MARTIN R LASH, Employee
On November 11, 2013, an administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development (department) issued an appeal tribunal decision in this matter, which she subsequently amended on November 18, 2013. The ALJ held that, when filing weekly claim certifications for weeks 43 of 2012 through 6 of 2013 and weeks 8 and 9 of 2013, the employee worked and earned wages from St. Luke's Episcopal Church and intentionally and knowingly concealed from the department that work and those wages. In addition, the ALJ held that, in filing his claim for week 10 of 2013, the employee knowingly concealed from the department his separation from St. Luke's. As a result, the employee's benefit amounts were reduced by $6,002.00 for benefits and weeks that become payable in the six-year period ending September 7, 2019.
The employee filed a timely petition for commission review. The commission considered the petition, reviewed the evidence submitted to the ALJ, and issued a decision on February 28, 2014, reversing the appeal tribunal decision.
Within 28 days after that decision was mailed to the parties, the department filed a request for reconsideration. Pursuant to its authority under Wis. Stat.
§ 108.09(6)(b) and (d),(1) the commission set aside its February 28, 2014, decision for purposes of reconsideration. The commission has reviewed and considered the arguments made by the department in its request for reconsideration.
The commission now makes the following:
A de novo hearing before an ALJ sitting as an appeal tribunal for the department was held on November 4, 2013. The hearing addressed the employee's appeals of eight different initial determinations issued by the department. The employee appeared in person. Three employers appeared by telephone. During the parties' testimony, several documents or sets of documents were marked by the ALJ as Exhibits 1 through 14, which were later received into evidence. No one appeared at the hearing to testify on behalf of the department.
The employee provided bookkeeping services on a voluntary basis in 2005 through 2008 for St. Luke's Episcopal Church in Door County, Wisconsin. The church began paying the employee $100 per month in January 2009 for his services as its treasurer/bookkeeper. That amount was increased to $150 per month in 2012 and $200 per month in 2013. The church paid the employee through his existing side business, Lucky Dog Bookkeeping. The employee performed his work for St. Luke's in addition to his primary employment. The church and the employee considered the employee to be an independent contractor. The church is not subject to Wisconsin's unemployment insurance law.
The employee filed weekly claim certifications for weeks 43 through 52 of 2012 and for weeks 1 through 10 and 29 of 2013. For most of those weeks, the employee answered "No" to the "During the week, did you work or did you receive or will you receive sick pay, bonus pay, or commission?" question on his weekly claim certifications. He reported work and wages from his primary employers in week 44 of 2013 and weeks 5 through 10 of 2013. The employee did not report the $150 or $200 he received monthly from St. Luke's, nor did the employee report that he and the church officially parted ways on March 5, 2013 (week 10). The employee stopped performing bookkeeping services for St. Luke's in week 5 of 2013.
The employee did not specifically recall receiving a Handbook for Claimants, but he did not dispute the dates on which department records show that handbooks were mailed to him. The employee testified that he read a copy of the handbook at some point in time.
The employee did not perform work for St. Luke's every week. He performed his services as the church's treasurer/bookkeeper at his own convenience and without any supervision. The employee performed services in some weeks and none in others. St. Luke's did not require the employee to work at any specific times or to keep track of his hours. St. Luke's did not assign the employee additional projects or asked him to refrain from accepting other work. The employee was paid a flat amount for his services and received an IRS Form 1099 for income tax purposes.
The employee explained to the ALJ that he did not report his work for St. Luke's on his weekly claim certifications because his work for St. Luke's was similar in structure to work he performed for Gannet Wisconsin newspapers. The employee testified that he had been working for Gannett as a journalist/correspondent for several years. The employee worked on his own and at his own convenience, and Gannett paid him $50 per article, regardless of its length. The employee testified that he had contacted the department at some time prior to 2009 and asked whether he needed to report the wages he received from Gannett on his weekly claim certifications. The employee testified that he was told that, due to the nature of the job, he did not have to report the wages he received from Gannett and did not have to say that he was self-employed. Consequently, the employee did not report to the department the wages he received from Gannett for articles he wrote and did not report to the department that he was self-employed.
