continued into 2023. As of week 13 of 2023, initial claims are running at around 84% of 2022 levels. So, 2023 is likely going to set still another record low for initial claims and in benefits paid to claimants.

At the same time that unemployment claim-filing has declined and declined and then declined some more, the labor force in Wisconsin has been relatively stagnant and unchanging throughout this time period.

In 2007, there were 2,732,290 workers in Wisconsin, and in 2022 there were 2,754,514 workers, an increase of only 22,224 after 15 years.

So, unemployment has become less and less an issue for Wisconsin workers. The data right now indicates that the vast majority of claims are filed in the winter months, when scores of businesses like landscaping, road building, some construction, and others cannot operate because of winter conditions.

Into this picture of unemployment claim-filing comes the state legislature now with a bunch of sticks to beat over the head of the few people still seeking unemployment benefits. Here is a rundown of these proposals.

AB147

This bill provides new ways to disqualify claimants for misconduct for:

• any damage to employers’ property and records done unintentionally, by accident,
• possible violations of employers’ social media policies, and
• violations of employers’ absenteeism policies pursuant to Beres.

This expansion of Beres and accidental damage raise a serious risk of Wisconsin employers losing their FUTA tax exemption, because the misconduct penalty of lost wages in a benefit year can only be applied to intentional employee conduct.

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.

As to the social media violation, this proposed change is basically incomprehensible. As written, this proposed statute makes any social media violation by an employee into misconduct. Accordingly, any employer discharge for a social media policy can now subject an employee to a misconduct disqualification. Hence, this provision is also likely to put state employers at risk of losing their FUTA tax exemption.

AB147 also mandates that employees with combined wage claims (also called interstate claims) who live outside of Wisconsin must register with the job center in their state. The problems with this proposed change are two-fold. First, the Department already requires claimants to do this registration. Second, this requirement ignores the fact that not all states and territories have job registration systems. Indeed, Minnesota, just next door, has no such requirement or system. As a result, Wisconsin is requiring claimants to do something that cannot actually be done in a state that lacks a job center like Wisconsin’s.

AB147 continues with still more nonsense. At present, the Department audits about 10% of all work searches. This proposal wants to increase the number of work searches being audited to 50%. As a result, it would either require the Department to quintuple its workforce or force current employees to do nothing but work search auditing.

Finally, in a pique over the PUA and MEUC benefits and supplemental PUC benefits that were made available during the pandemic, the legislature wants the Joint Committee on Finance to have a voice in whether similar funds and benefits become available in the state in the future. As evident here, the legislators simply fail to understand that Wisconsin has a partial wage formula that encourages people to work while claiming unemployment benefits. Indeed, raising the benefit levels and removing the current $500 cap would probably lead to more people working while collecting unemployment, not less. Apparently, basic economics is not needed for unemployment legislation.

AB149

• Requires the Department to allow employers to report people who do not show up for interviews, who declines a job interview, who miss an interview, who miss work, or who fail to return to a job after being recalled. The Department, however, already encourages employers to report this information. See, e.g., Refused Work, Work Available with Current Employer, and Report Unemployment Fraud. All of these employee actions would also lead to a loss of benefits, IF the person was claiming benefits at the time.

So, this portion of the bill changes nothing that it purports to do. Claimants who fail to attend a job interview for reasons that do not relate to illness or finding another job are likely to be found ineligible for benefits and perhaps even guilty of fraud/concealment. Indeed, this proposal actually makes claim-filing less onerous by allowing a person to have one such report as NOT counting against their eligibility (when right now, all such reports are investigated and ineligibility found if the claimant lacks the required legal justification).

Furthermore, this proposal ignores the fact that claimants are already doing four job searches a week in an economic climate where employers are desperate for finding employees to hire. Accordingly, employees may well find new jobs and skip interviews or offers to return to jobs after finding new jobs that pay more. And, as shown already, in 2022 and 2023, claim-filing is at record lows. In short, this proposal pretends that the labor supply is growing and that there are numerous unemployed people looking for jobs while claiming unemployment benefits, when the claim-filing data indicates the exact opposite.

• Require the Department to provide various employer information in its fraud reports and job search information to claimants.

This proposal adds: (a) some mandatory employer-reporting information to future Department Fraud Reports about missed job interviews and the like to the Department, and (b) a requirement to provide claimants with vital work search information that they now have to search for on their own.

As NELP points out, work search requirements have become an incredibly effective mechanism for keeping benefits out of claimants’ hands. Job searches themselves are easy, but the online-only reporting requirements are difficult to satisfy. As the 2023 Fraud Report at 6 reveals:

In 2022, DWD completed 22,012 work search audits. The audits resulted in 9,045 adverse decisions with benefits denied, including when claimants failed to conduct four valid work search actions. An additional 27,404 adverse determinations were issued for failure to answer the work search question or failure to provide required information on the weekly claim before the claim paid.

