DWD and LIRC continue to ignore court precedent on substantial fault

After the Supreme Court decision in Operton v. LIRC, 2017 WI 46, and an appeals court decision in Easterling v. LIRC, 2017 WI App 18, the Department of Workforce Development took no action to change its practices and follow these binding court decisions. Accordingly, parties needed to appeal their initial determinations in order to get unemployment law to be followed.

It is becoming apparent, however, that numerous appeals are now needed to get unemployment law to be followed whenever claimants are involved. Marilyn Townsend, Operton’s legal representative, just won an unemployment case in circuit court where DWD and the appeal tribunal not only continued to ignore Operton in an almost identical situation — namely a charge of several inadvertent errors by the employee — but the Labor and Industry Review Commission affirmed a finding of substantial fault by adding alleged warnings for which there was NO evidence in the record. As the circuit court judge explained (emphasis supplied):

The stated reasons for discharge were allegations that there were receiving issues on three separate dates in January of 2018. The store’s witness said he was only familiar with the incident that occurred on January 13th. The employer must prove the allegations upon which the discharge was based. Standing alone, this court does not believe that the January 13th incident [concerning a document mis-match between inventory and an invoice] is substantial evidence of substantial fault.

The plaintiff stated that she believed two pieces of paper merely stuck together and that is the reason the invoice was not scanned properly. She realized on the same day that an invoice could not be matched to the inventory and the [employer] witness (Ovsak) said she came to him and explained the problem. Apparently the problem was resolved when they received another invoice from the supplier on the following Monday.

There is no argument or claim that the plaintiff did anything intentionally wrong. In fact, she discovered her error and reported it to her supervisor. It appears that the incident was an inconvenience for the employer, but nothing more. The Commission agreed with the ALJ that the employee’s conduct did not rise to the level of an intentional and substantial disregard of the employer’s interest. There is no evidence that this single act was anything but an inadvertent error.

* * *

The Commission modified the decision to of the ALJ to fit the conclusion the ALJ wanted to reach. It decided that the January 13th incident, along with three prior coaching incidents during the second half of the fall of 2017, served as the reasons for discharge. Specifically, leaving a receiving door unlocked in August of 2017, an alleged incident of being belligerent and speaking with a raised voice on November 9th, and failing to accurately count some DVD’s on November 22th. The plaintiff says those earlier coachings are not relevant in determining whether the discharge after those coachings was for substantial fault where the employer has failed to prove the subsequent allegations that actually prompted the discharge.

The employer offered no proof at all of two of the three grounds alleged in the discharge document. While it offered proof that the January 13th, 2018 incident occurred, that act in the opinion of this court was not evidence of substantial fault. The Wisconsin Supreme Court has ruled that careless conduct does not equal substantial fault. Operton v. LIRC, 2017 WI 46, 375 Wis.2d 1.

The Commission relied on the prior coachings in 2017 as well as the January 13th incident to justify the finding of substantial fault. . . . the mere fact that [the Commission] did indicates that the Commission felt it necessary to essentially correct and bolster the findings of the ALJ in order to try and justify denying the plaintiff benefits.

Those prior coachings appear to be unrelated to the action on January 13th. They appear to be minor infractions and they did not lead to a dismissal standing on their own. The Commission cannot create evidence of substantial fault by adding the prior unrelated coachings to the January 13th incident.

So, now not only is DWD ignoring Operton, but administrative law judges at the Department’s hearing offices are also ignoring Operton. And, the Commission is also now ignoring Operton and seeking to get around Operton by adding arguments and connecting evidence in ways that the record obviously does not support.

The Department and the Commission are supposed to be NEUTRAL entities that are supposed to assess the evidence presented by employers to meet their heavy burden of persuasion in order to disqualify a claimant from receiving unemployment benefits when misconduct or substantial fault have occurred.

What this case illustrates is that the Department, the hearing offices, and the Commission are ignoring these obligations and instead looking to disqualify claimants on nothing more than whim and pretense, even when courts have directly told them otherwise.

Given the hundreds to thousands of people who apply for unemployment benefits every week in Wisconsin, it should in NO way require an attorney well-versed in the intricacies of unemployment law take an appeal into court simply so that unemployment law might be followed. An initial determination, a hearing before an administrative law judge, and an appeal to the Commission all failed in this case to follow clear and unmistakable black letter unemployment law.

An employee having to take up an appeal to circuit court and find an attorney for that appeal for the sake of simple justice in an unemployment case is in practical terms not possible for the hundreds and thousands seeking unemployment benefits every week of the year in Wisconsin. Something is fundamentally wrong when claimants have to go to such lengths simply to get the unemployment benefits due them if the law had been followed in the first place.

Note: Links to the appeal tribunal and LIRC decisions will be added.

Despite Operton and Easterling, no change with substantial fault at DWD

The Easterling and especially Operton decisions should indicate that inadvertent — i.e., careless or unintentional mistakes — on the job should not disqualify someone from unemployment benefits.

