Court: Court of Appeals of Wisconsin; March 14, 2019; Wisconsin; State Appellate Court
The City of Madison appeals a summary judgment that dismissed its claims against five stagehands for recovery of contributions made to the Wisconsin Retirement System (WRS) on their behalf. These contributions, referred to as "employee back contributions," were made after the state Department of Employee Trust Funds (ETF) classified the stagehands as employees eligible for the retirement system, with one dating back to 1980. The City contends that the stagehands should not receive summary judgment in their favor and asserts its own entitlement to summary judgment. Conversely, the stagehands maintain they are entitled to summary judgment, and the City is not.
Upon de novo review, it is concluded that neither party is entitled to summary judgment due to genuine factual disputes regarding the stagehands' reliance on the City’s classification of them as independent contractors prior to the ETF's determination. This ambiguity raises questions about whether the City is equitably estopped from pursuing its claims against the stagehands. Consequently, the court reverses the summary judgment granted to the stagehands, affirms the denial of summary judgment to the City, and remands the case for further proceedings.
The background reveals that the stagehands worked under the City's direction from as early as 1980, with all five involved by 2003. The City, as a participating employer in the WRS, was obligated to determine the stagehands' eligibility for the retirement system. Under Wisconsin law, once classified as eligible, the City was required to report their wages and hours to ETF, which are necessary for calculating contributions. However, the City had consistently treated the stagehands as independent contractors from the beginning of their employment until 2009, during which time it did not report their wages and hours.
In 2010, stagehands challenged the City’s classification of them as independent contractors before 2009, which rendered them ineligible for the retirement system. In 2013, the ETF determined the City had misclassified the stagehands and ordered retroactive participation in the retirement system. Despite this, the City initially failed to report the stagehands' pre-2009 wages and hours, prompting four of the five stagehands to file a mandamus action to compel reporting. The City counterclaimed against these stagehands, asserting it was entitled to collect employee back contributions based on WIS. STAT. 40.06(5), which mandates employers to collect unpaid contributions from employees. The City sought circuit court orders for the stagehands to pay back contributions or, alternatively, to reimburse the City for upfront contributions made to the ETF.
The stagehands defended against these counterclaims, citing statute of limitations and equitable estoppel. After the City eventually reported the stagehands' wages and paid the ETF, it invoiced the stagehands for those back contributions, which they refused to pay. The appeal centers on the resolution of the City’s counterclaims under the "employer shall collect" provision. The stagehands moved for summary judgment to dismiss the counterclaims, while the City sought a summary judgment for reimbursement. The circuit court granted the stagehands’ motion and dismissed the City’s counterclaims.
The court granted summary judgment to the stagehands on two grounds: first, the City is equitably estopped from pursuing counterclaims due to its prior classification of the stagehands as independent contractors, which led to the stagehands' reasonable reliance to their detriment; second, the City is deemed to have "unclean hands" because the counterclaims arise from its own misclassifications. Conversely, the court rejected the stagehands' affirmative defenses, including a statute of limitations claim that would bar the City's counterclaims.
The City appeals the dismissal of its counterclaims and the denial of its summary judgment motion. The City argues against the stagehands' summary judgment and asserts it is entitled to summary judgment itself. In reviewing the stagehands' motion, the court identifies factual disputes regarding the reasonableness of the stagehands' reliance on the City's actions, which preclude summary judgment in favor of the stagehands. Additionally, the stagehands did not successfully prove their other defenses regarding the City's "unclean hands" or the statute of limitations.
In addressing the City's motion for summary judgment, the court finds that the stagehands present material factual issues regarding their alleged reliance and rejects the City's claim that it cannot be estopped as a governmental entity. The court affirms the denial of the City's motion for summary judgment.
