No administrative concealment penalties for Lost Wages Assistance

There is no doubt any longer that the 40% administrative concealment penalty that the Department charges for unemployment fraud is highly profitable to the Department.

Note: The 40% administrative penalty is actually two separate penalties: a 15% penalty that goes back into the unemployment trust fund and a 25% penalty that goes into a separate program integrity fund.

The program integrity fund has mushroomed in size with the Covid-19 pandemic, as all of those unemployment benefits that were paid out have become an effective mechanism for charging unemployment fraud for unintentional claim-filing mistakes and thereby tacking on additional administrative concealment penalties. From its creation in December 2015, the program integrity fund has risen to over $36 million by March of this year.

The “dedication” of the Department to charging these administrative concealment penalties became obvious from testimony during various hearings in 2022 and early 2023, when Department program integrity staffers revealed that the Department applied the 40% administrative concealment penalties as early as December 2020 to Pandemic Unemployment Assistance (“PUA”) benefits.

At that time, the U.S. Dep’t of Labor had explicitly directed that PUA benefits were NOT subject to administrative concealment penalties, because the U.S. Dep’t of Labor understood at that time that PUA benefits were like Disaster Unemployment Assistance (“DUA”) benefits. See UIPL No. 16-20 Change 2 (21 July 2020) at I-9 (states may not impose a 15% fraud penalty or their own disqualification period because provisions set forth in 20 CFR § 625.14 for DUA benefits govern and did not allow for such additional fraud penalties).

Note: DUA benefits are FEMA-funded and so not an unemployment benefit at all, an important point that will be revisited below.

Another note: In UIPL No. 16-20 Change 4 (8 Jan. 2021) at I-24 to I-25, the U.S. Dep’t of Labor reversed course by concluding that Section 251 of the Trade Adjustment Assistance Extension Act of 2011 (TAAEA), Pub. L. 112-40 (2011) applied to PUA benefits, as PUA benefits qualify as an “unemployment compensation program of the United States” for which a minimum 15% administrative concealment penalty must be charged. In UIPL No. 20-21 (5 May 2021) at 4-5, the U.S. Dep’t of Labor expanded application of administrative concealment penalties to include PUC, MEUC, and PEUC benefits as well as PUA benefits.

So, the Department had decided to charge administrative concealment penalties for PUA benefits WHEN the U.S. Dep’t of Labor had explicitly directed states to NOT charge administrative concealment penalties for PUA benefits and BEFORE the U.S. Dep’t of Labor had reversed course and determined that PUA benefits should be subject to administrative concealment penalties.

In light of the Department’s “dedication” to charging administrative concealment penalties, the Department also began charging its administrative concealment penalties to Lost Wages Assistance that claimants received (according to Department program integrity staffers, the Department made the decision to charge administrative concealment penalties for Lost Wages Assistance in August 2020, more than a month before any Lost Wages Assistance was even paid out to claimants in Wisconsin).

Furthermore, the Department charged these administrative concealment penalties in many cases without any notice, as the first UCB-27 forms in 2021 that set forth over-payments for Lost Wages Assistance failed to disclose the administrative concealment penalties the Department was charging.

Note: Compare later UCB-27 over-payment notices for Lost Wages Assistance that included the administrative concealment penalties.

And, there certainly was no way to appeal these alleged over-payments, as the UCB-27 forms were not themselves appealable, only notices that could be “objected” to.

The problem here is that Lost Wages Assistance, like Disaster Unemployment Assistance, was awarded from Robert T. Stafford Disaster Relief, see generally 42 USC §§ 5121–5207, and Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019 (Aug. 8, 2020). As with DUA benefits, Lost Wages Assistance was funded as emergency disaster relief and was never a federally-funded unemployment benefit. So, there was never any legal basis for charging administrative concealment penalties for Lost Wages Assistance.

As already observed, however, the Department was and is “dedicated” to charging administrative concealment penalties. As a result, only a few people who had representation have managed to challenge these administrative concealment penalties for Lost Wages Assistance.

Those who managed to get this issue to the Labor and Industry Review Commission finally saw a different result, as the Commission concluded that there was no legal basis whatsoever for charging administrative concealment penalties for Lost Wages Assistance.

On September 27, 2022, an appeal tribunal decision was issued finding that the claimant intentionally concealed work and wages from the department while working as a self-employed real estate agent. The decision resulted in a $1,200 overpayment of LWA benefits. [The appeal tribunal had also concluded that 40% administrative concealment penalties applied to Lost Wages Assistance because concealment penalties always apply when there is unemployment fraud.]

