Wisconsin Manufacturers & Commerce
501 East Washington Avenue
Management: James Buchen, Ed Lump, Dan Petersen, Earl Gustafson, Susan Haine
Labor: Phil Neuenfeldt, Patty Yunk, Red Platz
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Bob Whitaker, Tracey Schwalbe, Dick Tillema, Christopher O’Brien, Robin Gallagher, Lutfi Shahrani, Ben Peirce, JoAnn Hium, Carla Breber, David Heuer, Andrea Reid, Brian Bradley, Tom McHugh
Others present: Representative Mark Honadel, Jason Vick (Rep. Honadel’s office), John Metcalf (Wisconsin Manufacturers & Commerce), Bob Andersen (Legal Action of Wisconsin), Michael Metz (WI Independent Business), Larry Smith (UC Management Services)
Mr. LaRocque calls the meeting to order at 9:45 a.m. Mr. LaRocque acknowledges Representative Mark Honadel, Chair of the Assembly Committee on Labor and Industry, and thanks him for his active interest in the unemployment insurance program.
Mr. Bergan provides an update on a contested case involving employees of Harley-Davidson. The department is not making a proposal on this today, but it is likely to come before the Council soon. In early 2007, there was a short-term layoff of Harley-Davidson employees, both at their Arrowhead and Milwaukee plants. At the time of the layoff, Harley-Davidson paid a profit-sharing (a “short term incentive” or “bonus” payment) to employees. The employees in the Milwaukee plant received their bonus payments during a week in which they were unemployed. The bonus payment is wages. Under our policy, the bonus made the employee ineligible to receive benefits in the week in which the bonus was paid. The employees in the Tomahawk plant received their checks the week they returned to work so their unemployment benefits were not affected by the profit-sharing. Around 500 Harley-Davidson employees were denied benefits they would otherwise have collected if not for their bonus payments. We had told Harley-Davidson what the consequences would be prior to the bonus payment, but we do not think their intention was to deny the benefits. We had to count these incentive payments as wages in the week the employees were paid the incentive, which was also the week they were out of work. Under these circumstances, we had to deny benefits.
Question (Buchen): Is it the law that the benefits would be denied?
Mr. Bergan responds that there is not a specific law on this. It is handled by department policy.
Question (Haine): Aren’t wages earned when they are paid
Mr. Bergan responds that we think that is the best interpretation for bonuses. Mr. Bergan further reports that the administrative law judges varied in their interpretations of the law in the Harley cases and two of the cases went to the Labor and Industry Review Commission (LIRC). LIRC held that we needed to count that profit sharing when it was earned but concluded that the profit sharing payment had not been earned in the particular week in which it was paid. It is an interpretation of the law that is difficult to administer. We do not know what a profit sharing payment will be until the end of the year or later. The decision would require the department to interpret the profit-sharing plans. We may need to retroactively prorate the bonus amount among some or all weeks of the previous year. Prorating is not practical. It depends on how you interpret the LIRC decision.
At the time of the LIRC decision, there were 30 other cases on appeal. The department is not going to appeal LIRC’s decision, but will pay the benefits to those otherwise qualified. The policy question remains as to when to count profit sharing as “earned.” There is no doubt they are wages, but the question is when to apply them as earned such that they may offset benefits in the week in which they are earned. We are in the process of reviewing this. We have a communication from the lawyer from the employees that they have some ideas how that might work. The LIRC opinion itself was completely silent on any administrative remedy; they just dealt with it in principle. We will be back to you on this soon.
Question (Haine): This is a unique situation, but in general individuals are on a cash basis for earnings. How would this affect other areas, such as termination pay or vacation pay?
Mr. Bergan responds that we have laws that deal with those situations.
Question (Peterson): If you carry this out and review all of those people and see if they collected any unemployment during the prior year that they earned this payment, would they have to give back some of their benefit?
Mr. Bergan responds that this could be true in that circumstance if it is applied retroactively.
Question (Lump): How does this apply to a bonus paid at year end? For a seasonal employer, people may get laid off at the end of the season and at the same time provide a bonus. Does that disqualify them for benefits?
Mr. Bergan responds that it could do so. For other types of pay, the law has been settled, but for this particular one for bonuses and profit-sharing, we are back to the drawing board. We could take our existing policy and put it in the law or an administrative rule. Before we propose that, we want to examine all the alternatives.
Comment (Buchen): As a policy matter, the payment of unemployment benefits is to tide people over when they are unemployed and are not earning anything and need money to survive. To the extent that they are getting a profit sharing check, they are not suffering that. There may be legitimate arguments on the other side, but that is a clean, simple, straightforward way to look at this and it is simpler to administer.
