Lame duck session includes changes to LIRC Redux

As a followup to my previous post about the lame duck changes to the Labor and Industry Review Commission, I have some more information.

First, here is what we know about Commission appointments during the lame duck:

• Laurie McCallum put in her retirement papers BEFORE the election.
• In those papers, Jan. 6th was her designated last day.
• Evers won the election.
• Walker appointed Georgia Maxwell to McCallum’s seat on Nov. 30th (but formally indicated the appointment is for Jan. 6th).

Yes, you are reading this info correctly. It says on p.1 that the nomination is dated on Jan. 6th but the actual nomination letter is dated Nov. 30th. “Let’s do the time warp, yeaaahhh.”

• The Senate approved her appointment and 80 others in its lame duck session.
• The Maxwell for McCallum appointment is allegedly legal because: (1) the Senate can determine for itself what appointments are proper, and (2) an Atty Gen. opinion indicates that appointments in a current term are legit.
• The Atty General opinion — 76 Op. Att’y Gen. 272 — is rather ambiguous on this appointment. The opinion is essentially saying that a governor and the senate cannot fill future positions. Here, the position does NOT become vacant until 1/6/2019, the last day of the current legislative session. The problem is that Maxwell’s “appointment” is occurring now, before the position is actually vacant. So, the appointment is for a future vacancy in the current (by one day) legislative session — a situation not quite covered by the AG opinion.

Second, the Commission is “securing” a job for its current general counsel.

Recall that the general counsel was previously a person hired by the Commission. When the Commission starting ruling against DWD over unemployment concealment, a provision in the budget was suddenly added to strip some funding from the Commission and make the general counsel an appointee of the governor (and, Senate confirmation for this appointment is not required).

Maria Gonzales Knavel served admirably as the first governor appointee, but she left the job when Gov. Walker proposed eliminating the Commission. When the Commission survived that attack, Gov. Walker appointed Georgia Maxwell as a Commissioner and Karl Dahlen as the new general counsel.

Apparently with the rush of new appointments during the lame duck session, Dahlen’s position was missed.

So, now the Commission has posted for one week, closing on Dec. 21st, a position for a new staff attorney that is apparently a way for Dahlen to remain at the Commission.

And, who thought Gov. Walker was not serious about creating jobs? Here, not even holiday breaks stop his administration from creating jobs for those who might be out of work soon. The big question remains, however: will Dahlen get to keep his six-figure salary of around $120,000 in his new job?

LIRC funding fix

Recall that in the latest Wisconsin budget, not only was LIRC’s budget cut and its general counsel made a political appointee of the Governor, but the Labor and Industry Review Commission was also transferred from DWD to the Department of Administration for budgetary purposes.

The problem with this change is that administration of unemployment law is funded through a federal tax that employers pay. The funds are then channeled from the feds to the state agency responsible for unemployment law in the state, namely DWD in the case of Wisconsin. Since LIRC is now no longer part of DWD for budgetary purposes, LIRC faces the prospect of losing all of its federal unemployment funding (as well as some equal rights funding that also comes from the feds).

So, AB685 and SB560 create a mechanism for transferring federal funds from DWD to LIRC for its federally funded work.

As the LRB explains:

Under prior law, the Labor and Industry Review Commission (LIRC) was attached to the Department of Workforce Development (DWD) and moneys were appropriated to DWD for the activities of LIRC. 2015 Wisconsin Act 55 (the 2015-17 biennial budget act) attached LIRC to the Department of Administration and appropriated moneys directly to LIRC.

This bill provides for the transfer of federal moneys received by DWD to LIRC for unemployment administration and equal rights functions performed by LIRC and of other moneys transferred to LIRC for other purposes.

The mechanism for accomplishing this transfer of unemployment funds?

to transfer to the appropriation account under s. 20.427 (1) (k) an amount determined by the treasurer of the unemployment reserve fund. [emphasis supplied]

In other words, the treasurer of the unemployment reserve will now have the statutory authority to determine independently what LIRC’s funding from federal monies will be.

