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 alsoAdvisory 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.

 

UI bill public hearings and UI concealment

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

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

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

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

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

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

over-payments assessed

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

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

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

concealment collected

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

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

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

New Internet Claims Filing Process for 2016

The Department of Workforce Development is revamping its Internet Claims Filing process with a much more complicated and detailed series of questions and screens. At the December 17th Advisory Council meeting, the Department was scheduled to present to the council what these changes would entail. Because of other issues, however, the council never got to see this presentation. Luckily, the Department sent me a copy.

Those filing their weekly claim certifications will now be told about fraud warnings at the start and end of their claim filing. See pp.2 and 17. And, the 14 questions now being asked are at least 20+ questions. Furthermore, rather than simplifying the information being asked about, the new questions continue to be legalistic and leave key information out.

NOTE: For comparison, here are the questions Massachusetts asks claimants (in Massachusetts, the phone questions are the same as when filing by Internet).

NOTE: Also compare the information available in the Massachusetts Guide to Benefits for Claimants with Wisconsin’s Handbook for Claimants. Notice the kind of information available in Massachusetts and the tone of how that information is presented as compared to Wisconsin.

For example, in Wisconsin there will now be a question about school attendance. See p.3. Usually, when you attend school during your regular work shift you are ineligible for unemployment benefits. But, if you work during the evenings while attend classes during the day, you should still be eligible for unemployment benefits when laid off from your evening job. In this case, the schooling does not interfere with your availability on your typical work shift. The new Internet filing form, however, only asks about attending classes during the day and does not include or ask for any information about regular work shifts.

Able and available status are now two separate questions as well. See pp.4 and 5. Missing work because of illness usually leads to a reduction in weekly benefits because work was missed. The question on p.4, however, only asks about your regular employer. Because many claimants who have temporary, part-time work do not think of those employers as their “regular” employers, they will not think a question about missing work with a temporary employer because of sickness is included in this question. This question should be asking about any current or future employer and make no reference to a “regular” employer.

Problems with other questions continue. Claimants are supposed to report all wages earned in the week for which they are filing, regardless of when they are actually paid those wages. So, the Department goes into detail about how to report those wages and hours (and minutes) of work for employers (see pp.6-8) as well as how commission work and sales are to be reported (see p.9). But, then the Department asks about sick pay, bonus pay, holiday pay, and other kinds of pay (see pp.10-12) as already received for the week — “did you receive?” — or to be received — “will you receive?” As a result, these questions imply that regular wages that are to be paid in the future do not need to reported since there is no question about reporting wages that “will be received?” Instead of two questions for vacation pay et al., only one should be asked: “Are you to receive?” And, instead of all of these separate kinds of wage income that now has to be reported separately, the Department should simply ask claimants to report “Any and all kinds of income connected to the work with EMPLOYER you are to receive for the week at issue.” By breaking these kinds of income into separate categories, the Department is requiring claimants to have an accountant’s understanding of their income in order to correctly fill out their weekly claim certifications rather than just asking for the total, gross amount of all income regardless of kind.

NOTE: The Department will even have a screen for miscellaneous income, such as baby-sitting, that has to be reported. See p.13.

Specific work search information for each job action will also now have to be provided. See p.15.

Given all the information that has to be provided in the proper category now, opportunities for mistakes will abound. And, any mistake will be an opportunity for charging claimants with fraud. In short, this new Internet filing process will NOT make it easier for claimants to file their weekly claims. But, this new process will make it easier for the Department to charge claimants with concealment.

DWD gets a slush fund for “program integrity”

Jabba and C3PO

At the December 17th Advisory Council meeting, the Department presented two new proposals for providing additional funds for program integrity — aka charging claimants with concealment.

D15-14 allows the Department to use leftover special assessment funds for program integrity purposes instead of transferring those leftover monies to the balancing account. At present, this leftover amount is approximately $9.3 million (for comparison, the federal funds DWD currently receives this fiscal year for administering the state’s entire unemployment program is around $56 million).