The Department, however, is not happy with these outcomes. At the Advisory Council’s 16 March 2017 meeting, the following public comments were made about Easterling:

Ms. Knutson stated the decision in this case will provide general guidance to adjudicators and ALJs; however, cases are very fact-intensive to determine if it is truly an inadvertent error or substantial fault. Mr. Manley stated there should be a way to sharpen the definition of substantial fault to leave less gray area for interpretation and would not allow exceptions that disregard the entire rule. An employee that signed an employer policy of expectations that were not followed should not be able to claim that those policies were not followed because of a mistake to claim benefits. Mr. Manley expressed concern that the decision by the Court of Appeals is not within the spirit of what the Legislature intended to be as the definition of substantial fault. If decisions are based on this conclusion because the statute is not worded as clearly as it should be, it should be revisited.

Meeting Materials at 12.

NOTE: Both the Department and the Advisory Council have apparently forgotten that the council rejected substantial fault. Mr. Manley’s comments, moreover, ignore the basic requirements in unemployment law that employees NOT be disqualified for their unintentional, performance-related mistakes.

Inside the Department, however, the comments have not been so sanguine. In mid-May after Operton was decided, a Department insider explained to me:

The Operton decision went to the adjudication staff soon after it was issued. At a staff meeting a few days later, a supervisor said that there would be no new training on substantial fault despite the decision.

This lack of re-training in light of Operton is important. After Easterling, Ms. Knutsen simply noted that substantial fault involved a fact-intensive inquiry but provided NO explanation about what the Department would do to implement and follow Easterling. Now, a Department supervisor is indicating that there would be NO new training in how to follow the Wisconsin Supreme Court precedent in Operton. In other words, the Department is continuing to apply its pre-Operton and pre-Easterling standards for substantial fault.

A recent clinic case confirms this observation. In this case, the Department denied unemployment benefits to a teller discharged for cash-handling errors. The initial determination stated:

The employee was discharged because her performance did not meet the employer’s expectations. Her final incident was within her control; her actions do not rise to the level of misconduct. It was within the employee’s control to meet the reasonable requirements; therefore, her discharge is considered to be for substantial fault on the part of the employee.

Here, the Department is still applying its pre-Operton and pre-Easterling analysis of determining whether the employee was in control of the action in question. Under this framework, inadvertent errors only occur when employees lack control over their actions. The unintentional or accidental nature of the errors does not matter at all under this analysis.

NOTE: At the 17 November 2016 Advisory Council meeting, the Department presented a memorandum describing some misconduct and substantial fault decisions. The decisions covered in the substantial fault section of the memorandum describe only a few Commission decisions over whether the employee’s actions were major or minor infractions of company rules or involved absenteeism issues. There is no discussion of what constitutes reasonable employer expectations, what actions are reasonably in an employee’s control, what actions are inadvertent errors, and what actions are the result of an employee’s lack of skill, ability, or equipment.

Marilyn Townsend, Operton’s legal representative, took the teller’s case on and over-turned the initial denial of unemployment benefits at the hearing stage. The decision of the appeal tribunal, however, did not apply Operton despite the obvious similarities. At the hearing, there was no indication whatsoever that the teller’s errors were anything other than unintentional and accidental. Yet, the administrative law judge found that the teller essentially lacked the skills to do the work assigned her after a promotion (another exception to substantial fault) and then committed no errors after being demoted which would justify the discharge.

the record reveals that the employee requested additional training and support for her work performance issues. She did not receive the additional training and support which leads to the conclusion that she lacked the skill and ability to perform the job. The employee also struggled to perform the Phase II role and was demoted back to a Phase I role. While working in a Phase I role, the record demonstrated that the employee didn’t have any work performance matters. If she did have infractions in her Phase I role, those matters were not raised on the record by the employer.

So, there are decisions from the Court of Appeals and the state Supreme Court that explain that, pursuant to the statutory language for substantial fault, accidental or unintentional mistakes on the job are inadvertent errors and do not qualify as substantial fault. As of June 2017, however, the Department is ignoring these court decisions when applying what it believes substantial fault should or should not include.

What should claimants do? Appeal. As the Department and the Department’s administrative law judges are NOT following court precedent, claimants have to appeal initial determinations denying them unemployment benefits to appeal tribunals and then the Commission. The Commission will follow court precedent about inadvertent errors and reverse disqualifications based on accidental and unintentional errors on the job.

Operton oral argument

Today, the Wisconsin Supreme Court held oral argument in Operton about whether substantial fault disqualifies employees from receiving unemployment benefits because of their inadvertent mistakes and what standard of deferral courts owe the Labor and Industry Review Commission in deciding unemployment cases.

Substantial fault is defined in Wis. Stat. § 108.04(5g)(a) as:

those acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the job but shall not include:

1. Minor infractions of rules unless such infractions are repeated after a warning was received by the employee,
2. inadvertent mistakes made by the employee, nor
3. Failures to perform work because of insufficient skill, ability, or equipment.

