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.

Act 10 full steam ahead

It’s no surprise from the oral arguments that the Wisconsin Supreme Court has removed the contempt order that prevented the Employment Relations Commission from holding the annual school certification elections mandated by Act 10 (though the time and date of when the decision was released — ~7pm on Nov. 21st — is not standard procedure). Yesterday, the Commission decided to squeeze in the November elections, come what may.

There really is no legal or practical reason for either the court’s or the Commission’s actions here other than wanting to put teachers’ unions through the ringer. Justices Abrahamson and Bradley wrote an excellent dissent that demonstrates just how wrong-headed these actions are. Excerpts below:

¶32 The United States Supreme Court has adhered to this rule of law for decades.[n2] Then-Judge Scalia aptly described it as follows: “[T]he discretionary relief of declaratory judgment is, such in a context as this where federal officers are defendants, the practical equivalent of specific relief such as injunction or mandamus, since it must be presumed that federal officers will adhere to the law as declared by the court.” Sanchez-Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir. 1985).

[n2] See, e.g., Samuels v. Mackell, 401 U.S. 66, 72 (1971) (holding that the creation of potential remedies after issuance of the declaratory judgment pending appeal “has virtually the same practical impact as a formal injunction would”); see also Samuel L. Bray, The Myth of the Mild Declaratory Judgment, 63 Duke L.J. at 38, forthcoming 2014 (“[I]n many cases where a plaintiff seeks prospective relief, a declaratory judgment and an injunction are functionally interchangeable. Both resolve uncertainty about the law and both bind the losing party.”).

* * *

¶36 Now, the per curiam does an about-face on the law. It attempts to transform the rule of law into an untenable rule of defiance: government officials who are defendants in a case need not obey a court’s declaratory judgment that precludes them from enforcing facially unconstitutional statutes.

¶37 “A declaratory judgment is binding on the parties before the court.” 10B Fed. Prac. & Proc. Civ. § 2771 (Wright & Miller, 3d ed. 2013) (emphasis added). . . .

¶42 The per curiam holding today would seem to require every individual person or organization affected by Act 10 to litigate a separate suit, eliminating the efficiency benefits and practicality of declaratory judgment as applied to a governmental actor. Such duplicative litigation is unworkable.

The dissent continues for many more pages showing how there is no legal basis for pushing aside the circuit court’s contempt order. It is worth re-reading.

Act 10 oral argument has some surprises after all

[NOTE: while this blog chiefly concerns unemployment law, these arguments relating to Act 10 were just too compelling. And so, here is a somewhat lengthy examination not of the merits of the case but what the arguments portend for future legal issues in general.]

The end result may be predictable — a four-three decision upholding the constitutionality of Act 10 — but the issues and argument raised on Monday, November 11th, were certainly surprising. It was almost as if typical Republican and Democratic positions switched hats. Liberal justices spoke about the limits of governmental action and of courts to decide questions that parties are best equipped to deal with on their own. The conservatives of the Court, on the other hand, seemed to adopt an expansive view of governmental authority and of their powers and abilities to implement that authority. Given the likely outcome, those in favor of limited government should be careful about what they wish for.

A right to associate for those we like

Van Hollen led the oral argument on behalf of the AG’s office himself. Overall, he did a fine job, especially when the justices at times asked baffling questions. Still, the state’s position has some inherent contradictions, simply because Act 10 is essentially a bill that claims both to uphold collective bargaining for those that want it while also making collective bargaining not only meaningless but actually a hindrance to those that support it. Van Hollen could not escape those problems.

Justice Abrahamson set Van Hollen up with a question over whether there is a constitutionally protected right to associate. Of course, Van Hollen agreed. So, Abrahamson continued: is there a constitutionally protected right to associate for the purpose of collective bargaining? Of course NOT, Van Hollen asserted. Essentially, Van Hollen admitted in these answers to distinguishing a constitutional right based on content. That is usually not allowed, since no one thinks the government should get to pick and choose the content that deserves the most protection and the content that should get less protection. Government rules, when it comes to the first amendment, must be content neutral.

