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Appellate Court Restricts Wisconsin's "Substantial Fault" Disqualification Standard for Unemployment Benefits

Posted by Attorney David McClurg in Human Resources, Unemployment Law, Unemployment Disqualification Standards / Comments

The Wisconsin Court of Appeals recently narrowed the scope of the "substantial fault" disqualification standard added to Wisconsin's Unemployment Act in 2013 by broadly interpreting the exceptions to that standard. The case involved Lela Operton, who had worked as a service clerk for Walgreens, handling hundreds of cash handling transactions per day. Operton made eight "cash handling errors" over a period of 20 months, resulting in multiple disciplinary warnings and eventual termination for these "errors" and "her failure to improve on them."

Walgreens acknowledged that the cash handling errors were neither intentional nor performed with any ill will, but objected to Operton's request for unemployment benefits claiming that she "was discharged for violation of a reasonable company policy regarding excessive cash discrepancies." Following a hearing, the ALJ found that Operton was aware of Walgreens' policies but continued to make "cash handling errors" after "receiving multiple warnings." The ALJ concluded that Operton was ineligible for unemployment benefits because her discharge was for "substantial fault." The Labor and Industry Review Commission ("LIRC") and the Circuit court both affirmed that ALJ's decision, and Operton appealed.

In 2013, the Wisconsin legislature created a new "two-tier" standard for disqualifying claimants from receiving unemployment insurance benefits. The first tier largely tracks the traditional "misconduct" standard. The second tier created a new "substantial fault" standard for disqualification from benefits that provides, in relevant part:

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 ….

The legislature included the following three specific acts or omissions 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; and
    3. Any failure of the employee to perform work because of insufficient skill, ability, or equipment.

The court noted that a significant difference exists between an "infraction" under the first exception and "inadvertent errors" under the second. An "infraction" requires proof of violation of a specific work rule. Thus, the "infraction" exception, which can be overcome if the infraction is repeated after a warning is given, does not come into play absent evidence of violation of a specific "rule." Here, Walgreens never offered any evidence that Operton committed an "infraction" and the ALJ did not find that any of Operton's errors were infractions of any of Walgreens' rules.

Under the second exception, "inadvertent errors" made by an employee do not constitute "substantial fault." The court rejected Walgreens' argument that: "at some point Operton's errors went beyond inadvertence and became controllable violations of Walgreens' reasonable cash handling policies." The court similarly rejected LIRC's variation on this argument that "a series of errors which, taken individually, are not disqualifying, in their cumulative effect at some point cross over the line separating non-disqualifying from disqualifying conduct." The court specifically held that:

"One or more 'inadvertent errors,' even if warnings are given, are not 'substantial fault' under the statute. ... The term 'inadvertent' means 'failing to act carefully or considerately, inattentive; resulting from heedless action, unintentional.' ... The legislature statutorily determined that employees do not lose their unemployment benefits for making unintentional errors...Repeated inadvertent errors do not statutorily morph into 'infractions' if warnings have been given. Inadvertent errors, warnings or no warnings, never meet the statutory definition of substantial fault."

The court also concluded that the third exception to the substantial fault standard ("failure of the employee to perform work because of insufficient skill, ability, or equipment") would apply here. Although Operton correctly performed 99.9% of her cash handling transactions, her discharge was the result of her inability to reach the level of performance that Walgreens demanded. The court found that her failure to perform was not "due to a lack of effort," and cited an earlier LIRC decision which held that "[a]n employee's failure, despite her best efforts, to possess or acquire the skills necessary to consistently meet an employer's expectations, is excluded from the definition of substantial fault." The court concluded:

"Walgreens has the right to have high expectations and also has the right to discharge an employee for not meeting their expectations. But Walgreens' high expectations do not eliminate 'sufficient skill' or 'ability' as an exception to 'substantial fault.' LIRC erred in its application of the 'substantial fault' statute as Operton's discharge was due to her inability to satisfy Walgreens' expectations, and, therefore, we set aside LIRC's conclusion that Operton had sufficient skill or ability to perform her job."

The court's broad interpretations of the exceptions to the "substantial fault" standard will make it more difficult, absent evidence of "misconduct," for employers to avoid liability for unemployment benefits unless they can demonstrate that the employee's conduct constituted a "major infraction" of a work rule, or a minor infraction following specific warnings relating to violations of the same rule, and that the employee had sufficient skill, ability, and/or equipment to comply with rule. In light of the Operton decision, employers should be careful to identify specific work rules that employees have violated when issuing disciplinary warnings and terminations notices.

If you have any questions about this or other labor & employment questions, please feel free to contact Dave McClurg at (414) 223-6956 or dmcclurg@petriestocking.com.

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