STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266- 9850)

ERIC C CLAY, Employe

IMPERIAL INC, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 98402946GB

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development held a hearing in this matter on January 7, 1999, and thereafter issued an Appeal Tribunal Decision (ATD). A timely petition for review was filed.

The Commission consulted the ALJ who issued the ATD to obtain the ALJ's observations as to the credibility of evidence received at the January 7, 1999 hearing. The Commission subsequently issued its order remanding this matter for another hearing, with directions that testimony be taken from a witness whose testimony was excluded from the first hearing. The testimony of that witness had been the subject of an offer of proof presented by the employer at the first hearing and received into the record.

The second hearing was held by another ALJ on June 9, 1999. The credibility of evidence received at the second hearing was not determinative of the Commission's decision to reverse the ATD. Accordingly, the Commission has not conducted a credibility consultation with the ALJ who held the second hearing.

The commission has considered the petition and the positions of the parties, and has reviewed all evidence submitted in this matter. Based on its review, the commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The employe worked for two years and nine months as a sales representative for the employer, a distributor of small maintenance parts.

The employe's last day of work was Monday, November 23, 1998 (week 48). The employer discharged him on that date, because the employer concluded that the employe was manipulating the record of his monthly sales in order to obtain unearned remuneration in the form of "new business" bonuses and an additional five per cent commission on a portion of `new business' sales.

The issue to be resolved is whether the employe was discharged for misconduct connected with his employment, within the meaning of Wis. Stat. § 108.04(5):

(5) Discharge for misconduct. An employe whose work is terminated by an employing unit for misconduct connected with the employe's work is ineligible to receive benefits until 7 weeks have elapsed since the end of the week in which the discharge occurs and the employe earns wages after the week in which the discharge occurs equal to at least 14 times the employe's weekly benefit rate....

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' within the meaning of the statute."

The employe was potentially eligible for three forms of remuneration. First, he was paid a commission, based on the monetary total of sales he made in each calendar month.

Second, in addition to the base commission, the employe was eligible to receive a $150 "new business bonus" for any month in which he generated "new business" (made sales to new customers) totaling $2,000 or more.

Third, the employe was also entitled, in any month for which he earned the "new business bonus", to receive an additional, limited commission payment consisting of five per cent of the portion of his "new business" sales that exceeded $2,000.

The employer maintained a computer record of sales. Each customer was assigned an account number, and the computer identified the sales representative responsible for each customer account. Each sales representative's overall monthly sales were entered either into existing accounts or, in the case of sales to new customers, into new accounts.

In general, a single account was maintained for each customer. Regardless of the amount of sales made by a sales representative to a customer with an existing account, such sales were recorded in the existing account. Such sales to existing customers were not regarded as "new business" that would justify the establishment of an additional or duplicate account number in the name of that customer.

Accordingly, sales made by a sales representative to a customer with an existing account generated only the basic commission applicable to all sales.

Sales to a new customer constituted "new business" and resulted in the assignment of a new account number to the new customer. The dollar value of all "new business" credited to a sales representative in a given month was the basis upon which the employer determined whether the representative was eligible for the monthly "new business" bonus and the limited additional five per cent commission.

There was one exception to the "one customer, one account" practice described above. Sales representatives were allowed to create an additional account for a customer who had an existing account, but only when two conjunctive conditions were met. First, there must be a request from the customer that a duplicate account be established. Second, the customer also had to have a business reason, as determined by the employer, for requesting the additional account; e.g., an existing customer might decide to establish a new and separate corporation or other business entity.

Any sales representative could search, and make entries into, the computer record of sales. With this access, a sales representative could readily determine whether an account already existed for a customer to whom the representative made sales in a given month. A sales representative could set up a new customer account where appropriate. Sales representatives were entrusted with the duty of recording their sales appropriately, either into an existing account or a new account.

Usually, each sales representative personally entered his or her own sales into the employer's computerized sales records. However, sales representatives occasionally asked co-workers known as "customer service representatives" to make entries for them.

The employe admitted that duplicate accounts were set up by him, or at his direction, although he maintained that any inappropriate or inaccurate entries were inadvertent and not intended to result in his receipt of unearned remuneration.

It is clear that co-workers of the employe (other sales representatives and the customer service representatives) had access to the sales records and that a customer service representative, at least, could make entries into the employe's sales records. It is therefore possible that a co-worker having such access could, inadvertently or deliberately, make inaccurate or unauthorized entries affecting the record of the employe's sales.

However, no motive has been suggested in this record for a co-worker to intentionally and repeatedly set up unauthorized duplicate accounts that consistently inflated the employe's "new business" sales to the employe's benefit. Moreover, inadvertence on the part of the employe or a co-worker is not a plausible explanation, in view of the number of unrelated and unauthorized duplicate accounts that were created over a ten-month period.

The employer presented testimony at the first hearing asserting that the employe manipulated its computer record of sales in order to obtain unearned bonuses and unearned additional commissions. However, the employer did not present, at the first hearing, any printed synopsis or readout representing the content of its computer record of sales.

