UI claimants to be strictly liable for their mistakes

Of late, concealment and fraud are grabbing all the attention at the Department of Workforce Development.

Additional penalties
First, Governor Walker has included in his budget additional penalties when claimants are found guilty of concealment. As previously noted, the administrative penalty for concealment is being increased from 15% to 40% and criminal penalties, i.e., jail time and additional fines, are being significantly expanded.

The Department has released a memo to the Advisory Council describing these changes. The increase in the administrative penalty from 15% to 40% is slated to bring in an additional $470,000 for the first fiscal year and nearly $1 million the second fiscal year (these amounts are significantly understated since the Department recovered $1.77 million in 2014 alone with a 15% administrative penalty, see Appendix C at p.16 of the Department’s fraud report). The criminal penalties, furthermore, bring a minimum of nine months in jail (along with additional fines of up to $10,000) or up to ten years in jail and $25,000 in fines for concealment cases that exceed $10,000.

Keep in mind that, unless someone volunteers information sooner (more on this point below), the Department typically does not begin investigating cases concerning alleged wage-reporting discrepancies until six to nine months have passed (the Department attempts to verify wages that a claimant reports on weekly claim certifications with the data available from an employer’s quarterly UI tax filings). So, the amount at issue if the mistake repeats itself each week of a claim can easily cover all 26 weeks of a claimant’s eligibility — easily $5,000 to $8,000 (as noted previously, the Department could sharply limit the amounts at issue by using employer’s monthly or bi-weekly wage withholding reports to the Department of Revenue to do this investigation, leading to a delay of one month rather than the six to nine months now; but the Department has expressed no interest in this kind of efficiency).

Concealment data
Second, the Department has released its annual fraud report for 2014.  As already noted, the tables in the appendices of this fraud report have some interesting numbers. Appendix A on p.14 shows that nearly $20.2 million in allegedly fraudulent over-payments were detected in 2014. Of course, this amount includes “concealment” that occurred prior to 2014 as well as in 2014, so this $20.2 million represents the amount of unemployment benefits that the Department in 2014 identified as “fraudulently” received.

Appendix C on p.16 shows the Department’s efforts at recovering fraudulent and non-fraudulent over-payments. For 2014, the Department managed to recover $21.77 million in “fraudulent” over-payments. This amount includes over-payments that became due in 2014 as well as alleged fraudulent over-payments from prior years. Still, this recovery effort is impressive. The Department is managing to take in more than it billed out, as its 2014 recovery rate is 108% ($21.77 million recovered over $20.2 million charged). In 2013, the Department’s recovery rate was “only” 98.5% ($23.99 million recovered over $24.36 million charged). If nothing else, the Department’s efforts at recovering concealment monies are fantastically successful.

All of these numbers, however, do not indicate just what concealment and fraud are for unemployment purposes. Concealment and fraud cases are supposed to encompass allegations of someone intentionally misleading or defrauding the Department by withholding or hiding information or making a false statement or misrepresentation. See Wis. Stat. § 108.04(11)(g). If someone makes a mistake for some reason, the Department is supposed to correct the unemployment benefits at issue and make an adjustment in the benefit due a claimant in subsequent weeks in light of that mistake, not eliminate all eligibility for unemployment benefits. A charge of concealment, on the other hand, means that something much more than a mere mistake has taken place. As a result, the claimant loses all of his or her unemployment benefits for each week at issue, is assessed (currently) a 15% administrative penalty for the total amount of fraud, and is ineligible for two, four, or eights times the claimant’s weekly benefit rate for each act of concealment (i.e., each week of fraudulently obtained benefits). So, someone who “fraudulently” obtained all $300 of unemployment benefits for ten weeks (because he or she intentionally did not report $40 in earnings each week for ten weeks), has to repay all $3,000 in unemployment benefits received during those ten weeks, must pay a $450 administrative penalty, and cannot collect $6,000 in future unemployment benefits if this “concealment” is his or her first offense ($300 X 2 X 10 weeks).

Obviously, these penalties are severe, since concealment is supposed to be something akin to theft. And so, the standard for finding concealment is similar to a finding of someone stealing. As the Labor and Industry Review Commission repeatedly explains in its concealment decisions:

concealment will not be found where a claimant makes an honest mistake or misinterprets information received from the department. Concealment requires an intent or design to receive benefits to which the claimant knows he or she is not entitled.

