LIRC responds to DWD’s concealment agenda

At the 16 April 2015 Advisory Council meeting, the Labor and Industry Review Commission provided memoranda regarding potential legal problems with the Department of Workforce Development’s proposed legal changes.

My post yesterday discussed the Commission’s memorandum regarding the Department’s SSDI proposals. Today, the issue is the Department’s push to label everyday mistakes as concealment, previously noted in these posts regarding employees and employers.

Along with the cover letter explaining why these memoranda were drafted, the Commission presented to council members a memorandum regarding the Department’s latest concealment proposal, D15-08. The Commission’s memorandum is a thorough debunking of the Department’s rationale and alleged scope for its proposed changes to concealment.

But, before reviewing this memorandum, it is important to understand what is going on here between the Commission and the Department. Luckily, the Department provided the Advisory Council with some data on this subject.

LIRC concealment/fraud decisions
Year Total ATD found fraud; LIRC reversed ATD found fraud; LIRC affirmed ATD found no fraud; LIRC affirmed Remand for add’l evidence
2015 44 14 23 3 4
2014 196 123 28 6 39
2013 147 25 77 34 11
2015 data only from January through 12 April 2015

These numbers reveal that two big shifts in concealment cases took place in 2014. First, the number of cases where appeal tribunals found no fraud declined markedly from 2013 to 2014 — going from 34 cases to only 6 — even though the total number of concealment cases increased. Second, the number of concealment cases being reversed by the Commission jumped significantly in 2014. In 2013, the Commission only reversed 25 appeal tribunals who found concealment. But, in 2014 nearly five times as many determinations — 123 — were reversed by the Commission. Now, this huge increase is partially explained by the fact that concealment cases usually involve multiple determinations. So, when the Commission reverses a concealment case, two to three initial determinations are usually at issue in that concealment case.

But, these numbers also show that in 2014 appeal tribunals were moving in the opposite direction to the Commission. The Department and the administrative law judges who issue appeal tribunal decisions seem to be finding concealment in circumstances that everyone agreed in 2013 was not concealment. Indeed, as the Commission’s decisions in 2014 reveal (see these posts), the Department and appeal tribunals are finding concealment in circumstances where only honest mistakes are being made.

The Department has not acknowledged this change in direction. Indeed, as described by the Commission in its memorandum, the Department has actively attempted to pretend that no change in concealment law has even occurred and has even implied to the Advisory Council that it is winning circuit court cases in reviewing the Commission’s concealment decisions. At the 19 March 2015 council meeting, for instance, the Department informed council members that a Dane County circuit court had already reversed one concealment decision by the Commission. As a result, the Commission’s memorandum also seeks to set the record straight to council members about what is actually happening with all of these concealment court challenges by the Department.

As described in the memorandum reviewing the history of unemployment concealment in Wisconsin, the Commission notes that five 2014 cases appealed by the Department have already led to courts affirming the Commission decisions at issue. See Commission concealment memorandum at 4. And, the Dane County case previously described by the Department as a reversal of a Commission decision was actually a remand because an “unnecessary” factual scenario, according to the judge, was not addressed in the Commission decision and the Department chose remand to address that issue rather than have the decision simply affirmed. See id. at n.9.

Understandably, the Department was not happy to have this memorandum in the hands of council members, and at the April 16th meeting Janell Knutson lashed out at the Commission for providing political analysis in place of legal reasoning. In addition, Scott Manley, WMC vice-president, publicly endorsed this view. As a result, the Commission’s memorandum may not lead to changes or a rejection of the Department’s proposed new definition of concealment. Even if the council takes no action on the Department’s proposed changes to concealment, this change may end up being added to the current budget bill just as the Department’s proposed substantial fault standard was added to the state budget after being rejected by the Advisory Council. See this prior post.

Still, the Commission’s memorandum is an excellent introduction to the issue of unemployment concealment and fraud. The memorandum not only details the flaws in the Department’s proposal — how the proposal mis-characterizes Commission decisions, mis-states the original intent of the concealment definition, runs contrary to information given to claimants and adjudicators, conflicts with federal fraud measures and standards, leads to fraud penalties for honest mistakes, and does nothing to stop improper payments before they occur — but it also offers an excellent description of the history of how the concealment definition was developed and applied. Anyone interested in unemployment law should read the Commission’s memorandum.

Concealment problems for employers too

In yesterday’s post, I described how the Department of Workforce Development is turning employees’ claim-filing mistakes into charges of fraud and concealment.  Employers should not think that these new tactics have nothing to do with them, however.

