Employer UI taxes declining because more UI claims being denied

Wisconsin employers are having their unemployment tax rates slashed in 2017 because the fund from which unemployment benefits is reaching ever higher solvency metrics. The Walker administration is heralding this news here and here.

Understandably, there are two possible explanations for what is going on with the state’s unemployment fund. The state’s unemployment funds are positive because either job growth is booming or because fewer folks are claiming benefits despite NOT having jobs.

Is job growth booming in Wisconsin?

The July state jobs report reveals that job growth in Wisconsin continues to be anemic. This report indicates that, initially, in July 2016 5,000 private-sector jobs were added to Wisconsin payrolls. But, June 2016 numbers for private-sector job growth were revised downward, from 10,900 to 5,600. This loss of 5,300 jobs from the June report means that the initial number for July does not even get the state back to what was first reported for June 2016.

Neither does the quarterly data offer any better news. From March 2015 to March 2016, the quarterly data indicates that the state added 37,432 jobs during that time frame. But, this number is a few thousand less than what was reported for the March 2015 to March 2015 time frame in the July 2015 jobs report: 39,652 private-sector jobs.

So, without adding new jobs to the state’s economy, the decline in unemployment claims must be coming from fewer folks claiming unemployment benefits. In two bullet points, the July 2016 jobs report actually acknowledges this development.

  • Year 2016 initial UI claims are running at their lowest level since 1989.
  • Continuing unemployment claims in Wisconsin are running the lowest in at least the past 30 years.

But, the question remains: if jobs are not being created, why are claims now so low?

Why are unemployment claims so low?

Actual claims data is available from ETA 207, Non-monetary Determinations Activities Report. See DOLETA data downloads generally for UI data. The 207 data series has all determinations issued by a state compiled on a quarterly basis going back several decades until the most recently completed quarter, June 2016.

Here are some charts from that data for Wisconsin starting in the first quarter of 2007 through the second quarter of 2016.

Denial rates for all initial determination issued

This chart shows that most initial determinations issued by the Department lead to the denial of unemployment benefits. But, starting in the first quarter of 2014, the denial rate for initial determination jumped markedly. Prior to 2014, 59.90% of all initial determinations denied benefits to claimants. Since the start of 2014, 77.45% of all initial determinations issued by the Department have been to deny unemployment benefits. In other words, currently only one of four initial determinations being issued by the Department allows unemployment benefits, and three out of four initial determinations deny unemployment benefits in some way.

Keep in mind that these numbers are based on the initial determinations issued by the Department in regards to a new unemployment claim. In most states, these determinations would consist almost entirely of separation determinations — whether claimants are disqualified because their discharge was their fault in some way or they lacked good cause for quitting their jobs. In Wisconsin, these separation decisions are only a part of what the Department decides. And, increasingly separation decisions are becoming a smaller and smaller part of what the Department does in disqualifying claimants.

Ratio of Separation IDs to All IDs

Here, initial determination concerning separation issues (i.e., quits and discharges) were around 60% of all initial determinations until 2009, when they declined and hovered around 50% of all initial determinations until the first quarter of 2014. At that point, the percentage of separation initial determinations being issued by the Department plummeted to 40% of all initial determinations. In the last two quarters of 2015, the number of separation initial determinations fell again to under 30% of all initial determinations. So at present, less than 30% of the initial determinations being issued by the Department concern separation issues related to a discharge or a quit. And, since most of these other determinations (and probably all of them given the analysis below) are denying unemployment benefits, many of these probably include some kind of concealment allegation, given the Department’s push to allege concealment against claimants.

In regards to denying claimants unemployment benefits, the Department consistently denied about 26% of all claimants who were discharged from their jobs until the first quarter of 2014.

Percentage of discharge claims being denied

From the first quarter of 2014 until the latest, however, the number of discharge cases being denied jumped to 38.47% of all discharge determinations. This increase nearly doubled the number of denials from before 2014 — a stunning and remarkable jump in the number of claims being denied.

The magnitude of this jump is seen when it is compared the number of quit denials over this same time frame.

