Wisconsin Court of Appeals Reviews “Substantial Fault” Exclusion to Unemployment Benefits

Last week, the Wisconsin Court of Appeals, District IV, in Operton v. LIRC, reversed multiple lower tribunal decisions that denied unemployment benefits to an individual on the basis of a newly created statutory exclusion of “substantial fault.” In its decision, the court of appeals clarified when an individual may be denied benefits because their termination was the result of their own substantial fault.

Prior to 2014, individuals in Wisconsin could be denied unemployment benefits if an employer terminated the individual because he or she engaged in misconduct on the job. Though limited in application, the statute was helpful to all parties dealing with unemployment by listing what specific offenses qualified as misconduct.

However, in 2014, Wisconsin added another basis to deny benefits when an employee was discharged for substantial fault. Substantial fault is statutorily defined as “those acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the employee’s employer . . . .” What ultimately proved more significant to the court of appeals is that the statute also provides what is not substantial fault, which includes:

  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 Operton, the issue before the court of appeals was whether an employee who was repeatedly disciplined and ultimately discharged for a series of cash handling errors could be denied benefits under the substantial fault exclusion. The court described that over her twenty months of employment as a service clerk at Walgreens, Operton completed an estimated 80,000 cash transactions but made eight documented “cash handling errors” over that time. Operton otherwise appeared to be a good employee who was commended by her superiors for her work.

Operton was initially denied benefits by the Department of Workforce Development because it determined her termination was the result of misconduct. The administrative law judge hearing Operton’s appeal of that decision likewise found that she should be denied benefits but on the grounds of substantial fault. The Labor and Industry Review Commission (“LIRC”) and then the circuit court each affirmed the ALJ’s decision.

However, the District IV Court of Appeals reversed these decisions and found Operton was eligible for benefits. The court first took issue with LIRC’s conclusion that Operton committed a “major infraction” leading to her termination. The court observed LIRC did not explain why it concluded that Operton committed a “major infraction,” and it was not a characterization used by the ALJ.

Perhaps the court’s most significant conclusion came when it determined that repeated inadvertent errors do not constitute substantial fault for purposes of denying unemployment benefits. Here, the court focused on the employee’s intent. The court compared Operton’s situation to two previous LIRC cases in Campo v. Park Town Management Corp. and Kirkendoll v. Clean Power LLC. In Campo, LIRC distinguished “specific rule violations” from multiple warnings for unintentional errors in allowing benefits. Likewise, the court noted that LIRC focused on intent in Kirkendoll where it distinguished the employee’s inadvertent misunderstanding from substantial fault in also allowing benefits. Even if repeated over time, the court found that multiple unintentional errors do not at any point become infractions.

The court wrapped up its opinion by observing that Operton’s conduct was best described as her failure or ability to conform to Walgreens’ expectations rather than any disqualifying substantial fault. Again, the Court compared Operton’s situation to the Campo decision, where LIRC allowed benefits because “[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.” However, what seemed to persuade the court was Operton’s reference to her estimate that of the 80,000 cash transactions she completed, she was accurate 99.9% of the time.

The Operton decision faces one more potential test before the Wisconsin Supreme Court if LIRC decides to appeal. As it stands, the Operton decision will probably make it more likely that some individuals will receive unemployment benefits who might otherwise have been rejected before this opinion. The Wisconsin Court of Appeals noted in its decision, the substantial fault exclusion was expected to help reduce benefit payments by approximately $19.2 million per year. This decision may make realizing those reductions more difficult for the State to achieve.

Employers challenging an employee’s application for unemployment following termination are still best positioned to be successful if the reasons leading to discharge are well-documented. However, any decision-maker is likely going to take a close look at whether the employee’s conduct was purposeful or unintentional in deciding whether the individual should be awarded benefits.