Because the employee believed himself to be an independent contractor for Gannett and for St. Luke's, he filed his weekly claim certifications in the same way for both entities. Also, because he believed himself to be an independent contractor, the employee did not inform the department when he stopped performing services for
St. Luke's or that his position as the church's treasurer/bookkeeper officially ended in week 10 of 2013. The employee testified that he "didn't have any intent to lie or withhold information or get money from unemployment that [he] wasn't entitled to." He reported what he thought was correct, based on information he received in the past from the department. The employee has a college degree.
The issue to be decided is whether, when filing weekly claim certifications for weeks 43 of 2012 through 6 of 2013 and weeks 8 through 10 of 2013, the employee concealed from the department work performed, wages earned, and a separation from St. Luke's Episcopal Church.
Burden of Proof of Concealment
A claimant is presumed eligible for unemployment insurance benefits, and the party resisting payment must prove disqualification.(2) The burden to establish that a claimant concealed information is on the department.(3) As a form of fraud, concealment must be proven by clear, satisfactory, and convincing evidence.(4) For unemployment insurance purposes, conceal means "to intentionally mislead or defraud the department by withholding or hiding information or making a false statement or misrepresentation."(5)
In any case where concealment is an issue, the commission first determines whether there is sufficient direct evidence of concealment, such as an admission by the claimant, to conclude that the claimant intended to mislead or defraud the department to receive benefits to which the claimant knew he or she was not entitled. If there is not sufficient direct evidence of concealment, the commission then looks to see whether there is sufficient indirect evidence from which the commission can infer an intent on behalf of the claimant to mislead or defraud the department in order to receive benefits to which the claimant knew he or she was not entitled.
If the department presents sufficient evidence to create a reasonable inference that the claimant intended to mislead or defraud the department in order to receive benefits to which the claimant knew he or she was not entitled, the inquiry next turns to whether the explanation offered by the claimant for his or her actions successfully overcomes this inference.
In a companion decision issued this same date in Hearing No. 13403268AP, the commission found that the employee did not conceal from the department work performed and wages earned from St. Luke's Episcopal Church. The employee had been advised in the past by the department that the freelance services the employee performed for another entity did not constitute employment for unemployment insurance purposes and wages from such work did not have to be reported on his weekly claim certifications. In addition, the employee was not required to report that he was self-employed. Given the similar nature of the services the employee provided to St. Luke's and the parties' understanding that he was an independent contractor, the commission credited the employee's explanation as to why he believed that he did not need to report on his weekly claim certifications work performed, wages earned, or a separation from St. Luke's or self-employment.(6) The decision issued in Hearing No. 13403268AP is incorporated into this decision as though fully set forth herein.
The commission therefore finds that, when filing weekly claim certifications for weeks 43 of 2012 through 6 of 2013 and 8 and 9 of 2013, the employee did not conceal work performed and wages earned from St. Luke's Episcopal Church, within the meaning of Wis. Stat. § 108.04(11).
The commission further finds that, when filing a weekly claim certification for week 10 of 2013, the employee did not conceal a separation from St. Luke's Episcopal Church, within the meaning of Wis. Stat. § 108.04(11).
The appeal tribunal decision is reversed. Accordingly, the employee's benefit amount shall not be reduced by $6,002.00 for benefits and weeks for which the employee would otherwise be eligible during the six-year period that ends September 7, 2019.
Dated and mailed May 30, 2014
lashma3269_2urr . doc : 152 : BR 330: PC 749
BY THE COMMISSION:
/s/ Laurie R. McCallum, Chairperson
/s/ C. William Jordahl, Commissioner
/s/ David B. Falstad, Commissioner
The department requested that the commission reconsider its decisions in seven cases involving the employee. The commission agreed to do so and set its decisions aside. It has issued the above decision based on the record created in this matter. In this memorandum opinion, the commission addresses the arguments raised by the department in its request for reconsideration.
The department argued that the commission erred in failing to consult with the administrative law judge (ALJ) who held the hearings in these cases concerning the employee's demeanor and credibility before reversing her decisions. The department also argued that the commission erred in ignoring its accompanying decision finding that the employee was discharged for theft from St. Luke's Episcopal Church in evaluating his overall credibility.