D15-15 will allow the Department to siphon off 0.01% (i.e., 0.0001) of employers’ UI taxes for program integrity purposes. Employers’ accounts are still credited for these amounts, so employers see no increase in the UI taxes they pay. The balancing account, however, receives less because the funds are being diverted to cover program integrity costs. As a result, this assessment will only occur when there is no danger of the fund turning red (which is extremely unlikely given the low amount of benefits currently being paid out).

How much will this assessment be? As of December 12th, UI tax receipts in 2015 amount to $1.04 billion. Now, a portion of these tax receipts go into a general solvency account to cover benefit payments that are not chargeable to any employer (such as when a claimant is forced to quit a job because of a child care emergency). But, assuming $650 million of these tax receipts are going towards employers’ UI accounts, then a 0.01% assessment will allow $65,000 annually for funding a staffer dedicated to “program integrity.” Add the $9 million plus available under D15-14, then the Department will essentially have for the next several decades its own slush fund for hiring program integrity staffers.

The Department explained that the savings from these increased program integrity efforts will be “multiple times greater” than any expenses incurred from paying out UI benefits to claimants. The Advisory Council subsequently approved both proposals.

Wisconsin DOJ announces criminal concealment push

While a new definition of concealment is pending, Wisconsin’s Dep’t of Justice announced on December 15th an “expanded effort to prosecute Unemployment Insurance fraud cases.” The press release accompanying this announcement states:

An expanded effort to prosecute Unemployment Insurance fraud cases has led to an increase in referrals to the Wisconsin Department of Justice (DOJ) from the Wisconsin Department of Workforce Development (DWD) from 6 in 2014 to 36 in 2015. In a continuing partnership between the two agencies, investigations conducted by DWD are referred to DOJ where these cases are prosecuted for criminal behavior.

“It’s shameful to see this safety net, intended to help those going through a period of financial difficulty and vulnerability, ripped off by fraudulent unemployment insurance claims,” said Attorney General Brad Schimel. “Those who take advantage of the system and steal our hard-earned tax dollars should be held accountable and prosecuted for their misconduct. I applaud Department of Workforce Development Secretary Reggie Newson for prioritizing this type of crime by hiring additional investigators.”

In 2015, the Wisconsin Department of Workforce Development has referred 36 felony cases to DOJ for prosecution. Those cases generally involve situations where people continued to collect unemployment benefits while ineligible because they were employed but failed to report the income. An additional 73 unemployment fraud cases were referred to district attorneys statewide this year.

In one Unemployment Insurance fraud case prosecuted by DOJ, an individual reported wages totaling $2,345.19 during a three year period when in fact, payroll records show the individual actually earned $68,398.36. As a result of this individual’s false statements, he received $42,573 in unemployment benefits to which he was not entitled. In another case, an individual reported no employment for a period of 104 weeks, resulting in more than $19,000 in unemployment benefits for 98 of those 104 weeks. Further investigation revealed this individual had earned $29,169.55 from an employer during 96 of the 98 weeks for which she collected unemployment benefits.

The charges filed against individuals making fraudulent Unemployment Insurance claims can range from misdemeanors to felonies, depending on the amount of money fraudulently collected. Wisconsin State Statutes provide sentencing recommendations for Unemployment Insurance fraud that include full restitution, fines, jail time, and probation.

Having promised to make consumer protection a focal point of his administration, Attorney General Schimel concluded, “DOJ will ensure those in need receive the benefits for which they are eligible and the cheaters and liars who take advantage of public assistance programs do not find refuge in our state. We will continue to partner with other state agencies to root out fraud and hold criminals accountable.”

Certainly actual fraud/concealment should be prosecuted. But, fraud based on nothing more than a simple mistake is NOT unemployment concealment. Misunderstanding of questions or a lack of knowledge about how much total weekly wages were received are currently being charged as concealment by the Department despite no evidence of an actual intent to conceal wages for the purpose of receiving undeserved unemployment benefits.

NOTE: thanks to clinic representation, the claimant charged with failing to report wages he did not know about won his case before the Labor and Industry Review Commission. The Commission explained:

The employee explained his circumstances to department personnel on at least two occasions and thereafter followed the department’s instructions. He reported the wages he could ascertain and relied on the department’s assurances that it would verify his wages with the EMPLOYER and recalculate his benefits to reflect the wages, inclusive of service charge commissions, reported by the employer. The employee was never told to estimate his service charge commissions, which would have been difficult to do given how much they varied from week to week. The employee openly disclosed to the department that he earns hourly base pay plus service charge commissions or, as he referred to them, “tips.” The employee believed that he was filing his weekly claims correctly and that the system was operating as explained.

