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Unemployment Insurance Advisory Council Meeting Minutes

Thursday, October 2, 2008 – 11:00 A.M.

Spooner Agricultural Research Station
W6646 Highway 70
Spooner, Wisconsin

Members Present

Management: James Buchen, Dan Petersen, Susan Haine, and Earl Gustafson

Labor: Dennis Penkalski

Chair: Daniel LaRocque

Department staff present: in person: Hal Bergan, Carla Breber; by telephone: Andrea Reid, Tracey Schwalbe, Lutfi Shahrani, Brian Bradley, Dick Tillema, Ben Peirce, Troy Sterr, Tom McHugh, Mary Pronschinske

MINUTES

Mr. LaRocque calls the meeting to order at 11:15 a.m. The public hearing was held first.

1. Brief Remarks – Hal Bergan

When we met last time, we reported that we anticipated we would be in a deficit situation by spring. That continues to be the case. We based the earlier estimate on the experience with the 2002-03 recession. Since then, we have looked at the data from 2007 and compared it to 2008, thinking that this might give us a little better direction as far as making projections.

This year the start of federal benefits (“emergency unemployment” or “extended” benefits legislated this year) caused a spike in regular unemployment benefits. This occurred when we notified people about the possibility of federal benefits. We expected that the increased claims would be a short-term phenomenon.

If you look at the actual expenditures out of the reserve fund on a year-to-year basis, the numbers are perplexing. Comparing weeks in 2007 to 2008, for the first week of September (week 36), the expenditures were up $3,416,000 or 30%. For the second week of September (week 37), they were up $3,657,000 or 33%. For the third week of September (week 38) they were up $3,549,000 or 34.9%. For week 39, they were up $3,049,000 or 29.1%. For the most recent week we have (week 40), they are up $3,274,000 or 35%. This is anomalous because the numbers we get from the Department of Labor shows that there is actually very little movement in the actual unemployment rate, but there is a lot of movement in the number of initial claims that we get. It still could be possible that this is just part of a spike related to notification of federal benefits, but for each week that this goes on, it makes us believe that is less likely.

Question (Buchen): Who calculates the insured unemployment rate?

Mr. Bergan responds that this is a federal calculation. Mr. Tillema indicates that there is a federal definition that is used by our people when they know the number of weeks that are claimed in a certain period of time. It is a leading indicator. There is a lag now because we have not sorted out the EUC claims from the regular claims. It might lag two weeks behind, but it does not lag several months behind.

Question (Buchen): Are we seeing a corresponding rise in the insured unemployment rate?

Mr. Tillema indicates that we are not currently able to answer this until we sort out the weeks compensated portion; we don’t know the answer to that question.

Mr. Bergan indicates that we had been holding out hope that the numbers would get better, but we have less of that hope now. If we project the 32% number of increased claims that is our current experience out to the future, at the end of March 2009, the reserve fund is at a negative $90 million. We would also go negative again at the end of December 2009. This is important because if we have to borrow once, it is interest-free; if we have to borrow twice in one year, we have to pay the interest back to the time we first borrowed. Since the likelihood of borrowing is increasing, we are getting ready to do the borrowing. If the recession is deep and long-lasting, we will look at a new set of numbers. We have also talked with the Department of Administration about the possibility of borrowing on the open market using bonds. That has some advantages because the rates are a little lower and none of the federal sanctions apply. The DOA has advised that it is not a good alternative for a small amount for a short time, but if we have a significant deficit for an extended period of time, we can see if there is something we can work out.

Question (Buchen): What does the DOA consider a small amount?

Mr. Bergan indicates that if we are borrowing $500 million over a couple of years, then the DOA indicated bonds may be an option worth looking at.

Question (Gustafson): Is that something that is even feasible given the current financial crisis? He has heard reports that municipalities and counties are in dire straits to make payroll right now, and borrowing was not available to them.

Mr. Bergan indicates that we will need to see where the status of the state’s credit market will be. Under normal circumstances, a stream of income guaranteed by the government is a strong obligation, but we are headed into the unknown.

Question (Haine): What are the federal sanctions?

Brian Bradley indicates that the biggest sanction is that if we have loans outstanding for two consecutive January 1sts, then employers start losing their FUTA credit. We end up paying back the loan by reducing the federal unemployment credit. Interest has to be paid back with a special assessment against employers and we could not use reserve fund money to pay the interest.