In a case of first impression I recently litigated, the Department charged an employer with aiding and abetting claimant fraud. There were small and big holes to the Department’s case, and the appeal tribunal dismissed the charges. Furthermore, the Department has not appealed these dismissals to the Labor and Industry Review Commission. So, the appeal tribunal decisions dismissing the cases stand.

The facts of the case were that an employee of a truck driving company was let go after an OUI arrest and charge that made the employee ineligible to drive trucks. After the former employee started serving his sentence, the employer arranged for the former employee to do work about the employer’s house as a household employee through the former employee’s Huber release privilege. As the employer did not operate as a household company, it fudged the needed Huber release documents and listed the trucking company as the Huber release employer. Unknown to the employer, the former employee filed unemployment claims while on Huber release and did not report his earnings from the household work.

What was striking about these aiding and abetting charges is that the Department never alleged that the employer here knew about the claimant fraud at issue or that the employer was somehow involved in the claimant’s concealment scheme. Rather, as the administrative law judge explained:

One of the department’s witness, a UI benefit analyst, admitted that the department’s determination, which found that the employing unit had aided and abetted the claimant in unemployment insurance fraud, was not based upon the assertion that the employing unit actually knew the claimant was filing for U1 benefits, but that it was based upon the employing unit’s alleged failure to respond and provide information to the department that constituted aiding and abetting.

In essence, the employer in this case was charged with aiding and abetting claimant fraud for making a reporting error to the Department.  This “aiding and abetting” subjected this employer: (1) to repaying the claimant’s fraud of $5,202 on top of the claimant’s own obligation to repay the $5,202 because of his own concealment and (2) to paying an additional penalty of $8,500 — $500 for each of the claimant’s 17 acts/weeks of concealment . According to the Department in its brief:

In the instant matter, if the department had received only the wage earnings audits completed by Ms. __, CLAIMANT’s work and wages would have remained concealed. By not reporting the work that CLAIMANT performed for EMPLOYER, the employer was attempting to aid and abet CLAIMANT in concealing his wages.
* * *
The wage earnings audit forms are clear. The forms completed by Ms. __ evince more than a simple mistake of fact. The Labor and Industry Review Commission has stated with respect to concealment cases that: “[b]ecause direct proof of a claimant’s intent is rarely available, fraud may be proven by indirect (circumstantial) evidence and reasonable inferences drawn from the facts. There is a rebuttable presumption that parties intend the natural consequences of their actions.” McCleron v. Olson Carpet Tile and Design LLC, Hearing Nos. 13609472MW and 13609473 (LIRC, April 30, 2014).

For the Department, the employer’s alleged failure to provide wage information about the claimant in a departmental audit form constituted aiding and abetting claimant fraud. The problem with this kind of allegation is that an employer’s failure to report information to the Department in a timely fashion is already penalized by the Department. As I wrote in my brief to the appeal tribunal (footnotes removed):

Depending upon whether the benefits were erroneously paid due to fault by “the employer” or “an employer” Wis. Stats. § 108.04(13)(c) imposes different consequences upon an employee who is without fault in the erroneous payment of benefits. If the at issue employer is at fault in the erroneous payment and the employee is without fault, the benefits will be referred to as erroneously paid but will “stand as paid” with no overpayment for the employee to repay. On the other hand, if the at issue employer is not at fault but a different employer is at fault, an overpayment will be created and the employee is responsible for repaying the overpayment pursuant to Wis. Stat. § 108.22(8)(c) even though the employee is without fault. Further, under the latter scenario, the “at fault” employer, will be charged for the benefits erroneously paid and will not be credited those amounts if department recovers the overpayment. See Wis. Stat. § 108.04(13)(e).

Pittman v. Emmpak Foods Inc., UI Hearing No. 04600783MW (3 December 2004). In Pittman, two related employer divisions, Wispak and Emmpak, shared employment records but provided conflicting information that led to an over-payment of benefits. The Commission concluded only one employer existed and the over-payment did not need to be repaid because of employer fault:

Under these rare circumstances, the commission attributes the Wispak fault to Emmpak. As such, while the erroneously paid benefits were not paid due to any fault on behalf the employee, the benefits were not paid “without fault” of Emmpak and the erroneously paid benefits will “stand as paid.” No overpayment will be created.

Id. [Note that 1999 Wisconsin Act 15 amended the wording of Wis. Stat. § 108.22(8)(c) such that employer fault of any kind no longer allowed for waiver of an over-payment. The charging of an over-payment after recoupment to employer accounts because of employer error has not changed, and this penalty remains in force today.] See also Fleming v. Wal Mart Associates Inc, UI Hearing No. 03005241MD (9 March 2004) (allegation that employee misled Department about her discharge not supported by the record, but evidence does show that the employer initially provided inaccurate verbal information when contacted by a claims specialist regarding the reason for the employee’s separation and then failed to timely return, and raise an eligibility issue on, the UCB-16 and UCB-23 reports).