The ALJ who presided at the first hearing, and thereafter issued the ATD under review, considered that the employer's business records would have been the "best evidence" on the question as to whether the employe received unearned bonuses as a result of duplicate accounts.

The Commission refrains from addressing, herein, the question of whether undisputed testimony as to the essential content of a computerized business record may suffice, without introducing actual computer readouts or synopses thereof. In this case, a custodian of the employer's business records testified at the second hearing and presented a printed synopsis of relevant information from the employer's computer record of sales. The accuracy of that synopsis was not disputed, and the synopsis was received into the record as Exhibit 20. It covers the ten-month period from January through October of 1998.

In the ten month period from January through October of 1998, the employe caused his sales to be recorded, in part, in unauthorized duplicate accounts in eight months (January through April, June, July, September and October). The employer paid the employe the $150 "new business" bonus for each of those eight months. The employer also paid the employe the additional, limited 5% commission in each of those eight months.

Without the unauthorized duplicate accounts the employe caused to be opened, and the sales thereby mischaracterized as "new business", the employe would not have received the $150 monthly "new business" bonus for March, June and October of 1998; similarly, he would not have received any extra commission in March, June and October. Moreover, in the months of January, February, April, July and September, he received inflated payments of the additional 5% commission that would have been paid in lower amounts but for his acts of setting up unauthorized duplicate accounts and mischaracterizing some of his sales as "new business."

The employe's supervisor testified, without contradiction, that the volume of duplicate accounts generated by the employe was unprecedented, and that the employe had not been making the number of "cold calls" typically necessary to produce the volume of new business reported by the employe.

The employe also used one duplicate account in a patently inconsistent manner to obtain for one of his customers, at the employer's expense, services the employer would not have provided at its own expense but for the unauthorized duplicate account. Those services are referred to as "field services."

"Field service" is technical help extended to customers to help them set up displays, organize merchandise and the like. The employer sends its own employees to the customer's place of business for this purpose; it is expensive for the employer, and is extended to a customer only if its account is a large one or the employer anticipates a substantial amount of business from the customer in the future. Existing accounts generally qualify more easily to receive "field service" than new accounts do, because the employer has its record of past business upon which to base its expectation of future business.

After the employe made sales to a customer known as Loomis-Fargo in October, 1998, the employe arranged for that customer to receive field services; in order to do this, he identified the customer (accurately) by its existing account number. However, he reported his sales of merchandise to that customer in October as "new business", setting up a new (duplicate) account for that purpose.

The employe subsequently closed the existing account and left the new one in the computer record. These facts are not disputed. When the employer inquired about the Loomis-Fargo accounts, the employe claimed that he had the existing account closed because he realized it was a duplicate. The employe's supervisor asked the employe why he chose to close the existing account, instead of eliminating the new account that he had set up and profited from. The supervisor also asked the employe why he had not consulted a supervisor before making that choice, since he knew that it would result in his receipt of a bonus and a "commission add-on" (the limited additional 5% commission on "new business").

The employe did not provide any plausible explanation of his actions with the Loomis-Fargo accounts to his employer or in this record. Apparently, Loomis did have a large number of accounts with the employer for the numerous nation-wide locations where Loomis has establishments. However, it is undisputed that there was only one Loomis-Fargo. In view of the employe's acts with that account, the commission does not believe that the account duplication resulted from name- confusion or any other inadvertence on the employe's part.

The employe has argued, in effect, that it does not make sense that an employe earning approximately $60,000 per year would misrepresent his sales to the extent that he would receive only $844.35 in unearned remuneration in 1998 (The $844.35 figure is the amount computed by the employer, as reflected in Exhibit 20, p. 2).

While the willingness of a party to commit acts presenting such a disparity between risk and possible gain is always difficult to understand, it is unfortunately not a singular situation in the commission's experience. In this case, the disparity does not overcome the evidence, in the record as a whole, that the employe did intentionally falsify the records reflecting his sales.

The commission does not consider credible the employe's testimony denying intent to falsify the sales records and thereby obtain unearned remuneration.

Credible evidence in the record as a whole shows that the employe intentionally and repeatedly created, or caused to be created, unauthorized duplicate customer accounts in which some of his sales were improperly recorded, in order to obtain unearned bonuses and unearned additional commission payments.

The discharge decision, and the employer's case as presented at the original hearing, were based on allegations about the employe's actions relative to seven accounts, identified in Exhibit 1. However, Exhibit 20, received into the record at the second hearing, includes three additional duplicate accounts (Meyers Bros., Cudd Pressure Control, and Dayton Freight Lines).

The incidents involving the three additional duplicate accounts were relatively minor. According to Exhibit 20, the alleged manipulation of the Meyers Bros. and Cudd accounts by the employe had no effect on the employe's remuneration. The remaining newly raised account, Dayton Freight Lines, would have resulted in the employe receiving unearned remuneration amounting to 5% of $159, or $7.95.

The incidents relating to the three additional duplicate accounts may have been discovered after the decision to discharge the employe was made. Therefore, they may not have been part of the employer's basis for deciding to discharge the employe, and they may not have been included in the reasons given to the employe when he was discharged.

