April 22, 2016 – A former Walgreens worker denied unemployment insurance benefits on the grounds of “substantial fault” recently won her appeal.

The Wisconsin’s Labor and Industry Review Commission (LIRC) generally interprets statutes that govern the circumstances in which an employee is eligible or ineligible to receive unemployment insurance benefits after termination from a job.

LIRC ruled that Lela Operton could not receive unemployment benefits under a 2013 law that established “substantial fault” as a basis for denial. A circuit court affirmed.

But in Operton v. LIRC, 2015AP1055 (April 14, 2016), a three-judge panel for the District IV Court of Appeals reversed and set aside’s LIRC’s decision. The panel ruled that LIRC erred in concluding that multiple “errors” could amount to substantial fault.

Substantial Fault

Under Wisconsin law, unemployment insurance benefits are not available to individuals who engage in “misconduct” at the expense of employers. Misconduct includes actions such as drug and alcohol use, theft of property, or deliberate rule violations.

But in 2013, the legislature added a second tier, under Wis. Stat. section 108.04(5g), declining benefits to those at “substantial fault” in their own termination.

Unlike the provision on misconduct, which expressly noted actions or omissions considered “misconduct,” the substantial fault provision only describes what does not constitute substantial fault, including minor work rule infractions or inadvertent errors, or “failure to perform work because of insufficient skill, ability, or equipment.”

An administrative law judge (ALJ) found that Operton was at substantial fault in her termination from Walgreens. Over the course of about two years, she made eight “cash handling errors” relating to Women, Infants, and Children (WIC) program checks.

In one instance, Operton took a WIC check for more items than the check authorized, resulting in a $2.89 loss. In other instances, she accepted a check without a customer’s signature, accepted a check before its valid date, returned a check to the customer instead of retaining it, and inadvertently placed a check in the customer’s bag.

Two of her final violations involved accepting a credit card without checking ID (it was stolen), and allowing a customer to leave the store without completing a transaction.

Walgreens indicated that Operton was well-liked, but terminated her employment for “cash-handling errors” and “mistakes.” However, Walgreens acknowledged that Operton’s mistakes and errors were not intentional or done with ill-will.

After discharge, she filed for unemployment benefits, but Walgreens objected on the basis of her termination. The ALJ for the Department of Workforce Development ultimately concluded that Operton was ineligible based on substantial fault.

LIRC adopted the ALJ’s decision, and also found that failing to check ID on a credit card transaction was a “major infraction” of Walgreens’ policies. The circuit court affirmed.

De Novo Review

Reviewing LIRC’s decision, the appeals court reversed. A two-judge majority declined to apply any deference to LIRC’s decision, instead applying de novo review.

The majority noted that de novo review applies on issues of first impression, or when agency interpretations of statutes provide no real guidance. LIRC asked for great weight deference, applicable when “interpretation of the statute is one of longstanding” and the agency “employed its expertise or specialized knowledge in forming the interpretation.”

The majority noted that the legislature, in 2013, “created substantial fault as an entirely new basis for denying benefits” and replaced the common law definition of “misconduct” that was interpreted by LIRC for almost 80 years.

The majority also noted that recent LIRC decisions addressing substantial fault are contrary to the decision in this case, so its interpretation does not provide uniformity.

“We conclude de novo review is required,” wrote Judge Paul Reilly. “’Substantial fault’ is a completely new legal concept not previously in existence. LIRC is not applying an old statute in a new way; it is applying a new statute to a new concept.”

No “Infractions”

Under de novo review, the majority ruled that LIRC was wrong in deciding that Operton was not entitled to unemployment insurance benefits.

The ALJ, the majority noted, never found that Operton’s mistakes or errors were “infractions,” and LIRC never explained why it characterized her photo ID error as a “major infraction,” separate and apart from the findings made by the ALJ.

“We conclude that LIRC erred as Walgreens never offered any evidence that Operton committed an ‘infraction,’ let alone a ‘major’ infraction,” Judge Reilly wrote.

The majority noted that the ALJ, reviewing the disciplinary record, found that Operton’s acts or omissions were “unintentional errors” but also found substantial fault in that Walgreens suffered financial losses despite giving Operton multiple warnings.

This was wrong, according to the majority. “One or more ‘inadvertent errors,’ even if warnings are given, are not ‘substantial fault’ under the statute,” Judge Reilly wrote.

“The findings of the ALJ reflect that Operton simply made the type of unintentional mistakes that all people make at times,” he continued. “The legislature statutorily determined that an employee does not lose their unemployment benefits for making unintentional errors.”

The majority also rejected the claim that repeated inadvertent errors, in their cumulative effect, can turn into disqualifying infractions when warnings have been given.

Operton correctly performed around 80,000 transactions at a 99.9 percent success rate during the 20 months on the job, the majority explained, and failing to meet Walgreens’ high expectations, despite best efforts, did not amount to substantial fault.

Concurrence

Judge Paul Lundsten agreed with the result, for different reasons. He concluded that LIRC erred regardless of the level of deference granted to that agency.

“LIRC gives us no analysis, tethered to the statutory language, that provides a basis for concluding that the frequency of ‘inadvertent errors’ in this case reached some undefined ‘point’ at which it converted to ‘substantial fault,’” Lundsten wrote.