May/June 2017 Issue

Also in this issue: Supreme Court Finds Private Contractor Immune from Liability as Agent of Governmental Entity     |     Supreme Court Reaffirms Vested Rights Rule

Wisconsin Supreme Court Clarifies Substantial Fault Standard for Unemployment Benefits

Brian P. Goodman | 04.30.17

On May 4, 2017, the Wisconsin Supreme Court ruled that an employee who committed eight cash-handling errors over the course of 80,000 transactions was not discharged due to ​“substantial fault” and, therefore, was eligible for unemployment compensation benefits. Operton v. LIRC, 2017 WI 46 (“Operton”).

Since the legislature amended the unemployment law in 2013, there has been a three-step analysis used to determine whether a terminated employee is eligible for unemployment benefits. First, the agency or court determines if the employee committed ​“misconduct” under any of the enumerated bases of specified in the amended statute (e.g., theft, harassment, violence, or violation of a known substance abuse policy). If the agency or court concludes the employee actions do not meet the new statutory standard, it assesses whether those actions meet the general standard for ​“misconduct” defined as ​“one or more actions or conduct evincing willful or wanton disregard of the employer’s interests.” Finally, if the conduct does not meet this standard, the court or agency will review whether the employee engaged in conduct that qualifies as ​“substantial fault.” 

“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; or 

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

Wis. Stat. § 108.04(5g). In Operton, the question was whether Operton’s cash-handling errors constituted ​“inadvertent errors” and, thus, did not qualify as substantial fault. 

Operton worked for Walgreens from July 17, 2012 to March 24, 2014 as a checkout clerk. Operton handled more than 100 cash-handling transactions a day during the course of her employment. She was terminated after her eighth cash-handling error. 

The Court explained that Wisconsin has a strong public policy in favor of compensating the unemployed. The burden is on the employer to show that the employee was terminated due to ​“substantial fault.” When determining whether an employee is disqualified from benefits due to ​“substantial fault,” the agency or court must individually examine each of the three statutory exceptions. 

The Court noted that ​“inadvertence” is defined as ​“an accidental oversight; the result of carelessness.” While the fact that an employer warned an employee may have some relevance in determining whether an employee’s error was inadvertent, such is not determinative. The Court held that multiple inadvertent errors, even if the employee was warned about the errors, do not necessarily constitute ​“substantial fault.” 

In reviewing the facts in Operton, the Court concluded that eight accidental or careless errors were ​“inadvertent errors” when they were made over the course of 80,000 cash-handling transactions during a 21-month period. The Court did not provide an answer to when the number of employee errors that seem inadvertent in isolation cease to be inadvertent when viewed in their totality. In this case, the length of time between the errors was significant to the Court. Operton went months without making a cash-handling error. Additionally, Operton violated a slightly different cash-handling rule each time she made a mistake. The Court concluded that her errors were precisely the type of conduct that the legislature intended to exempt from the definition of ​“substantial fault.” 

One of the questions that the Court considered in its decision was the level of deference courts give to decisions of the Labor and Industry Review Commission (“LIRC”) (the state agency that hears appeals of unemployment and discrimination determinations made by the Department of Workforce Development). Depending on the nature of the issue decided by the agency, courts have given varied degrees of deference to state agency decisions. Three justices, in a concurring opinion, expressed a willingness to overhaul dramatically the Wisconsin courts’ approach to agency deference. This would have wide-reaching consequences in a number of areas of the law, including employment law. However, because the majority opinion concluded that regardless of the level of deference afforded to LIRC’s decision in this case the outcome would be the same, the deference issue was not directly addressed by the Court. Nevertheless, the concurring opinion suggests that the Court might consider this issue in a future case. 

— Brian P. Goodman