Unfortunately for the employee, the department’s mechanism for verifying the wages he reported with the EMPLOYER, and obtaining the missing piece of wage information, did not work as expected. Consequently, the employee was paid more in unemployment insurance benefits each week than he should have received. Yet, the erroneous payments were not due to the wrongful or fraudulent actions of the employee. The fact that the department did not anticipate there being discrepancies larger than a few dollars between the amounts reported by the employee and the amounts reported by the EMPLOYER does not transmute the actions taken by the employee in good faith into acts of concealment. The mistakes the employee made when reporting his work for and wages from the EMPLOYER were honest mistakes.

So, it bears repeating: Unemployment is increasingly becoming a trap for claimants, a trap they should avoid by not filing unemployment claims at all.

UI Darth Maul

UI jurisdiction changes going forward

In September of this year, the Department of Workforce Development announced in D15-11 a new, comprehensive rewrite of circuit court review of unemployment decisions. Some of the problems with these changes were previously described in this blog.

At its October 12th meeting, the Advisory Council approved of the changes in D15-11 before the Labor and Industry Review Commission could even respond. Just prior to the council’s October 29th meeting, the Commission did provide a response to D15-11 and asked the council to reconsider its approval of D15-11 in light of those comments. The council asked the Commission to make a formal presentation about the issue that was no more than ten minutes in length at the Council’s November 19th meeting.

The Commission did so and asked the Advisory Council to hold off on D15-11 so that the Department and the Commission could discuss these changes and work out a compromise. The Commission pointed out that D15-11 had been developed without consultation with the Commission and, given the Commission’s role in circuit court review of Commission decisions, there should be some consultation with the Commission in these matters. In the meantime, the Department presented a response to the Commission’s comments. Without comment or explanation regarding the Commission’s plea for some consideration in making these changes, the council approved of LRB draft legislation that had already incorporated D15-11.

The Commission’s comments point to some obvious defects in the Department’s proposed changes. And, the Department’s response highlights a fundamental defect in the Department’s rationale and reasoning for these changes. The Department maintains that a party in an unemployment case who does not file an answer is subject to default and should be subject to default.

Under the proposed change, a court may enter an order declaring that a non-appearing party is in default for failing to timely or properly answer the complaint. In the absence of a defendant’s excusable neglect for failing to answer the complaint, that declaration of default should ordinarily be the result. The defaulting party should be precluded from seeking to litigate the case later. The proposal conforms to the longstanding law and practice in court actions in Wisconsin in cases of other types.

DWD Response to LIRC Comments at 1-2. Right now, the parties who have “won” a Commission decision receive the following cover letter from the Commission when a circuit court complaint seeking review of a Commission decision is filed:

On [date], the Labor and Industry Review Commission received copies of pleadings seeking judicial review of the commission’s decision noted above. You are named as a party in these judicial review proceedings. As required by Wis. Stat. § 102.23, we are sending you a copy of these pleadings. You have the right to participate in this proceeding if you choose.

The commission will file a timely responsive pleading and will defend its position before the court. We will send you a copy of the commission’s response when we file it with the court.

We will be happy to answer any questions you may have about the case.

In other words, parties who agree with the Commission decision essentially piggy-back on the Commission’s efforts in defending its decision. Because unemployment proceedings are not intended to entail much administrative costs, this procedural mechanism for defending the parties interest during court review of a Commission decision makes a great deal of sense. Understandably, when parties feel that they have a concern or interest in a case distinct from the Commission, they have the option of filing their own answer to a complaint.

The Department’s now council-approved changes in D15-11 up end this procedure and require any party in an unemployment to file its own answer to a complaint or risk a default judgment. For employers who are NOT sole proprietors, such answers MUST be drafted by an attorney since corporations can only appear in Wisconsin courts through legal representation. For employer-side counsel, this requirement will certainly lead to more billable hours. For employers who have to hire attorneys to file these answers . . . well, attorneys usually are not cheap.