The Department is obviously not following this standard, however. Appendix A at p.14 from the fraud report mentioned above lists the mechanisms for how these fraud cases were uncovered by the Department. The last category of cases includes those cases where the claimants themselves volunteered their mistakes. In 2013, there were 275 cases where claimants volunteered their mistakes qua concealment to the Department.  These 275 cases, the Department concluded, constituted concealment, and the Department now seeks to recover $498,307 just in unemployment benefits from those claimants. In 2014, there were 218 cases that concerned $363,713 in “fraudulent” unemployment benefits in which claimants voluntarily disclosed their “fraudulent” mistakes, according to the Department.

Here is the problem: a fraud/concealment charge “requires an intent or design to receive benefits to which the claimant knows he or she is not entitled.” But, 218 fraud cases in 2014 exist because claimants voluntarily disclosed their alleged fraud (see the discussion of concealment in this post about additional problems with the Department’s concealment claims). It simply is not logical to be finding that claimants have a fraudulent intent where those same claimants are disclosing the mistakes in their claim filing in the first place (unless the disclosure itself was part of some scheme to hide their intent). Perlongo v. Joey’s Seafood & Grill, UI Hearing Nos. 13610060MW & 13610061MW (22 July 2014) illustrates this issue. In Perlongo, the employee worked part-time for three different employers. When filing her claims on-line, however, she hit the send button on her claim before she could add the wage and hours received from some of these employers. She then made repeated phone calls and eventually got through to the Department to provide the correct information. This claim-filing problem and subsequent phone calls to correct the problem happened for five weeks of unemployment benefits.

Even though she self-reported her mistakes, the Department charged the claimant with fraud and concealment of $93, a 15% administrative penalty of $13.95, and a loss of $930 in future unemployment benefits. She appealed, and an administrative law judge affirmed the findings of concealment because the claimant had previously experienced problems filing her claims.

The Commission, however, overturned the concealment charges. There simply was no evidence in the record that the claimant’s mistakes at issue in this case were intentional.

The ALJ did not identify what it was about the employee’s claim filing history that made her explanation not credible. The critical facts put forth by the employee to explain her mistakes were that she was attempting to file her claims on line, lacked computer skills, and was confused about how to enter wages from multiple employers on a certification. There was no evidence presented about the employee’s claim filing history that cast doubt on these allegations; nothing, for instance, to suggest that the employee had demonstrated the ability in the past to file a certification on line, and to correctly report wages for multiple employers; nothing to show the degree of simplicity of the on-line claiming system with regard to reporting wages from multiple employers; and nothing about the instructions given to those who file claim certifications on-line. (The Handbook for Claimants entered into evidence was not established to be an edition that the employee had received.)

The claimant in Perlongo managed to overturn her concealment charge because she appealed her case to the Commission. But, there were 218 other claimants in 2014 that did not appeal their cases to the Commission even though they, like Perlongo, self-reported their mistakes to the Department. That is, the Department is charging claimants with concealment for nothing more than simple mistakes. There is no actual intent to deceive in cases where claimants like Perlongo voluntarily disclose their mistakes. Moreover, because the Department thinks claimants like Perlongo are committing concealment anyway, it is very likely that many more if not most of the 12,744 cases in 2014 currently considered to be fraudulent by the Department are nothing more than mere mistakes in filing a claim.

The Department is not acknowledging this problem in its concealment claims. At the 19 March 2015 Advisory Council meeting, the Department was adamant in explaining to council members that only where claimants are intentionally acting to deceive the Department are the cases considered to involve fraud. Claimants’ inability or mistakes, the Department assured council members, are not considered concealment. The Department’s actions belie these assurances, however.

Amending concealment law
Which leads to the third point in this discussion of concealment.  After the Department finished its presentation about its fraud report to the Advisory Council, the Department then introduced its latest proposal, D15-08, which changes the definition of concealment. Wis. Stat. § 108.04(11)(g) is to be amended to read:

For purposes of this subsection, “conceal” means to intentionally mislead or defraud the department by withholding or hiding information or making a false statement or misrepresentation. “Conceal” does not require an intent or design to receive benefits to which the claimant knows he or she is not entitled.

