Is Your Company Unknowingly Committing Unemployment Fraud?

Has your company ever agreed not to contest the unemployment benefits of a departing employee as part of a separation agreement? Or, has your company ever classified a voluntary quit as something different so that the employee can collect unemployment benefits? If so, you and your company could be in violation of the law and subject to civil and criminal penalties.

In 2011, the federal government amended the Trade Adjustment Assistance Act to require states to enact "unemployment insurance integrity" legislation in an effort to fight against unemployment fraud.  As a result, the Michigan legislature passed Public Act 143 of 2013, which was signed into law by Governor Snyder on October 29, 2013.  The legislation amended the Employment Security Act ("Act") by enhancing civil and criminal penalties for willful and knowing violations of the Act and imposing fines for failing to comply with the Act's reporting requirements.

In Michigan, unemployment fraud occurs when a claimant or employer conceals or misrepresents any eligibility information that can affect benefits paid.

While Michigan has long prohibited employers from filing inaccurate reports with the Unemployment Insurance Agency ("UIA"), the recent federal efforts to curb unemployment fraud increase the likelihood that enforcement will become a higher priority. Current efforts to uncover unemployment fraud include: auditing employer records, comparing benefit claims to payroll records in Michigan and other states, exchange of information between agencies, complaints from employers and tips from the public.

If an employer is found to have intentionally or knowingly violated the Act, penalties may include repayment of the amount obtained as a result of the fraud plus damages equal to three times that amount.  Criminal penalties for intentional violations include: (i) up to one year imprisonment for amounts up to $25,000; (ii) up to two years imprisonment for amounts between $25,000 and $100,000; and (iii) up to five years imprisonment for amounts over $100,000.  Knowing violations of the law include: (i) up to one year imprisonment for amounts up to $100,000; and (ii) up to two years imprisonment for amounts over $100,000. 

When entering into a formal or informal separation agreement with a departing employee, employers should avoid negotiating the stated reason for the employee's termination or the employer's response to information requests from the UIA in an effort to allow the employee to collect benefits.  Employers who receive requests from the UIA should always provide truthful and accurate responses to avoid civil and criminal penalties and timely and complete responses or risk being assessed fines.

If you have any questions about unemployment insurance, you may contact Brian Shekell at (313) 965-8803 or bshekell@clarkhill.com, or another member of the Labor and Employment Practice Group.