Justice Gableman came to Van Hollen’s rescue by getting Van Hollen to explain that collective bargaining is not considered a fundamental right in regards to first amendment protections. True, collective bargaining by itself is distinguished in the case law from basic speech. But, once the government provides a forum, it cannot then pick and choose how others use that forum. For instance, the government cannot create a space for commercial speech and then allow one company to advertise its products but prohibit another company based on nothing more than who the companies are. So, the government could eliminate collective bargaining or allow collective bargaining. But, the government cannot decide who gets more or less collective bargaining based on the identity of those who use collective bargaining.

That is essentially the argument that Lester Pines, representing Madison Teachers, presented: that Judge Colas and Judge Conley found as a constitutional violation (and which the 7th circuit explained away as a matter of allowable political preferences) content-based distinctions between who gets traditional union collective bargaining and who gets the bird-cage treatment of Act 10.

Whose ship is bigger/badder/better?

Probably the most remarked line from the oral argument will be Van Hollen’s claim that the unions and the state are not two ships passing in the night but two ships colliding, and that the state will win because it’s the bigger ship.
It was a moment of machismo that few could put aside. Pines started off his own oral argument noting that the state’s big ship was just a Titanic that would run up against the smaller iceberg of the Constitution. Even those singing during the noon hour got into the act by proclaiming that they were the iceberg.

What struck me about this whose ship is bigger claim was how that metaphor actually applies to the parties. The state government, which as sovereign is legally “bigger” than all other entities, can always trounce those who oppose it, simply because the state is sovereign over all others. For a Republican party traditionally concerned with the over-reaching power of big government and the limited effectiveness of sovereign powers in directing and controlling the individual affairs of citizens, this embrace of sovereign might was remarkable.

Who is doing the asking does matter

Van Hollen claimed that Act 10 does nothing to prohibit an individual from negotiating her own salary and workplace issues. Whether a union is in place or not, Van Hollen asserted, an individual is still free to ask a manager for a pay raise. So, all Act 10 does is essentially give individuals the additional option of asking for a pay raise via a union.

In collective bargaining law, however, an employer cannot negotiate with individuals and a union representing those individuals at the same time. If an employer does so, the employer is guilty of by-passing the bargaining representative. Not only does an employer risk sanction for such action, but it might also incur costs in order to make everyone in the bargaining unit whole for by-passing the bargaining representative.

This principle continues to apply under Act 10. When the state recently awarded 1% pay raises to its employees, it withheld that pay raise for bargaining unit employees still represented by a union. The state explained that the pay raise for those bargaining unit employees had to be negotiated with the union.

This e-mail is intended for and applies only to employees represented by one of the following certified collective bargaining units: Education, PERSA, SEIU, Trades, and WSAA.

There has been some uncertainty regarding eligibility for the June 30, 2013, General Wage Adjustment (GWA). Specifically, it has not been clear whether employees of previously certified collective bargaining units were entitled to this GWA. You are a member of a previously certified collective bargaining unit.

According to Section A — 2.01 of the 2013-15 Compensation Plan, employees represented by a certified collective bargaining unit on the effective date of the GWA are not eligible for the increase.

We have received notice from the Office of State Employment Relations (OSER) that Wisconsin Employment Relations Commission (WERC) intends to handle recertification elections on a prospective basis and that unions retain their certification past June 30, 2013. Therefore, employees covered by your bargaining unit will not receive the June 30, 2013, GWA. Base wages for those employees are negotiated through the collective bargaining process.

Collective bargaining is not negotiation or when good faith is bad faith

Van Hollen added that under Act 10 groups, including unions, are still free to present their concerns on a host of workplace issues to employers. And, for Van Hollen, employers are free to do what they want when “meeting” and “conferring” in this manner.

