Non-acquiescence: Employer aiding and abetting

Besides the personal liability non-acquiescence tax cases discussed in a previous post, the Department also declared on 21 December 2017 that it was “non-acquiescing” to a Labor and Industry Review Commission decision holding that an employer did not aid and abet claimant concealment: In the Matter of National Security and Investigations LLC, UI Hearing No. S1500384AP (6 Dec. 2017) (non-acquiescence 21 Dec. 2017).

NOTE: During the last few years, the Department has been eager to find an aiding and abetting case against an employer. SeeConcealment problems for employers too” (15 April 2015) (no aiding and abetting found, in part, because employer unaware of unemployment claims at issue) and Gussert v. Springhetti Landscaping and DWD, UI Hearing Nos. 16400598AP-16400609AP (27 January 2017) (no claimant concealment found in case where Department was alleging aiding and abetting by employer). This case represents the third unsuccessful attempt by the Department at such a case.

In this case, the small employer could not pay the employee anymore because of a shortage of revenue and a lack of timely payment of bills from clients. Given the slow business, the employer told the employee to file a claim for unemployment benefits, and the employee did so.

In those claims, the employee did not report any work for the employer since he was not getting paid for his work. During these weeks, the employer provided alternative compensation to the employee: a canoe, a car for a spouse, cash, use of a debit card, and use of a company vehicle.

The employee eventually quit because of a lack of work. He then filed a wage complaint for unpaid wages against the employer, and a settlement was eventually worked out. After the settlement and resolution of the wage case, the employer informed the Department of unreported wages during the weeks the employee had filed claims for unemployment benefits.

The Department charged the employee with concealment, and no appeal of that charge was filed. The Department also charged the employer with aiding and abetting claimant concealment because the employer told the employee to file a claim for unemployment benefits as work was slow and revenue was behind.

NOTE: That aiding and abetting charge was for $9320 (for what appears to be 25 weeks of benefits at $373 per week) plus another $12500 in additional penalties ($500 for each week of the alleged 25 weeks of concealment) for a total liability to the employer of $21,820.

This accusation was not enough to demonstrate aiding and abetting for the Commission, however. The Commission explained (footnote omitted):

The record shows that the department’s initial finding of aiding and abetting was based on the adjudicator’s impression that the employer instructed [the claimant] not to report hours and wages to the department when filing for unemployment benefits. The employer clearly told [the claimant] to file for benefits while work was slow, but there is no objective evidence in the record that an agreement existed between the employer and [the claimant] to conceal work and wages from the department.

The distinction noted by the Commission here is vitally important. Claimants are entitled to benefits when available work has declined, and so there is nothing wrong with a claimant filing for partial unemployment benefits because of a decline in available work. Indeed, the formula for partial unemployment benefits encourages claims for unemployment benefits by making employees eligible for those benefits even when working numerous hours and receiving substantial pay in a given week.

This basic eligibility criteria certainly casts some shade on what the Department is alleging in this case. Because the Department in this case is essentially claiming that an employer encouraging an employee to file for unemployment benefits because of a lack of available work constitutes aiding and abetting, the Department is turning a basic eligibility issue into a point of liability for both employer and employee whenever there is cooperation between the two.

There is an additional problem with this case for employers: the employer, angry at having to settle a wage case, tried to turn the tables on its former employee by informing the Department about the former employee’s prior unemployment claims. Because the employer and employee were at one time friendly with each other, however, the Department turned their initial lack of hostility into a kind of conspiracy charge about unemployment benefits being paid in lieu of regular wages.

Luckily for the employer, the Commission saw through the dubious nature of this claim (footnote omitted):

Under the facts in this case, the commission finds that the most reasonable inference to draw is that [the claimant] intentionally withheld his time sheets in January, February, March, and April 2014 because it was to his advantage to do so. It was [the claimant’s] understanding, or justification, that he could claim unemployment benefits because he was not getting a paycheck. The unemployment benefits [the claimant] received provided him with money “to live on” and satisfied, at least in part, his child support obligation. Later, after he quit his employment with the employer, [the claimant] attempted to get paid for the hours listed on his time sheets, which had not been previously submitted, by filing a complaint with the state.

The employer unquestionably could have been more diligent in analyzing its unemployment insurance reserve fund balance statements, but the fact that the employer failed to do so does not prove that the employer willingly assisted [the claimant in concealing work and wage information from the department. The employer did not know how partial benefits are calculated and believed that any weekly amount less than $360 was a partial benefit. [The claimant’s] co-worker claimed unemployment benefits during the first four months of 2014, and he reported working for and earning wages from the employer. There is no sound reason why the employer would aid and abet [the claimant] in concealing work and wages from the department while, at the same time, allowing [the claimant’s] co-worker to report work and wage information to the department.

But, any employer should take away from this case the fact that the Department is refusing to accept it as precedent. The Department believes that cooperation between employer and employee about eligibility for unemployment benefits could easily be the basis for an aiding and abetting charge against the employer. As the employer was originally charged with over $21,000 in liability for that alleged aiding and abetting, the danger being created by the Department here is much more than a speculative problem for small employers.

The Department essentially wants to punish employers who think their employees should be eligible for unemployment benefits. Should employers change their mind about that “cooperation,” they face a very real risk of being targeted by the Department.

UI FAQ by DWD

The Department of Workforce Development has produced a FAQ on unemployment eligibility issues. This information is somewhat more user-friendly than the claimants’ handbook.

There is also a limited FAQ about how the new work search waivers are being applied.

Finally, there is a FAQ on UI concealment. The concealment examples are not really examples but very basic descriptions dating from 2011. Strangely, there are two questions in this FAQ on employers “aiding and abetting” claimant fraud. There is only one Wisconsin case on employer aiding and abetting that I am aware of, however. That case was easily dismissed. But, employers should note that as claimant concealment expands, employers will be dragged into these concealment cases via this “aiding and abetting” provision.

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.]