The history of this provision is described in an amicus brief I filed on behalf of the Wisconsin Employment Lawyers Association. Basically, the Unemployment Insurance Advisory Council had rejected this change in unemployment law, but the Department worked with the Joint Finance Committee to add this provision to the 2013 budget bill.

Prior to Operton, the Commission had held that substantial fault equals negligence and that the only way to avoid disqualification for a work-related mistake was for the claimant to demonstrate he or she lacked the skills or equipment to do the required work or that there was no prior warning from the employer about avoiding the mistake at issue. The claimant in Operton failed to meet this standard, according to the Commission, because her few cash-handling mistakes (eight over 20 months of employment) occurred after a warning and were not because of a lack of skill, ability, or equipment. Whether these errors qualified as inadvertent or not was never specifically addressed. The appeals court in Operton addressed exactly what is meant by an inadvertent mistake in the statute by holding that: (1) some kind of employee intent behind the mistakes at issue was necessary to show that the mistakes were more than inadvertent and (2) employer warnings did not automatically transform an inadvertent mistake into an intentional act.

Because the claimant won at the appeals court, argument started with counsel for the Commission, William Sherlin Sample. He began with an explanation about the Commission’s dispute with the appeals court over how the Commission’s prior misconduct decisions should be addressed. After a few comments or queries from the justices, that was all that was said directly about the deferral question. The rest of the oral argument featured questions about what the substantial fault disqualification meant and how to apply it.

Chief Justice Roggensack wanted to know whether the appeal tribunal held that there was no inadvertent error because the claimant was aware of the employer’s cash handling policies. In other words, did an inadvertent error turn on a lack of awareness of the employer’s job requirements? The appeal tribunal had stated:

[Operton] was aware of the employer’s policies, including the cash handling and WIC check procedures, but continued to make cash handling errors resulting in actual financial loss to the employer, after receiving multiple warnings. The record does not establish that the employee lacked the ability or skill to perform her work. As such, this appeal tribunal must find that her discharge was for substantial fault connected with her employment

The Commission disagreed with this equivalency. Simple awareness of an employer policy went to whether the employer’s job requirements were reasonable and did not address whether the actual on-the-job error was inadvertent or not.

NOTE: Indeed, to do otherwise would essentially mean that inadvertent mistakes on the job only occur when employees have no knowledge of what is required of them. It would essentially limit inadvertent errors to unreasonable job requirements and call into question why the provision for inadvertent errors existed in the first place.

In framing this question this way, Roggensack was essentially making the awareness of a rule the same as an intent to violate that rule. Awareness of an employer policy is not the same as being aware of the errors as they occur, however. Someone running a register that comes up short, for instance, may know that she should not come up short at the end of the day. But, the short register by itself does not indicate she had an intent to steal from the employer. There needs to be evidence that her intentional or grossly negligent actions were responsible for the register shortage. By equating mistake in this way with following an employer requirement, Roggensack is essentially doing what the Department has done with unemployment concealment.

Sample also explained to the justices that there was no express finding by the appeal tribunal or the Commission that the errors in question were NOT inadvertent errors. And, that explanation dovetailed with an issue that threaded through the oral argument: whether a finding that an employee’s mistake was inadvertent or not qualified as a finding of fact or a legal finding. For the Commission, this finding was strictly factual because it only touched on the “intent” of the employee when making the mistakes in question. As noted below, the justices had a different take.

Justice Kelly asked Sample about the relationship between unintentional mistakes for misconduct purposes versus inadvertent mistakes for substantial fault. While the dictionary definitions of inadvertent and unintentional rely on each other, Sample explained, the number of warnings Operton received transformed her mistakes from unintentional to intentional.

Justice Ann Bradley then tipped her hand and pointed out that Sample was making the same claim here that the court of appeals had rejected in its decision: namely that the Commission was merging the inadvertent errors provision with the infractions repeated after warning provision. For the Commission, this analysis by the appeals court did not apply because each successive warning to Operton made a claim of inadvertence less and less credible. Whereas the appeals court did not see any evidence of intent or willfulness by the employee in the appeal tribunal or Commission decision, Sample demurred, there was in actuality such evidence because a finding of no intent for misconduct purposes was NOT the same as a finding of unintentional conduct for the purposes of substantial fault.

Justice Gableman asked whether the number of errors can establish intent. Sample answered that such matters were handled on a case-by-case basis and that in Operton the “intent” in question arose from the series of errors the employee made.

Chief Justice Roggensack then pointed out that it appeared that the Commission was determining whether or not certain facts met a particular legal standard. During rebuttal, Sample again explained that there was no specific analysis of the errors as inadvertent and, that if such analysis was needed, a remand for additional evidence would be appropriate. Justice Abrahamson observed that when the facts are not in dispute — as in this case — the issue is usually whether those facts satisfy a particular legal standard. Where the facts are in dispute, she added, then the court is confronted with a mixed question of fact and law.

