Criminalizing unemployment benefits

The Department of Workforce Development has not only been extremely aggressive on charging claimants with concealment (aka fraud) for unintentional claim-filing mistakes, but it has also pushed criminal penalties for that concealment. I noted previously that the state’s Department of Justice has been only too eager to follow up with that criminal prosecution for those mistakes.

Since then, the state Justice Department hired Jake Westman specifically to prosecute these cases, and he has been busy. Here are his 2016 cases (11 filed that year), his 2017 cases (45 filed that year), and his 2018 cases (37 filed so far). Since he switched in October 2018 to a job at the Division of Hearings & Appeals, Shelly Rusch has taken over his case load. Here are her 2017 (1 case from Westman) and 2018 cases (11 switched from Westman so far).

All of these 93 cases charge claimants criminally with unemployment fraud. None so far have gone to trial, and almost all have ended with plea bargains. One case, 2018-CF-129, was dismissed on Ms. Rusch’s motion after a competency hearing.

Here is a breakdown of the claimants charged in these criminal cases based on race, gender, and initial address information available in these court records.

Westman and Rusch cases by race and gender

Here, we see that all 11 of the 2016 cases were against African-Americans living in Milwaukee. In 2017, African-Americans were defendants in 32 of 45 cases, or 71%. All of those cases were against Milwaukee residents. Of the remaining 13 cases in 2017, seven were against Caucasians, three against Latinos/as, and two against Native Americans. In 2018, the cases against African-Americans finally expanded beyond Milwaukee with 24 based there and four based in other cities. For 2018, African-Americans constitute 75.7% of the defendants (28 out of 37). The remaining nine cases consist of Caucasian defendants.

More Caucasian men are being criminally charged than Caucasian women (nine to seven). Among African-Americans, however, more women are being charged: 38 women to 34 men.

As noted here, the Department of Workforce Development considers concealment to be an unintentional claim-filing mistake. The Department claims otherwise, but the cases brought by the Department and appealed to the Labor and Industry Review Commission show that the Department presumes claimant’s mistakes are intentional and then places the burden of proof on claimants to demonstrate that their mistakes were accidental for some reason. Without knowledgeable help from someone who knows how complicated the unemployment claim-filing process has become or how aggressive the Department is on this issue and a Commission that insists on following unemployment law as written, it can be difficult for someone to explain his or her confusion and get a concealment charge overturned.

What makes this criminal prosecution of claimants for their mistakes even worse is that the Commission has NOT applied the strict liability for mistakes standard that the Department wanted with the 2016 changes in the definition of unemployment concealment. Section 18 of 2015 Wis. Act 334 left intact the requirement that unemployment concealment means “to intentionally mislead.” And so, the Commission has affirmed that unemployment concealment still requires a finding of intent. See Domingo Ramos, UI Hearings Nos. 16606402MW and 16606403MW (23 Feb. 2017) (applying new concealment definition, Commission finds that claimant’s job search mistakes were not intentional and so not concealment).

The Department of Workforce Development, however, has consistently ignored this requirement for unemployment concealment to be intentional and continues to charge concealment against claimants for their unintentional claim-filing mistakes.

And, now the Department of Workforce Development has been combining with the state Department of Justice to bring criminal charges against claimants for those same accidental mistakes. The plea bargains in many of these cases involve little more than paying back the alleged concealment penalties DWD first charged against these claimants in unemployment proceedings. In several, those monies have already been paid back, and so claimants are simply stuck with an additional $500 to $1000 in court costs as part of their plea bargain. In some other cases, it appears that the criminal case was nothing more than an additional mechanism with which to pursue collection against claimants for whom prior collection efforts had been unsuccessful.

That DWD and the state DOJ is targeting folks by race is obvious from this data. Here are the number of “fraud” cases by year:

2013 -- 14,682
2014 -- 13,034
2015 -- 9,793
2016 -- 8,438
2017 -- 5,132

From Addendum A of the 2017 Fraud Report at 11. So, of the thousands of fraud cases per year that DWD is pursuing, it is only bringing 30-50 criminal cases a year, and 70-80% of those criminal cases are against African-Americans. This result simply stinks to high heaven.