Changes to unemployment venue now and in the future

In DWD v. LIRC, 2015 WI App 56 (“Froehlich,” after the claimant at issue in the case), the Department filed an unemployment appeal case in Milwaukee County even though none of the parties resided in that county.

Normally, unemployment cases in circuit court must be brought in the county where the claimant or the employer (i.e., the plaintiff in the case) resides. But, the Department also has the ability to appeal any LIRC decision even if the parties to that case do not. And, in Froehlich, the Department did just that. Under Wis. Stat. § 102.23(1)(a), when the Department of Workforce Development is the appealing party, venue is in “the county where the defendant resides.”

Typically, when a claimant or employer appeals a LIRC decision in the wrong county, the Commission immediately moves to dismiss the action for lack of venue. And courts routinely grant such motions, ending the unemployment appeals before the merits of the case are ever addressed.

But, in Froehlich the Department was the appealing party, and the Commission did not immediately move for dismissal. Instead, the Commission said it was willing to agree to venue in Milwaukee County subject to what other parties wanted and the circuit court’s permission. For some reason, the Department did nothing. When additional Department appeals were filed in numerous other cases throughout Wisconsin (and again in counties where no defendants resided), the Commission moved to dismiss Froehlich. The circuit court granted that request, and the Department appealed that dismissal to the appeals court.

NOTE: In the past, when the Department appealed a Commission decision because of a fundamental disagreement with the Commission over the meaning of unemployment law, the Department filed those appeals in Dane County, where the defendant Commission resided.

The court of appeals held that dismissal was NOT warranted in Froehlich because the Commission had accepted jurisdiction in Milwaukee County and the other defendants never objected to venue in Milwaukee County. Since the active parties to the case — the Department and the Commission — had indicated that Milwaukee County was a proper venue, dismissal for lack of venue was improper. But, the case was still remanded to the circuit court to determine whether it would agree to jurisdiction, and the appeals court strongly hinted to the circuit court that it should agree. See n.4 in Froehlich.

The end result in Froehlich is that a wrong venue no longer leads to automatic dismissal, at least when the Department is the plaintiff. Whether Froehlich might also lead to claimants and employers being able to keep their cases alive despite filing in the wrong venue remains an open question. But, a colorable claim is now viable that such cases should NOT be dismissed but remain either in the county where filed or transferred to another county where venue is proper before any dismissal for lack of venue takes effect.

For its sake, the Department is not sitting on its laurels. At the September 17th Advisory Council meeting, the Department presented a new proposal to create a new unemployment venue provision, D15-11. In place of Wis. Stat. § 102.23, a new Wis. Stat. § 108.09(7) is created and which includes a host of changes to how unemployment appeals will be handled in the future. These changes include:

• Who is a party — Under new 108.09(7)(c)1, “every other party to the proceedings before the commission shall be made a defendant.” So, the parties of interest from workers’ compensation precedents no longer have to be included.
• DWD is a required defendant — Under new 108.09(7)(c)1: “The department shall also be made a defendant if the department is not the plaintiff.” So, copies of complaints and summons have to made for the Department in every unemployment case. And, the Department explained to the Advisory Council that it will most likely file a routine answer in all of these appeals. Moreover, the Department may decide to take an active role in some cases. Certainly, if the Department does not receive its summons and complaint, expect a motion to dismiss from either the Commission or the Department for failing to serve a necessary party. See also new 108.10(4). At the very least, this new provision will make unemployment appeals that much more expensive, especially for large employers involved in numerous unemployment cases.
• Commission excluded as a defendant for purposes of venue — Under new 108.09(7)(c)2: “if the plaintiff is the department, the proceedings shall be in the circuit court of the county where a defendant, other than the commission, resides.”
• Proceedings in any court — Under new 108.09(7)(c)2: “The proceedings may be brought in any circuit court if all parties appearing in the case agree OR if the court, after notice and a hearing, orders.” So, the parties can agree to venue in a court whether or not that court agrees to venue. Or, a court might order the parties to file in another venue or accept venue itself if one of the parties disputes venue (and, as noted below, the court will have no reason for declining venue).
• Lack of venue is NOT lack of competency — Under new 108.09(7)(c)2: “Commencing an action in a county in which no defendant resides does NOT deprive the court of competency to proceed to judgment on the merits of the case.” In other words, the Department can file its own unemployment appeals in any county it wants, regardless of whether the claimant or employer have any connection to that county whatsoever.
• A 60-day time limit for submitting the record to circuit court is mandated. See new 108.09(7)(c)5.

