54. What Are the Penalties for Fraud?
A claimant found to have fraudulently collected UI benefits while not in total or partial unemployment must repay not only the amount of the overpayment but also 1 week of benefits for each week of benefits collected. If the Director decides to deduct this amount owed by the claimant from future unemployment benefits, the deduction should not exceed 25% of the unemployment check. G.L. c. 151A, § 25(j), as amended by St. 2003, c. 142, § 9. G.L. c. 151A, § 47 provides for fines and imprisonment for knowingly making a false or misleading statement, assisting, abetting in the making of a false or misleading statement of for knowingly concealing or failing to disclose a material fact. G.L. c. 151A, § 69 (e) assesses a penalty equal to 15% of any erroneous penalty made due to the misrepresentation or failure to disclose a material fact.
A claimant is entitled to a hearing on the issue of whether any overpayment in benefits is due to fraud. G.L. c.151A, § 25 (j). Moreover, the claimant must have been provided notice by DUA of the requirement to report income, and the notice must have been in the claimant’s primary language (with some few possible exceptions). Most importantly, because a determination of fraud involves examination of intent, DUA must evaluate the claimant’s knowledge of the reporting requirements and the extent to which his limited English proficiency may have adversely affected that knowledge. AH c. 9, § 5D. (See discussion of good cause policy for LEP persons in Question 52.)
Regulations defining “fault” in the context of overpayments were promulgated in June 2014 as part of the settlement of a GBLS/MLRI lawsuit challenging the adequacy of the evidentiary basis for DUA’s determinations of fault (or “fraud”). See the settlement agreement in this lawsuit (Brugman v. Department of Unemployment Assistance, Suffolk Superior Court, CA 10-2667-F (12/18/12)) is available at: http://www.masslegalservices.org/content/settlement-agreement-brugman-v-dua. DUA takes the position that “fraud” as used in G.L. c. 151A, § 25(j) means the same as the term “fault” in their regulation. AH c. 9, § 5B. The regulations, at 430 CMR 6.03 (6/20/14), which expressly excludes “a good faith mistake of fact” as an instance of fault, and provide as follows:
Fault, as used in the phrase “without fault,” applies only to the fault of the overpaid claimant. The Department in making the overpayment does not relieve the overpaid claimant of liability for repayment. In determining whether an individual is at fault, the Director, or the Director's authorized representative will consider the nature and cause of the overpayment and the capacity of the particular claimant to recognize the error resulting in the overpayment, such as the claimant's age and intelligence as well as any physical, mental, educational, or linguistic limitation, including lack of facility with the English language. A good-faith mistake of fact by the claimant in the filing of a claim for benefits that results in an overpayment of benefits does not constitute fault. A claimant shall be at fault if the overpayment resulted from the claimant:
(a) Furnishing information that the claimant knew, or reasonably should have known, to be incorrect; or
(b) Failing to furnish information that the claimant knew, or reasonably should have known to be material; or
(c) Accepting of a payment that the claimant knew, or reasonably should have known was incorrect. (Emphasis added).
The Director’s decision to impose a deduction is subject to full review and appeal. G.L. c.151A, § 25 (j). It is especially important to challenge fraud accusations against non-citizen workers because such a finding by an administrative agency could be harmful to a non-citizen’s efforts to adjust her immigration status.
In addition, employers who fail to report wages to DUA for employees collecting UI will be subject to both a fine and a penalty. The fine equals the amount of contributions and interest due on unreported wages. The employer must also pay a penalty equal to the amount of UI that the employee collects that he would not have been entitled to if the employer had reported his wages to DUA. G.L. c. 151A, § 15 (a), as amended by St. 2003, c. 142, § 7.
Since 2015, DUA is authorized to enter into an agreement with the U.S. Treasury Department to participate in the Treasury Offset Program, enacted as part of the SSI Extension for Elderly and Disabled Refugee Act, PL. No. 110-328 (9/30/2008) under which the federal tax refunds of UI claimants who have determined to have been overpaid and have no remaining appeal rights from that determination may be intercepted. St. 2014, c. 144, §§ 25, 38, 58, 59, 68, 70, amending G.L. c. 151A and adding G.L. c. 151A, § 69B; UIPL No. 12-14 (5/20/2014); available at http://workforcesecurity.doleta.gov/dmstree/uipl/uipl2k14/uipl_1214.pdf. DUA triggers an intercept of federal tax returns by sending claimants a Notice of Intent to Intercept Federal Tax Return. Claimants have 60 days to respond to a Request for Review and can challenge the proposed intercept with evidence that they are not the person listed on the notice, disagree with the amount of debt, have already paid the debt in full, have filed an appeal that is still pending on the determination that created the overpayment, have filed for bankruptcy, or have an application for waiver pending. UIPP # 2015.17 (9/11/2015). DUA cannot double dip and intercept federal and state taxes where the federal intercept satisfies the claim. BR- 69B-16-086 (11/01/2018) (where the claimant’s outstanding overpayment had already been satisfied by a federal tax return intercept, a subsequent state tax refund intercept, undertaken pursuant to G.L. c. 151A, § 69B, was incorrect).