Percentage of quit claims being denied

Here, a slight increase in denials occurs in the first quarter of 2014. But, this increase is part of a general increase in denial rates that appears to have started in the second half of 2010. So, while denial rates for those quitting their jobs are high and gradually increasing, there is no sudden or striking shift in denial rates in quit cases at any one point in time.

Now, consider that in the last two years only about 30% of all initial determinations concern separation issues and that only 1 out of 4 initial determinations is allowing unemployment benefits at all. In this light, it appears that the only initial determinations right now allowing benefits are the discharge and quit separation determinations that are NOT denying benefits. Everything else the Department is doing is to deny unemployment benefits to claimants.

What these numbers reveal is that most folks applying for unemployment benefits are being denied those benefits, that essentially the only folks qualifying for unemployment benefits are those laid off from their jobs by their employers, and that numerous denials of unemployment benefits have nothing to do with separation issues. These non-separation initial determinations most likely are part of the Department’s program integrity efforts and most likely lead to charges of unemployment concealment, especially under the Department’s new strict liability standard for concealment.

So, unemployment claims and benefits are at record lows in the state because the state is making it difficult to impossible for claimants to receive benefits and charging the few that collect unemployment benefits with unemployment concealment. Essentially, employers are paying unemployment taxes for a benefit almost no one is using. Pretty soon, folks will start calling for eliminating the unemployment system entirely, as who wants to pay a tax that does nothing.

UPDATE (14 Sept. 2016): Fixed links so that a click on a chart brings up a full-sized version.

UI Presentations: Don’t file for UI

Over the last several months, I have made two presentations about unemployment law. On 16 May 2016, I explained to the South Central Federation of Labor about “Misconduct, substantial fault, and concealment: presuming employee fault.” For the 4 August 2016 meeting of the Wisconsin Association of Worker’s Compensation Attorneys, I offered a more detailed presentation about “Misconduct and substantial fault: presuming employee fault.”

The concealment changes that went into effect in April of 2016 cannot be emphasized too much. Here is what changed via 2015 Wis. Act 334:

Section 18. 108.04 (11) (g) of the statutes is renumbered 108.04 (11) (g) 1. and amended to read:

108.04 (11) (g) 1. For purposes of In this subsection, “conceal” means to intentionally mislead or defraud the department by withholding or hiding information or making a false statement or misrepresentation.

Section 19. 108.04 (11) (g) 2. and 3. of the statutes are created to read:

108.04 (11) (g) 2. A claimant has a duty of care to provide an accurate and complete response to each inquiry made by the department in connection with his or her receipt of benefits. The department shall consider the following factors in determining whether a claimant intended to mislead the department as described in subd. 1.:

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.

3. Nothing in this subsection requires the department, when making a finding of concealment, to determine or prove that a claimant had an intent or design to receive benefits to which the claimant knows he or she was not entitled.

At the same time this new law took effect in April 2016, the Department also instituted its new on-line claim-filing process that turned 11 or so questions into a 40+ question marathon.

These two changes go hand in hand. First, this new definition of concealment makes claimants liable for unemployment fraud for their unintentional mistakes on their claims. Second, the new on-line process is so complicated and cumbersome that a mistake is now incredibly easy to make (e.g., by reporting income in the wrong category or failing to check a definition relating to a question that you don’t think applies to your situation — $10 from a parent for taking care of the laundry or cutting the grass counts as babysitting income that should be reported).

Accordingly, given the ease of making a mistake and the consequences for concealment related to that mistake, no one should be filing for unemployment benefits anymore.

If you absolutely must file for unemployment benefits, do NOT file via the on-line process but make all your weekly claims by phone. And, try to get a DWD specialist on the phone when filing your weekly claim certifications and take detailed notes of any advice your receive from that DWD representative. That advice is probably your only avenue for escaping a concealment charge from DWD when you make a mistake.

Letter to Governor Walker

In light of the Senate passage of AB819 on Tuesday of this week, I am sending a letter to Governor Walker urging him to line-item veto four provisions in the bill.

Dear Governor Walker:

I represent in my legal practice numerous employees and employers in unemployment law matters, and I urge you to line-item veto various provisions in AB819.

