Wisconsin Surpreme Court Defines "Substantial Fault" Standard for Unemployment Insurance and Worker's Compensation Matters

By Daniel Finerty - Lindner & Marsack, S.C.

May 9, 2017

On May 4, 2017, the Wisconsin Supreme Court released a long–awaited decision in Lela Operton vs. LIRC, 2017 WI 46, the first Supreme Court interpretation of Wisconsin’s “substantial fault” standard. Operton held that, as a matter of law, the employee’s eight accidental or careless cash-handling errors over the course of 80,000 cash-handling transactions during 21 months of employment were inadvertent and, therefore, met an exemption to the “substantial fault” standard. The substantial fault standard is used in unemployment insurance and worker’s compensation disputes.

Background

Operton worked for Walgreens in Madison until March 24, 2014, when she was terminated for the last of 8 separate errors when she failed to check identification during a customer’s $399.27 credit card purchase in violation of Walgreen’s policy. Because the credit card was later determined to have been stolen, Walgreens was out the $399.27. This error Operton made was not unlike the others she made during her 21 months of employment:

• In October 2012, Operton received a verbal warning after she accepted a Women, Infants, and Children (WIC) check for $8.67 when the check should have been for $5.78, a mistake which costs Walgreens $2.89.
• In February 2013, Operton received a written warning for two errors. First, she accepted a WIC check for $14.46, but did not get the customer’s signature on the check. In March 2013, she gave a $16.73 check back to a customer. Walgreens suffered losses of $14.46 and $16.73 as a result of these errors because it was unable to process these two checks.
• A few months later, Operton took a WIC check for $27.63 before the date on which it was valid. Walgreens was unable to process the check, and Operton received a final written warning.
• On January 1, 2014, Operton returned a WIC check for $84.95 back to a customer that the customer had tried to use to make a purchase, resulting in a loss of $84.95. Walgreens gave Operton the first of two final written warnings.
• On January 29, 2014, Operton received the second final written warning (any additional cash-handling errors would lead to her termination) and served a two-day suspension after she accepted a check for $6.17 even though it was written for $6.00, thereby causing another loss. In addition, a customer attempted to pay for $9.26 worth of items but left the store without completing the debit transaction, which caused a second monetary loss that day of $9.26.

After hearing, an Appeal Tribunal found that Operton was disqualified from receiving unemployment insurance benefits because she was terminated for substantial fault, a finding the Labor and Industry Review Commission (Commission) affirmed, the Court of Appeals reversed the Commission’s finding. The Supreme Court accepted review.

Supreme Court decision

The Supreme Court agreed with the Court of Appeals that the Commission had not provided a reasonable construction to support its conclusion that Operton was disqualified for “substantial fault,” defined by Wis. Stat. §108.04(5g) as:

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

While the Court conceded substantial fault existed because Operton exercised reasonable control over the cash handling transactions at issue and that Walgreens reasonably required her to handle such transactions, it ultimately found that the case turned on the Commission’s failure to examine the question of whether Operton’s errors constituted “one or more inadvertent errors,” which were exempt from the definition of substantial fault under (2.) above.

Examining that question, the Court found that Operton’s errors were not so egregious to warrant a conclusion that she behaved recklessly or intentionally but, instead, that her errors were inadvertent. While there was no testimony by Operton cited in support of its conclusion, the Court cited the length of her employment, the 80,000 transactions she processed, the period of time between errors and the fact that Operton was not making the same errors (even though they were similar in nature) in concluding the errors were inadvertent and, thus, outside of the definition of substantial fault. As further support for its conclusion, the Court cited the Commission’s finding that Operton had not been terminated for misconduct i.e., that there was no evidence Operton willfully disregarded her employer’s interests nor was she so careless or negligent as to be guilty of misconduct. Ultimately, the Court held that Operton’s 8 accidental or careless errors were, as a matter of law, “inadvertent errors” because the employee made these errors during a 21-month period during which she processed 80,000 cash-handling transactions and, therefore, substantial fault did not exists to deny benefits.

Analysis

The Court’s analysis to reach this result is rather interesting, especially considering its impact going forward. First, as a result of the Court’s numerical analysis, one must wonder at what level do employee errors cease being inadvertent and whether the answer to this question will have to remain for the next substantial fault dispute on which the Supreme Court grants review.

Second, the Court indication that an employer has the burden to establish substantial fault, while perhaps accurate, failed to allocate the burden of proof as to the substantial fault exceptions. In doing so, the Court’s opinion suggests that employers are responsible for proving a negative i.e., that the employee’s errors were not inadvertent. While proving this negative may be challenging, employers would be wise to gather statements and other evidence to show that an employee’s errors were not an accidental oversight or the result of carelessness will be critical going forward.

Third, with regard to the specific exception at Wis. Stat. §108.04(5g)(a)2, the Court held that, while discipline following errors may be dispositive in the application of Wis. Stat. §108.04(5g)(a)1 (“one or more minor infractions of rules [are not substantial fault] unless an infraction is repeated after the employer warns the employee about the infraction), an employer’s warning is not dispositive of whether the error was inadvertent. As such, while a prior warning may be relevant to this question, an employee who is warned about an inadvertent error is not necessarily terminated for substantial fault even if the employee subsequently makes another error, even the exact same error, for which s/he is terminated. As such, prior discipline will not carry the day on the “inadvertence” exception and employers must be prepared to address suggestions that an employee acted inadvertently by, again, showing any errors were not an accident or as a result of carelessness.

Conclusion

Operton shows that greater care may be required prior to hearing in order to determine whether any of the substantial fault exceptions may apply and what evidence can be presented to counter their application. It is likely that, going forward, Administrative Law Judges will question all parties about inadvertence, intent and related issues and employee-side counsel will be prepared to show inadvertence and highlight any facts which show a lack of any intent. Employers must be prepared to meet this evidence during an Appeal Tribunal hearing with preparation, testimony and documentary evidence.

If you have questions about Operton or unemployment insurance disputes or hearings, please contact Daniel Finerty or your Lindner & Marsack attorney at 414-273-3910.