Comment (Buchen): We do have the tax increases that will add revenue. We hope that we do not need to add taxes on top of that, but we may need to do something.

Mr. Bergan indicates that the projections factor the tax increases in.

Question (Penkalski): When someone goes on the federal benefits, is there some type of notification that they get?

Mr. Bergan indicates that the department sent notices to 220,000 people that they are potentially eligible. That is what inspired people to apply. If you are on regular benefits, the extended benefits would be paid at the end of the regular benefits, but the claimant would get notice of the federal benefits.

Question (Petersen): Would we have good luck approaching the legislature to accelerate our increases if it came to that?

Mr. Bergan indicates that it would be possible to approach the legislature to change the 2011 increase to 2010, which would help. The expectation also would be that for 2010, we would be on Scheduling A rather than Schedule B for tax rates.

Question (Penkalski): Would we be better off if we had a double trigger with an increase in June or July and January?

Mr. Bergan indicates that we talked about that and about moving the date for calculation of the next year’s rates to later in the fall. Many states have done this. It makes the system more responsive if you move the trigger date to November 1st. It used to be that we could not get the work done that fast, but in this day of automation, we can work much faster.

We also have an issue regarding how to calculate the effects when someone who is receiving benefits and also receives a bonus of some kind. This has arisen with Harley-Davidson last year and with GM and Chrysler this year. In the Harley situation, the workers were laid off a short period of time and got a profit sharing payment during a week in which they were laid off. The payment offset their benefits. In some cases there were resulting overpayments. We determined that the bonus payments had been “earned” in the week they had been paid. Then we got a decision from LIRC reversing the determination that said “the focus should be on services and conditions that led to the employee’s entitlement to the payment not on when the employer decided to calculate the amount of the bonus and notify the employee of the amount of the payment.”

That left us with a difficult standard to administer, applied employee-by-employee. Now we have some people on layoff status at GM who will receive a bonus in lieu of a pay raise that was a part of their contract. They will get 3% of what they would have been paid during the 52 weeks previous to September 2008. We were notified late so there is risk they will be overpaid.

Question (Penkalski): Would this really be an overpayment situation when the bonus is calculated over the 52 weeks when the bonus was not paid?

Mr. Bergan indicates that it was earned for some and not others and every person would have a different calculation. In some cases, it would go back and reduce benefits they already received because many of them were in benefit status during that time.

Comment (Buchen): LIRC came up with a decision that got the result they wanted in that case, but it does not make good law.

Comment (Petersen): We talked about this at the time. If it was calculated over the 52 weeks of a year, and they had any claims over the course of the year, then they were overpaid.

Comment (Haine): Profit sharing is usually calculated based on how the company does and you do not know that until the end of the year.

Mr. LaRocque indicates that a statutory change would be one solution. The interpretation stated by Dennis may be what LIRC meant, but it was not stated anywhere near as clearly as Dennis suggests. What LIRC has left us with is difficult to administer because it has left us with a vast array of choices and it is not clear in many cases exactly when a bonus is “earned”. The statute calls for us to set off wages against benefits in the week or weeks in which the wages are earned. The profit sharing and bonuses are “wages” and no one disputes that. In the Harley case, we set off the wages in the week we thought it was earned which happened to be the week it was paid. As is often the case with these payments, you study the performance of the company and/or the employee or put the formula together in other ways and then make a discretionary decision on the part of the employer to pay almost immediately after. The discretion is usually not exercised until late in the process. We studied this concept of earned because that is the only word in the statute that gives you any basis as to when to set off the payment.

Comment (Buchen): What is wrong with considering it earned when paid?

Mr. Bergan indicates that it is the department’s view that the best way to do this for this kind of compensation is to say that bonuses and profit sharing is earned when paid. With the GM example, though the payment is set to be made October 10th, the people still do not know what that payment will be.

Question (Buchen): If you do not calculate it as earned when paid, do you have to go back for every week they might have collected benefits in the year and determine that they were overpaid?

Mr. Bergan indicates that this is correct.

Comment (Haine): Procedurally, that would be difficult.

Comment (Penkalski): Normally, the bonuses are made around Christmas and New Year’s and plants are shut down then so it would affect the workers then.

