Wednesday, April 12, 2017

Wisconsin Court of Appeals Weighs in on "Substantial Fault" in Unemployment Insurance Claims

Back in 2013, the Wisconsin legislature enacted amendments to the unemployment insurance statute in response to "concerns within the employer community that the current misconduct standard in Wisconsin was too generous in providing benefits to employees who should not qualify."  These amendments created a new two-tier standard for disqualifying claimants from receiving unemployment insurance benefits: misconduct and substantial fault.  I have written about this new "substantial fault" standard previously here and here.

The statutory definition for "substantial fault" is as follows:
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....
Unlike for "misconduct," in which the Wisconsin legislature expressly set forth specific employee actions that constitute "misconduct," the legislature set forth three (3) acts or omissions by employees that do not constitute substantial fault:
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. 
In the appeal that will be discussed, the terms "inadvertent errors" and "infractions" come into play.  Under the Wisconsin Court of Appeals rules of statutory construction, when the legislature uses different terms within the same statute, they intend the terms to have distinct meanings.  Whereas "error" is defined in Wisconsin statute, "infraction" is not.

Lela M. Operton v. LIRC, et al. 

Lela Operton worked as a full-time service clerk for Walgreens from July 17, 2012 until her termination on March 24, 2014.  As a service clerk, Operton average hundreds of cash handling transactions per day during her 20 months of full-time employment, or an estimated 80,000 transactions.  Operation was well-liked by Walgreens, who described her work and demeanor as "conscientious," "always on time," "worked to the best of her ability," and willing to work on her days off.  However, Operton made eight (8) "cash handling errors" during her 20 months with Walgreens that led to her termination which was labeled as "cash handling errors" and "her failure to improve on them."  Walgreens acknowledged that the cash handling errors were not intentional nor performed with any ill will on the part of Operton.

Operton applied for unemployment benefits and Walgreens opposed Operton's application claiming that she "was discharged for violation of a reasonable company policy regarding excessive cash discrepancies" which was as a result of her "incapacity to perform."  The Department of Workforce Development ("DWD") initially denied benefits to Operton on the grounds of "misconduct." Operation appealed this initial determination and an administrative evidentiary hearing was held before an administrative law judge ("ALJ").  The ALJ concluded that Operton was ineligible for benefits not because she engaged in misconduct, but that her discharge was for "substantial fault."   Operton appealed to LIRC, who affirmed the ALJ's decision and adopted the ALJ's decision as its own.  LIRC also made a finding not included within the ALJ's decision:  Operton's March 22, 2014 failure to check the customer's identification was a "major infraction."  LIRC did not explain why the error was a "major infraction."  Operton then filed for an appeal for judicial review to circuit court and the circuit court appealed LIRC.  Operton then filed an appeal to the Wisconsin Court of Appeals.

Wisconsin Court of Appeals Decision

The Court of Appeal ruled that de novo review is required as "substantial fault" is a completely new legal concept not previously in existence.  LIRC was not applying an old statute in a new way; it was applying a new statute to a new concept.  The application of the "substantial fault" statute is a matter of first impression before the Court of Appeals, and LIRC did not have a longstanding nor consistent history in the application and construction of the substantial fault statute (the Court noted two other cases dealing with substantial fault where LIRC arrived at results inconsistent with this case).

The Court of Appeals reversed LIRC for three (3) main reasons:  1)  There was no evidence in the record that Operton committed a "major infraction," 2) Repeated inadvertent errors, even if warned, do not constitute "substantial fault," 3)  Operton's conduct reflects a failure or ability to conform to Walgrees' expectations rather than "substantial fault."  The Court of Appeals discussed each of these in great detail, which is beyond the scope of this post, but only furthers the famous saying, "the devil is in the details."

In concluding their opinion, the Court of Appeals stated that "[i]nadvertent errors, even if repeat after a warning, do not constitute substantial fault," that LIRC's finding that Operton's eight error was a "major infraction" has no support in the record, and Operton's failure to meet Walgreens expectations under the facts presented does not make Operton ineligible for unemployment benefits under Wisconsin Statute.  The Court of Appeals reversed the circuit court's order affirming LIRC's decision and remanded for further proceedings consistent with this opinion.

While the definition and application of "substantial fault" is still developing and evolving, this case further shows that "substantial fault" will not apply to employees and terminations where the employee clearly was not making intentional mistakes or errors unless it's established that the employee was warned and made aware of these mistakes and errors and that more of them will result in discipline, up to and including termination. Thus, even if an employee made a dozen mistakes or errors that were of great cost to an employer, without clear warnings or evidence the employee was acting intentionally, misconduct nor substantial fault is likely to apply and the employee will likely be eligible for unemployment benefits.

The case is Lela M. Operton v. LIRC et al., 2016 WI APP 37 (April 14, 2016).  The Milwaukee Journal Sentinel wrote about the case here.

No comments:

Post a Comment