Nearly 28,000 claimants in 2022 (out of 263,248 initial claims, or one out of every nine claimants) lost out on benefits because they did not supply required job search information in the first place, even before an audit took place. When one out of every nine people fail to finish something, that reporting requirement is, by definition, NOT easy and understandable.

AB150

This bill is a repeat of the re-employment bill from the previous session, and is still misguided, liberal, big government intervention into micro-managing people’s work lives.

AB152

This bill appears to be a Department-sponsored initiative and mandates things already being done by the Department or which the Department would like to do.

• Identity verification — mandates identity verification for claimants (currently based on Wisconsin-issued IDs).
• Mandatory unemployment training for employers that are free to attend and videos for claimants. What should be required here is that the Department again mail out printed copies of the claimants’ handbook rather than just a sheet of paper — a claim confirmation — with a URL for the handbook on it.
• Expanded call center hours whenever there is a declared state of emergency or call volume has increased by 300% from the previous level of a year ago. At present, numerous claimants are reporting to me that 15-20 phone calls a day are all leading to busy signals, so perhaps an increase of 50% should lead to expanded call center hours.
• Mandatory comparison with death records, new hire reporting, and prison records on a weekly basis. The Department already does this cross-match, though delayed by weeks or months.

What should be required is that DWD be mandated to do cross-matches with the quarterly unemployment tax reports the Department receives from employers in April, July, October, and January of each year for all weekly certifications filed during the previous four months (the Department’s current practice is to do a cross match on employer’s quarterly unemployment tax reports from nine to twelve months after the weekly certifications have been filed).

The Department should also be mandated to do cross-matches with employer’s payroll tax withholding reports submitted to the Department of Revenue on a monthly basis. In this way, any over-payments of unemployment benefits would be minimized to a month or less. Moreover, employers would no longer need to submit UCB-23 Wage Verification/Eligibility reports, as the Department would already have this information from the wage/tax withholding reports from the Department of Revenue.

• Unilateral transfer of administrative law judges from other state agencies to DWD for handling unemployment hearings.

Rather than hiring and training attorneys properly, the Department wants to force attorneys who handle environmental regulation cases, discrimination matters, or workers compensation cases into hearing and deciding unemployment cases. What the Department should be focused on is adequate training and hiring, not another kind of quick fix. As I have pointed out elsewhere, the skyrocketing number of denials and over-payments is largely because of inadequate information available to claimants. So, getting claimants educated with concrete, specific advice in place of legalisms so as to avoid all the denials in the first place is what is needed here.

AB153

This proposal seeks to limit the number of weeks of unemployment benefits available according to the state unemployment rate. An unemployment rate of 3.5% or less would mean only 14 possible weeks of unemployment benefits would be available. Only when the unemployment rate was higher than 9% would the full 26 weeks of benefits be available.

This proposal fundamentally misunderstands how unemployment works and why it exists. Unemployment benefits are not something that workers earn. Rather, unemployment is an insurance benefit for maintaining consumer demand for which employers pay a premium, based on their experience rating. As explicitly stated in Wis. Stat. § 108.01 (emphasis supplied):

(1) Unemployment in Wisconsin is recognized as an urgent public problem, gravely affecting the health, morals and welfare of the people of this state. The burdens resulting from irregular employment and reduced annual earnings fall directly on the unemployed worker and his or her family. The decreased and irregular purchasing power of wage earners in turn vitally affects the livelihood of farmers, merchants and manufacturers, results in a decreased demand for their products, and thus tends partially to paralyze the economic life of the entire state. In good times and in bad times unemployment is a heavy social cost, directly affecting many thousands of wage earners. Each employing unit in Wisconsin should pay at least a part of this social cost, connected with its own irregular operations, by financing benefits for its own unemployed workers. Each employer’s contribution rate should vary in accordance with its own unemployment costs, as shown by experience under this chapter. Whether or not a given employing unit can provide steadier work and wages for its own employees, it can reasonably be required to build up a limited reserve for unemployment, out of which benefits shall be paid to its eligible unemployed workers, as a matter of right, based on their respective wages and lengths of service.

(2) The economic burdens resulting from unemployment should not only be shared more fairly, but should also be decreased and prevented as far as possible. A sound system of unemployment reserves, contributions and benefits should induce and reward steady operations by each employer, since the employer is in a better position than any other agency to share in and to reduce the social costs of its own irregular employment. Employers and employees throughout the state should cooperate, in advisory committees under government supervision, to promote and encourage the steadiest possible employment. A more adequate system of free public employment offices should be provided, at the expense of employers, to place workers more efficiently and to shorten the periods between jobs. Education and retraining of workers during their unemployment should be encouraged. Governmental construction providing emergency relief through work and wages should be stimulated.

(3) A gradual and constructive solution of the unemployment problem along these lines has become an imperative public need.

In other words, unemployment is a lot like automobile insurance. The more accidents you have (i.e., more layoffs and claims), the higher your insurance premium. And, just because a driver may have been “accident-free” for some time does not mean the driver should then cut coverage — especially just before the driver hits a busload of school children on the highway. This proposal is essentially pretending that Wisconsin will forever in the future be “accident-free.”

