In 2013, the Wisconsin legislature enacted new unemployment legislation. Under these new rules, employees may be denied unemployment benefits if they are found to have engaged in “substantial fault.” The statutory definition for “substantial fault” is as follows:

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 …. Wis. Stat. § 108.04(5g)(a). Unlike misconduct, in which the legislature expressly set forth specific employee actions that constituted “misconduct,” the legislature set forth three acts or omissions by employees 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.

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

Wis. Stat. §108.04(5).

The legislature did not hide its intention in adding the substantial fault standard to the Wisconsin statutes. The change was prompted by concerns within the employer community that the current misconduct standard was too generous in providing unemployment benefits to employees who should not qualify. The amendments were meant to reduce benefit payments by approximately $19.2 million per year (see Analysis of Proposed UI Law Change Discharge For Employee’s Substantial Fault, last visited May 24, 2016).

A recent decision from the Wisconsin Court of Appeals gives us one of the first interpretations of what “substantial fault” actually means, according to the courts. Operton vs. Labor & Indus. Review Comm'n, No. 2015AP1055, 2016 WL 1552178 (Wis. Ct. App. Apr. 14, 2016)

Lela Operton was a full time service clerk for Walgreens for approximately 20 months. During the course of her employment, she made eight “cash handling errors:”

• First Violation: On Oct. 19, 2012, Operton received a verbal warning for taking a WIC check for more items than the check authorized resulting in a $2.89 loss to Walgreens. Operton received a verbal and written warning that reiterated the proper procedures for taking WIC checks.
• Second Violation: On Feb. 12, 2013, Operton accepted a $14.46 WIC check without getting the customer’s signature, which made the check invalid.
• Third Violation: On March 6, 2013, Operton handed a $16.73 WIC check back to the customer instead of retaining it for deposit. Operton received a written warning addressing the Feb. 12 and March 6 cash handling errors, which outlined the proper procedure for accepting WIC checks and noted that “[f]urther failure to follow proper procedure will result in further disciplinary actions to include further write ups, suspension, and up to and including termination.”
• Fourth Violation: On July 24, 2013, Operton accepted a $27.63 WIC check before the valid date for which she received a “final” written warning that again reiterated proper WIC check handling procedures.
• Fifth Violation: On Jan. 1, 2014, Operton mishandled an $84.95 WIC check by inadvertently placing it in the customer’s bag. Operton received another “final” written warning that included her supervisor’s note that “[t]his is [Operton’s] 4th issue with WIC checks. She is on a final written warning from July. Since these mistakes have been over a long period of time, [Operton] will be given one more chance.”
• Sixth Violation: On Jan. 29, 2014, Operton accepted a $6.00 WIC check for a $6.17 purchase. Operton testified that the customer paid the 17 cents in cash. Operton received a “final” written warning together with a two-day suspension.
• Seventh Violation: On March 18, 2014, Operton allowed a customer to leave the store before a $9.26 transaction was complete (PIN pad had not generated a receipt) and received another final written warning: “Any cash handling error, no matter the type, will lead to termination.”
• Eighth Violation: On March 22, 2014, Operton accepted a credit card for a $399.27 purchase without checking the customer’s identification to verify the card belonged to the customer. The card was a stolen credit card. Operton was aware of Walgreens’ requirement to check the identification when a credit card is presented for a purchase over $50.

Operton, 2016 WL 1552178 at ¶3.

Although Walgreens generally considered Operton a well-liked and conscientious employee, she was terminated for repeated cash handling errors and failure to improve. Id. at ¶4. Operton filed for unemployment and was originally denied benefits for reasons of misconduct.¹ Id. at ¶5. On appeal, an administrative law judge determined that Operton was not guilty of misconduct (defined as intentional or willful disregard of the employer’s interest) but that she had engaged in substantial fault and was therefore not eligible for unemployment benefits for that reason. Id. The Labor and Industry Review Commission (LIRC) affirmed the administrative law judge’s decision. Id. at ¶6.

The Court started with the first category of substantial fault and determined that there was no evidence to support that Operton committed a “major infraction. Id. at ¶21. The Court upheld LIRC’s analysis that distinguished between an “error” and an “infraction.” Id. at ¶22. The former is “one or more intentional acts or omissions by the employee” and does not disqualify an individual from receiving unemployment benefits. Id. Because there was no evidence presented that Operton committed an infraction and because LIRC did not explain why it characterized Operton’s actions as a “major infraction,” the Court determined that Operton was not disqualified for unemployment benefits because of a “major infraction” and instead had just committed errors (“on or more unintentional acts or omissions”). Id. at ¶23.

The Court further held that “repeated inadvertent errors, even if warned, do not constitute substantial fault.” Id. at ¶27. The ALJ had determined that Operton had made several unintentional mistakes but that her actions were not so “careless or negligent as to manifest culpability or wrongful intent.” Id. Because the legislature deemed that an employee does not lose benefits for making unintentional errors and because that’s what Operton had committed, she was eligible for benefits. Id. at ¶27. The Court explicitly rejected the argument that a series of errors become infractions after warnings have been given. Id. at ¶28. According to the Court “inadvertent errors, warnings or no warnings, never meet the definition of substantial fault.” Id.

The Court also held that although employers have a right to have high expectations of employees, and the right discharge for failure to meet those expectations, the failure to meet those on an employee’s part does not render them ineligible for benefits because of substantial fault. Id. at ¶31.

Original post by Attorney Summer Murshid can be found at www.hq-law.com.

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[1] Substantial fault was added as additional grounds for denial of unemployment benefits such that after 2013, individuals can be denied unemployment for reasons of misconduct or substantial fault.