Mr. Bergan indicates that this is correct, but we are persuaded that the best thing is to provide a bright line. For the Christmas bonuses, an employer just has to make the payment while the employees are in pay status to avoid having the bonus count against benefits. It is a simple solution. The worst thing that can happen to a claimant is that they would lose one week of benefits. For the GM people, that will not even happen because they are all likely to exhaust benefits, so they will not lose anything. Our intention is to put in place that it is earned when paid. That seems to be a standard that can be administered and is fair, and meets the common sense test.

Question (Penkalski): What do you do if the bonus is paid in stock instead of cash?

Lutfi Shahrani indicates that if the issue comes up, we will have to see where it fits in our policy. If it is wages, we would need to interpret the law and determine to which week it would apply. There are a lot of payments that are remuneration but not in cash to an employee and we come across those situations from time to time. Room and board is one example; no one receives a check but it is remuneration for services and it falls under the definition of wages. We would have to look at a bonus distributed as stock in the same light. We would have to decide its value and when it was earned. The fact that it is not a cash payment does not take it out of the definition of wages.

Mr. Bergan indicates that the department plans to move on this because we are entering the season when these issues come up and we are experiencing more of the mass layoffs. We think it is important to act quickly so we will propose an emergency rule to get this accomplished. That would be in place for 150 days, with an option to extend it 120 days. In the interim we would bring the issue back to the Council for a permanent statutory change, but if we have to make a permanent rule, we will do that. In the past there has been some concern on the Labor side because these distributions are subject to bargaining. That would continue to be true, but it would simplify that process. I wanted to alert you to the fact that we want to move forward with the emergency rule and that it is a topic we will be bringing back.

Comment (Buchen): For collective bargaining, it would make it clear what they are bargaining. What is the language for the rule?

Mr. Bergan indicates he will provide that to the Council.

Finally, the Division has made law change proposals in the past that we think are well thought out as far as policy, but we also make suggestions that add to consistency to the law and that make it marginally less complex, as well as things that add to the administrative effectiveness of the organization. Sometimes the Council has been receptive to that and we are appreciative. Other times the Council has not wanted to be bothered with administrative details. I ask that you put this in the context of your own organizations. The issue of complexity, both how we are perceived and what we are asking adjudicators and people who run this program to do, is a serious matter for the program. We will be back with proposals along these lines. This will be particularly important if we run into a worst case scenario with the economy and we will be back to the drawing board with how the program operates. We will have to ask ourselves what kind of UI program we can run under those circumstances.

2. Minutes of Meeting June 5, 2008
3. Minutes of Meeting July 25, 2008
4. Minutes of Meeting September 9, 2008

Approval of the minutes will be deferred.

5. Proposed DWD 128, Able to Work and Available for Work

The Council previously asked for a report from the department as to what our experience has been with the new A&A rule. Carla Breber hands out a one-page sheet of Statistics Related to the new Able and Available Tests Based on Decisions issued from 04/06/08 through 09/06/08. This reflects all decisions that used the able and available to test to decide whether the person was eligible. I also added the statistics for work missed with a current employer though we do not use the able and available test there because it is related. We did make some changes to that provision so I wanted you to see the statistics on that as well. Five months is not long enough to draw any firm conclusions, but based on what we are seeing, we find we have more people meeting the test than they did under the former test. The former test was the bright line percentages that we used to determine if the person was able and available, 15% of all suitable work for the able test, and 50% of controllable restrictions. Now we just have the able and available test. Our information does not break this out into which cases were able tests and which were available tests. Anecdotally, it would appear that the changes to the able test have probably resulted in increased eligibility, more so than the available test. It does seem to be much more lenient. The available test seems to be more stable and closer to the former test. Item I on the chart is the test we use when someone is collecting benefits but they have not separated from the employment. It is just an availability issue, such as someone having surgery or going to school while they are unemployed. In looking at the statistics, we have to keep in mind that our cases have gone up overall. There are other variables that affect these decisions which is also why we cannot draw any firm conclusions yet. For example, in Item II., suspension or leaves of absence, the total numbers have gone down there because we changed those provisions all around. Some of those issues are now falling in Item VI. The work for current employers went up 10% and the suspensions and leaves went down 12%. That was probably at least partly because there was an exchange there. There might be a trend here that there is increased eligibility more so in the able than available test.