NELP has some excellent information on unemployment financing and why limits on the number of weeks makes no sense and is actually harmful:

Business interests often overlook the vital stabilizing effect UI has on local economies, even though this is also a foundational purpose of the program. UI is an automatic stabilizer: by temporarily replacing some of the lost wages of unemployed workers, it automatically fuels overall economic demand when private spending declines during a national recession or local downturn. Cutting benefit duration reduces this stabilizing function, making layoffs more harmful to the economy.

Unemployment legislation that failed to pass in Wisconsin

The state legislature has been pushing a host of unemployment reforms that actually make unemployment worse or provide little more than a talking point. See, e.g., Replacing unemployment with reemployment or Carrots or Sticks? Lawmakers can’t agree on how to help employers who can’t fill jobs.

The things that might make unemployment better, however, were almost universally ignored. Thanks to the Legislative Reference Bureau and its legislative tracking services, here are most of the bills that have now “died” in this legislative session.

• AJR149 and AJR24: Relating to: declaration of an Economic Justice Bill of Rights.
• SB547 and AB542: Relating to: eligibility for unemployment insurance benefits in the case of an unwillingness to receive a vaccine. See also No vaccine unemployment bill introduced for issues much more pressing than vaccine refusals.
• AB1128 and SB1053: Relating to: new enforcement mechanisms and penalties for misclassifcation of employees as independent contractors.
• AB294: Relating to: recovery of unemployment insurance benefit over-payments. This legislation would have applied an equity and good conscience standard to determine if a claimant could afford to repay overpaid unemployment benefits.
• AB380: Relating to: mandating the return of job search requirements for unemployment insurance and the suspension of the Department’s emergency job search waiver rule. Unnecessary in light of Job Searches are back.
• AB307: Relating to: unemployment insurance work-share programs. Work share was one of the few unemployment programs that Wisconsin did relatively well, and so failure to make some of the pandemic-related changes permanent is a major failure.
• AB268 and SB267: Relating to: providing a temporary state tax exemption for unemployment compensation for 2020 and 2021 state income taxes. Because far too many claimants were not paid until 2021 or are still waiting in 2022 for unemployment benefits dating from 2020, this income tax problem is becoming a major headache. The only relief available to claimants is at the federal level and only applies to those paid unemployment benefits in 2020. See Tax matters.
• AB206 and SB224: Relating to: extending waiver of the unemployment insurance one-week waiting period to Sept. 5, 2021, to take advantage of federal financing of these benefits for employers.
• SB138: Relating to: extending eligibility for federal extended unemployment benefits in Wisconsin.
• SB140: Relating to: creating a presumption that all initial claims are pandemic-related for the purposes of charging relief so as to provide tax relief for employers.
• SB899: Relating to: various changes proposed by the Department to the unemployment insurance law and making an appropriation. See the discussion of Proposals D21-02 and D21-03 at Department proposals, 2021 edition, and going back to 2019. Note: the rest of the Department’s proposals, contained in AB910, were passed by the legislature. For the questions that remain unanswered regarding these proposals, see D21-01 and D21-04 to D21-08 discussed in Department proposals, 2021 edition, and going back to 2019, a veto of AB910 should be forthcoming. These proposed changes are more “stick” than “carrot.”

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.

The DWD/unemployment budget, Round 2

Tax breaks for employers

I previously described how the Joint Finance Committee ignored reality and state unemployment law — particularly the state’s partial wage formula that encourages people to work part-time while STILL being eligible for and collecting unemployment benefits — to make false claims about unemployment benefits keeping people from working.

This effort is being done in the name of stigmatizing unemployment benefits. This push to end the pandemic relief programs early is still utter nonsense.

What is lost in this hubbub is the essential nature of unemployment benefits in the first place. Unemployment is an insurance system. Just like car insurance is there when there is an car accident, unemployment is supposed to be there when there is a job loss. Period. Under Wisconsin unemployment law, eligibility is presumed (at least that is what is supposed to happen).

We need to start thinking that unemployment is what it is — insurance — that must be paid out immediately whenever there is a no-fault job loss. As Wisconsin law explains:

Whether or not a given employing unit can provide steadier work and wages for its own employees, it can reasonably be required to build up a limited reserve for unemployment, out of which benefits shall be paid to its eligible unemployed workers, as a matter of right, based on their respective wages and lengths of service.

Wis. Stat. § 108.01(1) (emphasis supplied).

Despite how unemployment is designed to assist claimants and tax employers for those benefits based on each employer’s specific job loss experience, it seems the only action at reform for the moment is to help employers out.

At the June 17th meeting of the Unemployment Insurance Advisory Council, the Department introduced an emergency rule to finally get pandemic-related experience waiver right, at least on a temporary basis. Unlike in other states where any and all 2020 job losses were presumed to be pandemic-related and so not chargeable to employers, Wisconsin at first presumed all job losses were NOT pandemic-related unless an employer provided specific evidence and a form about the pandemic-nature of that job loss. Furthermore, the period for this pandemic-related waiver originally expired on 16 May 2020.