What is concealment?

A bill is going forward for creating a seven year ban on benefits after two instances of concealment — aka two strikes and you’re out.

Basic matters in this debate turn on what exactly is concealment and how is concealment uncovered. A case on appeal to the Labor and Industry Review Commission (LIRC or Commission) illustrates how the Department of Workforce Development (DWD or Department) is handling these matters.

In this case, the claimant worked as event waitstaff for a hotel. He received an hourly wage around $4 per hour and a tip based on a percentage of the fee the customer paid for the event (those tips added anywhere from $50 to $300 to his weekly earnings). But, those tips went directly to the hotel, and so the claimant could not know the tip amount he earned until he received his bi-weekly check (and those tips were combined for the two-week pay period).

Unemployment benefit claims are filed on a weekly basis, however. Since he did not know what his tips were for each week, he called the Department to ask about how to file when he only knew his hourly wages. The Department representative told him the Department would get the weekly tips information from the employer when it completed its UCB-23 form about his weekly work for that employer. The difference between the hourly wages he reported and the total wages the employer reported would then be deducted from unemployment benefits in a subsequent week.

Such advice is certainly viable. The claimant does not know his weekly tips when filing, only the employer does. So, while there would be a week or two lag in what his correct benefit amount is, at least the corrected wage information from the employer would lead to corrected unemployment benefits.

But, in this claimant’s case, the employer never returned those weekly UCB-23 forms. And, for six years this happened. Not until the claimant took a second job and was discharged from that job did the Department finally act on the information that the claimant had not been reporting his weekly tips income (again, because he did not know that tips income when filing his weekly claims). The Department is charging this claimant with concealment for not reporting his tips income.

But, why did it take six years for the Department to act on this issue? First, Department representatives have discretion about when to note their advice to claimants. Naturally, when that advice is that there is no issue or problem as perceived by that Department representative, Department representatives usually do NOT note that there is NO issue with a claim filing. Only when there IS an issue will they usually note that something needs follow-up investigation in Department records.

Second, the Department could have seen a problem when the employer filed its quarterly unemployment tax returns. Those returns would have showed both the hourly wages and tips paid to the claimant. But, the Department does not check the accuracy of the claimant’s weekly reporting with those tax returns, except when those returns show wages being paid and the claimant has reported NO earnings from that employer. That is, the Department only compares a claimant’s weekly claim reporting to an employer’s unemployment tax reporting to determine if the claimant has failed to report any wages from the employer (moreover, the Department does not even make this comparison until six months later — aka the second quarterly tax return — for a claimant). Since the claimant in this case reported his hourly wages, no flags were raised despite the difference in what the employer reported on its quarterly tax returns.

NOTE: There are more timely ways to handle wage reporting discrepancies than relying on quarterly tax reports from employers. I have repeatedly suggested to the Department and the Unemployment Insurance Advisory Council mechanisms for matching claimants’ wage reports to employers’ tax withholding data. See, e.g., Findings of the unemployment audit (January 2013 e-mail message to Lutfi Shahrani and Scott Sussman describing a withholding match in other states). Neither the Department nor the council has demonstrated any interest in such mechanisms.

Third, even if the employer had supplied the weekly UCB-23 forms, the Department’s currently practice is only to note those discrepancies and adjust future unemployment benefits for those discrepancies (i.e., as the Department representative told the claimant, the claimant’s future unemployment benefits would be adjusted for the tip income not reported on the weekly claim certification). No flags will be raised about either the amount or quantity of those discrepancies until a new, separate investigation into concealment is instituted at a much later date.

