DAWN M CONWAY, Employee

A TOUCH OF COUNTRY CRAFTS & GIFT  MALL INC, Employer

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:

The employee worked about seven months as an assistant manager at a retail store operated by the employer. Her last day of work was January 6, 2001 (week 1).

The employer attempted to get the employee to sign a non-compete agreement in May of 2000. The employee declined to do so. The employer did not press the employee to sign it at a later time. The non-compete agreement was to apply during the employee's employment and for two years after termination of employment. The agreement was to cover the geographical area that included the area within a 30-mile radius of Milwaukee. The employer's store was located in West Allis. The employer made money by selling items made by independent crafters and by renting booth space to crafters.

In November of 2000 the employee and the employer's store manager, Chris, began a business operation to open a store similar to that operated by the employer. At some point the store manager dropped out and the store manager's husband decided to open the business with the employee. The employee's store, The Chocolate Moose, opened on December 2, 2001. It occurred to the employee that her store would be in competition with the employer. There were few other specialty stores similar to the employer's store and the employee's store in southwestern Wisconsin. The employee's store was located in Mukwonago, about 18 miles from the employer's business. The employee placed an advertisement in a newspaper for The Chocolate Moose. (The employer was billed for the advertisement but noted the incorrect charge before paying it.) The employee utilized the employer's lists of crafters selling through the employer to enlist crafters at The Chocolate Moose. The employee distributed a flyer to crafters who sold crafts at the employer's location. The employee also put the flyers in customers' bags when they purchased items from the employer. The flyer stated:

Dear Valued Crafter,

We have some exciting news. We are opening another store in the Mukwonago area. The store will be small and quaint and we only have room for 50 crafters. Everyone we have seen in the last day or so have taken a booth so do not delay..
The mukwonago(sic) area is really growing and has become quite a tourist town. There is quite a draw to visit the town with all the antique and gift shops.

We will be charging $80.00 per month for a 3X4 space plus a 10% commission. We will stock your booths for you. All you do is drop your items at West Allis and we will transport your crafts for you. All you have to do is sit back and collect the money.

Opening day is set for December 1st, 2000. Just drop your crafts at West Allis or Mukwonago on November 27th or 29th so we can get the store set for opening day. You can use your same dealer number as the West Allis store. Everything will be kept separate anyway.

Midnight Madness is December 2nd. All stores are open until Midnight and sales are tremendous.

We are very excited and look forward in hearing from you soon. Don't forget its first come, first serve so don't delay.
Please return your signed lease and check as soon as you can.

Thank you,

Chris & Dawn

Exhibit 6.

The employer discharged the employee on January 8, 2001 (week 2), for engaging in competition with the employer and suspected cash handling irregularities.

The issue to be decided is whether the employee was discharged for misconduct connected with her work. In Boynton Cab Co. v. Neubeck & Ind. Comm., 237 Wis. 249, 296 N.W. 636 (1941), the leading case with respect to the meaning of the term "misconduct" as applied to unemployment compensation in the United States, the court said, in part, as follows:

. . . the intended meaning of the term 'misconduct' . . . is limited to conduct evincing such wilful or wanton disregard of an employer's interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer's interests or of the employee's duties and obligations to his employer. On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or good-faith errors in judgment or discretion are not to be deemed 'misconduct' with in the meaning of the statute.

An employee owes a duty of loyalty to his or her employer that involves, among other things, not engaging in activities in direct competition with the activities of the employer. While a mere intention to become self-employed in competition with an employer is not a breach of such a duty of loyalty, the actual solicitation of the employer's customers while still employed goes beyond mere intent or planning. An employee is not entitled to solicit customers for a rival business before the end of his employment, nor can the employee properly do other similar acts in direct competition with the employer's business. Erdmann v. DILHR and Bank of Menasha, (Dane County Circuit Court, No. 157-029, November 11, 1977), accord, Wallace v. DILHR and Educational Service Programs, Inc., (Dane County Circuit Court, No. 140- 292, March 18, 1974). Engaging in direct competition with an employer is misconduct on the part of the employee engaging in the competitive activity.

