Knight v. Labor and Industry Review Com'n of Dept. of Industry

Citation582 N.W.2d 448,220 Wis.2d 137
Decision Date13 May 1998
Docket NumberNo. 97-1606,97-1606
Parties, 77 Fair Empl.Prac.Cas. (BNA) 102 James KNIGHT, Plaintiff-Appellant, d v. LABOR AND INDUSTRY REVIEW COMMISSION OF the DEPARTMENT OF INDUSTRY, Labor and Human Relations, and The Prudential Insurance Company of America, Defendants-Respondents.
CourtCourt of Appeals of Wisconsin

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Mark E. Larson of Gutglass, Erickson & Bonville, S.C. of Milwaukee.

On behalf of the defendant-respondent Labor and Industry Review Commission, the cause was submitted on the brief of James E. Doyle, Attorney General, and Nadim Sahar, Assistant Attorney General.

On behalf of the defendant-respondent The Prudential Insurance Company of America, the cause was submitted on the brief of David B. Kern and Peggy C. Nowicki of Quarles & Brady of Milwaukee.


SNYDER, Presiding Judge.

James Knight appeals from a circuit court order affirming a decision by the Labor and Industry Review Commission (LIRC) that the Prudential Insurance Company of America did not discriminate against him on the basis of his conviction record in violation of the Wisconsin Fair Employment Act (WFEA). LIRC found, inter alia, that Knight was not qualified for the position of district agent because his felony conviction statutorily disqualified him from registration with the National Association of Securities Dealers (NASD). The circuit court affirmed LIRC's decision.

Knight now appeals this determination and claims that: (1) Prudential's refusal to consider his application because of his conviction record violated WFEA; (2) Prudential failed to prove that NASD registration was a job requirement; (3) under WFEA, Prudential was required to allow Knight to pursue an alternate registration process (an MC-400 application) for NASD registration; and (4) the trial court erred when it allowed Prudential to raise "issues that had not been part of its original employment decision regarding Mr. Knight." We conclude that LIRC's finding that Knight was not qualified for the position is supported by substantial evidence, and that LIRC's further conclusion that WFEA does not require that an employer accommodate a conviction record was proper. Consequently, we affirm.

In October 1991, Knight applied for a position as a district agent with Prudential. At that time, Knight was licensed through the state Office of the Commissioner of Insurance to sell life, casualty, property, accident and health insurance and was working for a competitor of Prudential. He did not have a securities license but could refer clients interested in such products to agents within the company who were licensed to handle securities.

Under federal law, financial companies which sell securities registered with the Securities and Exchange Commission (SEC) are required to be members of NASD. In addition, NASD requires that all employees who participate in a company's registered securities business must be individually registered with NASD. Under NASD registration requirements, an individual seeking registration must submit a U-4 form. Information supplied on the U-4 form allows NASD to determine whether the applicant is qualified to handle registered securities. Specifically, there are certain statutory disqualifiers defined by federal law; one such statutory disqualification is a felony conviction within a ten-year period prior to the NASD application. 1

If an applicant is statutorily disqualified for any reason, the applicant can only become registered with NASD if the employer is willing to submit an MC-400 application form on behalf of the applicant. The filing of this form requires that the employer pay a $1000 processing fee. In addition, the employer must: (1) describe any steps it took prior to the MC-400 form filing to investigate the activities of the applicant, (2) state the reasons for its belief that the applicant should be permitted to become NASD registered notwithstanding the statutory disqualification, and (3) give a detailed explanation of the special measures it will take to supervise the securities-related activities of the statutorily disqualified applicant, above and beyond the supervision that it normally provides to its securities-licensed employees. Finally, the MC-400 application form requires the employer to do all within its power to diligently supervise the activities of the prospective employee. This supervision must include daily review of the applicant's securities-related work.

