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FROM BAD TO WORSE AND THEN SOME:
GWINN TAURIAINEN PLLC
by:  Daniel A. Gwinn, Esq. & Laura Bradshaw Tucker, Esq.

A college student applies for unemployment, but does not know how to report earnings he has not received. A widowed mother misunderstands the questions she is asked by Michigan’s Automated Response Voice Interactive Network (MARVIN) and fails to report part-time earnings to the Unemployment Insurance Agency (UIA). An unemployed worker is denied benefits because she quit an occasional, after-work job from which she earned a total of $53, before being laid off from her full-time position.

The legislative intent of the Michigan Employment Security Act is to “safe guard the general welfare by dispensing benefits to ameliorate the disastrous effects of involuntary unemployment.” Schultz v Oakland County, 187 Mich App 96, 102-103 (1991). But when a claimant makes a mistake, or is suspected of deliberately misleading the UIA, the negative effects of involuntary unemployment pale in comparison to the disastrous financial impact of being on the wrong side of a UIA decision.

The mistakes are often simple, but the UIA does not treat them as such. Aided by a robotic system known as MIDAS, the UIA turned honest mistakes or misunderstandings into nightmares for thousands of unemployed workers, as MIDAS mechanically found deliberate misrepresentation and fraud where a confused or innocent claimant simply made an error.

But MIDAS made mistakes of its own. In fact, it made a lot of them: A recent report revealed that from 2013 to 2015 MIDAS had a 93 percent error rate. Those errors, which translate into incorrect findings of “misrepresentation” against thousands of unemployed workers, have swollen the State of Michigan’s coffers by more than $150 million — from $3.1 million in 2011 to $155 million in October 2016 — largely from quadruple penalties assessed against the unemployed for “misrepresentation” to the UIA and interest due on the repayment of benefits to which the UIA belatedly finds workers unentitled. The penalty is equal to four times the amount of all benefits received.

Misrepresentation encompasses acts such as deliberately failing to report income from part-time or freelance work; failing to report severance pay; failing to indicate a job loss was voluntary or for cause, and failing to report a return to full-time work. Problems arise when the UIA, via its automated system or through its agents, finds misrepresentation where none exists, or, where there is a discrepancy, labels as intentional acts that were negligent, or done in ignorance.

An out-of-control, unwieldy system is not the only ill affecting the UIA and the unemployed workers who turn to it each year for help. The UIA’s internal roadblocks can turn applicants for unemployment into victims of bureaucratic inefficiency. Information the UIA claims it needs to determine whether a claimant is eligible is often not requested in a timely fashion, or, when received, ignored. The result is that many claimants, who are not eligible for benefits, continue to receive them in happy ignorance – and only learn of their disqualification months after exhausting benefits. Nonpayment of benefits and interest can quickly exceed thousands of dollars.

Communication from the UIA is itself confusing. A claimant the UIA suspects may be ineligible for benefits or who may have committed fraud are sometimes sent separate, but almost identical letters loaded with boilerplate language: one for disqualification of benefits and the other alleging misrepresentation in the claimant’s application for benefits. Unraveling the intent of the UIA’s correspondence is, in and of itself, no small feat.

And claimants, who often have no idea that they must advise the UIA of any change in address even after they have exhausted their unemployment benefits or found work (or any duty to check their on-line account with the UIA), are found guilty of misrepresentation and subjected to quadruple penalties, without ever having received notice that there was a question about their eligibility.

Several cases handled recently at Gwinn Tauriainen show how easily an unemployed worker can be found guilty of misrepresentation and stuck with thousands of dollars in penalties, often without any right to appeal, for acts that were done without any intent to misrepresent or deceive.

Case Study #1 — Never heard back

Joe Black[1] got a full-time job at a sales establishment, and worked there for over a year while studying for an MBA. Then, as business slowed, he was laid off. He found another job, also in sales, but this job paid on straight commission. After four months of work during which he had earned an average of only $3 per hour, most of it in commissions for which he had not yet been paid, Joe gave two weeks’ notice — and filed for unemployment. At the time he left the company, Joe was owed several hundred dollars for work he had performed.