Law suits by Wisconsin Institute for Law & Liberty challenge this notion. Still, if we accept the description Van Hollen offers, it at least posits a way for unions and employers to get some of the positive employment relationship that comes from an employer valuing the workplace contributions and insights of employees.

But, Van Hollen scuttled that potential outcome when during his rebuttal he described how employees could always talk to their public employer but that Act 10 meant that they could no longer force an employer to sit at a bargaining table in good faith. With this statement, Van Hollen presumed that good faith collective bargaining requires some kind of concession from employers. I know more than a handful of union and management negotiators who would disagree with that statement. Good faith negotiations only require the parties to meet and entertain proposals from each other. Agreement is optional. Only inexperienced negotiators or those who think unilateral decision-making is a boon to productivity think collective bargaining is any kind of roadblock to managerial reforms or reorganization. Most folks familiar with collective bargaining see the process as a real boon for organizational change.

The other problem with Van Hollen’s statement is that it makes explicit that good faith from a public employer is optional and even unwanted. At a time when concerns about government accountability and in-the-dark election financing are rising, the requirement that the government always act in good faith should never be optional.

Local rule in name only

Perhaps the toughest nut to crack for Act 10 supporters are the pension changes it wrought in Milwaukee (a fix percentage of employee contributions to pensions was mandated for all employees state-wide). As a first-class city (the state’s only), Milwaukee has specific statutory authority to govern its affairs under what is called home rule. Generally, state law will only trump home rule when there is a state-wide purpose to that state law and it will bring uniformity throughout the state. In the case law, however, these factors are not so easily identified. Determining what is uniform and what constitutes a state-wide purpose is often in the eyes of the beholder. Still, home rule is generally considered to exist until the state law at issue satisfies both of these factors.

Van Hollen’s response was to shift the burden of proof by making home rule a permissive requirement. Home rule exists, Van Hollen contended, only where the state does not express direct concern. Once the state decides to act on an issue, home rule ends. It was a smart argument, as this switch in the the burden had support from one or two justices. One even openly contemplated declaring home rule laws as an unconstitutional ceding of state authority to a municipality. That argument certainly avoids the problem of applying home rule law, as home rule just does not exist anymore.

There were basic factual problems with these arguments, however. The city pension was funded without any state funds and was/is quite healthy. So, a mandated employee contribution was unnecessary. Indeed, the city had on its own altered its pension benefits for new hires, and Nicol Padway, on behalf of the Milwaukee unions, did a good job of showing that there was no reason to think the city could not take other action in the future it thought necessary to address budget issues with its pensions. Furthermore, it may well be that Milwaukee is the only city affected in this manner, and so a rule striking down this part of Act 10 for Milwaukee may have no effect on any other municipal employee.

Lochner rises again

As is now obvious, the arguments and issues being raised went far beyond basic concepts of constitutional rights and levels of scrutiny. The conservative justices and the AG seemed to be using Act 10 as a device for a court-supervised expansion of state power.

Law students and attorneys are well-acquainted with the description of Lochner-era jurisprudence as a time when courts routinely declared laws as unconstitutional because those laws infringed on individual contractual liberty. Legislation to limit hours of work or mandate a minimum wage, for example, were declared null and void because legislators could not restrict the terms of work to which one individual and employer might agree.

Keep in mind, this focus on individual contractual liberty did not mean that the market went unregulated. Lochner-era jurisprudence still allowed and indeed required courts to determine the rules of the game. By declaring legislation unconstitutional, courts were simply asserting themselves as the chief economic regulator in place of legislative bodies.

In the 1930s and the economy reeling from the Great Depression, Roosevelt pushed for reasserting legislative and executive control over the economy in place of the courts through his New Deal legislation. Not until 1937 and the Supreme Court’s decision in Jones & Laughlin upholding the National Labor Relations Act did the courts finally accede to that push.

Since then, legislatures have been free to set rules and make agreements about what rights and protections workers have in the workplace. In Milwaukee and through its home rule powers, the city declared that its employees have “vested and contractual” rights to pensions. Accordingly, any changes to those rights could not be unilaterally made by one party. Or, at least that is the principle that was applied until now.

