Justices to hear oral arguments in first substantial-fault proceedings

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Are mere mistakes made on the job enough to deny someone unemployment benefits after they’ve been let go? Or should people be able to receive benefits as long as their firing wasn’t the result of deliberate misdeeds?

Those questions are at the heart of a case that will be at the Wisconsin Supreme Court’s doorstep on Nov. 10. Various labor lawyers say the outcome is likely to have wide-reaching ramifications for both the state’s unemployment-benefits system and the judicial review of administrative decisions.

The particular dispute before the court arose when the managers of a Walgreens store in Madison decided to fire a local resident, Lela Operton, in March 2014 after finding that she had made various mistakes while working as a cashier there. Specifically, Operton is known to have made eight errors in the approximately 80,000 transactions she was involved in during her nearly three years at the store.

Officials at the Wisconsin Department of Workforce Development initially turned down her request for unemployment benefits. In doing so, they cited a provision in state statutes that allows benefits to be denied when former employees have committed misconduct.

Some argued the justification was an odd fit in Operton’s case. Generally speaking, they noted, misconduct is considered to have been committed when a person deliberately does something wrong, for example consumes alcohol or illegal drugs before coming into work or falsifies business records.

Perhaps recognizing flaws in the misconduct argument, an administrative-law judge who took the case up on appeal cited another reason for denying Operton’s request for unemployment benefits. This time the judge, noting that Operton was fired after being warned by Walgreens about the need to avoid errors, pointed to a newly adopted standard known as substantial fault.

Approved by the state Legislature in 2013, substantial fault came in response to many employers’ complaints that Wisconsin was being too lenient in doling out unemployment benefits. Knowing exactly what is meant by substantial fault, however, has proved tricky.

For one, state statute attempts to define substantial fault by saying what it isn’t. According to the legislative language, substantial fault involves neither minor infractions of the rules, unless they are repeated after a warning, nor failures to perform work because of insufficient skill, ability or equipment. One or more inadvertent errors also are not enough to constitute substantial fault.

Operton, who is being represented pro bono by the husband-and-wife team of Marilyn Townsend and Frederick Wade, appealed twice more without success. The Labor and Industry Review Commission, which reviews agency decisions, adopted the administrative law judge’s previous ruling citing the substantial-fault standard. Dane County District Court Judge John Albert later agreed.

It wasn’t until Townsend appealed a fourth time that she won a victory for Operton.

A three-judge panel of the District 2 Wisconsin Court of Appeals ruled that Operton’s mistakes had fallen short of constituting substantial fault. Not only that, the court found that Walgreens had never met its burden of showing that Operton was ineligible for jobless benefits.

“The findings of the ALJ reflect that Operton simply made the type of unintentional mistakes that all people make at times,” according to the court’s opinion, which was handed down in April.

The court noted that the statute plainly states that errors, even if repeated after a warning from an employer, do not constitute substantial fault.

The decision prompted the Labor and Industry Review Commission to petition for certiorari, which the state Supreme Court granted.

(Not so) great weight

Aside from the definition of substantial fault, Operton’s case raises questions about how much deference courts should give to regulatory agencies such as the Wisconsin Department of Workforce Development. Generally speaking, agencies are given broad leeway to interpret the rules and laws that they are responsible for enforcing.

In Operton’s case, though, the Court of Appeals declined to defer to the Labor and Industry Review Commission. In doing so, the appellate judges noted that the commission has no long-standing history of interpreting the state’s relatively new substantial-fault standard.

Labor and Industry Review Commission officials are now arguing that lack of deference is why the appellate court’s decision should be overruled. The only reason the commission’s interpretation of substantial fault should have been rejected, they contend, is if it had not been supported by facts in the record or was otherwise unreasonable.

Townsend has countered in her briefs by noting that Chief Justice Pat Roggensack used a recent law review article to question the notion that the courts should always pay deference. If taken too far, Roggensack argued, deference does little more than give court officials a convenient excuse for avoiding the very decisions they were elected to make.

Victor Forberger, a Madison unemployment lawyer, noted that Roggensack is not alone. Various scholars, other judges and even U.S. Supreme Court justices, including Clarence Thomas and the late Justice Antonin Scalia, have argued that courts should have authority to review administrative rules and actions whenever they want.

Reaping the benefits

Representing the Wisconsin Employment Lawyers Association, Forberger has submitted an amicus brief in the case advising the court to side with the Court of Appeals’ decision and Operton. The Wisconsin AFL-CIO, which represents the state’s unions, has also submitted a brief in support of Operton.

Both argue that overturning the Court of Appeals decision would deal a major blow to the state’s unemployment-benefits system.

When substantial fault became law, state officials were under pressure to shore up Wisconsin’s unemployment-insurance trust fund, which holds the money used to provide jobless benefits. The years following the recent recession had seen the fund dip nearly $1.7 billion into the red.

To replenish the fund, employers were charged higher payroll taxes. On top of that, they had to pay a special assessment that was tacked on to retire the federal loans that were needed to ensure benefits could still be doled out.

The fund has since recovered, topping off at $1.1 billion at the end of August. It’s now on its way to hit $1.2 billion by June 30, a feat that could set the stage for a payroll tax decrease for the third time in as many years.

Forberger said the fund has benefited from the Department of Workforce Development’s broad interpretations of substantial fault, which have increased the chances that unemployment claimants will meet with a denial. According to data the DWD reports to the federal government once a quarter, more than 77 percent of benefit claims have been denied since substantial fault took effect in 2014. Before the change, the figure had been nearly 60 percent.

Forberger said that even if Operton is successful before the Supreme Court, the case is unlikely to prevent state officials from giving the substantial-fault standard a broad interpretation. Still, Forberger added, the fight will not have been in vain.

“At least the commission will be willing to rule that inconsequential errors don’t constitute substantial fault,” he said. Follow @erikastrebel