Marilyn Townsend represented Operton. After describing how unemployment benefits helped businesses, communities, and workers, Townsend faced questions from Justice Kelly about how to apply substantial fault. Did each mistake have to be analyzed in isolation or should they be examined as a group, he asked. Townsend answered both types of analysis could be applied, depending on the circumstances of each case. And, in Operton’s situation, she reported, each single mistake had to be examined separately from the others because of the amount of time between the mistakes and the distinct nature of the mistakes. The question was largely academic, however, as Townsend pointed out that the Commission never did an inadvertent error analysis for any of the eight errors in question.

Chief Justice Roggensack then returned to her earlier proposition concerning the portion of the appeal tribunal decision quoted above: should an awareness of a policy mean that the mistakes in violation of that policy constitute the required intent?

NOTE: Neither the parties nor the court addressed the issue that there can be degrees of intent. At present, the Commission generally requires a much higher level of intent for a finding of misconduct than it does in substantial fault cases. And, in Operton’s case, it is clear from the appeal tribunal decision and the briefing that she was unaware of the errors as they were being made. That is why the errors were inadvertent.

Justice Abrahamson asked Townsend which holding she preferred: the main holding in Operton or the holding by Justice Lundsten in his concurrence in which he observed that misconduct and substantial fault have important differences around the number of acts at issue and that each act has to be analyzed to determine whether it is something more than inadvertent. Townsend responded that, if forced to choose, she preferred the analysis in the concurrence.

Townsend also agreed with Chief Justice Roggensack that a temporal component had to be applied to each error at issue in the case.

NOTE: That is, each error had to be examined relative to other errors and what else was happening in the workplace in general.

Near the end of the oral argument, Justice Gableman observed that perhaps the case was about infractions and not inadvertent errors at all. In response, Justice Abrahamson posited that any of the three caveats to substantial fault could apply, and it was up the employee simply to show that he or she qualified for unemployment benefits under one of these three provisions.

NOTE: Gableman’s observation missed the distinction between an infraction and inadvertent error over which the appeals court hinged its decision. Infractions are acts over which a person has some control, like whether to call in when late to work, whereas inadvertent errors are accidental mistakes over which a person has no control, such as mis-dialing a phone number. Abrahamson’s response was also somewhat misleading, as it presumed that employees have to establish their eligibility for unemployment benefits rather than the employer demonstrating a disqualification.

Overall, the parties and the justices were effective in getting their points across. Probably the earliest for a decision is April 2017, and there should be a decision no later than June of next year.

The actual financial impact of substantial fault

Back in April 2016, I described the confusion about the two versions of the Department’s substantial fault proposals and calculated the financial impact of substantial fault based on that estimate.

But, there is actual data available for determining the financial impact of substantial fault. Wisconsin reports its handling of unemployment claims to the Employment & Training Administration of the United State Department of Labor. This federal agency then makes this data available to the public, and quarterly numbers regarding the number and outcome of non-monetary determinations is available via the ETA 207 series.

NOTE: Non-monetary determinations are those determinations that do NOT involve calculations to determine eligibility based on prior earnings or other kinds of monetary calculations. The data for non-monetary determinations includes determinations regarding discharges, voluntary leaving (i.e., quitting), and determinations regarding claimants’ able and available status, refusals of suitable work, adequate job search efforts, and other eligibility status issues. There is both a short description and a long description of this data.

Accordingly, this data can indicate specifically the kind of impact the substantial fault disqualification standard has on unemployment claims in the state of Wisconsin.

NOTE: The misconduct label for this data is used nationally because historically misconduct was the only disqualification standard used in discharge cases. But, starting in 2014, the misconduct data here for Wisconsin includes both misconduct and substantial fault determinations.

The substantial fault disqualification began to be applied by the Department in initial determinations issued on or after 5 January 2014. See 2013 Wis. Act 20 § 9351(1q) (new misconduct and substantial fault provisions “first apply with respect to determinations issued under section 108.09 of the statutes on January 5, 2014”).

Until the first quarter of 2014, the Department denied on average about 26% of all claimants who were discharged from their jobs. From the first quarter of 2014 until the latest available (the quarter ending June 2016), 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.

NOTE: The actual data for creating these charts is set forth in a table, WI Separation Data, compiled from the ETA 207 data.

This jump is even more shocking in light of the decline in discharge determinations since the start of 2014.

From 2007 to the end of 2013, the number of discharge determinations averaged 19,462.43 per quarter. Not surprisingly, during the height of the last recession in 2009 and 2010, there were discharge determinations in some quarters that numbered over 21,000 or even 22,000. See Table: WI Separation Data. But, in general the number of discharge determinations per quarter hovered around 17,000 to 19,000. In the first quarter of 2014, however, the number of discharge determinations plummeted to under 14,000. And, the number of discharge determinations has continued to decline since then. From the start of 2014 to June 2016, the Department has issued on average only 12,605.50 discharge determinations per quarter.