In all, these three factors demonstrate that the Department really has no way of catching on-going mistakes in weekly claim certification except through a concealment investigation that occurs months or years (or even six years in this case) after the problem started. Instead of addressing these institutional deficiencies, the Department makes the claimant responsible for any mistakes in his claim-filing. Here, even though the claimant did not know and could not know his weekly tips income when filing his weekly unemployment claims, the Department still considers him responsible for including that income in each weekly claim he made. And, it is his fault the Department took six years to figure out what was going on when it alleged concealment against him. His mistake constitutes concealment regardless of his intention, his confusion, his employer’s inaction, or the departmental advice he received.

The Commission, however, has required that concealment actually be intentional. See, e.g., LIRC responds to DWD’s concealment agenda. So, the Department and the Advisory Council now seek to change the definition of concealment to make it nothing more than mere mistake and to prevent claimants from contending they were confused, disabled in some way, or the recipient of bad departmental advice. See Concealment redefinition approved: Watch out claimants. With this new definition of concealment, claimants who make mere mistakes in their weekly claim filing will be subject to severe concealment penalties.

NOTE: To understand how severe concealment penalties are, consider this example. Suppose a claimant with a weekly benefit rate of $200 under reports part-time wages of $78 on a weekly claim instead of $87, a mistake of $9. So, instead of $167 in unemployment benefits that week, the claimant should have received only $161 in unemployment benefits, a difference of $6. When concealment is at issue, however, neither the $6 difference nor the $167 actually received is the amount at issue. Rather, the entire $200 potential weekly benefit must now be repaid for that week. Furthermore, there is now a 40% (15% prior to the new state budget) administrative penalty ($80 in this case) that also must be immediately repaid. And, future unemployment benefits ranging from two, four, or eight times the weekly benefit rate for each week/act of concealment will be lost to the claimant (in this case, $400 for the 2X penalty, or two weeks of no unemployment benefits received). Finally, keep in mind that this example is only for one week. In almost all concealment cases, the Department does not allege concealment until months or years have passed, and so the concealment — since it is usually based on an ongoing mistake — concerns dozens of weeks of unemployment benefits. The claimant who did not report his tips income for six years, for instance, is subject to a repayment demand of $32,000+ and forfeits $50,000+ in future unemployment benefits even though his weekly benefit rate hovered around $130.

Keep in mind, the Department has also been making it easier for claimants to make mistakes on their weekly claim filing through too numerous and too confusing questions for weekly claim filing, see Important and comprehensive concealment analysis from LIRC, new job search requirements that ignore basic mechanisms job hunters use to find work and create hidden traps for those at temp agencies, see numerous posts about job search requirements, and new job search verification protocols, see New job search verification requirement starting, that seem little more than one more mechanism for tripping claimants up.

In these circumstances, claimants should most likely avoid unemployment altogether. The risk of making a mistake and being charged for concealment because of that mistake at some future date for some unknown reason is too great. But, most claimants probably will not know about these new issues when the likelihood of being charged for concealment when making a simple mistake on their claim filing is high. So, the proposed bill which will actually ban claimants from receiving unemployment for seven years is a good thing: it keeps claimants away from a Department that does not have their interests at heart.

SSDI and unemployment: recent developments

A previous post in April 2015 described how the Department of Workforce Development is attempting to get around the Labor and Industry Review Commission’s decision in Kluczynski.

Since that post, there has been a series of new developments.

The number of SSDI claimants keeps increasing

When the Department first proposed eliminating eligibility for unemployment benefits for all those receiving SSDI benefits, the Department indicated that the prohibition was likely to affect no more than fifty claimants.

In February 2015, the Department informed the Advisory Council that the SSDI ban affected 687 claimants in January 2014 when enforcement began.

In May 2015, this number has increased even further. The Advisory Council’s 2015 report at p.8 has the following update on the SSDI prohibition:

SSDI and UI Payments

2013 Wisconsin Act 36 provides a claimant cannot simultaneously collect both Social Security Disability Insurance (SSDI) benefits and UI benefits.

