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Michigan Unemployment Agency to Crack Down on Agreements Not to Contest Unemployment Claims

Posted on January 6th, 2014

Historically, it wasn’t uncommon for there to be “handshake deals” or a wink and a nod between an employer and employee being terminated, with the understanding that (perhaps as part of a severance package) the employer agreed not to contest the terminated employee’s unemployment claim.

But with updates to both federal code and Michigan law alike, this should be coming to an end. While such private deals have long been technically illegal, an amendment to Michigan’s Unemployment Insurance Law means such fraud will now be more aggressively prosecuted.

Specifically, recent changes to both the Federal Trade Adjustment Assistance Extension Act of 2011 and a package of amendments to Michigan’s Unemployment Insurance law recently signed by Governor Snyder will have an impact on employers who agree to “look the other way.” The federal law includes “UI integrity” provisions, and the amended state law adopts those provisions.

Employers must now provide a complete and timely response to the state agency’s very first request for information about an unemployment claim, or potentially face consequences, including civil fines and penalties, as well as losing credit for the payment of unemployment insurance benefits that are later overturned or otherwise paid in error.

For a detailed FAQ that provides information on what is considered employer fraud by Michigan’s unemployment agency, please click here.

Consequences for Non-Compliance

Employers who commit unemployment fraud can face criminal prosecution and severe penalties, such as the following:

Intentional Failure to Comply

  • Damages of three times the amount fraudulently obtained;
  • For amounts less than $25,000, one year imprisonment, community service of up to one year, or a combination of both;
  • For amounts of $25,000 to $100,000, up to two years imprisonment or two years community service, or combination of both;
  • For amounts over $100,000, up to five years imprisonment or community service of same length, or combination of both.

Knowing Violation of the Law

  • Repayment of the amount and damages of up to three times that amount;
  • For amounts $100,000 or less, one year imprisonment or one year community service, or combination of both;
  • For amounts greater than $100,000 or above, up to two years imprisonment or two years of community service, or combination of both.

Our Recommendation

We strongly urge employers to educate themselves regarding these changes to the law, and to ensure full compliance to avoid harsh penalties. In addition, we remind employers about what the law states relative to severance and unemployment:

  • Employers cannot agree to ignore initial unemployment claim notices or provide inaccurate or misleading information about the reasons for an employee’s separation.
  • Employers should revise their separation/settlement agreements and remove or revise any language relative to not contesting unemployment benefits.
  • Employers should train their managers to refrain from making verbal or written promises not to contest unemployment benefits, or making any specific commitments regarding how the company will respond to initial requests for information from Michigan’s unemployment office.
  • Employers should craft clear language in an employee’s separation or settlement agreement stating how the employer will respond to initial requests for information from unemployment offices.
  • Such separation agreements should also include the precise reasons for the employee’s separation.
  • Managers and HR professionals should be reminded to consult immediately with legal counsel upon receiving an initial unemployment insurance information request regarding any employee with a written separation or settlement agreement.

As with any compliance matter, we understand that there can be questions you may have, or clarifications we can make. Should you wish to discuss this with a member of your CoStaff team, please do not hesitate to contact us.