NOTE: The total number of determinations being issued by the Department has not declined, however. Prior to 2014, the number of determinations issued per quarter averaged 58,945.25. From 2014 on, the average number of determinations being issued increased to 59,668.60 per quarter. As indicated in the table for WI Non-Separation Data, the number of determinations not connected to separation issues being issued jumped from 46.87% of all determinations per quarter prior to 2014 to 64.01% after 2014. In particular, much if not all of this increase in non-separation determinations concerns an approximately 26% increase in determinations regarding a claimant’s able and available status, a five-fold increase in determinations (from just over 3,000 determinations prior to 2014 to almost 16,000 determinations on average after the start of 2014) over a claimant’s failure to follow the Department’s reporting requirements, and a nearly 100-fold increase in determinations (around 13 cases per quarter prior to 2014 to nearly 1,200 per quarter after 2014) over a claimant’s failure to follow the Department’s job profiling services. In all three of these categories, the percentage of benefit denials has also jumped at least 10 percentage points on average after 2014.

It should also be noted that these non-separation denials generally do not disqualify a claimant for an extended period of time. For instance, a denial of benefits because of failing to report to Department-mandated profiling services or provide requested information is usually cured by reporting for those services or providing the needed information. As a result, the disqualifications from receiving unemployment benefits pursuant to these denials are generally short-term denials. A denial of benefits because of substantial fault or misconduct, on the other hand, lasts 7 weeks at a minimum and requires new earnings of 14X a claimant’s weekly benefit rate in order to re-qualify for unemployment benefits.

This decline in discharge determinations, however, does not indicate that the impact of substantial fault should be discounted in some way. Quarterly reports on each state’s unemployment system from the Employment & Training Administration indicate both the average weekly benefit rate for claimants during the previous twelve months and the average number of weeks unemployment benefits are being received during the last twelve months. The report for Wisconsin for the first quarter of 2015 indicates an average weekly benefit rate of $288.04 for the previous twelve months and an average duration for benefits of 14.8 weeks, leading to $4,262.99 in unemployment benefits at issue. Applying the pre-2014 25.99% denial ratio to the post-2014 12,605.50 discharge determinations that take place on average in each quarter means only 3,276.17 cases would be denied rather than the 4,852.00 being denied with substantial fault in place — a difference of 1,575.83 cases. Multiplying this number of cases by the $4,262.99 of unemployment benefits at issue leads to an amount of $6,717,747.53 per quarter being denied claimants currently under this new substantial fault standard. As substantial fault has now been in effect for ten quarters, the amount of unemployment benefits “saved,” or not paid to claimants, amounts to $67,177,475.32.

It is expected that substantial fault will also, on the whole, lead to employees filing fewer claims because claimants will learn how broad the substantial fault disqualification is and stop filing claims altogether. The data supports this trend. In the second quarter report in 2016, the weekly benefit rate for the last twelve months is $306.43, and the average duration of benefits for the previous year is 13.3 weeks. With these figures, the amount of benefits at issue is $4,075.52. Multiplying this amount by the 1,575.83 average number of cases per quarter denying unemployment benefits to claimants because of substantial fault leads to an amount of $6,422,326.68 per quarter being denied to claimants and a ten quarter amount of $64,223,266.82. As a result, the range of lost benefits because of substantial fault is between $67 and $64 million.

NOTE: The Department’s original estimate of $19.2 million per year, after 2.5 years, amounts to $48.4 million — approximately $15-$20 million less than what the actual data reveal.

So, even as fewer and fewer discharged employees are filing claims for unemployment benefits, the new substantial fault standard that become effective in 2014 is leading to thousands of claimants being denied millions in unemployment benefits.

Labor Radio features on unemployment law

WORT‘s Labor Radio has run feature stories on unemployment law the past two weeks covering substantial fault and concealment. The clinic website has the details.

The financial impact of substantial fault

A document available on this blog is cited by the Appeals Court in Operton v. LIRC, namely the original Department proposal for substantial fault — D12-01.

The appeals court observes at n.5 on p.6 of its decision that this document does not quite match the version of D12-01 supplied by the Commission in its briefing. Even though both versions are dated 24 October 2012, the copy produced by the Commission has an actual number for the fiscal impact of the proposed addition of substantial fault and the changes to misconduct — $19.2 million per year. The original D12-01 document introduced at the 27 November 2012 Advisory Council meeting only stated that the fiscal impact was yet to be determined. From my records of the Advisory Council meetings, it appears that the Department made this revision to D12-01 at the 21 February 2013 council meeting.

Obviously, the Department added this fiscal impact information without otherwise noting this change. Certainly, this number reveals a staggering impact on Wisconsin claimants when UI data from 2013 is considered. In the fourth quarter of 2013, the average weekly benefit claimants received in Wisconsin that year was $276.14, and those unemployment benefits lasted 15.9 weeks on average (see p. 64 of the data report). Multiplying these numbers together leads to a total benefit amount received of $4,390.63. Divide this number into the proposed $19.2 million fiscal impact from substantial fault, and 4,510 claimants end up being disqualified under these changes in unemployment. Each year.

“Substantial” changes to substantial fault

Last week, the Appeals Court issued a decision in Operton v. LIRC that significantly changes how the Labor and Industry Review Commission and the Department of Workforce Development have been applying the substantial fault disqualification put into affect in 2014 by the Legislature over the rejection of the Advisory Council.