Primary Statute Created: Wis. Stat. §§108.04 (2) (h) and 108.04 (12)(f).

The ban on simultaneously collecting both Social Security Disability Insurance (SSDI) benefits and UI benefits saved hundreds of thousands of dollars for the UI Trust Fund as close to 3,500 UI claims have been denied through early May 2015.

DWD wants to back-date its new SSDI legislation to 4 January 2014

As previously noted, in April 2015 the Advisory Council approved a new prohibition on SSDI benefits intended to fix the poor drafting of the original SSDI prohibition.

At the May 19th council meeting, the Department announced that this new SSDI prohibition would be back-dated to 4 January 2014, the date of the original SSDI prohibition. This back-dating is already included in the DWD-sponsored bill being drafted.

A recent court case found in favor of the Department

A few cases continue to be appealed concerning claimants receiving SSDI benefits who still want their unemployment benefits because of their prior work. Here is an excerpt from a recent letter I sent the Commission in one of those cases. In this letter, I describe a circuit court decision that found Kluczynski unpersuasive.

This appeal to the Commission concerns the Commission’s understanding of Wis. Stat. § 108.04(12)(f)(1), enacted pursuant to 2013 Wis. Act 36, and as detailed in Kluczynski, UI Hearing No. 14400214AP (30 May 2014).

In Kluczynski, the Commission held that this statute unambiguously restricted receipt of unemployment benefits to the “given week” a claimant “actually receives” his or her SSDI benefits. In other weeks where unemployment benefits can be received and for which no disability benefits are actually received, claimants are still eligible for their unemployment benefits.

As the Commission and the Department are aware, Judge Neiss recently held in DWD v. LIRC, Dane County Circuit Court Case No. 2014-CV-3249 (27 May 2015) that the statutory text at issue here was ambiguous because two state agencies — the Commission and the Department — offered opposing interpretations of the statute. The court then goes on to observe that an intransitive definition of “receives” means the act of receiving, and so a person who “actually receives [SSDI benefits] in a given week” is, pursuant to Wis. Stat. § 108.04(12)(f)(1), someone who is identified as an SSDI recipient for each week of their unemployment eligibility. As a result, Judge Neiss concluded, this prohibition on receiving unemployment benefits applied constructively to all the weeks in a month despite the modifiers “actually . . . in a given week” in the statute about “receiving” SSDI benefits. In reaching this conclusion, Judge Neiss has seemingly stretched statutory text to create an ambiguity and reach an intended outcome rather than first reading the text itself as part of the state’s unemployment law as a whole.

NOTE: As noted in Kluczynski, constructive receipt of one-time payment across several weeks in order to determine eligibility for unemployment benefits is provided for in Wis. Stat. § 108.05(7)(d) regarding pension payments. So, there is no need to find ambiguity in one provision of unemployment law to reach a result for which another provision of unemployment already offers unambiguous language regarding the constructive receipt of payments. As proffered by the Commission in Kluczynski, this language could have accomplished the intended result simply by replacing “shall allocate and attribute” with “shall deem and attribute” in this constructive receipt language.

The Commission should not adopt this outcome in this appeal but instead affirm its analysis in Kluczynski. The Commission’s explanation of its analysis in Kluczynski did NOT imply that this statutory text was actually ambiguous, as Judge Neiss holds. Rather, the Commission explained in its memorandum opinion in Kluczynski why the Department’s arguments for its proffered interpretation of unambiguous text are mistaken and why its arguments about the statute being ambiguous were insufficient. Because the statutory text as written does not accomplish its intended result, it should not be rewritten by the Commission or the courts to do so.

JFC (really DWD) targets LIRC

Workers compensation administration is NOT being transferred from DWD. The workers compensation ALJs are being moved to the Division of Hearings and Appeals, however.

In unemployment, the Joint Finance Committee is approving an increase in the concealment surcharge to 40%. At present, this surcharge is 15%. The additional 25% will be used for program integrity purposes — i.e., auditing claimants. Additional criminal penalties for concealment are being deleted.