The opinion is confined to the rejection of both parties' summary judgment motions without expressing views on future proceedings, including discovery or trial matters. The review of summary judgment is conducted de novo, favoring the non-moving party and ensuring no genuine issue of material fact exists for trial. The determination of equitable estoppel is a legal question when facts are undisputed, but if disputed, summary judgment is inappropriate.
The stagehands seek summary judgment based on three main arguments: 1) the City is equitably estopped from pursuing counterclaims due to the stagehands' reasonable reliance on the City's treatment of them as independent contractors prior to 2009; 2) the City lacks "clean hands" to pursue these claims; and 3) the City filed counterclaims after the six-year statute of limitations had expired.
Regarding equitable estoppel, the court finds genuine issues of material fact that preclude summary judgment. The stagehands must demonstrate the four elements of equitable estoppel: action or non-action by the City, reasonable reliance by the stagehands, and detriment to the stagehands due to that reliance. The stagehands fail to provide adequate legal authority for their definition of reasonable reliance and make only conclusive, undeveloped arguments. Their claims rely on specific material facts that are contested, contradicting the requirement for undisputed facts in summary judgment.
The City presents evidence suggesting that the stagehands were aware they could seek administrative review regarding their employment status between 2007 and 2010, indicating they understood that the City did not classify them as employees and thus did not receive retirement benefits. This includes findings from the Wisconsin Employment Relations Commission that classified the stagehands as City employees for collective bargaining purposes and statements from union representatives concerning retirement benefits during negotiations.
Evidence suggests that during the 2007 to 2010 collective bargaining process, stagehands intentionally delayed initiating administrative ETF reviews, likely to negotiate a more favorable agreement with the City. The stagehands argue they would not have gained from such delays, citing Cleven's belief that City representatives misrepresented their employment status. However, conflicting evidence indicates the stagehands may have known they should be recognized as City employees, warranting further examination by a fact-finder.
The stagehands also claim the City cannot pursue counterclaims due to "unclean hands," a legal principle denying relief to a party whose wrongdoing is related to the claim. This argument is dismissed because the City's counterclaims seek monetary judgments, not equitable relief, making the clean hands doctrine inapplicable.
Additionally, the stagehands assert that the statute of limitations, WIS. STAT. 893.93(1m)(a), bars the City's counterclaims. However, material facts prevent a definitive ruling on this issue. WIS. STAT. 893.93(1m)(a) applies as no other limitation period is specified for claims under WIS. STAT. 40.06(5). The determination of when a cause of action accrues involves legal interpretation and factual disputes, indicating that summary judgment is inappropriate. WIS. STAT. 40.06(5) stipulates that if contributions are unpaid, the employer is responsible for collecting or paying the owed amounts on behalf of the employee, which the stagehands interpret as related to their status as eligible participants in the retirement system.
The stagehands contend that the City’s awareness of their employment status triggered the six-year statute of limitations, arguing the City was informed by the 2007 WERC decision that classified them as City employees eligible for retirement benefits. They assert that the City's counterclaims, filed in 2016, are barred under WIS. STAT. 893.93(1m)(a) since they exceed the six-year limit if the statute began running in 2007. However, the court rejects the stagehands' interpretation that the statute of limitations is activated by when the City *should have known* of their employment status, emphasizing the necessity to adhere strictly to the statutory language of WIS. STAT. 40.06(5), which specifies that action is triggered when it is *determined* that contributions were unpaid. The court notes that the stagehands failed to demonstrate that the City had made such a determination prior to 2007. Furthermore, evidence suggests that the City maintained its stance that the stagehands were independent contractors until the ETF's decision in 2013. Consequently, there remains a factual dispute regarding whether the City recognized the stagehands as employees before 2007, leading to the rejection of the stagehands' summary judgment request based on the statute of limitations.
Regarding the City's motion for summary judgment, the City claims it is entitled to judgment because the stagehands did not reasonably rely on any City actions or inactions, negating the elements of equitable estoppel. Additionally, the City argues that, under the necessary balancing test, it cannot be equitably estopped from asserting its rights under WIS. STAT. 40.06(5). The court also rejects both arguments presented by the City.