But for a new governor who may or may not think of unemployment in the same way as his predecessor, things would be getting even more dire. Rep. Kerkman managed to get criminal penalties for unemployment substantially increased via 2017 Wis. Act 147. As detailed in the Legislative Council memo, fines are substantially increased (usually now up to $10,000 or more) and prison time is increased substantially as well (now from nine months to ten years) depending on the amount of “concealment” at issue.

The current practices of DWD are making unemployment not only impossible to receive but damn near dangerous. Something needs to change in 2019.

DWD explains its concealment changes

At the request of an Advisory Council member, the Department released a memorandum explaining the third sub-section of its proposed new concealment law. This concealment proposal was previously described in this post, and a general review of concealment can be found in these posts. Here is the Department’s latest memo with commentary.

To: Unemployment Insurance Advisory Council
From: Andy Rubsam
CC: Janell Knutson
Date: January 14, 2016
Re: D15-08 Definition of Concealment — effect of proposed section 108.04(11)(g)3

The Department proposed, and the Council agreed, to amend the statutory definition of “conceal” in the unemployment insurance law. The revised definition of “conceal” contains the following provision: “Nothing in this subsection requires the department, when making a finding of concealment, to determine or prove that a claimant had an intent or design to receive benefits to which the claimant knows he or she was not entitled.” The Council requested that the Department provide analysis of this provision, including examples of how the law will be applied.

NOTE: This language is the third sub-section of the new concealment definition. The first sub-section defines concealment as “intentionally misleading the department by withholding or hiding information or making a false statement or misrepresentation.” The second sub-section states that a “claimant has a duty of care to provide an accurate and complete response to each inquiry made by the department in connection with his or her receipt of benefits” and then goes on to list the factors to be considered by the Department in determining whether the claimant has fulfilled this duty of care. Accordingly, the statute places the burden of proof on claimants to demonstrate how their actions are innocent of any alleged concealment. The memo does not address this shift in the burden of the proof in concealment cases. Cf. Leonard A. Miszewski, UI Hearing No. 12401605AP (30 November 2012) (“A concealment finding, however, must be supported by clear and convincing evidence,” not just by a preponderance of the evidence [footnote omitted]).

The Department interprets the proposed section 108.04(11)(g)3 in concealment cases to mean that the Department must find that the claimant intended to deceive the Department but the Department need not determine whether the claimant knew that the claimant would in fact receive a greater amount of unemployment benefits as a result of the deception. The proposed statutory change requires the Department to determine whether the claimant intended to mislead the Department on the benefit claim “by withholding or hiding information or making a false statement or misrepresentation,” but does not require the Department to determine that the claimant knew the effect of that intentionally incorrect answer.

NOTE: So, the Department is explaining here that concealment is an intentional act but establishing that intent exists when there is “withholding or hiding of information or making a false statement or misrepresentation” (aka a mistake of some kind) and does NOT require the Department to show that the claimant knew he or she was intending to conceal. In other words, concealment will be an intentional act when there is a mistake and does not require the claimant to have any knowledge about the intended consequences of that mistake. Huh? How is concealment still an intentional act then?

Keep in mind how concealment is currently defined for unemployment purposes. After reviewing decades of case law and statutory developments in unemployment law, the Commission explained in Holloway v. Mahler Enterprises, Inc., UI Hearing No. 11606291MW (4 November 2011) that:

From this background, what it means to intentionally mislead or defraud may be stated simply: it means the claimant is trying to get away with something the claimant knows he or she should not be getting away with. In most unemployment insurance cases where the issue is concealment, what the claimant will be alleged to have tried to get away with, is gaining unemployment benefits to which the claimant knows he or she is not entitled. By contrast, where a claimant’s incorrect answer to a material question is due to ignorance or mistake, it will not be the case that the claimant is trying to get away with something, and that claimant will not be guilty of concealment.