The commission considers that the employe's other acts, as found herein, were sufficiently egregious that they amounted to misconduct connected with his work without considering the three newly raised duplicate accounts.

Prior to November 19, 1998, the employe had not been given express or specific warnings that if he falsified the amount and nature of his monthly sales in order to obtain unearned bonuses and unearned additional commission payments, he would be discharged.

Warnings, or a lack of warnings, can be indicators of an employe's state of mind or the intent underlying the employe's actions. Warnings also provide, consistent with the remedial purpose of U.I. law, an opportunity for an employe to conform her/his conduct to reasonable expectations of the employer that the employe may not have initially understood.

However, honesty is such a fundamental and universally understood duty owed by employes to their employers that any significant violation thereof can constitute misconduct disqualifying the employe from receiving unemployment compensation even in the absence of an express prior warning of the consequences of a violation.

It is therefore eminently reasonable for an employer to expect an employe to honestly report matters affecting the employer's legitimate business interests, including the accurate computation of remuneration to which the employe is entitled for performance of services for the employer.

Under the circumstances, the employe's actions in repeatedly falsifying the amount of his "new business" sales for the purpose of obtaining unearned remuneration amounted to such a wilful and substantial disregard of the employer's legitimate and reasonable business interests as to amount to misconduct connected with his work.

The commission therefore finds that in week 48 of 1998 the employe was discharged for misconduct connected with his work, within the meaning of Wis. Stat. § 108.04(5).

The commission further finds that the employe was paid benefits in the amount of $276 for week 48 of 1998 and $290 per week for weeks 49 through 50 of 1998, amounting to a total of $856, for which he was not eligible and to which he was not entitled, within the meaning of Wis. Stat. § 108.03 (1). Pursuant to Wis. Stat. § 108.22 (8)(a), the employe is required to repay $856 to the Unemployment Reserve Fund.

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 employe. 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 therefore 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 employe 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.

DECISION

The appeal tribunal decision is reversed. Accordingly, the employe is ineligible for benefits beginning in week 48 of 1998, and until seven weeks have elapsed since the end of the week of discharge and the employe has earned wages in covered employment performed after the week of discharge equaling at least 14 times the weekly benefit rate which would have been paid had the discharge not occurred. The employe is required to repay $856 to the Unemployment Reserve Fund.

The monetary computation dated November 24, 1998 is hereby set aside.

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 employe 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.

The department will withhold benefits due for future weeks of unemployment in order to offset payment of U.C. and other special benefit programs that are due to this state, another state or to the federal government.

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

Dated and mailed August 26, 1999
clayer.urr : 200 :  MC 630.09

/s/ David B. Falstad, Chairman

/s/ Pamela I. Anderson, Commissioner

/s/ James A. Rutkowski, Commissioner

MEMORANDUM OPINION

The ALJ who presided at the original hearing and issued the ATD under review considered that the duplicate accounts could have been a mere oversight by the employe or even an alteration by another worker.

The ALJ also considered that the employer did not meet its burden of proof because, inter alia, the employer did not present, at the original hearing, documentary evidence of the relevant parts of its computerized sales records. The ALJ observed, in her ATD, that such documentary evidence would have been the "best evidence" as to whether the employe received remuneration to which he would not have been entitled "but for" the duplicate accounts.

The commission recognizes, and has considered those possibilities. The commission consulted with the ALJ regarding the credibility of evidence presented at the original hearing. Thereafter, the commission remanded this matter for a second hearing. The commission did so because an offer of proof at the original hearing indicated that a witness whose testimony was proffered by the employer and excluded by the ALJ could provide firsthand non-cumulative evidence as to the employe's actions and their effect upon his remuneration.

Given the presumption of eligibility and the employer's burden of proof, it is, of course, entirely proper for an ALJ to consider reasonable alternative explanations for facts alleged as showing that an employe committed acts constituting misconduct. In this case, however, the commission concluded, on the basis of the entire record, including the largely undisputed evidence adduced at the second hearing, that the available alternative explanations, while theoretically possible, were exceedingly unlikely and did not outweigh the evidence relied upon by the commission and discussed in the commission's findings of fact and conclusions of law herein.

As to the "best evidence" rule, the commission remanded this matter for a second hearing because the employer's offer of proof, at the original hearing, regarding the potential testimony of a witness whose testimony was excluded indicated that the best evidence may have been available but excluded. As matters turned out, while that witness did testify at the second hearing, Exhibit 20 was presented with the testimony of another witness and received into the record. As discussed in the commission's findings of fact and conclusions of law herein, the accuracy of Exhibit 20 was undisputed. The commission considered that Exhibit 20 constituted the "best evidence" in this record as to the relevant content of the employer's business record reflecting the sales and duplicate accounts entered by, or at the direction of, the employe.

In summary, the commission consulted with the ALJ who presided at the first hearing as to the credibility of evidence received in that hearing. After obtaining additional, largely undisputed evidence at a second hearing presided over by a different ALJ, the commission reached different findings of fact and conclusions of law based on the commission's review of the record as a whole.

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