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Employment Blog

Repeated Inadvertent Errors Do Not Constitute “Substantial Fault” For Unemployment Insurance (Or For Worker’s Compensation)

Authored by Russell W. Wilson
Posted on April 25, 2016
Filed under Employment

“Substantial fault” is a new concept that may determine whether a terminated employee is eligible for unemployment insurance benefits.  In 2013 the Wisconsin Legislature amended the unemployment insurance eligibility statute to create “substantial fault” as a basis to deny benefits; the new law took effect on January 5, 2014.  On April 14, 2016, the Wisconsin Court of Appeals issued the first judicial decision that interprets the meaning of “substantial fault.”  Operton v. Labor and Industry Review Commission, 2016 WL 1552178.  Moreover, the new amendments to the worker’s compensation act took effect on March 2, 2016, that govern eligibility for continued temporary total disability (“TTD”) benefits where an employee returns to work under a light duty program while still in the healing period.  If the employee’s employment is suspended or terminated during this time for “substantial fault” (or for “misconduct”) as set forth under unemployment insurance, TTD payments may be ended.

In Operton the employee had been fired for having made eight cash transaction errors for a retail business over the course of twenty months of employment.  The employee had been warned of the consequences of continued cash transaction errors.  During the period of employment the employee handled about 80,000 transactions, which meant that about “99.99 %” of the transactions had been correctly performed.  The eight instances of nonperformance were instances of “errors” or “mistakes”; they were not deliberate or intentional.

The unemployment insurance statute defines “substantial fault” as “acts or omissions of an employee over which the employee exercised reasonable control” that are subject to three specific independent exceptions 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.

The Labor and Industry Review Commission (“LIRC”) had determined that the employer demonstrated “substantial fault” so as to make the employee ineligible for unemployment insurance benefits.  The Court of Appeals analyzed each of the three exceptions to “substantial fault” and reversed LIRC’s decision.  First, the court noted that exception number 1 applies to “infractions,” not “inadvertent errors.”  Unlike “inadvertent errors,” “infractions” may constitute “substantial fault” if the “employer warns the employee about the infraction.”  The evidentiary record established that the employer had repeatedly issued warnings; however, the record was silent as to whether the employee had committed any kind of infraction.  The employer had offered no evidence that what were offered into evidence as “errors” constituted “infractions.”  Nor did the court of appeals provide any guidance as to what conduct or omissions would constitute an “infraction.”

Second, the court unequivocally ruled that exception number 2 is applicable because the Wisconsin Legislature determined that “[r]epeated inadvertent errors do not statutorily morph into ‘infractions’ if warnings have been given.”  In other words, no amount of warnings can remove “inadvertent errors” from exception number 2 to the definition of “substantial fault.” 

Finally, exception number 3 did not apply on the basis of “insufficient skill, ability, or equipment.”  The court noted that the employee possessed the requisite skill or ability because she had successfully handled “99.99%” of the approximate 80,000 transactions during the period of her employment.  According to the court, the employer was well within its right to discharge the employee for failing to meet its “high expectations.”   Under the facts of this case, however, the employee met exception number 2, and therefore, was exempted from the definition of “substantial fault.”

Worker’s compensation insurance carriers and employers should carefully consider the language of the three exceptions when deciding whether to suspend or terminate an employee based on  “substantial fault” after the employee returns to work on a light duty program during the healing period.  Otherwise, a claim for bad faith under the Worker’s Compensation Act could arise.