Tracey Schwalbe reports that the department has seen the increase in allowing benefits under the new able test both in the statistics and anecdotally. We have identified a couple of things that we think need adjustment in the rule. To meet the able test, a person has to be able to do “any” work, or at least one job in the labor market within their restrictions. We have some concerns that this actually reflects an attachment to the labor market because we are not looking at the extent to which jobs are available in the labor market. If they are available for one job, they meet the able test. We think we may want to narrow that somewhat. Also, one of the factors that we look at to determine if someone is able to work is whether that person could be qualified to perform other work within the claimant’s restrictions with additional training. We have found that this does not seem to be much of a limiting factor because it could apply to just about anyone. We also have been looking at how that interplays with our approved training provisions. Now, if someone is in approved training, they do not have to meet the able and available test. With this factor for determining ability, someone could be found able to be trained for something with any other training, not approved training. We want to look at that more closely. Another issue was brought to our attention by administrative law judges is an unintended interpretation of the availability provision. The issue involves a situation where someone is limited in their ability to work due to a physical restriction and are limited to the number of hours they can work. Our availability provision requires that someone be available for full-time work or 32 hours per week. The prior practice and our intent with the rule was that if we would find someone able to work, they would have to be available for as many hours as they are able to work. If they are restricted to 20 hours of work, they would have to be available for 20 hours of work, but we would not require them to be available for full-time work if they are physically limited to fewer hours. That was how these cases were decided in the past, but with the new rule dividing able and available, as opposed to controllable and uncontrollable restrictions, this issue was not addressed. We have had some decisions by administrative law judges that we think have been harsh where a person has been found able to work a limited number of hours but were denied benefits because they were also not available for full-time work. We are looking at incorporating an exception in the availability provision and repealing the partial benefit provision to reflect the intent that someone be as available as they are able to work. Then it should be clear that everyone is required to meet the able and available test, with that exception. I have also made some notes today for the issue of short-term layoffs and the availability test. I look at this as fine tuning the rule now that it is being implemented and we are seeing how it is being interpreted by adjudicators and administrative law judges.

Comment (Haine): Is this just tweaking the rule?

Mr. LaRocque responds that we will be bringing a proposal to the Council for specific changes to the rule. It is tweaking in the sense that it is not a big wave of change. We did look at how other states worded their able and available test. The language of the rule that requires claimants to be available for full-time work if they are not able to work full-time hours hurts claimants. The vast majority of states provide that someone need only be available for as many hours as they are able to work. This may be back to the Council at the next meeting. We will also be looking at the issue of the short-term layoff situation.

Comment (Petersen): The employer that spoke here was fine with employees not be available on a short-term layoff, but I was wondering if there are other employers that do not want to have employees collecting benefits during the layoff period. There may be an objection, but probably not substantial.

Mr. LaRocque indicates that the first step would be to read the language of the rule and see if there is room in that language by informal policy to read that provision to soften the availability requirement.

Comment (Buchen): If you are an employer that did not want the people collecting benefits, this really is not what is standing in the way because it is haphazard. Claims are made on the phone. If someone is going deer hunting, they do not tell the department. As an employer, you could not say you were going to have a shutdown in 2 weeks and say everyone is unavailable. It is a case-by-case situation with each employee, and the employer would have to have some evidence for each employee that they were unavailable. It becomes a haphazard policy that undermines the integrity of what we are trying to do.

Ms. Breber indicates that the department does not just take the employee’s word for it. If there is an availability issue, the department will contact the employer and the employer can raise the issue that the person is out of town.

Question (Penkalski): Are you planning to do something with approved training with the rule changes?

Ms. Breber indicated that we would not be making any changes to approved training. The rule is in conflict with and opposite to approved training and that is what we see as a problem. A person could be considered able because of training that is not approved, and so it undermines approved training. Mr. LaRocque indicates that it is anomalous not to have approved training for the able test, and to get by as able with just the hope of any training.