Employer error in responding to departmental requests for information is a common issue. In Weaver v. QTI of Southeastern Wisconsin Inc., UI Hearing No. 10602317MW (2 September 2010), the employer’s drug and alcohol policy could have been mailed or faxed to the department in a timely fashion, and so the employer failed, without good cause, to provide correct and complete information requested by the department during its fact finding investigation, pursuant to Wis. Stat. § 108.04(13). In Givhan v. Christina’s Childcare & Development Center, UI Hearing No. 07603505MW (21 November 2007), benefits used to reduce the forfeiture balance in the amount of $1122 and benefits paid to the employee in the amount of $264 remained charged to the employer’s account because the employer provided inconsistent reasons for the employee’s discharge. In Brunette v. Oneida Tribe Of Indians of Wisconsin, UI Hearing No. 06402964GB (2 May 2007), benefits paid to the employee prior to the end of week 2 of 2007, when the appeal tribunal decision was issued, which amounted to $2655, remained charged to the employer’s reserve account because the employer’s contact number was a general human resources line and not a job line as claimed. In Wickman v. New Berlin Grading Inc., UI Hearing No. 95604172WK (19 January 1996), an employer mistakenly reported sick-pay an employee received as wages. The mistake led to the employee having base period wages to which he was not entitled, and so the over-payment existed because of employer error. In Rathsack v. The Queen Bee, UI Hearing No. 95401613AP (11 April 1996), the employer mistakenly included a back pay award in quarterly reports and so inflated the employee’s benefit year earnings. The resulting over-payment remained charged against the employer’s account.

If anything, the Department’s allegations against the employer constitute nothing more than employer error in responding to a Department request for information. The Department’s aiding and abetting allegation here, however, now adds an additional penalty to all of these cases of employer error. Whenever an employer fails to return a requested report in a timely manner, the employer will face a potential aiding and abetting charge in addition to the already existing penalties for employer error. Accordingly, the Department is essentially adding new penalties to employer errors on top of current penalties. The appeal tribunal should reject this dramatic expansion of unemployment law.

In other words, this case represents a dramatic expansion of employer liability.  If the Department had succeeded in this case, then employers could be liable for additional concealment penalties for nothing more than reporting mistakes whenever claimant concealment has occurred.  Luckily, the employer in this case won this round.  But, who can say the Department will not try again with some other case? If the Department is willing to charge an employer for “concealment” when the facts at best only show that there was a reporting mistake, then employers should be worried about all the concealment changes being debated right now. If employees become strictly liable for their mistakes, employers may suddenly find themselves charged with aiding and abetting those claimant mistakes.

[Updated 21 April 2015 with some edits to improve the writing.]

Recent LIRC decisions show that concealment charges are often outside the law

In January 2014, the Labor and Industry Review Commission issued three decisions about concealment. In all three, the Commission overturned decisions of administrative law judges that had affirmed initial determinations. In reading these, it is apparent that the Department of Workforce Development is basing many of its concealment allegations on little more than mere mistakes by claimants.

What is most troubling about the decisions described below is that these basis mistakes in how to apply unemployment law are only being corrected by the Commission. Not only are claim adjudicators getting basic issues wrong, but administrative law judges seem determined to apply the same erroneous standards as the claim adjudicators. It takes someone appealing a decision all the way to the Commission to finally get the basic legal standard for concealment applied to his or her case. Something is very wrong with the Department and unemployment cases in general when only the Commission is following the law.

“Did you work or will you receive sick pay, bonus pay, or commission?”
In Henning, the claimant had been filing for partial unemployment since May 2011. In October 2012 (week 43), the Department changed one of the questions on the weekly claim certification from “Did you work?” to “Did you work or will you receive sick pay, bonus pay, or commission?” With this new question, the claimant stopped answering yes as she was not earning sick pay, etc. As a result, her part-time work went un-reported on her weekly claims.

The Department did not catch this problem until late July 2013 — almost a year later. The Department issued two determinations: one finding that prior unemployment benefits had to repaid along with a concealment penalty and another instituting a penalty on future unemployment benefits. The administrative law judge affirmed after a hearing.

The Commission found otherwise:

The evidence in the record does not support a conclusion that the employee intentionally replied “no” to both parts of the modified question. The former question was straightforward and not easily susceptible to misinterpretation. The modified version presents two distinct alternative questions within one compound question. There are inherent dangers in inviting an answer to a compound question. It is often not possible to be certain to which part, or parts, a single response applies.

