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    Hearsay Problems at Unemployment Insurance Hearings

    The process at administrative hearings may pose challenges for lawyers accustomed to the structure and limits of circuit-court litigation, particularly in the realm of admission of hearsay evidence in unemployment insurance hearings.

    Charles Schaefer

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    Tens of thousands of administrative law hearings are held in Wisconsin each year, operating roughly parallel with judicial system proceedings but in less elegant facilities (and, increasingly, by telephone) and generally well below the public’s radar. The general view is that these proceedings are relaxed and governed by less rigorous procedures than would be required in court. While that is doubtless often true, there is danger in assuming that anything goes and that all the parties must do is come in and tell their story. In fact, each administrative agency can have its own procedural and evidentiary rules that a lawyer should make an effort to familiarize himself or herself with before representing a client at an administrative hearing. Failure to do so, combined with bad luck, can endanger his or her case.

    Treatment of hearsay evidence in each administrative proceeding creates significant potential pitfalls for the unwary counsel. The unemployment insurance (UI) program, with an administrative rule unique to that program, is a prime example of this.

    Typical Conduct of a UI Hearing

    UI hearings typically resolve benefit-eligibility issues in employment separation cases (that is, situations in which a person either quit or was fired or laid off), although various other eligibility or technical issues can be the subject of a hearing. Less frequently, cases involve disputed tax liability and related matters for employers.

    Charles Schaefercom charlieschaefer49 gmail Charles Schaefer, U.W. 1976, retired in 2015 as an administrative law judge in the Eau Claire office of the unemployment insurance program, a position in which he served for nearly 39 years.

    Each administrative law judge (ALJ) for the UI program has a high-volume caseload. In Wisconsin, during periods of high work load, each ALJ is scheduled for more than 1,000 hearings per year. ALJs are charged by administrative rule with the responsibility for developing the hearing record.1 Because parties generally are self-represented, ALJs are accustomed to asking the witnesses the great majority of the questions.

    When a party is represented, the lawyer might feel like the potted plant, not having much to do, given the active role of the ALJ. The practice can vary from judge to judge but the ALJ may decide to question the represented witness first and may, during counsel’s questioning, intrude with questions of his or her own. Because the time scheduled for each hearing is limited, counsel may also be urged to hurry questioning on both direct and cross-examination. Lawyers accustomed to unassisted development of their own record will likely be disgruntled. The lawyer perhaps should take on the role of the pitcher backing up the play at home plate, called on to make a significant contribution only rarely.

    Hearsay Evidence in UI Hearings

    The rules of evidence are to be relaxed at a UI hearing. However, that is not totally true of hearsay evidence. By administrative rule, hearsay is admissible but cannot be the sole basis for resolving an issue unless the hearsay would be admissible under Wis. Stat. chapter 908.2

    The difference between this rule and a rule that makes hearsay inadmissible is, in practice, minor. Hearsay comes in and may corroborate testimony of a witness with personal knowledge or be used as a basis for questioning the opposing party, but it cannot, by itself, be used to establish a case. Cases fail with great regularity because the only evidence of crucial facts offered by a party is hearsay.3

    As it happens, this problem has a disproportionate impact on employers. Employees virtually always are first-hand witnesses to the events that brought about their separation from employment. For the employer, as a multi-member entity, this is frequently not true. Often, a human resources employee will testify to a line supervisor’s report concerning the employee’s allegedly offending behavior. Without the line supervisor’s testimony or that of another individual with personal knowledge, the employer’s case will fail, absent key admissions by the employee. With surprising frequency, the only evidence to support a finding of disqualifying conduct comes from the testimony of the employee who is the opposing party in the proceeding.

    In a very substantial portion of the cases that employers lose when the issue is whether a discharge is for disqualifying conduct (under current law, either misconduct or substantial fault connected with employment), the question on the merits is not even reached due to failure of proof. Only hearsay evidence is offered when the case requires testimony from a witness who had first-hand knowledge, and the employee fails to establish the case for the employer with self-incriminating testimony.