The provisions at issue consist of proposals by the Department of Workforce Development (“DWD” or “Department”) that create marked, unpredictable, and undesirable changes in unemployment law for the employees and employers of Wisconsin.

Changes to the definition of unemployment concealment

Sections 18 and 19 of the bill essentially make claimants strictly liable for their claim-filing mistakes. The proposed changes state that concealment is intentional but then disclaim that the Department does not have to prove that a claimant has such an intent. Furthermore, the proposed changes specify ways for a claimant to show no concealment that are so limited or specific that they essentially mean that concealment will be presumed.

This strict liability standard creates due process issues in unemployment law as well as significant problems for any criminal sanctions against claimants for actual concealment. The implications in criminal cases are especially problematic. While the intent requirement for concealment is being removed, criminal prosecutions for unemployment concealment still need mens rea to be shown. Because the mens rea is being administratively presumed rather then proven, claimants who commit actual concealment could likely avoid criminal prosecution for their fraudulent acts in light of this missing mens rea.

Creating a slush fund for Department expenditures

Sections 83-87 of the bill creates a fund for perpetually funding the Department’s program integrity efforts. This funding mechanism, however, lacks any criteria regarding this spending or legislative oversight and so allows for Department hiring and expenditures that are arbitrary. Accordingly, this program is the antithesis of small government .

Re-doing the prohibition on receiving unemployment benefits when receiving Social Security Disability Income (“SSDI”) benefits

Sections 20-25 of the bill re-write the prohibition on receiving unemployment benefits when already receiving SSDI benefits. An earlier and similar prohibition was enacted as part of 2013 Wis. Act 36. The Labor and Industry Review Commission (“LIRC” or “Commission”) initially held that the original prohibition only applied for the week when the claimant received his or her SSDI benefit check. Four circuit courts, however, reversed the Commission’s reasoning. As a result, there is now no legal need for re-writing this prohibition.

Furthermore, this new prohibition will, pursuant to section 103 of the bill, be retroactive to January 2014, the same time when the original prohibition became effective. Because of this retroactive application, this new prohibition creates a constitutional problem that will lead to a new round of litigation for the three to five claimants who received a few hundred dollars of unemployment benefits before the Commission decisions regarding the first prohibition were over-turned. The Department will end up spending thousands of dollars in litigation expenses and staff hours over a few hundred dollars in unemployment benefits. Since the first prohibition is now being enforced, there is simply no legal or economic need for this second retroactive prohibition.

Changing the procedures for obtaining review of a LIRC decision in circuit court

Sections 54 and 55 of the bill substantially alter the process, venue, and parties involved in appeals of Commission decisions. Among these proposed changes, the Department will have the right to file unemployment appeals in any county it chooses regardless of where employees or employers reside. Furthermore, because these changes presume that any party in an unemployment case risks default judgment when not answering a complaint, employers will need to file answers in claimant appeals of Commission decisions. Since Wisconsin requires any company to have an attorney representing it in court, employers will have to spend several hundred dollars for an attorney to file an answer on their behalf. Right now, employers can rely on the Commission to defend these cases and have no need for separate representation and the filing of answers.

The Commission tried to discuss these changes with the Department and the Advisory Council but was ignored. Without a voice in the process, the Commission formally opposed these changes at public hearings for this bill.

There are notable improvements in unemployment law in this bill. For instance, the provisions for protecting reimbursable employers from identity theft in section 73 of the bill are useful and well-done.

But, the four provisions mentioned here create confusion and legal complications about what unemployment law means and how to apply it. Please line-item veto these provisions.

UI bill public hearings and UI concealment

The official Advisory Council/DWD bill, AB819, had its first public hearing on Thursday, February 4th, before the Assembly Committee on Jobs and the Economy.

The Department of Workforce Development and the Advisory Council presented testimony in support of this bill. The Labor and Industry Review Commission testified against sections 54 and 55 of the bill — Department proposal D15-11, previously described here and here. I cannot think of any instance in which one state agency testified against a bill supported by another state agency. To understand the nature of this dispute, see the Commission’s memorandum and the Department’s responses to that memorandum.

I also testified about the proposed concealment changes in the bill.