Although the commission does not agree that it is required to consult with an ALJ in every case in which it reverses an appeal tribunal decision, it did so here at the request of the department. The ALJ stated that, while she "did not find the claimant credible on all matters," she "did not remember any particular mannerisms, demeanor, hesitancies, or inflections" from the hearings that factored into her decisions. With respect to the department's argument regarding the employee's discharge, the commission will not find that, because the employee was discharged by St. Luke's for theft, his testimony concerning his reasons for not reporting wages from the church or self-employment on his weekly claim certifications was automatically incredible.
Next, the department specifically asked that the commission answer this "fundamental" question: "Why was testimony not believed by the ALJ believed by the commission?" The answer is quite simple. The commission believed the employee's testimony in this case because it was corroborated by Exhibit 14 and the department's own records. The ALJ, on the other hand, admittedly had no explicit reason for disbelieving the employee's testimony.
The department argued that the employee incorrectly and repeatedly answered "No" in response to the question "Did you work?" and, later, "During the week, did you work or did you receive or will you receive sick pay, bonus pay, or commission?" However, the employee almost always answered those questions in the affirmative and reported his work, wages, and vacation pay from his primary employers on a consistent and accurate basis. It was only his side work for the church that was not reported.
The department also argued that the "claims questionnaire has always had the self-employment question, but there is no evidence that [the employee] ever answered 'Yes' to it." The department's argument is only partially true. There is evidence that the employee sometimes reported self-employment prior to 2009, but that evidence was not included in the hearing file and not incorporated into the record. The same is true of evidence confirming that the employee had been told by the department not to report his wages from freelance work on his weekly claim certifications.
The "fair hearing" provision in sec. 303(a)(3) of the Social Security Act requires a reasonable opportunity for workers whose claims are denied to be heard by an impartial tribunal in an adjudicatory proceeding which assures them of elementary fairness. An unemployment insurance ALJ is responsible for discovering the facts and may not rely on the parties to present their cases and facts, as they understand them, and to offer complete proof.(7) Moreover, state unemployment agencies (the department) have a public duty to cooperate in revealing pertinent facts and other evidence that are peculiarly within their own knowledge, whether favorable or unfavorable to the claimant. A state agency is not to assume a hostile or an indifferent attitude in cases in which it views itself as an adverse party, because it leaves to the claimant the task of discovering exculpatory facts, a task claimants are most likely ill-prepared to perform.(8)
In this case, direct evidence showing that the employee's testimony was credible was contained in Exhibit 14 and in department records that were not considered or introduced.(9) The department had the duty to present all evidence available to it on the issue of concealment, whether favorable or unfavorable to the employee. Here, only unfavorable evidence was considered and introduced.
As part of its request for reconsideration, the department attempted to supplement the record in this matter, asserting in an affidavit that the employee would never have been told not to report his wages or his self-employment because department claims specialists are trained to follow initial claims scripts as written. The commission finds that the department's attempt to supplement the record in this fashion is improper for three reasons. One, the information presented in the affidavit was not new or recently developed. See, e.g., Walls v. Century Auto Sales LLC, UI Dec. Hearing No. 04402526AP (LIRC Dec. 22, 2004). The department could have had a department witness present at the hearing to offer the information contained in the affidavit. Two, it was not a claims specialist who told the employee that he did not have to report his freelance work on his weekly claims. An adjudicator issued an informal determination to that effect, complete with a determination rationale. Three, an affidavit setting forth general practices will not overcome direct, firsthand testimony of what actually occurred.
The department also argued that the commission improperly ignored what amounted to a prima facie case of concealment unrebutted by credible evidence. In essence, the department argued that, as long as it introduces evidence that a claimant provided an incorrect answer on a claim certification, it has provided sufficient proof of concealment or has created a rebuttable presumption of concealment. The commission disagrees.
