Author: LegalEase Solutions
Whether the state of Michigan is required to amend its statute to allow discretionary waiver of the 4x fraud penalty when the Department of Labor (DOL) directive mandated a 15% minimum penalty but allows the states to waive any penalty over that amount?
No. There seems to be no requirement for the state to amend its statute to waive penalties over the mandatory 15%. The Unemployment Insurance Program Letter (UIPL) No. 02-12 permits states to impose a greater penalty than the mandatory 15% in their Unemployment Compensation (UC) statutes. Further, MCL § 421.54(b) gives the agency discretion to waive the 4 times penalty at any point before it refers the matter to a prosecuting attorney. Therefore, it would appear that the DOL directive’s language is discretionary only as to whether to apply any type of penalty over 15%, and does not mandate such penalties themselves be discretionary. And further, it appears the state statute itself already grants the agency discretion.
Determination of the benefits
MCL § 421.32(a) explains the process to determine an unemployment insurance claim. “Claims for benefits shall be made pursuant to regulations prescribed by the unemployment agency. The unemployment agency shall designate representatives who shall promptly examine claims and make a determination on the facts …” Further, “[t]he issuance of each benefit check shall be considered a determination by the unemployment agency that the claimant receiving the check was covered during the compensable period, and eligible and qualified for benefits.” Id. Additionally, “[i]f, upon the redetermination, the claimant is found ineligible or not qualified, the unemployment agency shall proceed as described in section 62.” Id.
Recovery of improperly paid benefits
MCL § 421.62(a) provides for the recovery of improperly paid benefits:
If the unemployment agency determines that a person has obtained benefits to which that person is not entitled, or a subsequent determination by the agency or a decision of an appellate authority reverses a prior qualification for benefits, the agency may recover a sum equal to the amount received plus interest …”
However, “the unemployment agency shall waive recovery of an improperly paid benefit if the payment was not the fault of the individual and if repayment would be contrary to equity and good conscience and shall waive any interest.” Id. But, the waiver is not applicable “in a case of an intentional false statement, misrepresentation, or concealment of material information.” Id.
Further, MCL § 421.54(b)(i) and (ii) provides that “the unemployment agency . . . may also recover damages equal to 2 times [or 4 times] that amount.” Id. MCL § 421.25(b)(ii) further provides that “[i]f the unemployment agency has not made its own determination under this subdivision, the recovery sought by the prosecutor shall include the amount described in this subdivision and shall also include 1 or more of the following penalties if the amount obtained is $1,000.00 or more of the following….” Id.
The relevant directive of Department of Labor, Subtitle C—Offsets Part I Unemployment Compensation Program Integrity, is set out in 42 U.S.C. § 503(a) as:
(11)(A) 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; and
(B) The immediate deposit of all assessments paid pursuant to subparagraph (A) into the unemployment fund of the State.
Id. (Emphasis added).
But, the Unemployment Insurance Program Letter (UIPL) No. 02-12 dated December 20, 2011 provides for state penalties above the minimum 15%.
“Mandatory Penalty Assessment on Fraud Claims. The TAAEA requires states to assess a penalty on claimants committing fraud in connection with state or Federal UC programs … The 15 percent penalty amount is the minimum amount required; states may impose a greater penalty.” Id. (Emphasis added).
If states wish to impose an additional penalty amount for a fraudulent overpayment in excess of the Federally-mandated penalty, the additional penalty does not need to be established in state law as a separate penalty. However, if a state has one penalty, its law must clearly identify each component designating how much is to be deposited into the state’s unemployment fund (minimum 15 percent of the amount of the overpayment) and how much is to be deposited in another fund. Uses of any additional penalty amounts are at the discretion of the state.
Id. UIPL, supra.
The Michigan statute identifies each component in MCL § 421.54 as:
(k) Amounts recovered by the unemployment agency under subsection (b) shall be credited in the following order:
(i) From the penalty assessment recovered, an amount equal to 15% of any benefit overpayments resulting from fraud shall be credited to the unemployment compensation fund.
(ii) For the balance of deductions from unemployment insurance benefits, to the liability for benefit repayment under this section.
(iii) For all other recoveries, the balance shall first be credited to the unemployment compensation fund for repayment of any remaining amounts owed, and then to the contingent fund to be applied first to administrative sanctions and damages and then to interest.
A reading of 42 U.S.C. § 503(a), together with UIPL No. 02-12 does not point to a requirement for the state of Michigan to amend its fraud penalty. Rather, the discretionary language appears to indicate that the state is free to assess any penalty it wishes to over and above the mandatory 15%. Further, while the state statutory language itself contains additional language, that discretionary language appears to indicate that the state already has discretion as to whether or not to pursue the 4 times penalty. The only time the state loses its discretion in whether to apply the 4 times penalty is if the agency failed to make a determination as to whether to apply the penalty and then referred the matter to a prosecuting attorney. At that point the prosecutor is required to seek the 400% penalty. But prior to that referral, the state, through the agency, does in fact have discretion not to apply the penalty.