    Surprisingly, counsel for employers sometimes fail to call witnesses with first-hand knowledge of the basis for discharge. Arranging ahead of time for necessary witnesses and other evidence to make a case is often the most important thing a lawyer can do for his or her client at a UI hearing. Only rarely would an imposing lawyerly aspect or penetrating questions win a case that would otherwise be lost. In contrast, bringing in (or failing to bring in) the right witness often has that effect.4

    Perhaps lawyers offer hearsay evidence in support of a crucial element of their case because they anticipate that no objection will be made to the hearsay and that without objection, the evidence will come in and be treated as though it were first-hand testimony. Any such expectation is unwarranted. Use of the waiver rule – the rule that if inadmissible evidence is not objected to promptly, the objection will be waived and the evidence admitted – simply is not the practice at UI hearings.5

    Although there is no explicit nullification by rule or statute of the waiver rule, it is an unspoken corollary to how hearsay is treated at a UI hearing. First, as noted above, hearsay is technically admissible, making objection to its admission a futility. Second, the administrative code moves the focus of the treatment of hearsay from the hearing itself to the post-hearing period, when the ALJ is going through the decision-making process. No lawyer is present to object when the ALJ is in his or her office, deciding which evidence can be used to decide the case. There is then no opportunity for exercise of the waiver rule.

    The UI hearing system is designed to give parties without legal training the opportunity to present the facts of the case, tell their story, and have a decision made on the basis of the stories that have been told. While a hearing can present a wide array of interesting and challenging legal issues, the process itself is intended to be simple and straightforward. Injecting a waiver rule into that process would defeat the goal of making hearing participation accessible to the layperson.6

    While the waiver rule has no place in a UI hearing, there is good reason for the waiver rule in the conventional legal system. The waiver rule calls for explanation at the hearing of the problems with admission of a piece of evidence, presentation of the defense for admission by its proponent, and the articulation of the ruling (accompanied ideally with the basis for the ruling), which is then subject to review on appeal.

    Without the waiver rule, the process operates in the dark. Use of hearsay evidence, for example, becomes subject to the vagaries of the judge’s notions on the hearsay rule that counsel cannot discern and has no opportunity to try to correct. Appellate review becomes guesswork or a de novoevaluation of the evidence without the benefit of argument made at the time of the hearing. Absence of the waiver rule weakens the UI appeals process. It is a weakness that is unavoidable but a weakness nonetheless.

    Strategies for Dealing with Hearsay Evidence

    What should a lawyer do in the face of this weakness? Suppose he or she wishes to enter hearsay evidence that arguably would fall within one of the exceptions making it admissible under Wis. Stat. chapter 908. (Note that Wis. Admin. Code section DWD 140.16 specifically provides that hearsay cannot form the sole basis for deciding an issue unless the hearsay evidence would be admissible under Wis. Stat. chapter 908.) The ALJ no doubt would recognize a business record as qualified to form a basis for a finding. ALJs routinely deal with such records.7

    Difficulty arises, however, if prevailing in the case depends on use of a less frequently encountered exception, such as an excited utterance. Counsel is probably unable to discern if the ALJ recognizes that hearsay testimony qualifies as an excited utterance. If the case were in circuit court, where the waiver rule operates, there would be no problem. If opposing counsel raised a hearsay objection, the proponent of the excited-utterance evidence would argue that the testimony should be treated as an excited utterance.

    Without the waiver rule, there is a problem. Because counsel will not be with the ALJ when he or she reviews the evidence and drafts the decision, counsel cannot be sure that the ALJ is alert to the more obscure exceptions to the hearsay rule. An admittedly awkward way of dealing with the problem would be to delicately acknowledge that while surely the ALJ recognizes the hearsay nature of the testimony offered, the ALJ is requested to consider the evidence to be an excited utterance (or whatever other applicable exception appearing in Wis. Stat. chapter 908). It may go against the grain to be, in essence, raising an objection to counsel’s own evidence, but given this odd feature of UI procedure, this is probably the wisest approach.