Concealment cannot be established simply by showing that the claimant failed to answer a question correctly on his weekly claim certification. An administrative hearing is not a hearing pursuant to an order to show cause. Once the department presents evidence showing that a claimant answered a question incorrectly on a weekly claim certification, the burden of proof is not shifted onto the claimant to prove that his or her incorrect answer was not fraudulent. The burden of proof remains with the department at all times. Wisconsin has not created any presumption of concealment by statute, and none has been created by case law.
The commission notes that the department has made similar arguments, unsuccessfully, in the past. For example, in DILHR v. LIRC and Panzigrau, Case No. 88CV4739 (Wis. Cir. Ct. Dane Cnty. July 27, 1989), the department argued that any failure to disclose wages or other material fact is concealment. In rejecting the department's argument concerning the statutory language now contained in Wis. Stat. § 108.04(11)(a) and (c), the court stated:
The title of this subsection is "Fraudulent Claims." Such titles may be used to resolve doubts as to a statute's meaning. In re the Interest of C.D.M., 125 Wis. 2d 170, 172 (Ct. App. 1985).(10) The use of the word "fraudulent" clearly suggests that the legislature was addressing culpable conduct by applicants and was not creating a system of strict liability where even honest mistakes would lead to forfeitures. This is confirmed by the use of the word "conceals." ... The element of conscious, affirmative action in the act of concealing is undeniable. If the legislature intended there to be strict liability for any missing information, alternative wording was readily available.
Furthermore, this statutory section describes the circumstances under which a claimant may have a forfeiture imposed. Such laws, if their meaning is at all uncertain, should be strictly construed to narrow the range of acts that will lead to the harsh result of a forfeiture. Liberty Loan Corp. & Affiliates v. Eis, 69 Wis. 2d 642, 649 (1975). To construe "conceals" to include the necessity for a knowing or intentional failure to disclose material information is consistent with this directive.
DILHR v. LIRC and Panzigrau, supra, pp. 5-6. It is important to note that when the Panzigrau case was decided in 1989, the term "conceal" was not defined in the statutes.(11) The term "conceal" was also not modified by any words such as "intentionally" or "knowingly." Yet, the court found that a scienter element was part of the concealment statute's meaning.
As pointed out by the department in its request for reconsideration, a definition of "conceal" was first included in the state's unemployment insurance law by virtue of 2007 Wisconsin Act 59. The act created Wis. Stat. § 108.04(11)(g), which provides that, for purposes of the fraudulent claims subsection, "conceal" means to intentionally mislead or defraud the department by withholding or hiding information or making a false statement or misrepresentation. In creating this definition, the legislature, rather than choosing to impose strict liability on claimants for any incorrect information, simply clarified that, for a claim to be fraudulent, the claimant must have intentionally (i.e., consciously and affirmatively) failed to disclose material information to the department. Consequently, in addition to presenting evidence that the claimant answered a question on his weekly claim certification incorrectly, the department must present sufficient evidence, direct or indirect (circumstantial), from which fraudulent intent may be inferred.
Finally, the department argued that the commission has unreasonably augmented the statutory definition of "conceal" by requiring that the claimant know he or she is not entitled to benefits. The department cites the case of Haise v. LIRC and Weavers, Inc., Case No. 95-CV-51 (Wis. Cir. Ct. Washington Cnty. June 16, 1995), in support of its argument. In Haise, the court stated that § 108.04(11) "does not require that concealment be with intent to defraud."
The department's reliance on Haise is misplaced. First, Wis. Stat. § 108.04(11) does require that there be an intent to defraud.(12) This is unmistakably true after the effective date of 2007 Wisconsin Act 59. The law unambiguously states that "conceal" means to intentionally mislead or defraud the department. The purpose of providing misleading or fraudulent information is to receive benefits to which the claimant would otherwise not be entitled.
Second, long before the legislature added the definition of "conceal" to Wis. Stat. § 108.04(11), the commission, dating back to at least 1959, has held that concealment involves an "intentional plan to withhold information for a fraudulent purpose." This fraudulent purpose is "to receive benefits to which the individual knows he or she is not entitled."(13) To help achieve unemployment insurance legal conformity, decisions of higher unemployment insurance appeal tribunals and state courts "are considered binding upon lower tribunals" in deciding questions involving the interpretation of law.(14)
A statement of fact that is simply mistaken is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive. A claimant who believes he or she has submitted a legitimate claim for unemployment benefits lacks the fraudulent intent essential to support a finding of concealment.
