Legal Updates


SUBSTANTIAL FAULT IN UNEMPLOYMENT COMPENSATION

January 30, 2018

Wisconsin’s unemployment law, found in Chapter 108 of the Wisconsin statutes, provides for temporary compensation between periods of employment, provided certain eligibility criteria are met. The cost of these benefits are paid, in the case of a public employer, directly by the employer, or in the case of a private employer, through the state unemployment compensation fund. In either case, there is an incentive for an employer to, in certain cases, challenge the award of unemployment benefits to a terminated employee.

For a long time, an individual whose employment was terminated by an employer was eligible to receive benefits unless the employer could establish that the termination resulted from the individual’s misconduct. The misconduct standard, as applied by the Unemployment Compensation Division of the Wisconsin Department of Workforce Development was a high burden for employers to meet. Often, employers determined that objecting to the award of benefits on the basis that the termination was for misconduct was not worth the effort and cost associated with doing so.

Beginning in January 2014, the law was amended to add an additional basis upon which an employee may be deemed ineligible for benefits following termination from employment. The unemployment law was amended to provide for ineligibility for benefits in the case of an employee terminated for “substantial fault.” The term was relatively loosely defined, as follows:

(5g) DISCHARGE FOR SUBSTANTIAL FAULT.
(a) An employee whose work is terminated by an employing unit for substantial fault by the employee connected with the employee’s work is ineligible to receive benefits …. For purposes of this paragraph, “substantial fault" includes those acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the employee’s employer but does not include any of the following:

1. One or more minor infractions of rules unless an infraction is repeated after the employer warns the employee about the infraction.

2. One or more inadvertent errors made by the employee. 

3. Any failure of the employee to perform work because of insufficient skill, ability, or equipment.

Wis. Stat. § 108.04(5g).

Following passage of 2013 Wis. Act 20, which included the creation of Section 108.04(5g), there were widespread questions regarding the meaning of the term “substantial fault” and how it might be applied. In 2017, the Wisconsin Supreme Court issued a decision in Operton v. Labor and Industry Review Commission, 2017 WI 46 (2017) in which it reviewed an administrative law judge’s decision denying unemployment compensation benefits to an employee who had been terminated from her position as a cashier for Walgreens.


In the Operton case, the employee was terminated from her position following multiple incidents involving errors in handling transactions. These included instances in which she accepted credit cards without following store guidelines for doing so, specifically verifying the customer’s identity, where she neglected to retain a check used for payment, instead giving it back to the customer, an incident in which she failed to assure the customer completed entering a pin to complete a transaction, and other similar infractions. In at least one instance, the police were involved because she accepted a stolen credit card. Operton was terminated, and although the employer did not contend that Operton had intentionally or maliciously acted, Walgreen’s contested her request for unemployment benefits on the basis that she was at substantial fault for her termination from employment.

The Administrative Law Judge and the Labor and Industry Review Commission (LIRC) both found that Operton was terminated for substantial fault and, therefore, ineligible for unemployment compensation.

The Agency, along with the LIRC on appeal both held that the employee’s actions were not misconduct, but that she had been placed on notice of the employer’s concerns, that her deficiencies related to duties over which she exercised reasonable control, and that the employer’s requirements were reasonable. The LIRC found that Operton was ineligible for benefits based on her substantial fault. On review, the Wisconsin Supreme Court reversed the LIRC’s decision.

The Supreme Court first reasoned that, although the LIRC is typically entitled to deference in its interpretation of Chapter 108, in this case, it had failed to sufficiently articulate its reasoning and, therefore, there was insufficient analysis to which deference could be afforded. Specifically, the Court found that the LIRC failed to adequately evaluate the application of section 108.04(5g)(a)(2), which provides an exception to the application of substantial fault in the context of “one or more inadvertent errors.”

The Court went on to determine that Operton’s errors were related in the sense that they involved mishandling of payments, but were different each time in that they involved failure to follow different procedures each time. As such, the employer’s warnings did not convert inadvertent error to intentional conduct. It also found significant the fact that Operton, over the course of her employment, conducted over 80,000 transactions out of which she made errors on only a few. Finally, the Court noted that she went often months at a time with no errors and that the record supported the conclusion that there was no intentional conduct at issue. Therefore, the Court reasoned, the legislature’s exception to the substantial fault exclusion for “one or more inadvertent errors” applies in a situation, such as this, where the errors, no matter how many or how costly, were inadvertent. The Court notes that there is no limit to the number of inadvertent errors an employee may make while still enjoying the exception to the substantial fault ineligibility.

Conclusion

It is apparent that the addition of the exclusion for unemployment benefits for substantial fault does, much like the exclusion for misconduct, require that the employer establish ineligibility and that to do so requires that the employer establish intentional conduct on the part of the employee. There are two (2) primary reasons for engaging in this discussion. First, to remind employers that providing notice of deficiencies, as well as providing notice of expectations and policies to employees is sound practice, even if it may not support an effort to prevent a former employee from receiving unemployment benefits following termination. Second, this discussion is important to remind employers that the award of unemployment compensation benefits is not a finding that the termination decision was improper.

Employers should be cognizant of the fact that Wisconsin’s unemployment compensation law is “to be liberally construed to effect unemployment compensation coverage for workers who are economically dependent on other in respect to their wage-earning status.” See Operton, 68 (Abrahamson, J. concurring).

For questions regarding this article, please contact the author, Attorney Geoffrey A. Lacy (email: glacy@strangpatteson.com; telephone: 844.833.0824), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.

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