6. Proposed DWD 129, Benefit Claiming Procedures

Ms. Schwalbe reports that this is something we will be looking at more closely and will be coming up with a proposal for amending the rule. This rule deals with benefit claiming procedures, how to file a benefit claim, how to establish a benefit year, how to continue filing weekly claims, and how to resume a claim during a benefit year when someone has stopped filing claims for some reason. The issue of resumed claim procedures has come up with appeal tribunal decisions. They have been interpreting these provisions in ways that we think were not the intended interpretations as the rule was drafted. Basically, when someone stops filing a continuous weekly claim, they have to resume the claim. When they file continuing weekly claim in an ongoing series, they have 14 days to file a claim for a week. Claimants are advised to keep filing weekly claims even if they are working and report any wages to keep their claims active. If they do not file a timely weekly claim for a week, within the allowed 14 days, the claim has to be resumed. When they resume a claim, they have to file a new initial claim. When they file a new initial claim, they are no longer allowed to file a claim that goes back 14 days, but are limited to filing the claim for the week they resumed the claim and going back one week or 7 days. There was discussion a few years ago about making those time periods consistent, but for some reason that did not happen and we are dealing with the two different time periods for filing claims. With a new or resumed claim, they can go back one week; if they have continued a weekly claims series and do not break that continuous claim series, they can go back two weeks or 14 days. Recently, we have had administrative law judges reach decisions that allow claimants to go back two weeks, or potentially several weeks, when they resume a claim because of the way they are interpreting the language of the rule. We do not think that was the intent of the rule and we would like to move forward and amend the language to clarify the intent. We think we can simplify it and reduce the risk of unintended interpretations by administrative law judges. This is a procedural process that we would like to clarify so that we do not get decisions that inadvertently allow or deny benefits when it was not intended.

7. UI Treasurer’s Financial Statements (yellow)

Brian Bradley indicates that the August financial statements were handed out. The Cash Analysis statement shows that the balance of the reserve fund at the end of August was $456 million, which was down about $227 million from August of last year. Revenues are down about $19 million during the first 8 months of 2008, and benefits are up about $44 million. August benefits were $61 million, compared to $49 million in August 2007. A preliminary number for the balance at the end of September is about $407 million and of this, $148 million is Reed Act money.

Question (Buchen): If the revenues are down over the previous year, is that because there are fewer employees?

Mr. Bradley indicates that total taxable payroll is down a little bit from what it was in 2007. Rates may be going up, but payroll is going down. As a reminder, our 2009 rate notices will be sent within the next two weeks.

8. Letters to the Council (white)

Mr. LaRocque indicates that the two letters involve the appeals process. The first letter is from Larry Smith of UC Management Services and his experience with the appeals process. We have gotten to the point where appeals have declined in the last two years. With our staff we are able to keep up fairly well. We have a short cycle time. Mr. Smith is indicating that if you are the respondent on an appeal, you do not know the appeal is coming until you get the notice of hearing. That is correct. We found that a document called a Confirmation of Appeal that we had been sending was arriving at the parties about one day before the notice of hearing so it really was not providing much additional advanced notice. In response, we indicated that we have instructed our staff to be softer on requests for postponements. When the notice of hearing goes out to a respondent, staff should listen carefully to the problem they have with the schedule. Requests for postponement must be done by telephone so we can discuss the situation with them. We will see if we can reschedule quickly, or see if we can take testimony by telephone which often resolves scheduling problems. Appellants are told on the determination to give us their unavailable dates for hearings in the appeal. We have a rule that provides for rescheduling for exceptional circumstances. We will try to be accommodating.

The next letter was from an attorney in Appleton who points out that the 10% limit for fees applies only to employees and not employers and that it seems unfair. The policy was designed to conserve the benefits for the employee. Ten percent is a lower percentage than what a personal injury lawyer would charge, but these are small amounts. Employers may be more sophisticated in the law and the value of the legal services, so we feel less compelled to protect employers from the practices of their representatives. Both employers and employees may overvalue the value of representation. The administrative law judges are skilled attorneys who ask the questions and bring out the facts pretty thoroughly. I hear from lawyers that administrative law judges know how to ask the questions and I sit like a potted plant. I think that is generally the case. Representatives can help with hearing preparation. That is the response I intend to give to Mr. Edmondson.

The next Council meeting will be Thursday, November 13, at 9:30 a.m., at Madison.

Meeting adjourned at 1:45 p.m.

Updated August 24, 2009
Unemployment Insurance Division, Bureau of Legal Affairs (BOLA)
Content Contact: Legal Affairs Staff