In this case, the employee received advice from the department which may or may not have been correct at the time it was given. The employee relied on that advice and filed his claims accordingly. As a result, he did not provide accurate information to the department on his weekly claim certifications beginning in 2009, and he received benefits to which he was not entitled. However, the employee did not have the fraudulent intent essential to support a finding of concealment. Therefore, while the employee is required to repay the benefits he received in error, additional penalties will not be imposed.
cc: ATTORNEY ROBERT C JUNCEAU
Appealed to Circuit Court. Affirmed, February 13, 2015. [Circuit Court decision summary].
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(1)( Back ) Unless otherwise noted, all references to the Wisconsin Statutes are to the 2011-12 version, as amended through 2011 Wisconsin Act 236.
(2)( Back ) Wis. Stat. § 108.02(11); Kansas City Star Co. v. DILHR, 60 Wis. 2d 591, 602, 211 N.W.2d 488 (1973).
(3)( Back ) In re Scott Lynch, UI Dec. Hearing No. 10404406AP (LIRC Mar. 11, 2011); Holloway v. Mahler Enter., Inc., UI Dec. Hearing No. 11606291MW (LIRC Nov. 4, 2011).
(4)( Back ) Kamuchey v. Trzesniewski, 8 Wis. 2d 94, 98, 98 N.W.2d 403 (1959); Schroeder v. Drees, 1 Wis. 2d 106, 112, 83 N.W.2d 707 (1957).
(5)( Back ) Wis. Stat. § 108.04(11)(g) (2009-10).
(6)( Back ) Compare In re Joseph Hein, Jr., supra; Haebig v. News Publishing Co. Inc. of Mt. Horeb, UI Dec. Hearing Nos. 13000910MD, 13000911MD, and 13000912MD (LIRC Jan. 31, 2014).
(7)( Back ) Handbook for Measuring Unemployment Insurance Lower Authority Appeals Quality, Third Edition, U.S. Department of Labor, Employment and Training Administration, Office of Unemployment Insurance, March 2011, Appendix B: A Guide to Unemployment Insurance Benefit Appeals Principles and Procedures, pp. 4-5.
(8)( Back ) Id. at pp. 29-31.
(9)( Back ) The determination rationale connected with the UCB-35 stated that the employee was an independent contractor and that there were no reportable wages for the services he provided to Gannett. DUCQ screens, such as those marked as Exhibits 5 through 11, for the relevant time period show that the employee reported self-employment on a sporadic basis.
(10)( Back ) See, also, Nottelson v. DILHR, 94 Wis. 2d 106, 118, fn. 11, 287 N.W.2d 763 (1980), and the cases cited therein.
(11)( Back ) In 1989, the relevant statute, Wis. Stat. § 108.04(11)(c), read: "If a claimant, in filing his or her claim for any week, conceals any part of his or her wages earned in or paid or payable for that week ... or any other material fact relating to ... eligibility for benefits, so much of any benefit payment as was paid because of such concealment shall be recovered by the department as an overpayment."
(12)( Back ) See, e.g., Krueger v. LIRC, supra (for a forfeiture of future benefits to be imposed under Wis. Stat. § 108.04(11), there must be clear, convincing, and satisfactory evidence in the record that the claimant intended to defraud, that is, to obtain benefits to which she knew she was not entitled).
(13)( Back ) See Holloway v. Mahler Enterprises, supra, and the cases cited therein.
(14)( Back ) Handbook for Measuring Unemployment Insurance Lower Authority Appeals Quality, Third Edition, U.S. Department of Labor, Employment and Training Administration, Office of Unemployment Insurance, March 2011, Appendix B: A Guide to Unemployment Insurance Benefit Appeals Principles and Procedures, p. 8. See, also, Nethery v. LIRC, 2014 WI App 24 (Wis. Ct. App. 2014), 22 (unpublished decision) (LIRC's long-standing interpretation of § 108.04(11) provides uniformity in the application of the statute and is entitled to great weight deference).