Employers Beware: Unemployment Compensation Fraud Runs Rampant

With the broad expansion of unemployment benefits during the pandemic, and states racing to get them distributed, fraud was a concern from the outset. And, sure enough, states and federal entities are reporting significantly increased instances of fraudulent claims for unemployment benefits.

The CARES Act expanded unemployment benefits for individuals affected by the COVID-19 pandemic in several significant ways: (1) the number of weeks individuals are able to collect unemployment benefits increased from 26 weeks to 39 weeks; (2) an individual’s weekly benefit rose by $600 through the end of July 2020; and (3) certain otherwise ineligible individuals became eligible for benefits, such as independent contractors and the self-employed. With these enhancements, it appears, comes the temptation to claim benefits fraudulently. 

The FBI recently issued a press release warning that criminals are using stolen identities to submit fraudulent unemployment claims. Indeed, across a number of states, employers report receiving notifications of claims for unemployment benefits filed in the name of individuals who remain employed or employees who left the organization or retired years ago. For example, Pennsylvania’s Secretary of the Department of Labor and Industry (DLI) announced that more than 4,000 cases of fraud had been uncovered and that, in cooperation with the U.S. Attorney’s Office, the DLI had prevented $44 million in fraudulently requested benefits from reaching the thieves who had filed the claims. In Maryland, Governor Larry Hogan reported that 47,000 fraudulent claims worth half a billion dollars had been uncovered.

In addition to these type of fraudulent unemployment claims, employers have reported fraudulent claims filed by former employees who have not been employed by their organizations for years, including many who retired or resigned.

Individuals should exercise caution to protect against identity theft and pay careful attention to correspondence they receive related to unemployment benefits, especially if they have not applied for those benefits. Employers should be vigilant in checking their unemployment reports (or advising their third party unemployment claims administrators to do so), to guard against fraudulent claims linked to their unemployment accounts.

The U.S. Department of Labor’s webpage addressing unemployment fraud can be found here and provides employers with resources on how to report unemployment fraud in each state.

Ballard Spahr’s Labor and Employment attorneys are well-versed on the unemployment benefits provisions of the CARES Act and state law and can assist with assessing potential fraud. Please contact us if we can assist.

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