When Joe completed his application for benefits, he was asked to list how much he earned in each of the past several quarters. He had not received payment from the straight-commission employer (SCE) in that time frame, and did not see any place to indicate that he hoped to receive payment, so he filled out the form, indicated he had worked for SCE, but omitted the unpaid commission.

Shortly after he applied for unemployment, Joe received a “Monetary Determination,” letter from the UIA stating he was eligible for 20 weeks of benefits. In its letter, the UIA noted that wages Joe earned from the SCE were not being used to establish his claim for benefits and added it was “investigating the discrepancy.”

Language buried in boilerplate in the text of the UIA’s letter informed Joe “if a later redetermination or decision holds that you were not entitled to receive all or part of these benefits, you will be required to repay the benefits improperly received.” This language was included in a section on “Protest Rights”; Joe had no disagreement with the benefit amount awarded and had no reason to review his right to protest. There was no mention in the “Protest Rights” section of this form letter of any penalties that might be imposed if the UIA later found its decision to award benefits was improper and based on deliberately misleading statements or omissions of the claimant.

About a month after Joe had been approved for benefits, and had started receiving unemployment, SCE – which was only being required to pay a minuscule portion of the benefits – wrote the UIA and objected to paying anything because Joe had quit “without good cause” and was therefore ineligible.

Although the UIA had questioned Joe’s eligibility for benefits from the start, and received a letter less than two weeks after the young man began receiving benefits, it did nothing to investigate the situation for 10 months.

And then, long after his 20 weeks of benefits had expired, Joe received two “Requests for Information Relative to Possible Ineligibility or Disqualification” in the mail. The first pages of the two letters were identical. However, on the second page, one of the letters asked for information about why Joe had left SCE, and the other letter asked for the reasons[2] he had “intentionally provided false information to obtain benefits [he was] not entitled to receive.” Joe was given ten days to respond to the requests. Joe, who believed the two letters were duplicates, and had not read the questions relating to the reasons he left SCE, answered the question about misrepresentation only. He indicated he had answered all questions truthfully. He indicated he had received a payment from SCE after he had begun to receive benefits, but had not known how to report this, and said he figured since he was approved for benefits, and benefits were paid to him that he must have been eligible for benefits. He asked the UIA to contact him if it needed additional information.

The UIA did not contact him. Instead it sent him a Notice of Determination, finding he had intentionally “misled and/or concealed information to obtain benefits [he was] not entitled to receive.” That same day the UIA sent Joe a List of Overpayments and Restitution: $6,180 principal plus $24,720 restitution for a whopping total of $30,900. The $6,180 represented all the unemployment benefits Joe had received, benefits the UIA had continued to pay him even after it had received the letter from the former employer. (At the time the UIA received that letter, Joe had been paid only $618 in benefits.) The $24,720 was a quadruple penalty, routinely assessed by the UIA whenever it determines benefits were received as a result intentional misrepresentation. Although the statute authorizing quadruple penalties makes such penalties discretionary, MCL 421.54(b)(ii), the UIA treats the quadruple penalty as mandatory in cases in which benefits of more than $500 are obtained through misrepresentation. (The discretionary penalty of double the amount due for misrepresentation involving less than $500 is also treated as mandatory.)

A shaken Joe logged on to his on-line UIA account, MiWAM, to see whether he could appeal the determination. He couldn’t find anything labeled “appeal” on the UIA website but located a section titled waiver, and completed an on-line waiver request a few weeks after receiving the Request for Restitution. His request was denied: Claimants found to have deliberately misrepresented information to the UIA to obtain benefits are not eligible for a waiver. Where the UIA had taken the best part of a year to investigate its questions about Joe’s eligibility, it denied his waiver request in less than a month.

Joe did not have the funds to pay the UIA. And the interest on the amount due kept compounding. By the time he contacted Gwinn Tauriainen, his balance due was $31,519.60 (more than $600 in interest had accrued).

Gwinn Tauriainen appealed the determination of misrepresentation and the underlying finding that Joe was ineligible. The UIA denied the appeal on procedural grounds: Joe had not filed his appeal within 30 days, so his right to appeal was lost.