On February 10th, the Senate Committee on Labor and Government Reform held its hearing on the Senate version of the Department’s UI bill, SB684. WisEye was there.

The Department and the Advisory Council again pushed for adoption of these proposed changes, and the Commission again disputed the changes to circuit court review. Both Kevin Magee from Legal Action of Wisconsin and myself testified against the proposed concealment and “program integrity” changes.

My testimony focused on the Department’s marked increase in concealment cases starting in 2014 and even more concealment cases in 2015 against Wisconsinites. To demonstrate this concealment expansion, I used two charts. The first chart looked at how concealment assessments have varied from 2011 through 2014.

over-payments assessed

In this chart, the percentage of concealment assessments relative to the unemployment benefits being paid out was pretty much constant from 2011 through 2013. In 2014, however, concealment over-payments as a percentage of total unemployment benefits paid out jumped to 2.79%, approximately a 0.80% increase from the previous year. A 0.8% in gross domestic product or the unemployment rate would make headlines across the state. So, this 2014 increase in concealment over-payments being charged against claimants is remarkable.

These numbers from the fraud report also show how concealment over-payments suddenly increased in 2014 relative to non-fraud over-payments. In 2011, 2012, and 2013, non-fraud over-payments constituted more than 50% of total over-payments. In 2014, however, non-fraud over-payments dropped over five percentage points to just over 45%. Naturally, the percentage of fraud over-payments to total over-payments jumped in 2014 to nearly 55%. So, in 2014 concealment shot up in scope relative to unemployment in general just as non-fraud over-payments markedly declined.

Over-payment assessment data for 2015 is not yet available. But, the financial reports prepared for the Advisory Council indicate how much concealment monies have been collected by the Department as of 31 October 2015. As of that date, the Department had collected nearly $31 million in fraud and non-fraud over-payments. Of this amount, just over $1.753 million had been collected pursuant to the 15% concealment penalty that applies in concealment cases.

concealment collected

This 15% number provides a mechanism for estimating how much of the $31 million in over-payments relate to concealment allegations in general. Dividing $1.753 million by 15% equals approximately $11.69 million and represents the over-payments so far arising from concealment. Subtracting $11.69 million leaves around $19 million as the non-fraud portion of the over-payments paid in 2015. Accordingly, by 31 October 2015 the percentage of concealment to non-concealment over-payments collected at nearly 61%.

These numbers show a sudden increase in 2014 in concealment cases and this increase accelerated in 2015. In this light, the Department’s push to change the definition of concealment is part of an agenda to expand the scope and reach of concealment. The Department countered in its testimony before the committee that an intent to conceal is still required under its proposed changes to the definition of concealment. The proposed language, numerous posts on this blog, a Commission memorandum, and Kevin Magee’s testimony at the public hearing belie the Department’s assertions. Mistakes are increasingly being charged as concealment by the Department, and Commission review applying the actual concealment standard is the only way to fight these kind of charges.

Essentially, concealment is becoming the modus operandi of the Department’s efforts in administering the state’s unemployment law. Anyone who makes a mistake is at risk of a concealment charge from the Department, and the Department wants to change unemployment law to reflect this practice.

Appeals Court affirms that concealment must be intentional . . . for now

The District One Appeals Court issued a decision today in DWD v. LIRC (called Wallemkamp, after the claimant at issue in the case, Appeal No. 2015-AP-716, affirming the Labor and Industry Review Commission’s requirement that unemployment concealment be an intentional act.

In this case, the claimant was confused for thirteen weeks by questions about how to report her wages from two different employers and about her unemployment reporting requirements in general. Rather than counseling her about her mistakes and having her payback the difference in unemployment benefits from what she received with what she should have received, the Department charged her with concealment and wanted her to repay all unemployment benefits received plus a concealment penalty and to forfeit a sizable amount of future unemployment benefits as additional punishment for her confusion and lack of understanding.

An administrative law judge affirmed the concealment charges. The Commission, however, noted that the claimant in her testimony truly was confused because the questions she was asked were confusing and that she actually lacked a basic understanding of how unemployment law works. Accordingly, the Commission found no concealment because her mistakes were NOT intentional.