What the Department is doing with this new definition of concealment, it seems, is removing the need to show in a concealment case that a claimant is trying to get away with something he or she knows she should not. But, how will concealment be shown then if knowledge about the concealment no longer has to demonstrated in some way? Will any mistake now be concealment? Does the Department provide examples that could clarify these changes?

For example, if a claimant intentionally fails to report quitting a job, the claimant has concealed. This is true even if the quit would not have disqualified the claimant for benefits because the quit fell within one of the exceptions such as quit with good cause. Proposed section 108.04(11)(g)3 provides that the Department does not need to establish that the claimant knew that the failure to report the quit would result in payment of benefits to which the claimant was not entitled. Rather, the claimant intentionally misled the department by not providing the information.

NOTE: This example does not really explain anything, since the intent of the concealment is presumed. What are the circumstances for finding that a claimant’s failure to report a quit is intentional? Furthermore, this example of quitting for good cause as concealment regardless of the consequences is unnecessary. Right now, a claimant can still commit concealment for actions that would not effect their eligibility for unemployment benefits. See Kincaid v. Madison Taxi, Inc., UI Hearing No. 15001437MD (20 August 2015) (claimant who failed to report job offer for which he had good cause for declining still committed concealment because all bona fide job offers have to be reported on weekly claim certifications).

So, the Department is showcasing an alleged change in unemployment concealment that does not actually exist. Per Kincaid, concealment right now can be found regardless of whether the claimant is entitled to the unemployment benefits or not. The issue in current law is what the claimant intended to accomplish via the filing mistake. Accordingly, this example provides no clarity about what this new concealment definition is doing.

This “example,” however, does provide some “clarity” in light of the Department’s new on-line claims filing system. When the Department implements its new on-line claim-filing system, claimants will be asked literally about dozens of kinds of information they must correctly provide. Besides hours and wages, this new system will require them to classify accurately their weekly income from holiday pay, sick pay, baby-sitting pay, performance bonuses, and other kinds of sources and report those weekly totals without any mistake.

Traditionally, claimants have not been liable for concealment when the total income reported in a week is correct even though the categories of where that income originates might be incomplete or mistaken. The Department’s example, however, indicates that any mistake regardless of the consequences on the benefits due a claimant will now count as concealment. In other words, if I report $150 in wages on a weekly claim but do not indicate that this amount is actually $100 in earned wages and $50 in holiday pay, under this new definition I am guilty of concealment simply because I was inaccurate in how I classified the wages I received. As the Department explains in its memo, the new concealment definition” does not require the Department to determine that the claimant knew the effect of [an] intentionally incorrect answer.” Accordingly, the “materiality” of the mistake is apparently no longer needed for an allegation of concealment. The mistake IS itself concealment.

Another example could involve a claimant intentionally failing to report part-time work on their benefit claim. Because the claimant intentionally failed to report work, the claimant concealed. Proposed section 108.04(11)(g)3 provides that the Department is not required to determine the claimant’s knowledge about the effect of the false answer on the claimant’s benefit amount. Had they not concealed the information, the claimant may have been entitled to partial benefits.

NOTE: This example again presumes intentional concealment has taken place without any explanation of how concealment or the intent for that concealment is actually found. And, the direct statement that “the Department is not required to determine the claimant’s knowledge about the effect of the false answer” indicates that the intent needed for establishing concealment will be some sort of knowledge-free intent. In other words, concealment can be charged without any evidence regarding the claimant’s knowledge of what his or her concealing act means. Accordingly, it seems that good faith mistakes can know be charged as concealment since a claimant’s knowledge of his or her actions no longer matter. In this light, this new concealment law overturns prior Commission decisions like Peters v. United Rentals, UI Hearing No. 12400788AP (31 May 2013) (employee made a good faith mistake in reporting her quit as a discharge in light of mediation agreement regarding her separation from employment). As stated before, unemployment claims are now a trap and should be avoided.

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.