The Commission had previously held that substantial fault equals negligence and that the only way to avoid disqualification for a work-related mistake was for the claimant to demonstrate he or she lacked the skills or equipment to do the required work or that there was no prior warning from the employer about avoiding the mistake at issue. Operton significantly changes what employees need to show about their alleged lack of skills or whether their mistakes were inadvertent or not.

The case arose from a Madison unemployment clinic client that Marilyn Townsend took on. She and her partner, Fred Wade, made a crafty, inside attack into what substantial fault means and broke it apart from within. The appeals court held in Operton that: (1) some kind of employee intent behind the mistakes at issue were necessary to show that the mistakes were more than inadvertent and (2) employer warnings did not automatically transform an inadvertent mistake into an intentional act. As a result, accidental qua inadvertent actions should not disqualify claimants any more.

NOTE: Accidents that cause substantial damage to an employer’s property, however, can still qualify as misconduct under another change passed by the legislature over the rejection of that change by the Advisory Council. See Hamson v. Ozark Motion Lines, UI Hearing No. 14004168MD (5 March 2015).

As noted previously, substantial fault led to sharp decline in benefit payments. Given how important unemployment benefits are to those who need to pay rent and buy food, this decision should have a significant impact for many. But, that impact might only play out for those realizing they need to appeal initial denials of their benefit claims. As has emerged with how the Department applied concealment law the past several years, the Department will simply ignore legal precedents with which it disagrees and then re-write the law to match the outcome it desired.

UPDATE (19 Sept. 2016): After numerous legislators wrote the Advisory Council in a letter dated 1 April 2013 containing 33 proposed changes to unemployment law, the Department drafted a table detailing these proposals relative to the Department proposals that the council had before it already. See also “Advisory Council Meeting — 18 April 2013” (describing events of the April 18th Advisory Council meeting and linking to certain documents relevant to this meeting, including the April 1st letter and the DWD table). In this table, the Department projects missed savings of $17 million through the substantial fault and new misconduct disqualifications that the Advisory Council had declined to adopt. No explanation is available regarding why this amount differs from the earlier $19.2 million figure in the February 2013 version of D12-01. As indicated here, the financial impact of substantial fault has actually been much greater: between $67 to $64 million.

 

Substantial fault equals negligence

In just two weeks time (a record turnaround), the Labor and Industry Review Commission issued a decision in the substantial fault case I just posted about a few days ago.

The decision deserves careful reading. There is no surprise here that the Commission found no misconduct. In failing to secure a wheelchair passenger, the Commission explained, the “employee did not willfully disregard this responsibility; it was an act of negligence” and that this “negligence was not of a severity to willful disregard of the employer’s interests.”

But, the Commission did find that this negligence constituted substantial fault. The Commission maintained in this decision: (1) that the reasonableness of the employer’s requirements is established as articulated (that is, on its face) and (2) that the employee has to demonstrate that the action at issue was beyond his or her reasonable control. For the Commission, the employee failed to satisfy this requirement. “The evidence does not show that the employee’s failure was a minor infraction, that the error was merely an inadvertence, of that she lacked sufficient skill, ability or equipment to perform her responsibility.”

There are two problems here with the Commission’s reasoning. First, the Commission is placing the burden of proof on claimants to demonstrate they satisfy one of the three caveats to avoid a finding of substantial fault rather than having employers first show that the action at issue truly is something the employee should be expected to have reasonable control over. Second, and more troubling, the Commission is holding here that a negligent act disqualifies someone from unemployment benefits. As a result, this decision could possibly threaten the tax credits employers currently qualify for.

There are a few but very important federal requirements that state unemployment systems must satisfy in order for the employers in those states to qualify for tax credits. See 6 U.S.C. § 3302 (federal tax credits for employer’s contributions to state unemployment funds). One of these requirements is that:

(10) compensation shall not be denied to any individual by reason of cancellation of wage credits or total reduction of his benefit rights for any cause other than discharge for misconduct connected with his work, . . .

6 U.S.C. § 3304(a).

If the Secretary of Labor finds that a state is not meeting this requirement, then that lack of compliance means the tax credit goes away. So, the Commission, by holding that substantial fault is in actuality substantially less stringent than the misconduct standard, may have effectively ended a vital tax savings for employers. For a measure originally intended to reduce the unemployment benefits being paid out, the new substantial fault standard may now cost employers much more through higher taxes.

Wisconsin’s new substantial fault standard

I just filed a brief with the Labor and Industry Review Commission about the new substantial fault standard. Here are the relevant portions:

As amended by 2013 Wis Act 20, Wis. Stat. § 108.04(5g)(a) defines substantial fault as:

those acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the job but shall not include:

1. Minor infractions of rules unless such infractions are repeated after a warning was received by the employee,
2. inadvertent mistakes made by the employee, nor
3. Failures to perform work because of insufficient skill, ability, or equipment.

As noted previously, these three caveats mirror to a great extent the clarifications from Boynton Cab. As discussed in greater detail below, treating these caveats as exceptions or clarifications significantly affects how this new standard will be applied.