Then, after further orders and passage of 2021 Wis. Act 4, the time period for possible waiver of initial claims on employer experience-rating was extended to those claims filed before 13 March 2021. But, in general forms and reasons still need to be submitted by employers to take advantage of having any unemployment claims against their UI tax account waived because of the pandemic.

With this new rule, the Department is finally waking up to the idea that an automatic, blanket waiver for employer pandemic-related charges is more efficient and easier to administer than a case-by-case, employer-by-employer waiver application (something other states realized back in March and April of 2020). Now, more than a year after the pandemic started and several prior emergency rules:

This rule provides that the Department, in calculating an employer’s net reserve as of the June 30, 2021 computation date, shall disregard all benefit charges and benefit adjustments for the period of March 15, 2020 through March 13, 2021.

New rule at 2 (emphasis supplied). But, the Department is NOT actually forgiving these pandemic job losses on a permanent basis in light of a pandemic for which employers had no control of ability to affect. Unlike other states that sought to make the administrative burden for employers and employees easier in face of the pandemic and the ensuing massive job losses, Wisconsin is still only delaying this experience-rating. Individual and employer-based charging based on job losses in 2020 will be implemented for 2023.

The Department will, in effect, assume that all benefit charges and adjustments were related to the public health emergency declared by Executive Order 72. This assumption applies only for the purposes of setting the contribution rates for 2022. This rule will ensure that employers’ contribution rates for 2022 are calculated based on reserve fund balances as of June 30, 2021 without taking charges related to the public health emergency into account so that the policy goals of 2019 Wisconsin Act 185 and 2021 Wisconsin Act 4 are met. This rule will only affect calculation of contribution rates for 2022. Contribution rates for 2023 will be calculated in 2022 after all recharging is complete.

New rule at 3. In short, this new rule is only a delaying action for a massive administrative headache for everyone.

Note: Reimbursable employers are not being forgotten either. The Department also announced at the June 17th meeting that it was going to ask for an additional extension of the charging waiver for reimbursable employers.

Not to be outdone when thinking of employers, the Joint Finance Committee has also stepped into this game with a $60 million per year transfer from general tax revenue to the unemployment trust fund for the next two years. See item 9 of Motion 2001 that was approved on June 17th and LRB-4069, scheduled for public hearing on June 23rd. The goal here is to keep the tax rate for employers at Schedule D — the lowest unemployment tax rate schedule — for these next two years.

This concern for employer tax rates when an economic recovery is underway is economically idiotic. As of December 2020, Wisconsin had one of the higher trust fund balances in the nation. See also the table in State Unemployment Insurance Trust Fund Solvency Report 2021, US Dep’t of Labor, Office of Unemployment Insurance, Division of Fiscal and Actuarial Services (March 2021) at 59. Wisconsin continues to pay out unemployment benefits at much lower than expected levels, yet the concern continues to be on keeping unemployment taxes at their already lowest levels.

Note: this employer tax proposal is occurring because Republicans are proclaiming employers are still hurting and cannot afford any increase in unemployment taxes at the same time these same Republicans are proclaiming an economic recovery is being held back because “jobless workers” are refusing to go back to work and make the recovery even better. In other words, the economic picture radically changes according to the policy goal being pushed.

As I said in January 2021, maintaining a positive balance in the trust fund during times of massive job loss is economic waste. Governments need to spend money during times of recession and then raise taxes during times of economic recovery (which seems to be now and next year).

$1.1 billion is the amount available in the unemployment trust fund at the end of December 2020. $1.1 billion that is not helping anyone but just sitting in a bank account.

Wis. Stat. § 108.01(1) (emphasis supplied) provides:

Unemployment in Wisconsin is recognized as an urgent public problem, gravely affecting the health, morals and welfare of the people of this state. The burdens resulting from irregular employment and reduced annual earnings fall directly on the unemployed worker and his or her family. The decreased and irregular purchasing power of wage earners in turn vitally affects the livelihood of farmers, merchants and manufacturers, results in a decreased demand for their products, and thus tends partially to paralyze the economic life of the entire state. In good times and in bad times unemployment is a heavy social cost, directly affecting many thousands of wage earners. Each employing unit in Wisconsin should pay at least a part of this social cost, connected with its own irregular operations, by financing benefits for its own unemployed workers. Each employer’s contribution rate should vary in accordance with its own unemployment costs, as shown by experience under this chapter.

So, money to pay rent and groceries, to dine out in restaurants, just to spend on consumer goods — WHEN there is a state-wide lack of consumer spending because of a worldwide pandemic — is not going out to the unemployed workers in this state who need it.

That statement is still true today. Sigh.

More Department proposals for 2021

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.

Yet, Wis. Stat. § 108.09(4s) currently holds that (emphasis supplied):

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.

D21-10, SUTA dumping

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.

D21-11, Work-share modifications

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).