Gwinn Tauriainen managed to overcome that statutory hurdle by arguing that Joe’s request for a waiver was an attempted appeal, which the UIA had never considered.

Finally, Joe got his day in (administrative) Court, and was ultimately able to address the determinations against him. The Administrative Law Judge found that Joe had not attempted to deliberately mislead the UIA. The quadruple penalty was reversed. The judge also noted that based on the few and tardy commissions Joe received from SCE, Joe’s decision to quit the company might not have disqualified him from receiving benefits. But “further determinations” were left to the UIA.

Although Joe had to pay attorneys’ fees (which can range from approximately $1,500 to more than $5,000, depending on the complexity of the case and the necessity of a hearing), Joe’s bill to the UIA was reduced by over $24,000.

Case Study #2 – Part-time earnings

When she applied for unemployment in December 2010, Susan Gray asked a worker at her local UIA office whether she could collect benefits if she worked part-time. The worker told her she would still be eligible.

Shortly after she was laid off, Susan found a part-time job and, soon after, received a letter informing her she was eligible for weekly unemployment benefits of $343. To receive the benefits, Susan, like all those who receive unemployment, was required to “certify” to the UIA every week, stating she was out of work, was looking for work, and was available for work.

When she first certified for benefits, calling in to the UIA’s automated phone system, MARVIN, Susan was asked if she was back to work full time. She responded, “No.” After this she was asked if she had “any earnings.” Believing this referred to the previous question, and full-time work, Susan again replied “No.” As Susan explained later, she believed, based on her conversation with the UIA worker, that part-time work would not disqualify her from full benefits.

Susan was wrong. Part-time earnings must be reported. While part-time work does not disqualify a claimant from receiving benefits, it does disqualify a claimant from receiving full benefits. Those who work part-time see their benefits reduced by 50 percent of their part-time earnings.[3].

Susan was not aware of this; she continued to certify to MARVIN for almost a year. Eventually, she was contacted by the UIA and, through a series of letters and phone calls, learned she was required to report her part-time earnings. After being set straight, Susan made sure she reported every cent she earned; she continued to collect benefits for over a year. She needed the money. About a year after Susan lost her job, her husband died suddenly, leaving her alone to raise three young children.

Luckily, her part-time job turned into a full-time job. Susan stopped certifying for benefits in 2012, and believed her relationship with the UIA was over.

She was wrong again.

Almost three years after Susan had stopped receiving benefits, the UIA sent Susan an avalanche of letters stating it had determined Susan had been only partially eligible for the benefits she had received because of her part-time work and, further, that her failure to report this income was misrepresentation. The UIA requested restitution of $26,880 — $5,376 for the benefits Susan improperly received and a quadruple penalty of $21,504 for the misrepresentation.

Unfortunately for Susan, these letters were sent to an old address. She did not receive them.

Several months after the UIA mailed its letters to Susan, and after it had begun proceedings to withhold her income tax refund, Susan learned of the actions being taken against her. By chance, the new tenant at the old address forwarded a copy of a request for payment.

Susan immediately wrote the UIA. She told them she had misunderstood UIA rules on part-time pay, said she had reported her earnings, and denied she ever deliberately tried to misrepresent her situation. She also asked whether she might qualify for an exemption due to financial hardship.

The UIA treated the letter as a request for a waiver on hardship grounds, for which Susan was ineligible because she had been found guilty of “misrepresentation.” The UIA ignored Susan’s claim that she had not deliberately misrepresented anything. When she tried to appeal the finding of misrepresentation, she was told she was too late – the time for filing an appeal had passed. She should have appealed within 30 days of the never-delivered Redetermination. By April 2016, the UIA claimed Susan owed over $27,000.

Susan sent her own avalanche of letters to the UIA, arguing she should be allowed to appeal because the UIA had sent letters to the wrong address, and repeatedly protesting that she never intended to receive benefits to which she was not entitled. In the end, the UIA granted her plea for an appeal.

But she lost.