And, for the Labor and Industry Review Commission, a budget cut of $434,900 (out of a total budget of $3,612,000 and a sizable chunk of the Commission’s UI budget), transferring the cut funds to DWD for additional “program integrity,” and making the general counsel a political appointment by the governor:

18. Labor and Industry Review Commission (LIRC). Transfer the limited administrative attachment for LIRC from the Department of Workforce Development (DWD) to the Department of Administration (DOA). Further, transfer LIRC’s appropriations to be budgeted separately under Chapter 20 of the appropriation schedule. Reduce LIRC federal unemployment administration funding by $434,900 FED annually and, to the extent allowable under federal unemployment insurance (UI) law, provide these funds for UI program integrity purposes. DWD’s UI administration appropriation would be increased by $434,900 annually to reflect this provision. [Under the motion, LIRC would be attached to DOA under s.15.03 for limited administrative purposes, but would have its own appropriation schedule (currently LIRC is budgeted as a program under DWD). The provision that the Department (currently DWD, DOA under the motion) submit LIRC’s budget to the Governor without change would remain] Additionally, convert 1.0 position from classified to unclassified, and specify the Governor appoint the LIRC general counsel position.

Apparently, this provision is payback for the Commission’s red-flag memos about SSDI and concealment. These budget shenanigans raise obvious questions about how independent the Commission can really be.

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.

Important and comprehensive concealment analysis from LIRC

LIRC has just published to its website a comprehensive analysis of concealment issues in unemployment cases.

The decision is lengthy, as concealment cases by their very nature require a week-by-week examination of wages and unemployment benefits. This case also has a complicated history (LIRC issued an earlier decision that DWD asked to be reconsidered), and LIRC is careful here to delineate what standards should apply in a finding of concealment, what Department investigations should entail, and the obligations of administrative law judges during hearings when confronted with claimants who have difficulty understanding what is happening to them in regards to the concealment allegations.

There are two main factual issues at stake in this decision. First, the claimant was confused by the change in how DWD asks claimants on their weekly claim certifications about work and wages or pay received. This issue is not new, but here LIRC goes into detail about why a compound question on weekly claim certifications is problematic. The Commission explains (footnotes removed):

The commission is not alone in finding compound questions like the department’s Question No. 4 a potential source of misunderstanding by claimants. In June 2011, the U.S. Department of Labor strongly encouraged states to review the wording of their continued claims certification form and telephone script to assess whether any questions or language should be made clearer to ensure claimants understand what is being asked. The following example was given:

If the certification form or script contains a two-part question such as:

• Did you work and earn wages during the week?

Two separate questions could be asked instead, such as:

• Did you perform any work during the week?
• If you worked, what was the amount of wages you earned during the week (report wages earned whether or not these wages have been paid)?

This suggestion to rid claim certification forms and telephone scripts of two-part questions was part of an immediate call to action by the U.S. Department of Labor to all state  administrators to develop state-specific strategies to bring down the improper payment rate in unemployment insurance benefits programs. The call to action was communicated in Unemployment Insurance Program Letter (UIPL) No. 19-11, titled National Effort to Reduce Improper Payments in the Unemployment Insurance (UI) Program. It was recognized that the best way to effectively reduce the improper payment rate is to prevent improper payments before they occur. The U.S. Department of Labor identified unreported or under-reported earnings by claimants as the primary cause of overpayments.

Yet, in spite of the call to action, sixteen months later, in October 2012, the department did exactly the opposite of what the U.S. Department of Labor suggested it do. The department took a relatively simple, straightforward question, one not easily susceptible to misinterpretation — “Did you work?” — and created a compound question — “During the week, did you work or did you receive or will you receive vacation pay, bonus pay or commission?” In doing so, the department created an identified cause of misunderstanding by claimants and a known source of improper payments. Question No. 4 was not made clearer to ensure claimants understood what was being asked; it was made more complex and confusing. At the same time, the department also increased the penalties for concealment.