Given the current actions of the legislature, this proposal is probably dead on arrival no matter what the Advisory Council recommends.

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.

2021 tax rates   Non-construction   Construction
Payroll<$500,000   3.05%              2.90%
Payroll>$500,000   3.25%              3.10%

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.

D21-14, Phone hearings prioritized

Prior to the pandemic, the Department closed hearing offices and forced claimants and employers into phone hearings. An outcry ensued, but the pandemic made phone hearings a necessity.

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.

D21-15, Camp counselor employer exclusion

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.

D21-16, Repeal of drug testing requirements

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.

First, the Advisory Council previously rejected substantial fault when it was originally proposed. It was the Joint Finance Committee that went around the Advisory Council and which included substantial fault in the state budget. So, the Advisory Council does not need to approve of this repeal. It was already rejected, and the rejection should be included as a matter of course.

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.

D21-19, Repeal of the waiting week

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

The lame duck laws, see 2017 Wis. Act 370 for the unemployment changes, that were enacted after Scott Walker lost his re-election bid, moved the Department’s work search and work registration requirements from Department regulations and into statutory law. That is, Republicans were so concerned about making sure these obstacles for unemployment eligibility remained in place that they made them statutory rather just a regulation that the new administration might then revise.

So, this proposal restores what existed before the lame duck changes and gives the Department some additional flexibility in how work search and work registration requirements are administered.

D21-21, Repeal of the wage cap on benefit eligibility

Right now, a hard cap of $500 per week is written into unemployment law. This cap was first proposed by the Department in D12-18, which the Advisory Council adopted at their 21 Feb. 2013 meeting.

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.

D21-22, Raising the weekly benefit rate

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.

1. 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.
2. 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.
3. 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. See Tips 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.

D21-25, Mandatory e-filing for employers

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.

D21-26, New worker mis-classification penalties

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.

1. $500 civil penalty for each employee who is misclassified, but not to exceed $7,500 per incident.
2. $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.
3. $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.

D21-26 at 4.

BUT, the intent that needs to be shown for these mis-classification penalties remains unchanged. Per Wis. Stat. § 108.221(1)(b):

(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.

Unemployment taxes and personal tax liability for employers

Claimants are not the only folks having trouble with unemployment.

Many employers think that incorporation protects them from individual liability. Not so. In particular, for unpaid unemployment taxes there are specific provisions for holding an individual owner of a company (and others, see below) responsible and liable for unpaid unemployment taxes. Besides interest and penalties, the Department will work out payment plans, intercept tax refunds, place liens on property, revoke professional licenses, levy bank accounts, and even garnish wages from later employment to recoup unpaid unemployment taxes.

In 2013, the Department proposed several changes to make it easier for employers to get the administrative penalties and interest connected with unpaid unemployment taxes waived. See Memorandum RE: 27 November 2012 DWD legislative proposals to Advisory Council (13 Jan. 2013) at 46-50. And, prior to the Great Recession, the Department had created a special work group to assist new employers with understanding unemployment issues and taxes.

Somewhere along the line, the Department changed course, particularly with small employers. The work group to assist employers disappeared, and the Department started pursuing anyone connected with small employers for unpaid tax liabilities despite those collections efforts being legally deficient.

The Department also began changing the law of personally liability in ways that were not acknowledged at the time.

Wis. Stat. § 108.22(9) sets forth the personal liability provision in unemployment law. Under this provision, a person is personally liable for unpaid unemployment taxes when the following four criteria are met:

1. That person is an officer, employee, member, manager, partner, or other responsible person of an employer,
2. That person has control or responsibility for paying unemployment taxes,
3. That person willfully fails to pay those unemployment taxes, and
4. That person was subject to proper collection efforts by the Department.

Prior to 2015, Wis. Stat. § 108.22(9) (the 2013 version) varied significantly from its current form. The requirement for being a “responsible person” was first put forward statutorily by the Department itself in proposal D15-05 (19 Feb. 2015) to the Unemployment Insurance Advisory Council and was enacted in § 91 of 2015 Wis. Act 334. While the proposed change was described as a way of making sure members of a partnership could be found liable for unpaid unemployment taxes, the proposal also indicated that the scope of personal liability was limited to “responsible persons.” As explained in the Department’s proposal:

This proposal will create a more level playing field because it will ensure that responsible persons are not able to avoid personal liability for unpaid UI contributions simply because they chose a particular form of business entity. It also provides flexibility for the department to impose personal liability if the Legislature creates other business forms (such as a Low-Profit Limited Liability Company or “L3C”).

Proposal D15-05 at 2. In a memorandum dated 19 March 2015 that was provided to the Advisory Council, the Department offered an explanation of what it considered to be a responsible person based on both state income tax rulings as well as Commission precedent.

The proposed amendment to section 108.22(9) is designed to permit an assessment of personal liability for unpaid unemployment insurance contributions against individuals who, by nature of their “status, duty and authority,” are responsible for filing the contribution reports and paying the taxes. This is similar to the way that LIRC currently interprets section 108.22(9) and is consistent with the federal IRC and the Wisconsin Revenue Statute.