Because Act 10 unilaterally changes employees’ pensions by mandating a specific percentage they must now contribute, it seems to run afoul of this guarantee. Not so, asserted Van Hollen, because the individual employees who have these rights are in too strong a position relative to the city. It is not clear what is meant by use of the legal term, “vested,” Van Hollen explained. And, Van Hollen added, because employees have the right to quit their jobs and the associated pensions whereas the employer does not have the ability to end those pensions under any circumstances, the pensions at issue are one-sided.

In other words, the pensions to which the city obligated itself are illegal because the individuals have too much contractual liberty and the city qua employer does not have enough. So, the city has to be protected against its own legislation. And, if home rule is also suspect, it will be because the state has to be protected from its own legislation regarding cities. And, who decides what is balanced and proper legislation in these matters: judges. While there were no direct claims to individual liberty in the courtroom, certainly something of Lochner has re-emerged here.

A rush to injunction

Finally, the strangest part of the oral argument was the great deal of discussion about whether the current prohibition on local Act 10 certification votes would continue or not. The Court went into the procedural woods to assess what the original circuit court decision entailed, who did what immediately after that decision, and whether one or both parties failed to take some kind of action unnecessary at the time (largely because the federal court order from Judge Conley enjoining Act 10 was still in effect).

These questions had formal importance because the state had included in its appeal a request to stay the current injunction and thereby allow local voting under Act 10 to commence as scheduled. But, in practical terms, the issue was moot. The time period for conducting the local November elections for school districts was past (though the local municipality elections are scheduled for May 2014). Given the circuit court decision finding the re-certification voting requirement unconstitutional, several unions had not requested their Act 10 re-certification vote, and so they faced de-certification now if the November vote was suddenly restored.

Still, the Court asked detailed questions about the certification voting process, about why certification votes could continue for state employees under this ruling (a legally insignificant issue since state employees are not subject to the same collective bargaining law as municipal employees), and about why the parties had or had not asked for injunctions or stays at various points in time. Most of these questions rightly brought puzzled looks to the advocates, simply because the questions concerned issues and parties that were not part of the current proceeding. Madison Teachers, for example, were obviously covered by the Judge Colas ruling, as they were a named party. But, why and how other unions in other school districts acted in regards to their own certification votes is something counsel for Madison Teachers would have no knowledge or insight. Likewise, the AG’s office knew that Judge Colas’s ruling came after Judge Conley had already enjoined Act 10 for state and local employees. So, it made no sense to litigate an issue that was not live at the time and which no one could know how it might turn out before the 7th circuit considered the state’s appeal of Conley’s decision.

What was pretty clear is that one or more justices wanted to issue a stay of Judge Colas’ decision immediately. Justice Gableman, in particular, described Judge Colas’ decision to enjoin local certification votes as without legal basis and a modification of his original order. I do not think even the AG’s office was prepared for such a radical claim. Rather, Keven St. James (taking over for Van Hollen on this issue) made a case about how declaratory actions do not include injunctive relief (but the initial decision by Judge Colas was a final decision on an amended complaint for declaratory judgment and injunctive relief initial order). This argument struck me as formalist reasoning run amok, as it essentially made declaratory actions little more than advisory opinions that could only be enforced by additional court cases for injunctive relief. In place of judicial economy, St. James was encouraging a judicial free-for-all.

Gableman, however, was not that concerned about levels of judicial scrutiny or how other school districts and unions had to figure out what to do when the employment relations commission started scheduling elections despite Colas’ order. He apparently already knew that Colas was wrong and that Colas had created an injustice because certification votes had now been missed. By this reasoning, Gableman was essentially putting the cart before the horse, so no wonder he was so interested in process and not the actual substance of the case. He even took personal umbrage when the union counsel arguing this issue — Tamara Packard — refused to agree to this conclusion. It appeared that Justice Gablemen had forgotten that reasonable people can disagree about the law.