Second, the Commission found from the claimant’s testimony that she was most likely learning disabled and confused about her reporting requirements as well as the unemployment process in general. While her prior unemployment claims and her receipt of the claimant’s handbook (on-line only now) indicated that it was possible to infer that concealment could have happened, other evidence demonstrated that an actual intent to conceal was completely lacking.

It was clear from the employee’s testimony throughout the hearing that she was confused. The employee was confused about how the unemployment insurance program operates in general and was confused by Question No. 4 on the weekly claim certifications in particular.

In a request to reconsider this decision, the Department contended that there needed to be evidence causally linking the claimant’s confusion or disability to the actual mistakes on her weekly claim certifications. The Commission disagreed (footnotes that cite to portions of the Disputed Claims manual on an internal DWD intranet that is not available to the public are removed):

The reason no connection was made between the employee’s learning disability and her failure to provide accurate information to the department is because the ALJ did not develop the record on this issue. It was clear that the employee did not understand her responsibility to report her second, short-term job to the department. After the ALJ twice explained to the employee why it was necessary, the employee remained confused. The employee apologized to the ALJ and stated that she, the employee, was learning disabled and “a little slow.” Not a single follow up question was asked of the employee.

The “fair hearing” provision in sec. 303(a)(3) of the Social Security Act requires a reasonable opportunity for workers whose claims are denied to be heard by an impartial tribunal in an adjudicatory proceeding which assures them of elementary fairness. An unemployment insurance ALJ is responsible for discovering the facts and may not rely on the parties to present their cases and facts, as they understand them, and to offer complete proof. Moreover, state unemployment agencies, such as the department, have a public duty to cooperate in revealing pertinent facts and other evidence that are peculiarly within their own knowledge, whether favorable or unfavorable to the claimant. A state agency is not to assume a hostile or an indifferent attitude in cases in which it views itself as an adverse party, because it leaves to the claimant the task of discovering exculpatory facts, a task claimants are most likely ill-prepared to perform. Thus, when the department alleges that a claimant has committed fraud and the claimant states that she is learning disabled, an ALJ is expected, at a minimum, to follow up on the claimant’s statement and attempt to ascertain whether any cognitive difficulties contributed to the confusion on the part of the claimant and led to an honest mistake.

* * *

A claimant may establish the existence of learning, reading, and comprehension difficulties through non-certified and non-medical evidence by testifying, for example, as to whether he or she received special education services in school, required an individualized education plan, had low reading scores, or failed to graduate from high school.

There is much more to consider in this decision. Furthermore, it should be noted that the disabled often lack the resources and abilities to provide information about themselves or only have the ability to offer generalities rather than any specific information. Claim investigators and administrative law judges will need some sensitivity in how to delve into such matters as direct questions are unlikely to get specific evidence.  Still, this decision sets forth in great detail what the Department should be doing if it wants to allege that a claimant has actually intended to conceal material information on his or her weekly claim certifications.

UPDATE to Independent contractors in Wisconsin UI proceedings

Back in June 2013, there was a post about independent contractors issues in Wisconsin unemployment law. The brief included in that post went through the various factors used in determining independent contractor status for unemployment purposes as well as why that status is at issue in two separate proceedings — one proceeding to determine the claimant’s eligibility for benefits and another proceeding to determine whether the employer is responsibile for paying unemployment taxes for that claimant.

LIRC issued a decision in that case in August. In regards to the factors, there are two points of disagreement. First, the brief used the old office test. Under the current office test, this factor is satisfied “if the individual uses his own equipment and materials in performing the services, and either maintains his own office or performs most of his services in a location he chooses” (see p.11 of the LIRC decision). The old test described in the brief is only applicable in the following circumstances (see n.7 at p.11 of the LIRC decision):

If an individual does not choose where to perform his services, it must be determined whether he maintains his own office. In such a case, the analysis would proceed utilizing the longstanding interpretation that the term “office” has received in cases involving condition 3 in the pre-2011 law, albeit without reference to a “separate business.”