Memorandum to the Unemployment Insurance Advisory Council (19 March 2015) at 2. As explained in this memorandum:

the Tax Appeals Commission, which reviews assessments of the Wisconsin Department of Revenue, has interpreted the term “responsible person” broadly and it “gauges responsibility by examining whether the person had the actual or de facto authority to withhold, account for, or pay the taxes, the duty to pay the taxes, and whether the person intentionally breached that duty.” Sandberg v. Wisconsin Department of Revenue, Wisconsin Tax Appeals Commission, ¶401-491, (Nov. 18, 2011).

And the Tax Appeals Commission held that “the responsible person determination is pragmatic and based on considerations of substance, rather than form. It boils down to the fact that the crucial inquiry is whether the person had the effective power to pay the taxes — that is, whether he had the actual authority or ability, in view of his status within the corporation, to pay the taxes owed.” Id (internal citations omitted). The Tax Appeals Commission in Sandberg found that the son of the business owner was not a “responsible person” for the purposes of the Wisconsin Revenue Statute because “evidence showed that the business, in fact, was a ‘one-man show’ where his father, Kenneth Sandberg, was ‘that man.'” Id.

Id. (footnote omitted).

So, it would seem that individual liability should be limited to those owners and individuals who have designated or actual authority for unemployment tax matters, regardless of the title or status of that person. After all, the persons actually responsible for paying unemployment taxes should be the person liable for those taxes when they go unpaid, not any possible director or even employee of the company.

And, that perspective made sense until Proposal D17-07, in which the Department proposed eliminating the 20% ownership threshold. The change was explained this way:

And, the fiscal impact, according to the Department, was minimal:

Trust Fund Impact: This proposal would have a negligible but positive impact on the Trust Fund. Without the 20% threshold, this change would streamline investigations into assigning the debt. Some nonprofits do not have a clear owner, so this may make assigning personal liability in cases involving nonprofits easier. However, in general, individuals the department is trying to assign personal liability to already meets the 20% threshold and thus would not result in a significant impact to collections.

Proposal D17-07 (23 May 2017) at 19. The Advisory Council approved of this change, and it was enacted as part of 2017 Wis. Act 157.

So, because the Department re-wrote this individual liability law broadly, it is now free to ignore its own arguments about how the targets of the Department’s collection efforts would be limited. So, the Department for the past several years has expanded who it targets for debt collection to include ANY employee or individual in its discretion it thinks it can collect from.

A December 2020 decision by the Labor and Industry Review Commission concerning a sprawling, for-profit enterprise illustrates just how expansive these debt collections efforts have become: Rice Mgmt., Inc. et al., UI Hearing Nos. S1900089MW-117MW (Kevin Breslin), UI Hearing Nos. SI900262MW-290MW (Robert Parkins), UI Hearing Nos. S1900291MW-319MW (Mary Jo Parkins), UI Hearing Nos. S1900320MW-348MW (Gina Mignano), and UI Hearing Nos. S1900349MW-77MW (Anthony Carriero) (30 Dec. 2020)

Note: In the briefing before the Commission, I represented one of the individuals pursued for debt collection, the assistant controller, Anthony Carriero.

The Department only pursued two out of five partners, all of whom raked in millions (the two were Kevin Breslin and Williams Burris, Jr.,, and Burris settled his case with the Department prior to hearing and withdrew his appeal) for collection efforts. But, several lower level employees and former employees were targeted (including an assistant controller, who reported to a controller, who reported to a CFO, who in turn reported to a managing partner), apparently for no other reason than that the Department had their names and contact information.

Of the four requirements for personal liability, both the administrative law judge and the Commission found that the second and third factors were obviously not met for the defendants other than Breslin. But, in examining the first requirement, the Commission provided the first extended analysis of all the changes the Department has wrought, and the result shows just how broad debt collection in unemployment law now reaches.

This part of the statute has undergone some changes in recent years. Prior to 2015, the statute provided that before a person could be found personally liable, the individual had to be “an officer, employee, member or manager holding at least 20% of the ownership interest of a corporation or of a limited liability company” subject to Chapter 108. In 2015, the legislature changed this so that the individual could be “an officer, employee, member, manager, partner, or other responsible person holding at least 20 percent of the ownership interest of a corporation, limited liability company, or other business association” subject to Chapter 108. It appears that the impetus to broaden the statute in 2015 was to include managing partners of limited liability partnerships as persons who could be found personally liable for the contributions owed by an LLP, and to ensure that those people could be found responsible even if they chose another business entity. However, if the person did not own 20% of the business, the condition still was not met. In 2018; the statute was changed again, and it now provides that before a person can be found personally liable for an organization’s unpaid unemployment insurance taxes, the first condition that must be met is that the person must be or must have been “an officer, employee, member, manager, partner, or other responsible person of an employer…”

As the appeal tribunal noted, there is little case law on the first condition with the new statutory language. Previously, the analysis for this condition was focused on whether the individual owned 20% of the business and the nature of the business. With the recent law changes, the legislature has expanded who can be found personally liable to persons beyond the listed titles and without regard to ownership, and it has expanded the application of the law to any employer rather than just to corporations, limited liability companies, or other business associations.