And a new Wis. Stat. § 108.04(11)(h) is to be created:

As a condition of eligibility for benefits under this chapter, a claimant has a duty of care to provide an accurate and complete response to each department inquiry. In response to the department’s questions in the benefit claims process, a claimant’s false statement or representation creates a rebuttable presumption that the claimant misled the department. A claimant may rebut the presumption by competent evidence that the claimant did not mislead the department. Competent evidence does not include evidence that a claimant provided false or misleading answers due to any of the following:

1. A claimant’s failure to read or follow instructions or other communications by the department related to a claim.

2. A claimant’s reliance on the statements or representations of persons other than a department employee authorized to provide unemployment insurance advice to claimants regarding the current claim.

3. A claimant’s limitation or disability, where the claimant has not brought such limitation or disability to the attention of a department employee authorized to provide service to claimants before issuance of the initial determination and has not provided competent evidence of the disability or limitation.

This change is breathtaking.  Not only does this new definition of concealment place the burden of proof on claimants to demonstrate that their mistakes are not actual mistakes and not their fault, but the new definition then goes on to limit how they might actually demonstrate their innocence by preventing them from claiming: (1) confusion or lack of understanding of departmental materials, (2) reliance on advice from others unless they can demonstrate that the advice was from someone “authorized to provide unemployment insurance advice to claimants regarding the current claim,” or (3) a learning disability of some kind unless the learning-disabled claimant has the foresight to notify the Department beforehand of his or her learning disability.  As the title to this post indicates, this proposal makes claimants strictly liable for any claim-filing mistake they might make.

When this new definition is added to the expanded criminal penalties also being proposed, it seems very likely that claimants will be facing jail time and criminal fines now for nothing more than their unintentional mistakes.  As commentators have recently observed here and here, debtor prisons are making a comeback through our criminal justice system.  Apparently, Wisconsin wants to join this bandwagon through unemployment law.  Wisconsinites will now face jail time and constant debt for nothing more than being confused about on-line filing, unsure of how to handle self-employment, or for making typos that they fail to uncover.

Finally, it has to be noted that the Department’s rationale for this change is flat-out wrong.  In D15-08, the Department claims that this change in the law is needed because the Commission has of late misapplied the definition of concealment. The history of how concealment has been defined and understood in unemployment law is detailed in Martin Lash, UI Hearing No. 13403268AP (30 May 2014) (claimant charged with $2,146 in concealment and a 15% penalty of $321.90 only has to return a $110 over-payment because of his unintentional mistakes).

First, Wis. Stat. § 108.04(11) does require that there be an intent to defraud. This is unmistakably true after the effective date of 2007 Wisconsin Act 59. The law unambiguously states that “conceal” means to intentionally mislead or defraud the department. The purpose of providing misleading or fraudulent information is to receive benefits to which the claimant would otherwise not be entitled.

Second, long before the legislature added the definition of “conceal” to Wis. Stat. § 108.04(11), the commission, dating back to at least 1959, has held that concealment involves an “intentional plan to withhold information for a fraudulent purpose.” [citing Holloway v. Mahler Enterprises Inc., UI Hearing No. 11606291MW (4 November 2011)] This fraudulent purpose is “to receive benefits to which the individual knows he or she is not entitled.” To help achieve unemployment insurance legal conformity, decisions of higher unemployment insurance appeal tribunals and state courts “are considered binding upon lower tribunals” in deciding questions involving the interpretation of law.

A statement of fact that is simply mistaken is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive. A claimant who believes he or she has submitted a legitimate claim for unemployment benefits lacks the fraudulent intent essential to support a finding of concealment.

In this case, the employee received advice from the department which may or may not have been correct at the time it was given. The employee relied on that advice and filed his claims accordingly. As a result, he did not provide accurate information to the department on his weekly claim certifications beginning in 2009, and he received benefits to which he was not entitled. However, the employee did not have the fraudulent intent essential to support a finding of concealment. Therefore, while the employee is required to repay the benefits he received in error, additional penalties will not be imposed.

Under the Department’s new definition of concealment. the claimant in Lash would be precluded from relying on the prior advice he received from the Department since that advice was not related to his current unemployment issues.  And, he could not claim he was confused or did not understand his unemployment reporting obligations.  Under the new definition of concealment, he is guilty of fraud.  Case closed.

The Department of Justice recently concluded that the criminal justice system in Ferguson, MO was designed to extract revenue from its citizens.  It appears that the Department is taking the same tack with claimants and their unemployment benefits.