Susan contacted Gwinn Tauriainen in late April 2016. The firm quickly asked the UIA to review its decision, and followed up with an appeal to the Michigan Appeals Hearing System. In July, Susan’s case was presented to an Administrative Law Judge.

When she went before the judge, Susan was ready to pay back the benefits she had received through her mistaken belief that she was eligible for full benefits while working part-time. As it turned out, she didn’t have to pay back anything. Susan and her lawyer convinced both the judge and the UIA representative that there was no intentional misrepresentation. The finding was reversed. The reversal had a surprising consequence – it meant the UIA had taken too long to ask for repayment of the original benefits. The UIA can take up to three years to collect in cases of misrepresentation, but only one year where benefits are paid due to simple mistake or error.

With the help of Gwinn Tauriainen, Susan went from wondering how to pay a bill for $27,000 to owing the UIA nothing at all.

Case Study #3 — Bad, but not that bad: penalties on steroids.

Not all claimants who omit information when applying for or receiving benefits from the UIA do so innocently. Some, experiencing those “disastrous effects of unemployment,” deliberately mislead the UIA in order to keep their financial ship afloat. The UIA cannot ignore such misconduct, which costs the state – and the state’s taxpayers — hundreds of thousands of dollars each year. Penalties are needed to discourage claimants from trying to take benefits for which they are ineligible.

But how punitive should that penalty be?

Michigan’s quadruple penalties for deliberate misrepresentation are the highest in the nation. While the potential penalties are among the toughest imposed, the statute authorizing the penalties do not make them mandatory. If the UIA chose to impose a lesser penalty, it could do so. That’s a choice the UIA never makes. The results are often unjust.

Bill Smith was laid off from a low-skilled job with decent pay in 2008. He applied for unemployment, and received benefits of $362 a week. It was not enough to live on. Bill fell behind on his bills and his rent and was eventually evicted. He moved from place to place, staying with friends and family – and living for a while at a homeless shelter – while he looked desperately for a job.

Two years after his layoff, he found work. By then he was suffering from severe depression, had no savings, and ever-increasing debt. He didn’t think he would be able to dig himself out with his pay from his new job: He certified to the UIA that he was still out of work. For the next three months he received benefits for which he was indisputably not eligible.

Because Bill had no stable address for over a year, he had used a P.O. Box. He cancelled the P.O. Box in mid-2010. The UIA wrote, requesting information about his job status, that same month. Bill never received the letter. And he didn’t receive any of the other letters the UIA sent to his P.O. Box over the next two years: the UIA’s determination that he had been guilty of misrepresentation, its repeated requests for repayment and restitution on an ever-growing amount due, and its threat of garnishment.

Bill first discovered the UIA wanted its money back when he learned, from a new employer, that his wages were being garnished. By this time, Bill was getting back on his feet and the news that the UIA wanted repayment of the money he had wrongfully taken came as a relief. He had always regretted his actions, and figured it was time to pay the UIA back; he did not protest the garnishment.

As time passed, and Bill’s wages continued to be garnished after he had repaid the roughly $5,000 he figured he owed, Bill belatedly decided to get in touch with the UIA. He learned his estimate of $5,000 was slightly off: the UIA wanted restitution of over $32,000.

The amount was staggering.

Bill sought help from Gwinn Tauriainen. Although Bill had lost his right to appeal the UIA’s determination by his inaction, the firm was able to get Bill his day in court. With the help of Gwinn Tauriainen, Bill was able to show the facts of his case, and argue that the quadruple penalty should be reduced. Ultimately, the Administrative Law Judge upheld the UIA’s decisions because, as Bill acknowledged, Bill had been guilty of misrepresentation. The judge was sympathetic to Bill’s situation; in his order to affirm the finding of misrepresentation, he invited the UIA to review the penalty. The UIA rejected the Administrative Law Judge’s invitation.

Bill is now working hard, and repaying the UIA on a payment plan, but the last year has been almost as bad as 2008. Earlier in the year he was laid off. Because he had been determined guilty of misrepresentation and owed the UIA restitution he was not eligible for unemployment.

Bill readily admits he was wrong, but, he says, the quadruple penalty is more than he will ever be able to pay off. It’s a debt that, he thinks, may ruin his life.