The appeal tribunal paraphrased this condition as requiring that the individual “has a special relationship with the company.” Under this interpretation, in addition to determining whether the individual was an officer or employee, etc., the appeal tribunal questioned whether the individual was also a “responsible person” of the employer and analyzed whether the individual’s particular duties made that owner, officer, or employee a “responsible person” of the employer. In this reading of the statute, the word “other” in the statute was read to imply that any officer or employee, etc., must also be a “responsible person” as well, and, therefore, the decision maker must decide whether the person is a “responsible person” under this first condition in addition to determining whether the person was an officer or employee, etc. In the Carriero decision, for instance, the appeal tribunal found that the words “or other responsible person of the employer” now acted to modify the word “employee” to differentiate employees who have greater responsibilities from those who do not.

While it is true that an individual may not be found personally liable unless the individual was responsible to pay the unemployment insurance taxes, the commission concludes that this analysis is generally more appropriately addressed under, the second condition, where the commission has historically examined whether an individual is a “responsible person” for purposes of personal liability. This is consistent with the federal case law, which looks at who has a duty to collect and pay over the tax as a “responsible person.” It is thus not necessary to duplicate the analysis for both the first and second conditions, as the appeal tribunal did here. With this reading of the statute, the first condition is fairly simple. If the individual is an officer, employee, member, manager, or partner of the employer, the condition is met with no ownership requirement. The appeal tribunal essentially acknowledged this in one set of decisions by noting, e.g., “Mr. Parkins had no stake in the LLC, but he was indeed an officer, so he therefore satisfies this element.” It is also possible that someone who does not have the status of an officer, employee, member, manager, or partner of the employer could be found personally liable if that person had other authority or was otherwise responsible for the business of the employer, such as a financial agent or a family member. Only if a person is not an officer, employee, member, manager, or partner of the employer, is it necessary, for purposes of this condition, to determine whether the person is an otherwise responsible person of the employer. This clarifies the first condition and also avoids unnecessary duplication of the analysis of whether a person is also a “responsible person” for the payment of unemployment insurance contributions under the second condition.

* * *

Accordingly, each of the putative debtors was at least an officer, employee, member, manager, or partner of the employer.

Rice Mgmt., Inc. et al. at 21-2 (footnotes omitted, emphasis in original). In other words, this first requirement will only really matter when the Department is pursing an individual who has no direct, formal role with the debtor employer (such as the employer’s legal counsel or accounting form). In all other cases, it is met if the person has any connection at all with the debtor employer.

Note: This reference to legal counsel should indicate to the lawyers out there just how far reaching this individual liability could extend. I could see the Department now easily extending personally liability to the attorneys who could have prevented the unemployment taxes from going unpaid, since such a claim is similar if not identical to what the Department argued in this case for the non-partners.

As demonstrated in Rice Mgmt, the second and third requirements still follow traditional analysis and requirements. So, individuals who are not actually responsible or in control of tax liabilities may still avoid personal liability.

But, the fourth requirement — service of proper collection efforts — has, like the first requirement, in practical terms become a non-issue. Previous to all of these changes, notices of unpaid taxes to the corporate entity would be served on the corporate premises, and so those who controlled the company would also have notice. Now, with the number of possible debtors expanded to employees and even persons who have no formal connection at all to the company, they will have no idea about these unemployment debts and the associated collection efforts until charged with personal liability. In this Rice Mgmt case, for instance, Robert Parkins had left the company in early 2017, around six months before any collection efforts were undertaken. Yet, this fourth requirement was satisfied by the Department against him.

The Commission decision is lengthy (40 pages) but deserves a close and extended reading. As numerous employers may not have survived the pandemic, many may find the Department knocking on their doors — and the doors of others — about unpaid unemployment taxes. This decision is the current legal framework for these cases.

American Rescue Plan

The latest rescue package signed into law on 11 March 2021 provides for:

• $1,400 per person direct stimulus payments for individuals earning less than $75,000 and for couples earning less than $150,000.
• PUA benefits extended 23 more weeks on top of the original 50 weeks (39 under CARES and 11 under Continued Assistance) for a total of 73 weeks until 6 September 2021.
• PEUC benefits extended 29 more weeks on top of the original 24 weeks (13 under CARES and 11 under Continued Assistance) for a total of 53 weeks until 6 September 2021.
• The additional $300 PUC per week starting on the week ending 1/2/2021 continued for all weeks until 6 September 2021.
• Work share programs are extended thru 6 Sept. 2021.
• Full federal funding of EB benefits extended thru 6 Sept. 2021.
• The federal subsidy for reimbursable employers is increased from 50% to 75% for unemployment weeks beginning after 31 March 2021 until the week ending 9/6/2021.
• Full, 100% funding of waived waiting week benefits retroactive to the week ending 1/2/21 (this subsidy was previously 50%) and effective through the week ending 9/6/2021. As the Department persuasively indicated on March 18th to the Unemployment Insurance Advisory Council, this federal funding means that claimants get an additional $300 PUC payment earlier into their hands as well as one week of regular unemployment benefits being funded by the federal government rather than Wisconsin employers (meaning that Wisconsin employers end up with the first week of benefits paid for by the feds rather than out of their unemployment accounts). At the March 18th meeting of the Advisory Council, labor caucus members pushed for full support of this waiting week waiver, but employer representatives for some reason had to think about whether employers would want to have one week of benefits subsidized or not.
• Waiver of all interest charges for states that have seen their unemployment trust funds go negative, hence free money (does NOT apply to Wisconsin, as the trust fund is $1 billion in the black as of February 2021).
• Waiver of federal income taxes on the first $10,200 received in unemployment benefits (regular, PUA, PEUC, EB, and PUC) for 2020 income taxes (not 2021 income taxes, which will be due in 2022).
• Additional funds offered to states to shore up and modernize their claim-filing systems “to help workers get the benefits they deserve when they need them.” States will need to submit grants to DOLETA to receive this funding.
• An expanded Child Tax Credit on income tax forms that will provide $300 per month to families with children under 6 and $250 per child 17 and under.
• 100% coverage of any COBRA premiums for any workers laid off and maintaining health care coverage through COBRA thru 30 Sept. 2021. Details and mechanisms for this coverage are to be determined and will include employer or insurer payments for that coverage on behalf of the former employees.
• Expanded subsidies for ACA health coverage that will apply to 2021 and 2022 calendar years. Anyone receiving unemployment benefits in 2021 will be automatically eligible for subsidized ACA health care coverage. The extent of those subsidies are to be determined.
• Financial shoring up of the Pension Benefit Guaranty Corporation so as to keep pension payments flowing to millions of retirees.

There are income limits to many of these provisions. But, for nearly all unemployed workers in Wisconsin, those income limits will not be an issue.

Taxes and spending

Jake has a look at the latest WisPolicy Forum report on taxing and spending in the mid-west.

As Jake observes from the report, for the twenty-year period from 1997 to 2017, Wisconsin has led the mid-west in declining tax revenues, a commensurate decline in education spending, and a comparative increase in spending on Medicaid, corrections, and highways. These changes, Jake explains, are tied directly to the policy choices of recent years.

For example, a reason Medicaid spending is higher in Wisconsin because we refuse to take the expanded Medicaid in the Affordable Care Act, which would push those expenses onto the Feds instead of us (on a related note, a Pew report earlier this year placed Wisconsin 45th in the country for federal aid).

On the Corrections side, this is an obvious effect of the “lock em up” mentality of WisGOPs that has ended up with the state spending more on Corrections than the UW System. The “6th in the US” highway spending number can be connected back to a huge increase in local wheel taxes to fix roads that Scott Walker and the WisGOP Legislature refused to pay for.

Two things should be added to this post and the WisPolicy Forum’s tax report, however. First, the report is only dealing with changes in averages. So, the big shift in Wisconsin in the tax burden away from the wealthy and onto the shoulders of the middle-class is ignored. And, the over-reliance on property taxes in Wisconsin for funding local government and schools only makes this discrepancy worst, as property taxes based on a flat percentage are inherently regressive.

Second, several taxes are left out of this analysis completely, including unemployment taxes that employers pay on the first $14,000 of annual income paid to each employee. The 2018 Tax Measures Report has all of this tax information. Compared to the other fifty states, Wisconsin’s unemployment taxes are below average:

2018 Tax Measures Report at 64. As seen here, in 2018 Wisconsin’s average unemployment tax burden for employers was $255. For comparison, Minnesota’s was $340, Michigan’s was $352, and Iowa’s was $318.

Other measures likewise indicate that the unemployment tax burden on employers is exceptionally low in Wisconsin among mid-western states:

Average employer contribution in 2018 for every $100 in wages paid to an employee
Wis. 0.54
Minn. 0.56
Mich. 0.64
Iowa 0.69

For every dollar of tax paid in 2018, the amount going to
Benefits owed / Trust fund surplus
Wis. 0.75 / 0.25
Minn. 0.94 / 0.06
Mich. 0.63 / 0.37
Iowa 1.08 / -0.08

2018 Tax Measures Report at 62, 34, 33, and 26, respectively.

So, Wisconsin has the lowest unemployment tax burden of these four states, and 25 cents of every tax dollar being paid is going into the trust fund (only Michigan is saving more monies than Wisconsin for its trust fund).

Compared to these other states, then, employers in Wisconsin have little to complain about relative to employers in other mid-western states. And, this now very light tax burden in Wisconsin is very much the result of state policies that have made it difficult to impossible for employees to qualify for unemployment benefits or which make it difficult for employees to even files a successful claim.