When substantial fault was initially proposed, the Department of Workforce Development (“DWD” or “Department”) explained “that the current misconduct standard within Wisconsin law was too generous in providing benefits to employees who should not qualify for benefits” and that the new substantial fault standard:

creates a lower standard for disqualifying a claimant but then places some restrictions on the applicability of the lower standard. The proposal also provides further clarification regarding what constitutes misconduct. It is hoped that this strikes the right balance over the concerns of the employer community and claimants who seek benefits.

Department Proposal D12-01 at 5 (available at http://dwd-uireform.vforberger.fastmail.fm/D12-01.pdf); see also Department’s Examples and/or Explanation for Each Proposal at 2 (examples of discharges considered to be substantial fault include an employee discourteous to a customer after warnings, an employee sleeping on the job after warning and aware of policy prohibiting sleeping when on-duty, and an employee who fails to do his or her job duties and tells the employer otherwise (available at http://dwd-uireform.vforberger.fastmail.fm/Examples%20and%20or%20Explanations%20for%20each%20Proposal.pdf). But cf. Victor Forberger, “Memorandum RE: 27 November 2012 DWD legislative proposals to Advisory Council” (13 January 2013) at 6-10 (examples and provisions examined for when substantial fault would apply are for the most part already considered under case law as disqualifications for misconduct) (available at http://dwd-uireform.vforberger.fastmail.fm/DWD-Proposals-Response.pdf), posted at “Memo on DWD proposed UI changes” (available at https://wisconsinui.wordpress.com/2013/01/14/memo-on-dwd-proposed-ui-changes/) .

The Advisory Council rejected this proposed change and instead worked out new misconduct language to clarify that longstanding disqualification. See blog posting “Advisory Council Meeting — 1 April 2013” (available at https://wisconsinui.wordpress.com/2013/04/01/advisory-council-meeting-1-april-2013/) (council declined to adopt proposed substantial fault standard but recommended adding various examples of misconduct). The Department never acted on the Advisory Council’s recommendations, however. And, on 29 May 2013 the Joint Finance Committee added the rejected substantial fault and misconduct standards to the budget bill that eventually became 2013 Wis Act 20. See blog posting “Advisory Council — 2 May 2013 meeting — and legislative actions today” (available at https://wisconsinui.wordpress.com/2013/05/29/advisory-council-2-may-2013-meeting-and-legislative-actions-today/) and blog posting “JFC UI amendments” (available at https://wisconsinui.wordpress.com/2013/05/29/jfc-ui-amendments/) (JFC motion to amend budget bill included various unemployment financing provisions and rejected substantial fault, misconduct, and quit provisions; DWD drafted bills that eventually became 2013 Wis Act 36 never included the Advisory Council’s agreed-upon misconduct and quit proposals). Accordingly, these changes to unemployment law went against the express recommendations of the Advisory Council.¹

As the Commission can only act when presented with relevant cases, it has had limited opportunities to clarify how this new substantial fault standard will be applied. From the cases decided so far, it appears that the Commission has focused on the three caveats as exceptions. See, e.g., the Commission’s on-line outline of decisions that includes a general category for substantial fault decisions and then three additional categories for each of the three caveats, labeled as exceptions (available at http://dwd.wisconsin.gov/lirc/ucdg_mc_.htm#Substantial%20Fault). This categorization of substantial fault cases is a mistake as it necessarily shifts the burden of proof in these discharge cases prematurely to claimants who have to demonstrate whether the exceptions apply to them rather than first requiring employers to satisfy their burden of proof that their expectations are reasonable and that the action or inaction in question is something over which employees exercise reasonable control. Kansas City Star Co., Flambeau Paper Co. Div. v. Dep’t of Industry, Labor & Human Relations, 60 Wis.2d 591, 602, 211 N.W.2d 488 (1973) (an employee is presumed eligible for unemployment benefits, and the party resisting payment must prove disqualification), see alsoBoynton Cab, 237 Wis. at 243, 296 N.W. at __ (a challenging employer has the burden to show disqualifying misconduct). Accordingly, the Commission should instead read the caveats as clarifications of what (1) the reasonable employer expectations entail and (2) the scope the conduct over what the employee exercises reasonable control. Indeed, this reading of the statute comports with how the Commission handles misconduct cases under Boynton Cab: the clarifications to the misconduct standard in Boynton Cab are not considered as exceptions but rather as indicia of circumstances where an employer has failed to satisfy its burden of proof. Herr v. McEssy Investment Co., UI Hearing No. 10602407MW (27 August 2010) (reviewing case law to explain that finding of misconduct is more than just violation of employer policy but also requires examination of whether the employee’s actions in the circumstances at hand rise to the level of being intentional and unreasonable interference with the employer’s interests).