Second, LIRC disagrees with the position in the brief that graphic layout work is not the same as translation work. In this case, the claimant has done translation work in the past but had not done translation work which also required him to do graphic layout of the translation using certain software in order to prep the document for final publication. LIRC lumped the graphic layout work as similar to the prior translation work.

Despite these differences, a finding of employee status was still an easy call.

Since this decision, LIRC has issued another interesting independent contractor decision involving a freelance for Madison’s major newspapers. In the Martin v. Madison Newspapers, Inc., Hearing No. 13001922MD (10 October 2013) decision, LIRC offers another extensive overview of how to apply independent contractor factors for unemployment purposes.

These two situations reinforce the notion put forward in the brief that employers who hope to avoid unemployment taxes need to think strategically in these kinds of cases and perhaps not contest an employee eligibility determination pursuant to Wis. Stat. § 108.09, especially since the matter of employer tax liability will be determined in a separate proceeding under Wis. Stat. § 108.10.

Notwithstanding the difficult burden employers have in initially establishing the factors specified in sub-section (bm), employers are also faced with the added difficulty in these matters that much of the information needed in regards to these factors is in the hands of claimants and not employers. While employees and employers are in theory opposed to each other in these unemployment cases, they also depend on each other to bring forth evidence that the other side needs in order to succeed in its claims. Employers, after all, likely do not have any direct knowledge about how individual claimants qua independent contractors market their services to others, account for their business expenses and income, manage their own place of business, obtain their own liability insurance, pay for their recurring operational costs, and how many other clients they might or might not have. As a result, employers who actually hope to avoid payment of unemployment taxes for the services at issue are dependent on the claimant’s cooperation in the Wis. Stat. § 108.10 proceeding to determine whether the claimant is an employee or independent contractor.

Keep in mind as well that good guidance from DWD on independent contractor issues is available at this website. Here, you can explore the factors pursuant to the various tests in unemployment law, workers’ compensation, wage law, and equal rights law whether an individual qualifies as an independent contractor or employee.

Advisory Council Meeting – Sept. 19th

At this meeting, DWD for the most part announced and supplied various documents regarding the changes to unemployment law via Act 36 and the UI portions of Act 20.

DWD offered up two documents describing the upcoming changes to unemployment law. One is 21 pp. and covers Act 20, Act 36, and the WorkShare legislation  (makes UI available to employees that work reduced hours for an employer who opts for this benefit for its employees). The other is a 5 pp. table listing the change at issue, the effective date, the new/changed statute or administrative rule, and the source of the change.

Legislators continue to introduce legislation. There is a bill to provide benefits to employees out of work because of a strike by others. The strike a few years back at Manitowoc Crane presented this exact situation, and DWD indicated in an attached memo that LIRC ruled in that case for making the affected workers eligible for UI benefits. DWD’s fiscal analysis indicates a cost of almost $800,000. Given that LIRC ruled in the employee’s favor, it seems that the bill’s cost is actually minimal — the administrative costs of implementation.

Second, SB273 proposes that DWD provide calling assistance and information for folks needing information about their equal rights, workers’ compensation, and unemployment cases. The fiscal impact is under $200,000. Not discussed much is that DWD supposedly has claim specialists dedicated to answering these kinds of questions by phone (for now).

SB276 creates a new independent contractor test for workers compensation and unemployment law that basically makes someone working from home under a written agreement an independent contractor. Yes, the language is that broad, and it would be a major change in both areas of law. The fiscal impact could be $5 million plus and employers would still be hit with additional federal unemployment taxes, as this language runs afoul of federal requirements.

Finally, AB374 seeks to eliminate the one-week waiting period — claimants must now wait one week without benefits before receiving their first check — that was implemented last year. The fiscal impact would lead to a $45 million increase in benefits being paid out and so also lead to an increase in employer taxes. The net impact on the trust fund is estimated to be $28 million.

DWD also announced that emergency regs for DWD 126, DWD 127, and DWD 129 went to Gov. Walker the day of the meeting. DWD hopes to get these rules implemented in early October (more on these new rules in another post). Then hearings on permanent rules will take place with the goal of making the rules permanent by the middle of next year.