    Conclusion

    A lawyer representing a client in an unemployment insurance case has the primary task of ensuring that individuals with first-hand knowledge of the crucial facts of the case be called to testify. If the hearing is by telephone, as is often the case, this need not be an onerous burden. If the case relies on hearsay that would be admissible in court, counsel is well advised to take whatever unorthodox means are available to bring the fact of that judicial admissibility to the attention of the ALJ. A simple request should be sufficient for that purpose.

    Hearsay at Other State Agency Hearings

    Unemployment Insurance hearings are not the only state administrative hearings in which hearsay issues arise. Many of those proceedings are governed by Wis. Stat. chapter 227, and so lawyers must be alert to the holding of Gehin v. Wisconsin Group Insurance Board.8 The Gehin caseconsidered whether an uncorroborated and controverted hearsay medical document was evidence sufficient to support a finding of fact.

    The standard for judicial review under Wis. Stat. section 227.57(6) is whether there is “substantial evidence” to support any finding of fact. The court specifically found the document admissible under Wis. Stat. section 227.45 but distinguished admissibility from the question of sufficiency to support a finding of fact. It found that the hearsay document was insufficient to constitute “substantial evidence.” Because not all standards of judicial review of findings of fact have a “substantial evidence” test, the Gehin rule should be recognized as limited to Wis. Stat. chapter 227 cases or those that otherwise have a “substantial evidence” standard of review.

    What makes Gehin troublesome is its holding that any hearsay, whether or not it falls within a Wis. Stat. chapter 908 exception, is insufficient to support a finding of fact. A totally uncontroversial business record that would be accepted in a judicial proceeding without question cannot be used as a basis for a finding of fact. This creates an anomalous situation in which rules of evidence in an administrative proceeding are more restrictive than what would occur in a court of law. Counsel must assume that practice will vary as to just how strictly the Gehin rule will be adhered to in any Wis. Stat. chapter 227 proceeding.

    As it happens, the problem is frequently going to be one confronted by an agency’s advocate who is typically seeking to sanction a client by withholding a benefit or imposing a penalty. Evidence must be presented by the agency to justify the sanction. Lawyers representing clients facing sanctions are advised to be alert to the Gehin rule and to be vocal in the event that hearsay evidence is offered at the hearing. The response technically would not be an objection to admissibility of the evidence because, per Gehin, there is no admissibility but rather a sufficiency problem. What counsel should do is to send the message to the ALJ that Gehin is pertinent here and that if the rule is ignored, post-hearing consequences can be expected.

    As noted above, not all administrative hearings are governed by Wis. Stat. chapter 227. Wisconsin Statutes section 227.03, which enumerates the extent of the chapter’s applicability, should, of course, be consulted. Probation and parole hearings are subject to constitutional liberty constraints and thus have a separate set of processes. An excellent treatment of those processes as well as hearsay issues in such hearings appears in the Division of Hearings and Appeals publication, Resource Handbook for Community Supervision Revocation Hearings (2016 ed.).9 This handbook should be consulted before representing a client at a revocation hearing.  

    Worker’s compensation hearings are conducted under the same standard of judicial review as unemployment insurance hearings. “In the absence of fraud,” findings of fact are conclusive10 and so need not meet the Gehin “substantial evidence” test. Wisconsin Administrative Code section DWD 80.12(1)(c) permits admission of hearsay at the discretion of the ALJ so long as it has “probative value.” Presumably, uncontroversial business records and similar kinds of hearsay would have probative value and so would support a finding of fact. However, unlike Wis. Admin. Code chapter DWD 140, Wis. Admin. Code chapter DWD 80 is silent as to whether such a finding can be made.