This shift in focus from exceptions back to clarifications can be seen in Campo v. Park Towne Management Corp., UI Hearing No. 14000528MD (27 June 2014), where the Commission found that a claimant was not disqualified for her mistakes in doing her job. For the Commission, those mistakes were not rule violations per se but either “inadvertent errors” over actions for which she had not been previously warned or performance mistakes since the claimant herself never demonstrated a level of competence to do the work in the first place. It is questionable whether many claimants will be happy with such a result, as they are essentially having to show their inability to perform a job in order to win unemployment benefits. On the other hand, if the Commission had initially determined whether the employer had first demonstrated whether its expectations were reasonable or not and whether the employee exercised reasonable control over the job duties in question, the decision would have led to the same result without having to label the claimant as lacking competence to perform her job. In Campo, the claimant’s problems existed since she was hired, so (1) there was no showing by the employer that the claimant had been presented with a clear, understandable guidelines about her job duties, and (2) the employer had failed to demonstrate that the job duties in question could be met prior to the discharge. As a result, the employer failed to meet its burden of proof either that its expectations were reasonable or that the employee had the skills, ability, and equipment to carry out those ambiguous job duties.

So, the decision to disqualify a claimant for unemployment benefits because of substantial fault turns initially on two issues: (1) whether the employer’s expectations are reasonable and (2) whether the employee has the skills, abilities, and equipment to exercise reasonable control to accomplish those job duties.

An employer’s reasonable expectations of its employees necessarily requires that those expectations not only be objectively reasonable but also known to the employee and uniformly enforced.² An employer can satisfy this knowing requirement by either a warning to the employer or a written or oral policy presented to the employee. In Frederick v. Vista Int’l Packaging LLC, UI Hearing No. 14601230MW (30 May 2014), an employer orally informed employee three times about employer expectations that employee control his behavior and follow directions without argument, so prior warning to not argue were unnecessary for substantial fault to be found. The employer established that the employee knew and understood specifically what the employer expected of him. Id., cf. Robinson v. Scan-Pac Mfg Inc., UI Hearing No. 14601571MW (27 June 2014) (no violation of a reasonable expectation occurred when employee discharged for absenteeism because employee had previously completed forms for requesting time off and had no prior attendance warnings). Once that burden is met by the employer, only then should the burden of proof shift to the employee to show that an actual warning of some kind was still needed for substantial fault to be found (for example, an employee could indicate that a supervisor informed the employee that the employer expectation at issue would no longer apply to or count against the employee after three months and those three months had since lapsed).

The employer should also be required under its burden of proof in discharge cases to demonstrate that the employee exercises reasonable control over the action or inaction at issue. Hence, the employer must first present evidence that the employee has the skills, knowledge, ability, and equipment to exercise that reasonable control. See Rolkosky v. Marinette Marine Corp., UI Hearing No. 14401261EC (30 May 2014) (employee guilty of substantial fault after employer told employee to not sit idle and employee, when trapped in room, had the ability to yell for help or use a telephone but instead chose to wait until the door was opened by someone).³ An employee, for example, should not have the burden of proving that she was late to work because of a blizzard in order for one of the exceptions to apply. Rather, the employer should first have the burden of showing that the employee could still have arrived on-time to work because she had the ability and equipment to drive in extreme weather. If the employer then presents evidence to show that all of its other workers managed to navigate through the snow in order to arrive at work on-time or that the claimant had previously driven through similar blizzards, only then should the claimant have to demonstrate that this particular blizzard presented circumstances relating to her abilities (a broken arm prevented use of the manual transmission in her four-wheel vehicle driven during previous blizzards) or the equipment available to her (the four-wheel vehicle was at the repair shop) or that inadvertent mistakes (a slide-out onto the side of the road necessitated help from a tow truck) led to her late arrival at work.

1Counsel for Ms. CLAIMANT lacks long-term knowledge of Wisconsin’s unemployment law to know whether the legislature has ever before enacted changes to unemployment law that the Advisory Council had previously rejected (as opposed to just modifying those recommendations).

2This uniformity requirement is not currently being examined by the Department, appeal tribunals, or the Commission. Rather, employer’s policy are accepted as presented as prevalent, communicated to all, and completely understood and applied in the same way by all persons. As a result, the reasonableness of a policy is presumed without any evidence to support such a presumption. This failure to ask basic questions of employers about how their expectation has been applied in the past to other employees has led to hearing records, as demonstrated in this case, where basic information about the requirement is missing. Here, for instance, basic questions about how the wheelchair tip policy was applied by the employer generally, what training was made available, what role attendants and volunteers had relative to drivers in effectuating the policy, how the safety of other passengers mattered and was handled, and how the policy changed over time were not broached (the employer witness testified as to the importance of the wheelchair tip policy and how it was put in place two years ago, synopsis at 3, but there is no explanation of how the policy actually changed from what existed before and what the employer does to implement the policy currently). By simply having employers meet their statutory burden of proof by showing how a policy in question has been developed and applied, the Commission would gain key evidence about the mechanics and application of the policy.

3Following the shifting burden of proof being described here, Rolkosky could have over-turned a finding of substantial fault by showing that his voice was hoarse because of illness, the door was too thick for sound to travel through, or that the telephone was inoperative.