The Department appealed that decision to circuit court and then to the appeals court, making a host of arguments about how concealment in general really was not an intentional act, that the Commission was misapplying and did not actually understand unemployment law in matters of unemployment concealment, and that the evidence did not show confusion and misunderstanding but actual intent to defraud the Department.

Two courts have now rejected these arguments. But, the Department is slated to get its way with how it thinks concealment should be applied with a change to the statutory definition of concealment that will make claimants strictly liable for their mistakes. While the statutory definition of concealment will still have the word “intent” in it, there will no longer be any requirement for the Department to show that the claimant has an intent to conceal. The intent in the new definition of concealment will be presumed, and claimants will in the future have to demonstrate that their mistakes were either not their responsibility or beyond their control. Being confused or not understanding unemployment law will no longer suffice. So, the Department may have lost Wallenkamp for now, but the Department is rewriting the statute to get its desired result: strict liability for any claimant mistakes deemed serious enough by the Department to constitute concealment.

DWD explains its concealment changes

At the request of an Advisory Council member, the Department released a memorandum explaining the third sub-section of its proposed new concealment law. This concealment proposal was previously described in this post, and a general review of concealment can be found in these posts. Here is the Department’s latest memo with commentary.

To: Unemployment Insurance Advisory Council
From: Andy Rubsam
CC: Janell Knutson
Date: January 14, 2016
Re: D15-08 Definition of Concealment — effect of proposed section 108.04(11)(g)3

The Department proposed, and the Council agreed, to amend the statutory definition of “conceal” in the unemployment insurance law. The revised definition of “conceal” contains the following provision: “Nothing in this subsection requires the department, when making a finding of concealment, to determine or prove that a claimant had an intent or design to receive benefits to which the claimant knows he or she was not entitled.” The Council requested that the Department provide analysis of this provision, including examples of how the law will be applied.

NOTE: This language is the third sub-section of the new concealment definition. The first sub-section defines concealment as “intentionally misleading the department by withholding or hiding information or making a false statement or misrepresentation.” The second sub-section states that a “claimant has a duty of care to provide an accurate and complete response to each inquiry made by the department in connection with his or her receipt of benefits” and then goes on to list the factors to be considered by the Department in determining whether the claimant has fulfilled this duty of care. Accordingly, the statute places the burden of proof on claimants to demonstrate how their actions are innocent of any alleged concealment. The memo does not address this shift in the burden of the proof in concealment cases. Cf. Leonard A. Miszewski, UI Hearing No. 12401605AP (30 November 2012) (“A concealment finding, however, must be supported by clear and convincing evidence,” not just by a preponderance of the evidence [footnote omitted]).

The Department interprets the proposed section 108.04(11)(g)3 in concealment cases to mean that the Department must find that the claimant intended to deceive the Department but the Department need not determine whether the claimant knew that the claimant would in fact receive a greater amount of unemployment benefits as a result of the deception. The proposed statutory change requires the Department to determine whether the claimant intended to mislead the Department on the benefit claim “by withholding or hiding information or making a false statement or misrepresentation,” but does not require the Department to determine that the claimant knew the effect of that intentionally incorrect answer.

NOTE: So, the Department is explaining here that concealment is an intentional act but establishing that intent exists when there is “withholding or hiding of information or making a false statement or misrepresentation” (aka a mistake of some kind) and does NOT require the Department to show that the claimant knew he or she was intending to conceal. In other words, concealment will be an intentional act when there is a mistake and does not require the claimant to have any knowledge about the intended consequences of that mistake. Huh? How is concealment still an intentional act then?

Keep in mind how concealment is currently defined for unemployment purposes. After reviewing decades of case law and statutory developments in unemployment law, the Commission explained in Holloway v. Mahler Enterprises, Inc., UI Hearing No. 11606291MW (4 November 2011) that:

From this background, what it means to intentionally mislead or defraud may be stated simply: it means the claimant is trying to get away with something the claimant knows he or she should not be getting away with. In most unemployment insurance cases where the issue is concealment, what the claimant will be alleged to have tried to get away with, is gaining unemployment benefits to which the claimant knows he or she is not entitled. By contrast, where a claimant’s incorrect answer to a material question is due to ignorance or mistake, it will not be the case that the claimant is trying to get away with something, and that claimant will not be guilty of concealment.