Mr. LaRocque indicates that wages will operate as a setoff against benefits if it is earned in the same week in which the benefits would be payable. The LIRC decision held that the short-term incentive plan was not earned the week it was paid. “Earned” is the issue. For a bonus, the department looked at the bonus plan and noted that there are qualifying conditions to receive the bonus other than the performance of services. Some of the qualifications have to occur after the end of the year, including the employer’s exercise of the discretion it has retained as to whether to make the payment and as to how it is calculated. Under the circumstances the department considered the bonus to be “earned” in the week these conditions occurred, which tends to be when it is paid. As compared to traditional wages, which are earned when the services are performed, the bonus concept has more qualifying conditions that occur only after the services are performed. Perhaps those conditions ought to be the final determination for when it is earned. LIRC does not answer the question how to determine when a bonus is earned.
Comment (Lump): Bonuses also may be based on a proportion of weeks worked or amount earned, so we need to be careful with this.
Comment (Peterson): I would make the argument that the same is true for vacation pay and sick pay, or payments you get at the end of your job. It was not earned in the week it was paid.
Comment (Buchen): The other types of pay are covered directly in the statute, e.g., termination pay, sick pay, holiday pay or vacation pay.
Mr. Bergan indicates that it is subject worth more discussion. This will be before the Council again. If you have comments, he would be happy to consider them. A law change would be the way to deal with this, if we can agree on the policy.
Comment (Neuenfeldt): We have experience in negotiating contracts. I am sure this is part of a bargaining agreement with Harley-Davidson. You will have a more difficult time establishing any kind of a “one standard fits all” because of the intent in which the profit-sharing is negotiated – often it is seen as a “benefit” when it is paid. It is not really clear because you do not know what the intent was when they were bargaining. I would take a wild guess that this probably a bargained decision the lawyers argued [for Harley-Davidson]. You negotiate profit sharing differently than you do vacation time and differently than you do other benefits. In the case of severance, they give you options in terms of lump sum payout versus weekly payout. Most people go for the lump sum because that week they do not collect unemployment benefits but the other weeks they do. It is all around the intent with which these agreements are reached. No matter what you do, this comes into play.
Mr. LaRocque acknowledges that this is a good point. In some cases it is negotiated as though it were a benefit and in some cases as though it were a salary or wage. LIRC has decided that these are wages.
Comment (Neuenfeldt): That might be because in this case that might have been the intent of the agreement.
Mr. LaRocque responds that this LIRC decision did not provide much rationale for its decision as to when the bonus was “earned”. LIRC says notes that services were involved. The statute defines “wages” in terms of services.
Mr. Bergan indicates that we would like to resolve this in a way that is fair and consistent with our other policies. We also would like to avoid having to review every contract or every profit-sharing agreement in order to decide how to consider this.
Comment (Neuenfeldt): Let’s pass a statute that outlaws outsourcing.
Comment (Buchen): As I look at the way other forms of compensation are treated in the statute, I see that there are plenty of things to consider.
Comment (Haine): With termination pay, this is a huge area of interest and confusion to consider when the payments are earned or paid. We often refer people to the statute. It would be nice to get something in the statute that we can refer to for bonuses. It would be an administrative burden to evaluate every single arrangement in terms of when earned and when paid.
Mr. Bergan reminds the Council, in reference to the reserve fund, that news about the economy is discouraging regarding the likelihood of a recession sooner rather than later. It is important to factor that into the conversation about what the appropriate remedy is for the reserve fund.
Motion (Buchen), seconded (Neuenfeldt), to approve the Minutes of the October 25, 2007, meeting. Minutes are approved unanimously.
Mr. LaRocque indicates that Council members have been given a summary of the department law change proposals regarding the status of each proposal, and highlighting the four that have not received any action or vote.
Motion (Buchen), seconded (Neuenfeldt), is passed unanimously to go into closed session to discuss all proposals by Labor, Management and the Department for changes to the unemployment insurance statute and rules pursuant to section 19.85(1)(ee) of the Wisconsin Statutes. Closed sessions by the management and labor members of the Council, respectively, begin at 10:10 a.m.
Open session resumes at 1:39 p.m.
Question (Platz): Would you cost out the wage base every year instead of every other year for what James has given us, beginning with 2009?
Comment (Gustafson): The other thing we are requesting is if you can do it “a la carte” so we have the various components and can see the bottom line and the cost impact of each of them. Even if everything else had to be held constant, it will still give us a feel, understanding that there may be synergy when they are all rolled together.
The next meeting is scheduled for Thursday, November 29, at 10:00 a.m. in Pewaukee.
Motion (Neuenfeldt), seconded (Haine), to adjourn. Motion passes unanimously.
March 25, 2013
Unemployment Insurance Division, Bureau of Legal Affairs (BOLA)