The City's summary judgment arguments overlook genuine disputes of material fact regarding the stagehands' reasonable reliance on the City's classification of them as independent contractors. Evidence suggests that stagehand Cleven relied on City representatives' assurances about their classification, believing the City would accurately manage their retirement classification. The stagehands had strategic reasons to avoid delaying their review by the Employee Trust Fund (ETF), including the accruing interest on back contributions and a statutory limit of seven years on claims for relief. This evidence indicates that the stagehands may have reasonably relied on the City's misclassification prior to 2009.
Furthermore, while the City contends that equitable estoppel should not apply due to public interest considerations, it is established in Wisconsin that estoppel can be raised against government entities, though not as freely as against private parties. The City argues that the public interest in collecting back contributions from the stagehands outweighs any harm to them if estoppel is not applied. The City asserts that allowing estoppel would contradict public policies underlying WIS. STAT. ch. 40, particularly regarding employee contributions to retirement benefits, which became more crucial after "Act 10."
Although the City identifies legitimate public policy interests in recovering back contributions, the legislature allows employers the discretion to choose whether to collect such contributions. The decision not to collect aligns with the stagehands' claims of equitable estoppel. Ultimately, there is no clear public policy in 40.06(5) that opposes applying estoppel if its elements are satisfied.
The stagehands argue that requiring them to repay employee back contributions would significantly harm them financially, citing that the amount sought from Cleven would be two-thirds of his anticipated annuity payments from the retirement system. The City does not contest this claim or the implication that the amounts sought are substantial relative to the stagehands' financial situation. If the stagehands can demonstrate they reasonably relied on the City's classification of them as independent contractors, this potential unfairness should factor into the balancing test against the City's interests. Additionally, the stagehands point out that the seven-year look-back limit on back contributions would lessen the City's total financial burden. Consequently, the City has not successfully argued for summary judgment, as public interest does not outweigh the potential harm to the stagehands if they establish equitable estoppel. The court affirms the circuit court's denial of the City's summary judgment motion due to genuine material fact issues regarding the stagehands' reliance on the City's actions. The decision reverses the summary judgment in favor of the stagehands, affirms the denial of summary judgment for the City, and remands the case for further proceedings. The collective bargaining agreement between the City and the stagehands' union, which began in 2007, is noted, particularly that it prompted the City to report stagehands' wages and hours to the ETF starting December 2009, while earlier wages remained unreported until 2016. The term "counterclaims" will refer to all claims made by the City against the stagehands.
The stagehands claim that WIS. STAT. ch. 40 imposes fiduciary duties on the City, arguing that the City's alleged violation of these duties should prevent it from collecting employee back contributions. However, they fail to provide legal authority to support the assertion that an employer in a retirement system owes fiduciary duties to employees. The court notes that the ETF must administer retirement systems as a trustee, and the public employee trust fund is to be managed solely for the benefit of participants. Consequently, the court does not pursue this argument further.
The City proposes two additional arguments for summary judgment, both of which are inadequately developed. First, the City suggests that equitable estoppel's "action or non-action" requirement is unmet due to its good faith misclassification of stagehands as independent contractors. The court finds no legal support for the claim that good faith negates estoppel and rejects this argument. Additionally, the stagehands assert that the City should have recognized their employment status based on their payroll classification, countering the City's good faith claim.
Second, the City raises a new argument on appeal, asserting that the stagehands have not demonstrated sufficient detriment, referencing Madison v. Lange. The stagehands distinguish Lange, and the City does not contest this distinction, leading the court to consider the argument conceded and not address it further.
The City also presents an argument regarding the estoppel-against-government balancing test, asserting that the stagehands’ defense would alter the collective bargaining agreement. However, the City fails to adequately articulate this argument, leaving the court without a clear basis to determine its merit.