Finally, the standard in concealment cases is not that applied by the ALJ: whether the employee could establish a reasonable explanation for her mistake. The standard in concealment cases is whether there is substantial and persuasive evidence of an intent or design by the claimant to receive benefits to which the claimant knows he or she is not entitled. Here, evidence to support a conclusion that, in making the claims for benefits for the weeks at issue, the employee intentionally misled or defrauded the department by withholding or hiding information or making a false statement in order to receive benefits to which the employee knew she was not entitled is absent.

In Harris, confusion over this question was also at issue. In this case, only two weeks were at stake. The Commission found that there was no actual intent in the record to deceive the Department, and so overturned the decisions of the Department and administrative law judge finding that concealment had occurred.

The mistakes in these cases are about an ambiguous question being asked of claimants. The Commission here is simply pointing out that an answer to an ambiguous question is not proof of actual deception. The Department apparently thinks otherwise. What is especially troubling, however, is when there is clear evidence of a mistake and both the Department and administrative law judge go out of their way to find concealment anyway.

When claimants are apparently always wrong
In Bilton, the claimant was working as a tax preparer when she took a new job. As her hours and pay were not clear to her during the first few weeks she worked for the new employer, her weekly claim certifications did not coincide with what her employer reported. Two and five months later, the Department issued two determinations finding concealment, over-payments that had to be repaid, a concealment penalty, and a penalty on future unemployment benefits.

At her hearing, the claimant started to testify about how a prior employer of hers did not pay for training and that she thought training with the new employer was likewise unpaid. The administrative law judge cut off this testimony as too remote in time from the training at issue with the new employer. Other testimony about her training with the new employer was not refuted and it was also unclear from the hearing exactly where the earnings at issue came from. Nevertheless, the administrative law judge summarily affirmed the concealment determinations. According to the ALJ, the burden was on the claimant to report her wages and work in sufficient detail to the Department to avoid a finding of concealment.

The Commission, on the hand, found the whole concealment allegation to be hogwash. Both employee and employer reinforced an impression that the training was unpaid (however illegal that is). Furthermore, the Commission observed:

the department’s Disputed Claims Manual provides that there is no concealment issue and no fraud investigation required when the claimant fails to report income on the weekly claim certification and notifies the department of such failure within 14 days following the date the certification was filed. When an investigation establishes that a claimant gave a false answer, two examples of acts that are not considered concealment are “[p]aid training not reported because claimant did not consider this to be work and wages” and “[c]laimant believes their work or labor is donated and is paid unexpectedly.” It is not clear from the record in this case how the employee’s actions with respect to weeks 4 and 5 of 2013 differ from these examples.

In other words, despite clear direction from a disputed claims manual that there was no concealment at issue here, both an adjudicator and an administrative law judge found concealment had occurred.

Basic case-handling mistakes by the Department
These decisions also reveal some basic problems in how the Department is processing claims. In Bilton, the concealment determinations were issued separately and three months apart from each other. In Henning, the Department did not issue determinations until nearly a year later. Furthermore, the concealment determinations in Henning inexplicably did not cover all weeks in question, but only alleged concealment for weeks in 2013 and no concealment in 2012 despite the alleged concealment starting in week 43 of 2012. “This disparate treatment,” the Commission noted, “was not explained.”

By itself, this sloppy case-handling is just that. But, as claimants must also rely on Department agents to provide clear and sound advice about what they should do, this sloppy case-handling can lead to serious problems for claimants who think they can rely on the Department to accurately record all of their interactions with Department personnel.

In Bilton, there was a question of when the claimant tried to contact the Department for information about how to report her weekly claim certification. The administrative law judge apparently considered departmental records as conclusive evidence that trump actual hearing testimony. Accordingly, the Commission had to reiterate in that case that departmental records are only hearsay.

The employee testified that, when she received the unexpected payroll check, she contacted the department. The employee’s statements concerning what was said in the conversations she had with the department were not inherently incredible. Comments typed into the departments computer system concerning what was said, or what was not said, are hearsay. No one testified on behalf of the department. Uncorroborated hearsay alone does not constitute substantial evidence.

As Department agents only record information in computer systems when taking action of some kind, it is unremarkable that an agent would not record a phone call from a claimant if the agent did nothing or advised a claimant to take some kind of action on his or her own (such as reporting the income at issue in a subsequent week). Because the Department’s policy is to only record issues in its computer systems when action is taken or some issue has arisen that the agent believes is relevant, there are usually no records for when Department agents make mistakes and provide wrong advice or mis-perceive something a claimant says as harmless or unimportant. Until the Department institutes a policy that all interactions need to be recorded, claimants simply cannot rely on departmental records to show an actual history of communication for their unemployment claims.