Is There a Reward for Reporting Fraud?
The UI statute provides that an individual who reports information to DUA concerning an employer’s “false or fraudulent” contribution report may be entitled to up to 10% of the penalty collected (as a “whistleblower payment”) against that employer. G.L. c. 151A, § 58A as amended by St. 2003, c. 142, § 13.
The State Unemployment Tax Avoidance Act (SUTA), Chapter 138 of the Acts of 2005, amended G.L. c. 151A by adding § 14N, which prohibits the employer from reporting its payroll under another employer’s account to obtain a lower unemployment tax rate—a practice known as “SUTA dumping.” In Lincoln Pharmacy of Milford, Inc. v. Commissioner of the Div. of Unemployment Assistance, 74 Mass. App. Ct. 248, 907 N.E.2d 1128 (2009), the Massachusetts Appeals Court found that substantial evidence established that the employer intentionally shifted payroll between two corporations in order to avoid the higher contribution rate. The case raised some interesting collateral issues, including the propriety of “witness coaching” by the Board and the evidentiary requirements on DUA and the employer in this case.
What Can Be Done about Employer Misconduct and Fraud?
Employers have numerous statutory obligations that DUA rarely enforces. Examples include:
1. The employer must provide notice of workers’ right to file a claim for unemployment benefits, G.L. c. 151A, § 62A (g);
2. The employer must provide timely wage records, G.L. c. 151A, §15 (a);
3. The employer or its agent cannot knowingly make a false statement or representation in order to avoid paying benefits or to reduce their payment, G.L. c. 151A, § 47, ¶3;
4. The employer cannot attempt by threats or coercion to induce any individual to waive his rights under the UI law, G.L. c. 151A, § 47, ¶4.
Since 2005, DUA has a fund derived from fines and penalties collected when employers violate the provisions of owner transfers as they pertain to UI liability. G.L. c. 151A, §§ 14N, 14O. This fund’s purpose is to support DUA’s activities related to the detection, prevention, and administration of employer fraud provisions of the UI statute.
DUA regulations require employers and employer agents to provide information, under pains and penalties of perjury, in response to a claim for UI. 430 CMR 5.02(8) (6/11/10). If an employer’s inadequate or untimely response to a claim results in an erroneous payment of UI benefits, the employer will not be relieved of charges for the claim. G.L. c. 151A, § 38A, added by St. 2013, c. 118, § 11. UIPP # 2013-08, Changes to Sections 38 of Chapter 151A to Prevent Improper UI Payments, (12/3/13). Nor does the incompetence of a third-party administrator that provides an erroneous response to a fact-finding questionnaire constitute good cause. BR-0021 7463 25 (8/23/17) (Key).
Additionally, Executive Order No. 499 (3/12/2008) established a Joint Enforcement Task Force on the Underground Economy and Employee Misclassification, now codified in Massachusetts law as the Council on the Underground Economy. St. 2014, c. 144, §§ 23, 24. This task force is charged with investigating employer fraud and a hotline has been established for this purpose: 1-877-96-LABOR.
Advocates should be aware that employer third-party agents (TPAs), who handle an employer’s unemployment accounts, frequently provide erroneous information to DUA. All too often, this misinformation—the result of carelessness and/or lack of firsthand information—is provided to adjusters in employer-protested claims and results in the delay and/or denial of UI to eligible claimants. See Jason DeParle, Contesting Jobless Claims Becomes A Boom Industry, New York Times, (4/3/10).
Arguably, a claim may be available against these agencies under the Massachusetts Consumer Protection law, G.L. c. 93A, as the agency is providing a service that directly affects the people of the Commonwealth and is injuring an employee. See St. Paul Fire and Marine Ins. Co. v. Ellis & Ellis, 262 F.3d 53 (1st Cir. 2001); Boos v. Abbott Laboratories, 925 F.Supp. 49, 55 (D. Mass. 1996) (holding that the protections under c. 93A do not require privity of interest). Additionally, liability may exist under the False Claims Act, 31 USC § 3729 et seq., and G.L. c. 151A, § 47.
Advocates representing claimants who have been victimized by employer fraud, including misclassification of claimants as independent contractors, are encouraged to use the Underground Economy Hotline (see Question 39) and also to contact the Employment Rights Coalition.