    In conclusion, any preparation for an administrative hearing should include determination of how hearsay is treated by agency internal rule and also whether the standard of judicial review of findings of fact is “substantial evidence” invoking Gehin. While the waiver rule would probably not technically apply, counsel is advised to inject something in the nature of a timely objection when hearsay is offered by an agency. Failing to do so could have a significant effect on the case.

    Meet Our Contributors

    You are retired after 39 years of professional life. What are you doing to fill the void?

    Charles Schaefer and babyIt’s good to have time to read. My wife and I also like to get out one or two nights a week to attend live music. The live music scene in the Eau Claire area where we live is vibrant. We have also done some traveling out west.

    The noteworthy thing I do, though, is to hold babies. My daughter’s friend operates a day care facility from her home. I get over there a couple of days a week and hold infants, currently a five-month-old boy, Teague (in photo), for about two hours a time. I talk with him, sing with him (the old Ernest Tubb standard, “I could waltz across Texas with you in my arms,” is a favorite), and generally have a nice time.

    Research has shown that the first two years of life have a critical impact on development and emotional well-being. If I can provide a greater share of physical contact, social interaction, and just plain fun during that crucial time, I feel as though I’m doing some good. And I genuinely enjoy myself. It wouldn’t be for everyone. Babies squall and it requires a tolerance for that. It calls for different skills from what I used as administrative law judge. But then, doing something different is what retirement is for.

    com charlieschaefer49 gmail Charles Schaefer, Wisconsin Department of Workforce Development (retired), Eau Claire

    Become a contributor! Are you working on an interesting case? Have a practice tip to share? There are several ways to contribute to Wisconsin Lawyer. To discuss a topic idea, contact Managing Editor Karlé Lester at (800) 444-9404, ext. 6127, or email org klester wisbar wisbar klester org. Check out our writing and submission guidelines.

    Endnotes

    1 Wis. Admin. Code § DWD 140.15(2): “The administrative law judge has the responsibility to develop the facts and may call and examine any witness that he or she deems necessary and may also determine the order in which witnesses are called and the order of examination of each witness. The administrative law judge may deny the request of any party to examine a witness adversely. The administrative law judge may hear closing arguments from the parties but may limit the time of such arguments. The administrative law judge may adjourn and continue a hearing to a future date when the hearing cannot be completed in the time scheduled.”

    2 Wis. Admin. Code § DWD 140.16(1): “Statutory and common law rules of evidence and rules of procedure applicable to courts of record are not controlling with respect to hearings. The administrative law judge shall secure the facts in as direct and simple a manner as possible. Evidence having reasonable probative value is admissible, but irrelevant, immaterial and repetitious evidence is not admissible. Hearsay evidence is admissible if it has reasonable probative value but no issue may be decided solely on hearsay evidence unless the hearsay evidence is admissible under ch. 908, Stats.”

    3 There has been a recent statutory effort to expand use of hearsay evidence at UI hearings with the inclusion of affidavits. Wis. Stat. § 108.14(26). “The department shall prescribe by rule a standard affidavit form that may be used by parties to appeals under ss. 108.09 and 108.10 and shall make the form available to employers and claimants. The form shall be sufficient to qualify as admissible evidence in a hearing under this chapter if the authentication is sufficient and the information set forth by the affiant is admissible, but its use by a party does not eliminate the right of an opposing party to cross examine the affiant concerning the facts asserted in the affidavit.” The effect of this statute has been modest. Wisconsin Administrative Code section DWD 140.22(3)(b), the rule promulgating this statute, provides that: “At the hearing, the administrative law judge may accept the affidavit as evidence as provided under s. DWD 140.16.” Parsing Wis. Admin. Code section DWD 140.22(3)(b) closely leads to the conclusion that a statement in an affidavit is to be treated in a manner identical to any other out-of-court statement.