The issue presented in this case is whether the department may assess a 40% penalty on the LWA overpayment because of the concealment of the hours worked and income received by the claimant from his self-employment.

The commission finds that the Department does not have the legal authority to charge a penalty on fraudulently obtained LWA benefits. The LWA program is not an unemployment benefit program, and the associated benefits are not unemployment benefits.

Note: Ex. 7 at U78; Hearing Tr. at 39 (Department witness testified that “LWA is not an unemployment benefit.”)[.] The LWA program was created by a Presidential Memorandum on August 8, 2020, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act[,] 42 U.S.C. § 5174 (the “Stafford Act”).

As such, the legal authority that requires a penalty to be charged on fraudulently obtained regular unemployment benefits and the federally provided pandemic unemployment benefits does not extend to the LWA program and benefits.

Note: The Department of Labor (“DOL”) initially advised states that a fraud penalty could not be charged on Pandemic Unemployment Assistance (“PUA”) benefits that were obtained fraudulently. UIPL 16-20, Change 2, Attachment I, I-9, issued July 21, 2020. However, the DOL subsequently changed its stance on whether a penalty could be charged on PUA benefits that were obtained fraudulently. UIPL 16-20, Change 4, issued January 8, 2021. The DOL provided further guidance that informed states that the fraud penalty must be charged to all CARES Act unemployment benefits obtained fraudulently. This included PUA, Federal Pandemic Unemployment Compensation (“FPUC”), Mixed Earners Unemployment Compensation (“MEUC”), and Pandemic Emergency Unemployment Compensation (“PEUC”) benefits. UIPL 20-21, p 4-5[,] issued May 5, 2021. As justification for this change, the DOL cited Section 251(a) of the Trade Adjustment Assistance Extension Act of 2011 (“TAAEA”) (Pub. L. 112-40), which created section 303(a)(11) of the Social Security Act (“SSA”) (42 U.S.C. § 503(a)(11)). Section 251(a) of the TAAEA applies to unemployment benefit programs. 42 U.S.C. § 503(a)(11) states, “At the time the State agency determines an erroneous payment from its unemployment fund was made to an individual due to fraud committed by such individual, the assessment of a penalty on the individual in an amount of not less than 15 percent of the amount of the erroneous payment.”

The claimant was paid LWA for weeks 31, 33, 34, and 36 of 2020 in the amount of $1,200.00 [$300 each week], for which the claimant was not eligible and to which the claimant was not entitled, and that the payment of such benefits was due to. Fault on the part of the claimant and/or repayment would not be contrary to equity and good conscience, and that recovery of the benefits paid shall not be waived, within the meaning of Section 262 of the Continued Assistance for Unemployed Workers Act of 2020.

The department may not assess an administrative penalty equal to 40% of the LWA overpayment.

The Department’s “dedication” to administrative concealment penalties would not be denied, however. And so, the Department appealed the Commission decision to circuit court. But, it turned out that the circuit court was not as dedicated to administrative concealment penalties as the Department. The court initially observed:

This case involves the legality of a $480 penalty the Department of Workforce Development (“Department”) assessed against [the claimant] for his inappropriate receipt of $1200 in disaster relief funds stemming from his concealment of real estate commissions earned during four weeks in 2020. It is a fair assumption that, even with rigid adherence to electronic document protocols to prevent waste, the litigants have incurred more than $480 in paper costs addressing this penalty.

The amount of the penalty, however, is not the issue. The issue is the Department’s authority to assess it, and in order to resolve that issue, the Court must harken back to the strange and surreal period known as the COVID-19 pandemic.

* * *

The Department essentially makes two arguments supporting its authority to assess a penalty on overpaid LWA payments. First, it contends that the provisions of the CARES Act specifically authorize the Department to assess a penalty, and those provisions can and should apply to the LWA, as well. Second, the Department argues that, because [the claimant’s] LWA benefits were paid from the Wisconsin Unemployment Trust Fund, the Department is authorized to charge a 40% penalty—and in fact the Department is statutorily required to impose that penalty—under Wis. Stat. § 108.04(11)(bh).

The court rejects both claims. First:

Unlike the CARES Act programs, however, LWA is not an unemployment program. The source of the program, the guidance associated with it, and the testimony of the Department’s own witness before the appeal tribunal, establish this. None of the authorities cited by the Department specifically authorizes the Department to charge a penalty on LWA overpayments, nor does the State Plan agreement with FEMA authorize imposition of a penalty.

