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A Few Rotten Apples or Routine Unemployment-Claim Abuses

March 17, 2009
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Related Topics: Benefit Design and Communication, Corporate Culture, Labor Relations
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While evidence points to a rise in employer challenges of unemployment claims, a debate continues about the extent of employer abuses in the jobless benefits system.

Some observers see false testimony and other misconduct by businesses as isolated incidents. But a number of employee advocates argue that companies and the third-party agencies that represent them in unemployment-claims matters regularly act in bad faith and can do so with impunity.

Monica Halas, an attorney with nonprofit advocacy group Greater Boston Legal Services, says firms in Massachusetts can flout a law against lying in unemployment matters. "There’s no enforcement against employers for perjury at hearings or in the process," she says.

The controversy over alleged bad behavior by companies comes against a backdrop of data showing that employers have grown more aggressive in challenging unemployment benefit claims in recent years. The greater willingness to fight claims by ex-employees has likely limited corporate taxes, but risks harming company reputations and exacerbating the recession.

Unemployment insurance is designed to provide temporary financial assistance to workers who lose their jobs through no fault of their own. Cheating is a potential problem on the part of both employers and employees. In 2007, for example, government officials found that roughly $387 million in fraudulent overpayments went to claimants. Some $32.4 billion in benefits was paid out overall in 2007.

The Labor Department does not collect data on the amount of employer fraud leading to underpayments of benefits. The closest it comes is to assign responsibility for underpayments to the various players in the unemployment system: state agencies, employers, employees and third parties. Employers can be deemed responsible for erroneous underpayments for such things as providing inadequate information or failing to respond to state officials in a timely fashion. The Labor Department estimates that in 2007, employers were responsible for $78 million of a total of nearly $211 million in underpayments.

Federal officials ought to do more to study the extent of employer misconduct in the unemployment insurance system, says Andrew Stettner, deputy director of the National Employment Law Project advocacy group. "It’s been very one-sided under the Bush administration," he says.

Coleman Walsh, chief administrative law judge at the Virginia Employment Commission, sees both employees and employers generally acting in good faith in appealing unemployment decisions.

"For the most part, neither claimants nor employers are filing frivolous appeals," Walsh says. "In the vast majority of cases there appears to be a legitimate dispute over what happened that caused the individual employee to be discharged."

In California, employers or their agents who willfully make a false statement to prevent payment or "fail to report a material fact about a former employee’s separation from work" can be hit with a fine of two to 10 times a claimant’s weekly benefit amount. The number of false-statement penalties has fluctuated in the past decade, from as few as nine fines in 2006 to as many as 223 in 2001.

California’s data suggest, though, that the number of companies tagged with fines jumps during a recession. The figures for 1998-2000 were no higher than 184. And like the spike in 2001, the number of penalties in 2008 leaped to 118 from 17 in 2007.

Some worker advocates say third-party outsourcers that handle unemployment-claims tasks are particularly prone to questionable protests. Tova Perlmutter, executive director of the Detroit-based Sugar Law Center for Economic and Social Justice, says she used to work in human resources in a bank that used the services of an outsourcer. Its strategy seemed to be to contest benefits every time and "see what sticks to the wall," Perlmutter says.

Because outsourcers don’t have to worry about the effect of their actions on the employer’s reputation, "they have less incentive to be judicious," she says.

But outsourcers have reputations to protect as well, says Doug Holmes, president of trade group UWC-Strategic Services on Unemployment & Workers’ Compensation. Among the board members of UWC is an official from Talx, one of the largest third-party groups providing unemployment-claims administration.

"Are there companies out there that are abusing the system? There probably are," Holmes says. "Is it something that’s industrywide? I really haven’t seen it."

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