    4 UI hearings are fact intensive, often without an extensive and well-developed body of law governing resolution of the case given that the monetary amount at issue is generally modest and the ALJ is active in developing the record. Thus, the question might arise as to whether a lawyer needs to appear for a hearing. Perhaps simply advising a client as to which witnesses should be present and which documentary evidence should be offered is sufficient. Answering that question will of course vary from case to case and with the predispositions of the lawyer and the client. Some may balk at the implications of establishing an attorney-client relationship and then surrendering the opportunity to control what occurs within that relationship.

    There is a factor that should be considered in making that decision. Wis. Stat. section 108.101 prohibits the decision from a UI hearing from having issue-preclusion effect. However, this does not prevent the record made at a UI hearing from serving as a kind of “poor person’s discovery” for a later related proceeding. It is often the first legal proceeding to occur after a separation from employment since high priority is placed on prompt UI eligibility resolution. Damaging admissions can be more likely to arise in a UI hearing than in another proceeding or discovery because parties are less attuned, early in the process, to the potential adverse consequences of whatever is testified to. This should serve both as a basis for caution for lawyers concerned about unwise testimony their own client might offer and also as an opportunity for those lawyers whose cases could be improved by imprudent admissions made by the opposing party. A record of a UI hearing can be obtained by calling the administrative office for UI appeals.

    5 The waiver rule is nicely expressed in Bennett v. State, 54 Wis. 2d 727, 735-36, 196 N.W.2d 704 (1972) (citing State v. Torpy, 52 Wis. 2d 101, 109, 110, 187 N.W.2d 858 (1971); Nadolinski v. State, 46 Wis. 2d 259, 174 N.W.2d 483 (1970)): “An objection must be made to the introduction of evidence as soon as the adversary party is aware of the objectionable nature of the testimony. Failure to object results in a waiver of any contest to that evidence.”

    6 Some parties at hearings, for instance, an adversely affected employer, may ask why the law can’t be changed so that hearsay can be used to prove their case. Deciding issues by use of statements not made under oath, not subject to cross-examination, and not subject to demeanor scrutiny by the factfinder creates a question as to whether a constitutionally adequate hearing has been afforded the parties under Goldberg v. Kelly, 397 U.S. 254 (1970).

    7 The Wisconsin Supreme Court has considered the role of hearsay in administrative proceedings. The case, Gehin v. Wisconsin Group Insurance Board, 2005 WI 16, 278 Wis. 2d 111, 692 N.W.2d 572, is perplexing. It enunciates a rule that hearsay, regardless of whether it falls within one of the exceptions in Wis. Stat. chapter 908, cannot constitute “substantial evidence” in an administrative proceeding. Arguably, that rule does not govern in a UI hearing context. The administrative agency in Gehin was subject to Wis. Stat. chapter 227, which is silent on the treatment of hearsay. Wisconsin Statutes section 227.45 simply provides that “all testimony having reasonable probative value” is to be admitted. Wisconsin Statutes section 227.03(2) excludes unemployment insurance (except for rulemaking functions) from coverage under that chapter. Wisconsin Administrative Code section DWD 140.16 is parallel to Wis. Stat. section 227.45 but, as already noted, adds explicit direction as to treatment of hearsay evidence and Wis. Stat. chapter 908 exceptions.

    Also, Wis. Stat. section 227.57(6) does provide that for judicial review purposes, a finding of fact must be supported by “substantial evidence,” and it was the question of whether uncorroborated hearsay evidence met the substantial-evidence threshold that the Gehin court considered. The unemployment insurance parallel statute addressing the judicial standard of review of findings of fact, Wis. Stat. section 108.09(7), provides that findings “in the absence of fraud” are conclusive, a much more restrictive standard that precludes any substantial evidence analysis.

    The Labor and Industry Review Commission has cited Gehin in certain unemployment insurance cases in which hearsay questions arise. Based on the foregoing, this appears to have been an erroneous extension of the Gehin rule.

    8 Gehin v. Wisconsin Grp. Ins. Bd., 2005 WI 16, 278 Wis. 2d 111, 692 N.W.2d 572.

    9 This handbook is available online.

    10 See Wis. Stat. §102.23.