The employee's business was in competition with the employer's business. The employee opened a business similar to the employer's store in a geographical location where the employer otherwise had little competition from similar businesses. The employee encouraged crafters who might otherwise sell their crafts to the employer or rent space from the employer to sell to the employee's business and rent space from the employee. By placing flyers in customers' bags when they purchased items from the employer she encouraged customers to frequent a competing business. The employee deprived the employer of potential income generated from craft sales and booth rentals. In addition, she engaged in competition with the employer while employed in a management position with the employer.

The employee was actively engaged in a business that was in competition with the employer's business. She clearly had gone beyond mere contemplation or planning to open a competing business. The employee's active participation in a business venture in competition with the employer evinced an intentional and substantial disregard of the employer's interests and of standards of behavior the employer had the right to expect of her rising to the level of misconduct connected with her employment.

The commission therefore finds that in week 2 of 2001 the employee was discharged from her employment and for misconduct connected with her work within the meaning of Wis. Stat. § 108.04(5).

The commission further finds that the employee was paid benefits in the amount of $5,658.00 for weeks 2 through 21 of 2001, for which the employee was not eligible and to which the employee was not entitled, within the meaning of Wis. Stat. § 108.03(1).

The final issue to be decided is whether recovery of overpaid benefits must be waived.

Wisconsin Statute § 108.22(8)(c), provides that the department shall waive the recovery of overpaid benefits if the overpayment was the result of departmental error, and the overpayment did not result from the fault of the employee. Under Wis. Stat. § 108.02(10e)(a) and (b), department error is defined as an error made by the department in computing or paying benefits which results from a mathematical mistake, miscalculation, misapplication or misinterpretation of the law or mistake of evidentiary fact, or from misinformation provided to a claimant by the department, on which the claimant relied.

The overpayment in this case results from the commission's reversal of the appeal tribunal decision. Such reversal was not due to department error as defined in Wis. Stat. § 108.02(10e)(a) and (b). Rather, the commission has reached a different legal conclusion when applying the law to the facts found.

The commission further finds that waiver of benefit recovery is not required under Wis. Stat. § 108.22(8)(c), because although the overpayment did not result from the fault of the employee as provided in Wis. Stat. § 108.04(13)(f), the overpayment was not the result of a department error. See Wis. Stat. § 108.22(8)(c)2.

The decision of the administrative law judge is reversed. Accordingly, the employee is ineligible for benefits beginning in week 2 of 2001, and until seven weeks elapse since the end of the week of discharge and the employee has earned wages in covered employment equaling at least 14 times the weekly benefit rate which would have been paid had the discharge not occurred. The employee is required to repay the sum of $5,658.00 to the Unemployment Reserve Fund.

For purposes of computing benefit entitlement: Base period wages from work for the employer prior to the discharge shall be excluded from any computation of maximum benefit amount for this or any later claim. If the employee was also paid base period wages from work by other covered employers, the excluded wages shall be used to determine benefit eligibility. However, any benefits otherwise chargeable to a contribution employer's account shall be charged to the fund's balancing account.

Dated and mailed November 28, 2001
conwada . urr : 132 : 1 :   MC 610.04

/s/ David B. Falstad, Chairman

/s/ James A. Rutkowski, Commissioner

The employer alleged that cash shortages noted during the employee's employment showed that the employee was essentially stealing from the employer. The commission concludes that the ALJ correctly held that the employer did not meet its burden of proof as to this and other allegations regarding improper cash handling.

The commission did speak to the ALJ regarding witness credibility and demeanor. As reflected in the appeal tribunal decision, the ALJ placed much emphasis on the employer's failure to press the employee to sign the non-compete agreement. However, the terms of the agreement applied to the employee's activities during her employment and for two years thereafter. That the employer does not press the employee to sign such agreement did not mean that the employer acquiesced in the employee engaging in competition with the employer while being paid a salary as a member of management. The ALJ found that the employee was engaged in active participation in The Chocolate Moose and the commission agrees. However, the commission disagrees with the ALJ's conclusion that the employee's actions constituted no more than an exercise of poor judgment.

NOTE:  Repayment instructions will be mailed after this decision becomes final. The department will withhold benefits due for future weeks of unemployment in order to offset overpayment of U.I. and other special benefit programs that are due to this state, another state or to the federal government.

Contact the Unemployment Insurance Division, Collections Unit, P. O. Box 7888, Madison, WI 53707, to establish an agreement to repay the overpayment.

cc: 
Attorney Timothy J. Andringa
Attorney Lawrence Zieger

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uploaded 2001/11/30