Benefits

Wisconsin Supreme Court Interprets ‘Substantial Fault’ Regarding Unemployment Benefits

In 2013, Wisconsin’s unemployment compensation law was amended, creating a two-tiered system for determining when an employee is disqualified from receiving benefits. The first tier, disqualifying an employee terminated for misconduct, has been the standard for more than 75 years. The second tier, which became effective January 5, 2014, disqualifies an employee terminated for “substantial fault.”Wisconsin

The Wisconsin Supreme Court recently decided a case interpreting the substantial fault provision, reviewing a decision by the Labor and Industry Review Commission (LIRC) and concluding that LIRC had incorrectly denied unemployment benefits.

New Standard

The statute defines “substantial fault” broadly to include “acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the employer.” The statute goes on to list three specific types of conduct that are exempt from the definition of substantial fault. Under the statute, substantial fault does not include:

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

As is the case when proving disqualification from benefits based on misconduct, the employer has the burden of proving substantial fault.

Facts of the Case

“Nora” worked as a full-time service clerk for Walgreens from July 17, 2012, to March 24, 2014. In her capacity as a service clerk, she sometimes performed more than 100 cash-handling transactions in a day. She completed an estimated 80,000 cash-handling transactions throughout her approximately 21 months of employment at Walgreens.

Nora made several cash-handling errors during her employment. On October 19, 2012, she accepted a Women, Infants, and Children (WIC) check for $8.67 when the check should have been for $5.76. She received a verbal warning for the mistake.

On February 12, 2013, Nora accepted a WIC check for $14.46 but didn’t get the customer’s signature on the check. On March 6, she gave a $16.73 check back to a customer, causing Walgreens to suffer a monetary loss in that amount. Walgreens wasn’t able to process either of the two checks, and Nora was issued a written warning for the two errors.

A few months later, Nora accepted a WIC check for $27.63 before the date on which it was valid, and Walgreens was again unable to process the check. She received a final written warning. On January 1, 2014, she returned a WIC check for $84.95 to a customer after the customer tried to use it to purchase goods, causing Walgreens to suffer another monetary loss. She received another final written warning.

Nora received yet another final written warning with a 2-day suspension on January 29, after she accepted a check for $6.17 even though it was valid for only $6. Soon after, a customer attempted to pay for $9.26 worth of items using a food share debit card, but the customer left the store without completing the PIN pad transaction. Nora was issued another final written warning, this time stating that any additional cash-handling errors would lead to the termination of her employment.

On March 22, Nora allowed a customer to use a credit card to purchase $399.27 worth of items, but she didn’t check the customer’s identification in violation of Walgreens’ policy. The company suffered a monetary loss of nearly $400 when it later discovered that the credit card was stolen.

On March 24, Walgreens terminated Nora’s employment. Its reason for the termination was her repeated cash-handling errors as well as her inability to improve despite the warnings she received. Walgreens didn’t contend that any of the errors were intentional or malicious.

Nora filed for unemployment benefits with the Wisconsin Department of Workforce Development (DWD). Initially, the DWD denied her benefits based on misconduct. She appealed, and a DWD administrative law judge (ALJ) concluded that she hadn’t committed misconduct but was nevertheless ineligible for benefits because she was terminated for substantial fault.

LIRC adopted the findings and conclusions of the ALJ, explaining that Nora’s major infraction (processing the credit card transaction without identification), taken together with the final warnings about her earlier cash-handling mistakes, persuaded it that she was discharged for substantial fault. The circuit court deferred to LIRC and affirmed its decision.

The court of appeals set aside LIRC’s decision, concluding the commission erred in its interpretation and application of substantial fault to the facts presented by Nora’s case. Giving LIRC no deference, the court of appeals conducted its own review and concluded that the fact that an employee committed multiple errors doesn’t automatically transform them from inadvertent to intentional. The Wisconsin Supreme Court granted LIRC’s petition for review and affirmed the court of appeals.

Supreme Court’s Reasoning

The majority of the court found that LIRC hadn’t provided an articulated interpretation of the statute that it applied to Nora’s case, so the level of deference afforded to its decision would be inconsequential. Applying either due-weight deference or no deference would require the court to construe the statute, which it did, although the issue of the standard of review was the subject of a number of concurring opinions by the justices.

The court reviewed each of the three exemptions to substantial fault, applying principles of statutory interpretation to explain the law. According to the court, the first exemption removes minor infractions from the type of conduct that’s considered substantial fault, unless the employee was previously warned about the infraction. The DWD’s analysis of this exemption states that it was intended to exempt minor rules violations that aren’t repeated after the employee receives a warning.

The court further explained that an employee terminated for repetitive minor violations isn’t at substantial fault, but if the employee is warned about the violations and continues to commit the same violation, her termination may be due to substantial fault.

The third exemption provides that an employee isn’t at substantial fault for her termination if she is incapable of performing the work required by the employment. The court explained that the plain language of the statutory exemption includes employees terminated for a lack of skill as well as those who aren’t able to master job performance. Nora didn’t rely on either the first or the third exemption, contending instead that her termination fell within the second exemption because the errors for which she was discharged were “inadvertent” errors.

In construing the second exemption, the court relied on definitions of “inadvertent” and comments by the DWD explaining that an employee’s unintentional mistakes are exempt from the definition of substantial fault. The court found that the statute requires an examination of the circumstances surrounding an employee’s error to determine if it was careless or unintentional. The court also found it significant that unlike the first exemption, the second exemption doesn’t include any reference to warnings.

As a result, an employer’s warning isn’t dispositive of whether an employee’s errors are inadvertent or not. That is not to say that an employer’s warning can never be relevant to whether an employee’s error is inadvertent, but an employee who was warned about an inadvertent error won’t necessarily be deemed terminated for substantial fault even if she subsequently made another error.

Additionally, the court noted that the statute doesn’t state whether there’s any limitation on the number of inadvertent errors an employee may commit before the errors are no longer inadvertent. The court declined to place a numerical limit on the number of errors, stating that the facts of Nora’s case require only an interpretation of the statutory language to mean that multiple inadvertent errors don’t necessarily constitute substantial fault, even if the employee has been warned about them.

The court applied the statute to Nora’s circumstances and concluded that her conduct was exempt from the definition of substantial fault, and she was entitled to unemployment benefits. The court agreed with LIRC that Nora’s actions fell within the general definition of substantial fault: She exercised reasonable control over the cash-handling transactions, and Walgreens’ expectation that she handle transactions correctly was reasonable.

Nevertheless, the court concluded, eight cash-handling errors over the course of 80,000 cash-handling transactions during a 21-month period of employment were “inadvertent errors.” The court found that the length of time over which the errors occurred supported its conclusion.

Also, Nora’s errors, albeit of a similar nature, weren’t the same repeated error. The court found that for the most part, her errors involved different rules or procedures each time. In accordance with the conclusion that her conduct was exempt from substantial fault, LIRC had improperly denied Nora unemployment benefits. Operton v. Labor and Industry Review Commission, 2017 WI 46.

Bottom Line

The court’s interpretation of the substantial fault exemptions falls in line with the presumption under Wisconsin law in favor of compensating the unemployed. The court left open the issue of at what point numerous errors that seem inadvertent in isolation cease to be inadvertent when viewed in their totality.

Nevertheless, the conclusion reached by the supreme court on the facts of Nora’s case suggests that it will remain difficult for employers to prove substantial fault and disqualify former employees from receiving unemployment benefits.

Leslie Sammon is a partner with Axley Brynelson, LLP. She can be reached at 608-283-6798 or lsammon@axley.com.