Second, as to payment of Lost Wages Assistance coming from the unemployment trust fund through a decision by the Department to pay Lost Wages Assistance from the trust fund rather than following federal guidance:

LWA, however, is not an unemployment insurance program, but a major disaster assistance program, and thus [California Dep’t of Human Resources Development v. Java, 402 U.S. 121 (1991)] provides no support for the Department’s actions. Moreover, the USDOL was clear in its guidance that states could not use funds in their unemployment account in the Unemployment Trust Fund to process funding for LWA payments. (Doc. 38 at 96 of 134 (UIPL 27-20, Change 1)). Simply because the Department ignored that guidance and inappropriately paid [the claimant’s] LWA benefits from the Unemployment Trust Fund does not then bootstrap the Department’s authority to treat the payment like an unemployment payment and assess the penalty otherwise required by § 108.04(11)(bh). Organizations, particularly publicly traded corporations, can get into big trouble for pulling a stunt like the Department pulled in funding the LWA payments from an unauthorized account. In this Court’s view, state agencies should be held to a higher standard, not a more lenient one, when accounting for and disbursing public funds.

The tragedy here is that the Department’s illegal “dedication” to administrative concealment penalties has already won out. As the above-chart demonstrates, the Department has likely collected hundreds of thousands of dollars in administrative concealment penalties tied to Lost Wages Assistance that it will NOT be refunding to anyone, despite this court decision. Indeed, many do not even know about these illegal collections by the Department because they never received notice in the first place.

Lame duck stimulus

Actual provisions are scarce. But, you can get a description of the unemployment provisions from Michele Evermore of NELP and from the National Law Review.

Some things claimants should immediately note:

• benefits for PEUC and PUA programs are extended an additional 11 weeks to March 14th
• an additional $300 PUC is added for anyone receiving PEUC, PUA, EB, or regular unemployment benefits during these additional weeks,
• anyone who has not exhausted PEUC benefits (now 24 weeks in toto) or PUA benefits (now 50 weeks in toto) can continue to receive those benefits after March 14th to the week of 5 April 2021,
• waivers for over-payment of PUA benefits are now available (previously, over-payments of PUA benefits were not legally available for claimants caught between regular unemployment and PUA),
• waivers of LWA over-payments are also now available,
• claimants can file new PUA claims for job losses after 1 December 2020,
• claimants with new PUA claims after 31 Jan. 2021 must now submit wage records verifying unemployment within 21 days, and
• all other PUA claimants must submit wage records verifying their unemployment within 90 days of 31 January 2021 (i.e., Thursday, 1 May 2021).

Employers should note as well:

• reimbursable non-profit employers will continue to receive the 50% subsidy through 14 March 2021, and
• 100% federal support for work-sharing arrangements will continue.

For state unemployment agencies, waiver of any interest on federal loans to cover payment of regular unemployment benefits continue (not an issue in Wisconsin, as the unemployment trust fund was $1.2 billion as of Nov. 10th). But, federal funding for waiting week benefits is halved to 50%.

Update (28 Dec. 2020): The current president waited several days to sign this bill — until December 27th — and so both PUA and PEUC benefits were slated to expire on December 26th. That delay could mean that there will be a week gap in coverage, including the new $300 PUC that is part of these extended unemployment benefits.

A report from The Hill indicates that some states and Michelle Evermore of NELP are developing a way to keep claimants from losing this week of benefits:

According to Evermore, the Labor Department’s Employment and Training Administration, which administers federal aid to state unemployment programs, could modify their existing state contracts instead of writing new ones altogether, thus avoiding the lapse.

“It looks like it may be possible that states could, instead of drafting new agreements with states, they could just modify their old agreements,” Evermore said.

In essence, they could backdate their agreements to keep the funds from lapsing. But Evermore warned that the workaround may not pass legal muster, and whether states could proceed remained an open question.

One state unemployment office confirmed to The Hill that they were working on the effort. The Hill has reached out to the Labor Department for comment.

If the workaround is approved, it could potentially prevent the trimming of another benefit that provides $300 in additional unemployment insurance to the roughly 20 million people receiving them.

Lost Wage Assistance: More problems for claimants

As previously noted, the executive order that created this program is full of problems. Further commentary has continued to remark about the suspect legality of this program. See here and here.

But a possible something is better than nothing, and so Wisconsin has applied for benefits under this program.