What the Department is doing with this new definition of concealment, it seems, is removing the need to show in a concealment case that a claimant is trying to get away with something he or she knows she should not. But, how will concealment be shown then if knowledge about the concealment no longer has to demonstrated in some way? Will any mistake now be concealment? Does the Department provide examples that could clarify these changes?

For example, if a claimant intentionally fails to report quitting a job, the claimant has concealed. This is true even if the quit would not have disqualified the claimant for benefits because the quit fell within one of the exceptions such as quit with good cause. Proposed section 108.04(11)(g)3 provides that the Department does not need to establish that the claimant knew that the failure to report the quit would result in payment of benefits to which the claimant was not entitled. Rather, the claimant intentionally misled the department by not providing the information.

NOTE: This example does not really explain anything, since the intent of the concealment is presumed. What are the circumstances for finding that a claimant’s failure to report a quit is intentional? Furthermore, this example of quitting for good cause as concealment regardless of the consequences is unnecessary. Right now, a claimant can still commit concealment for actions that would not effect their eligibility for unemployment benefits. See Kincaid v. Madison Taxi, Inc., UI Hearing No. 15001437MD (20 August 2015) (claimant who failed to report job offer for which he had good cause for declining still committed concealment because all bona fide job offers have to be reported on weekly claim certifications).

So, the Department is showcasing an alleged change in unemployment concealment that does not actually exist. Per Kincaid, concealment right now can be found regardless of whether the claimant is entitled to the unemployment benefits or not. The issue in current law is what the claimant intended to accomplish via the filing mistake. Accordingly, this example provides no clarity about what this new concealment definition is doing.

This “example,” however, does provide some “clarity” in light of the Department’s new on-line claims filing system. When the Department implements its new on-line claim-filing system, claimants will be asked literally about dozens of kinds of information they must correctly provide. Besides hours and wages, this new system will require them to classify accurately their weekly income from holiday pay, sick pay, baby-sitting pay, performance bonuses, and other kinds of sources and report those weekly totals without any mistake.

Traditionally, claimants have not been liable for concealment when the total income reported in a week is correct even though the categories of where that income originates might be incomplete or mistaken. The Department’s example, however, indicates that any mistake regardless of the consequences on the benefits due a claimant will now count as concealment. In other words, if I report $150 in wages on a weekly claim but do not indicate that this amount is actually $100 in earned wages and $50 in holiday pay, under this new definition I am guilty of concealment simply because I was inaccurate in how I classified the wages I received. As the Department explains in its memo, the new concealment definition” does not require the Department to determine that the claimant knew the effect of [an] intentionally incorrect answer.” Accordingly, the “materiality” of the mistake is apparently no longer needed for an allegation of concealment. The mistake IS itself concealment.

Another example could involve a claimant intentionally failing to report part-time work on their benefit claim. Because the claimant intentionally failed to report work, the claimant concealed. Proposed section 108.04(11)(g)3 provides that the Department is not required to determine the claimant’s knowledge about the effect of the false answer on the claimant’s benefit amount. Had they not concealed the information, the claimant may have been entitled to partial benefits.

NOTE: This example again presumes intentional concealment has taken place without any explanation of how concealment or the intent for that concealment is actually found. And, the direct statement that “the Department is not required to determine the claimant’s knowledge about the effect of the false answer” indicates that the intent needed for establishing concealment will be some sort of knowledge-free intent. In other words, concealment can be charged without any evidence regarding the claimant’s knowledge of what his or her concealing act means. Accordingly, it seems that good faith mistakes can know be charged as concealment since a claimant’s knowledge of his or her actions no longer matter. In this light, this new concealment law overturns prior Commission decisions like Peters v. United Rentals, UI Hearing No. 12400788AP (31 May 2013) (employee made a good faith mistake in reporting her quit as a discharge in light of mediation agreement regarding her separation from employment). As stated before, unemployment claims are now a trap and should be avoided.