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.

Non-acquiescence: Employer tax cases

First, some apologies for the title to this post. Non-acquiescence is a ten-dollar word for disagree. Essentially, the Department has the ability per Wis. Stat. ยง 108.10(7)(b) to declare publicly that it disagrees with a decision of the Labor and Industry Review Commission but will not appeal that decision into the courts. The Department has this option because an appeal of a decision into the courts faces the risk of the Commission’s decision being affirmed. That affirmation would then turn that case into a precedent the Department would be required to follow.

NOTE: The Department is supposed to follow Commission decisions as precedent. This non-acquiescence process provides a mechanism for the Department to declare officially that it will NOT follow a Commission decision as precedent.

Second, from May 2018 to January 2019, the Department began regularly issuing notices of non-acquiescence in employer tax cases where personal liability for those taxes were at issue. In all of these cases, the Commission found that personal liability was NOT justified largely because the individuals being pursued were not actually the owner/controlling person of the employing entity. These fact specific inquiries, however, somehow led the Department to believe that the Commission was not applying unemployment law in the way the Department wanted these cases decided. Here are the cases:

In almost all of these decisions, the Commission found that there was NO personal liability for unpaid employer unemployment taxes because the person targeted in these cases essentially did not qualify as the owner or manager responsible for those unemployment taxes.

NOTE: Keep in mind that corporate protection and limited liability does NOT apply to unpaid unemployment taxes. See, e.g., EOG Environmental Inc., UI Hearing No. S1100346MW (27 Aug. 2013) (the Department filed a notice of non-acquiescence in this case as well) and Henry Warner, UI Hearing No. S9100679MW (16 July 1993) for excellent descriptions of the personal liability issues that attach to individuals regardless of incorporation when unemployment taxes go unpaid.

In other words, the Department is pursuing in these cases additional liability for unpaid unemployment taxes. The Department is arguing that the named person is the manager or owner responsible for paying unemployment taxes and that he or she failed to meet that responsibility. The Corley case provides an excellent example of what is going on with these cases (I spoke with the attorney who represented the defendant individual in that case).

In Corley, a father had sold his trucking business decades before to his son who took over day-to-day management of the operation, The father remained a figurehead director of the company, however, for the sake of assuring customers and others that the father’s experience and judgment were available to the son. The father had little to any active involvement with management by 2008 or so but continued to staff office and personnel matters as a favor to his son.

With the great recession, the company came on hard times and went under by 2011 or 2012. During the course of going under, unemployment taxes went unpaid. Collection efforts by the Department ensued against the son (not mentioned in the Commission’s decision, as the collection efforts at issue here were against the father).

Apparently, those collection efforts were not going as well as the Department wanted, so it targeted the father, who at the time was working as a trucker again and living out of his tractor-trailer cab because of the economic losses and debts he had incurred from the recession. This targeting of the father for additional revenue/collection explains why the record is so spotty about the father’s actual role and involvement in the company’s unpaid unemployment taxes and what was allegedly owed by the father.

The Commission in its decision essentially finds that there is no proof of any unpaid debts for which the father was responsible. This lack of factual evidence in the record about the father’s personal liability, however, is a principle the Department does not want to accept as a limit on personal liability. So, the Department filed its notice of non-acquiescence in this matter. The Department does not want “actual evidence” to serve as a limit on its claims of personal liability. On that basis, this declaration by the Department is shocking.

So, in this light this flurry of non-acquiescence declarations by the Department signals a state agency targeting small employers and the individuals connected to them in any way possible as sources for continued and never-ending debt collection. Claimants in concealment cases are not the only folks who have experienced the unforgiving and relentless push by the Department to collect no matter what and to collect even and ever again simply because the Department asserts that monies are owed. Should another recession occur, there are many, many employers who will feel this bite from the Department and face the unending and pervasive debt collection the Department wants.