Case Study #4: The wrong job

In 2014 Jane Doe, who was working full-time, offered to work as a paid tutor, four to five hours per week at a local community college. Unfortunately, few students asked for tutoring in the evening hours when Jane was available, so, after earning only $53, she quit.

Several months later she was laid off from her full-time job, and applied for unemployment.

She was turned down. The UIA found she was not eligible for benefits because she had voluntarily quit her part-time job – as a tutor.

On the advice of a Gwinn Tauriainen lawyer, Jane promptly wrote and called not only the UIA, but also the community college, asking for verification that the college work had been occasional, and that the college had no intention of hiring her full-time. Her prompt response resulted in a reversal of the UIA’s disqualification, and back payment of the benefits she had improperly been denied. Jane found another full-time job before her benefits expired.

Avoiding issues with the Unemployment Insurance Agency

Dealing with a large governmental bureaucracy is never easy, but there are steps anyone applying for or receiving unemployment benefits can take to avoid situations like those experienced by Joe, Susan, Bill, and Jane.

1. Read the handbook. The Unemployment Insurance Agency gives applicants for unemployment a handbook with a green cover – which the UIA refers to, not surprisingly, as the “green book” — which answers many questions about UIA requirements and procedures. If Susan had read the handbook attentively instead of relying on a UIA worker’s statement, she would have understood the procedure for reporting part-time earnings.
2. 2. Read any letters you receive from the UIA completely, even if you receive what appear to be identical letters on the same day. If you have any questions about what the letters mean, you can contact the UIA — or a lawyer — for clarification. If you call the UIA, write down the date on which this conversation occurs and take notes of your conversation. Ask the UIA representative with whom you speak to verify your understanding of the conversation, and, if possible get the name of the UIA representative. Refer to this conversation in your correspondence with the UIA, as necessary.
3. Keep copies of all letters you receive from the UIA and all correspondence you receive back from them for at least three years. The UIA has up to three years to proceed against you for misrepresentation; your correspondence on any issues could be your defense to a late-filed claim.
4. If you move within three years of receiving benefits, keep the UIA informed of your new address. Joe, Susan and Bill and Jane would have been spared the expense of overcoming an expired appeal period if they had received the UIA’s correspondence shortly after it was mailed.
5. Check your MiWAM account. If you have used a MiWAM account to certify for benefits and communicate with the UIA, continue to check this account periodically for at least a year after you stop receiving benefits, especially if the UIA or a former employer has questioned your eligibility for benefits. Better yet, cancel your MiWAM account and ask in writing that the UIA send all further correspondence to you by mail and retain a copy of your written request.
6. Keep your pay stubs and report part-time income. If you work part-time while receiving unemployment benefits, make sure you report all part-time income to the UIA, and keep your pay stubs. If the UIA queries your eligibility based on part-timework, use your pay stubs to show that you are working less than full-time, and to verify that the amount you reported to the UIA is the same as the amount you received.
7. Be honest. Never assume that the UIA will ignore any discrepancies between your application and information it receives from Social Security and other sources. Receiving benefits does not mean you are eligible for benefits. If you know or have reason to suspect that you might not be eligible for benefits, the UIA is likely to find that out and ask you to repay all those benefits, with interest, long after you’ve received and spent the money that barely kept you afloat while you were out of work.

[1] Names and identifying details have been changed to protect the confidentiality of those involved.

[2] Guilty until proven otherwise: the UIA’s form assumes misrepresentation as a fact, and asks for the reasons a Claimant committed this fraud.

[3] For example, a claimant receiving $362 per week in unemployment benefits, who made $200 in a week working part-time, would be required to report that $200. The benefit amount would be reduced by $100 (50 percent of $200). Net income for the period would be $462 ($362 – $100) + $200 income). If half the part-time earnings is equal to or exceeds the benefit amount, the Claimant is not entitled to any benefits.

GWINN TAURIAINEN PLLC, is a Troy based law firm representing clients from Warren, Sterling Heights, Ferndale, Royal Oak, Oak Park, Oakland and Wayne Counties and all of Southeast Michigan.