For Wisconsin, only those who receive $100 or more in unemployment benefits of some kind will be eligible for the additional $300 in Lost Wage Assistance. As a result, the working poor are left out of this program. Luckily, because the minimum weekly benefit rate for PUA in Wisconsin is $163, those claimants will be eligible for Lost Wage Assistance benefits.

Note: WPR reports that 15,000 claimants are likely to lose out on Lost Wage Assistance when it becomes available because their weekly benefit rate is less than $100.

Still, with Wisconsin in such an administrative mess regarding unemployment, the Department does not expect to pay out any Lost Wage Assistance until late October 2020 at the earliest for benefits tied to the first three weeks of August 2020. That is, there is a three month wait before any Lost Wage Assistance benefits will actually be paid out.

As usual, Wisconsin also is pursuing an extremely limited and narrow reading of this benefit program. Here is the new welcome screen a claimant sees after connecting to his or her portal:

First, claimants need to indicate they have lost work because of the pandemic to be potentially eligible for Lost Wage Assistance benefits. But, the Department is implying in this threshold question that only those who have lost work after August 1st for a specific Covid-19 related reason qualify. So, folks who lost work before August 1st are likely to answer “no” and be declared ineligible for this program when they should answer “yes.”

Note: how does a claimant change his or her answer to this question? I have no idea.

Second, the Department will apply a very restrictive view of the pandemic-related reasons for being eligible for this benefit. Basically, the Department is requiring one of the reasons specified in this chart to exist, and a general loss of work — either wholly or partially — is not listed here. As a result, the Department is denying numerous claims even though both employer and employee indicate the layoff is pandemic-related.

Finally and most problematic, clicking “yes” or “no” does nothing but bring the claimant to his or her regular portal welcome screen. There are no additional questions or information about the Lost Wage Assistance program. Hence, the claimant has no idea what the answer meant or how and why it is recorded. This question and warning screen is essentially meaningless to the claimant.

Indeed, the Department’s guidance about the Lost Wage Assistance program offers absolutely no description of this question and why it is being asked or how to answer it. As usual, claimants need to guess at what the Department wants from them.

Update (10 Sept. 2020): Added info from WPR about the number of people in Wisconsin who will not be eligible for Lost Wage Assistance because their weekly benefit rate is less than $100.

Update (14 Sept. 2020): USA Today has a feature article about Wisconsin’s demand to recoup the yet unpaid LWA benefits. As Pam Herd explains, this effort is “asinine.”

Update (15 Sept. 2020): For a run-down of what other states are doing and how the Lost Wage Assistance falls far short of the $600 PUC, see this post. WPR reports that FEMA is indicating Wisconsinites may receive six weeks of LWA benefits. These benefits still not due until the end of October, however, and no explanation yet from the Department about its repayment demand.

Update (16 Sept. 2020): WPR reports that the Department is removing the payback requirement and that it is up claimants to fix “wrong” answers about their LWA eligibility by contacting the Department by phone. Some key quotations:

Inaccurate guidance
On Friday, FEMA updated its guidance to DWD, saying the language the department included was “not entirely inaccurate,” but they added that the agency does not believe Congress will pass additional legislation that will create duplicative benefits.

Only pandemic job loss needed
But in guidance to states about who is eligible under the program, FEMA states specifically “the most recent job separation does not need to be directly related to COVID-19.”

The guidance from FEMA goes on to say “at the time of self certification for the program, the individual must be unemployed or partially unemployed due to disruptions caused by COVID-19.”

Correcting a LWA claim mistake
In an email Tuesday evening, Jedd said DWD plans to reach out to LWA program applicants in an attempt to catch those who may have answered the question incorrectly. He also said that individuals who answered the question incorrectly can call DWD’s help center and ask a staff member to change their answer to the question.

 Update (24 Sept. 2020): Marketplace has an update on the status of Lost Assistance benefits. As expected, these funds are running out, and Wisconsin may not get funding for six weeks. Also, note that nine other states have finished paying out six weeks of LWA benefits and 30 other states are in the process of distributing six weeks of LWA benefits.

Update (22 Oct. 2020): The Department announced yesterday that it has started paying out Lost Wage Assistance benefits: $300 for up to six weeks.

“Payments from the LWA program will be made retroactively to eligible claimants for up to six weeks: the weeks ending August 1, August 8, August 15, August 22, August 29, and September 5, 2020. FEMA will not fund any weeks after September 5, 2020. DWD estimates up to 220,000 claimants may be eligible for LWA.”