If a company decides to hire a statutorily disqualified applicant whose registration has been approved through the MC-400 process, the company is required to supervise the individual "in strict accordance with the description set forth in the individual's MC-400 application." If the company fails to discharge this duty of supervision, NASD may impose fines on the company or suspend or terminate the company's membership in NASD. Additionally, NASD may impose fines of up to $50,000 on the statutorily disqualified individual's supervisor, for which amount the supervisor is personally liable. Finally, NASD can also suspend or terminate the supervisor's NASD registration.

In this case, Prudential was a member of NASD when Knight applied for the district agent position. At that time, Prudential employed approximately 29,000 district agents who were responsible for selling registered securities and other investment products. The district agents were expected to work independently and with very little supervision. Because they were responsible for selling registered securities, Prudential had a policy of requiring all of its district agents to become personally registered with NASD.

After Knight applied for the district agent position he was interviewed by Edward Newman. At that interview, Knight completed an application form on which he disclosed that he had been convicted on May 23, 1988, of driving someone for the delivery of a controlled substance, a felony conviction.

Later in the application process, in accordance with NASD registration procedures, Knight was required to fill out a U-4 form. In response to questions on the U-4 form, Knight again disclosed that he had been convicted of the aforementioned felony in 1988. Newman, after reviewing Knight's U-4 form and consulting with company executives, decided that he could not proceed with Knight's application and informed Knight of that decision.

The decision to terminate the processing of Knight's application was based upon a company policy of rejecting applicants who were subject to statutory disqualification on the basis of a felony conviction record. Although Prudential had submitted MC-400 applications on behalf of company employees in the past so that they could obtain NASD registration, it had never done so for a job applicant. Prudential's policy of rejecting statutorily disqualified applicants resulted from supervision problems the company had experienced with regard to NASD registered individuals who were approved through the MC-400 process. On several occasions, NASD informed Prudential that it considered Prudential's supervision of statutorily disqualified employees to be inadequate.

In response to Prudential's decision not to hire him, Knight filed a complaint with the Wisconsin Department of Industry, Labor and Human Relations alleging that Prudential had discriminated against him on the basis of his conviction record and that this was in violation of WFEA. After a hearing on the merits of the case, an administrative law judge (ALJ) concluded that Prudential had not discriminated against Knight on the basis of his conviction record because Knight was not qualified for the position due to his statutory disqualification. She further found that under WFEA, an employer is not required to accommodate a prospective applicant's conviction record. Finally, she found that the circumstances of Knight's felony conviction were "substantially related" to the circumstances of the district agent position. See § 111.335(1)(c)1, STATS. Thus, for all of these reasons, Prudential's decision not to offer Knight employment on the basis of his conviction record did not constitute discrimination under WFEA.

Knight filed an administrative appeal with LIRC which affirmed the decision of the ALJ. 2 Knight then petitioned the circuit court for judicial review of LIRC's decision. The circuit court affirmed the LIRC order, and Knight now appeals.

Standard of Review

On appeal, we substantively review LIRC's decision and not that of the circuit court. See Johnson v. LIRC, 200 Wis.2d 715, 721, 547 N.W.2d 783, 785 (Ct.App.1996). Our standard of review for agency decisions depends upon whether the issues presented are questions of law or questions of fact. If the issue presented is a question of law, including a question of statutory interpretation, we apply one of three levels of deference to the agency conclusion: "great weight," "due weight" or "de novo." See Sauk County v. WERC, 165 Wis.2d 406, 413-14, 477 N.W.2d 267, 270-71 (1991).

The "great weight" standard is the highest level of deference given to an agency conclusion of law or statutory interpretation. See id. at 413, 477 N.W.2d at 270. This level of deference is accorded to an agency conclusion when the following four elements are met: (1) the agency is responsible for administering the statute, (2) the agency conclusion or interpretation is long standing, (3) the agency employed its specialized knowledge or expertise in forming the conclusion or interpretation, and (4) the agency interpretation provides consistency and uniformity in the application of the statute. See MCI Telecommunications Corp. v. State, 209 Wis.2d 310, 318, 562 N.W.2d 594, 598 (1997). Under this standard, a reviewing court must uphold the agency...

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