Asked and Answered . . .


Jennifer Lord on unemployment fraud

A few years ago the State of Michigan switched to an automated unemployment claims processing system called the Michigan Integrated Data Automated System (MiDAS). After instituting the new system, fraud claims increased dramatically. But many people say they’ve been falsely accused and that the appeals system is broken. On May 10, Judge Cynthia Diane Stephens denied the Unemployment Insurance Agency’s motion to dismiss a class action challenging the unlawful seizure of unemployment claimants’ tax refunds and wage garnishments. Jennifer Lord is a partner at Pitt McGehee Palmers & Rivers. Her practice specializes in race, sex, gender, disability, age, whistleblower, breach of contract, class actions, and Family and Medical Leave Act claims. She is a member of the National Employment Lawyers Association, Michigan Employment Lawyers Association, Michigan Association for Justice and the State of Michigan Labor and Employment Law section.

Thorpe: Give us a quick snapshot of how this situation developed.

This situation started getting out of control in 2013 after the Unemployment Insurance Agency (UIA) laid off about 400 employees and purchased a computer system called MiDAS (good name, right?). MiDAS took over the functions that UIA employees used to perform, including determining when a claimant obtained benefits fraudulently. The computer also automatically assesses a quadruple penalty and interest on claimants “adjudicated” guilty of fraud. MiDAS then interfaces with the State and Federal Treasuries, enabling it to seize tax refunds and garnish wages of alleged fraudsters.

The problem is that the computer is wrong more often that it is right. In fact, the Michigan Auditor General performed an audit in February 2016 and found that MiDAS incorrectly determined that claimants had committed fraud 92 percent of the time. Some golden touch. There are approximately 50,000 Michiganders impacted by this computer generated nightmare.

Thorpe: How are you involved?

Our firm became involved when we saw a huge surge of our clients being accused of fraud. We represent employees in wrongful discharge and discrimination litigation. So we were in a natural position to see this problem as it unfolded. We researched public records and talked to our clients. Once we determined that this was not some innocent mistake or something that could be readily corrected, we filed a class action complaint in the Michigan Court of Claims.

The lawsuit alleges that the UIA has a pattern, practice, and policy of depriving claimants of their property without due process of law. And there really is no due process where MiDAS is concerned. Claimants often do not even receive notice that they have been accused of fraud until their tax refunds have been seized or their wages garnished. Then they are told that it is too late to appeal a determination that they never even received. The goal of the lawsuit is to stop these unlawful practices and refund the tens of millions of dollars that have been improperly seized.

Thorpe: Legislators are now also involved. Tell us about that.

Just as our firm was inundated with calls from clients whose property was seized, legislators also saw a huge uptick in calls from their constituents. The state house is currently considering a legislative fix. It is an important and necessary fix. Unfortunately, legislation can only address the problem going forward. It takes a lawsuit like our class action to make these victims whole.

Thorpe: What does Judge Stephens’ order mean for the two sides?

On May 10, 2016, Judge Cynthia Stephens issued an order denying the UIA’s motion to dismiss our class action. The UIA argued, among other things, that it was protected by governmental immunity and that the claimants had not been “harmed” because the UIA’s actions were authorized by the unemployment statute. The Judge’s ruling means that we can move forward with the case.

Thorpe: This seems like a case of technology run amok without human oversight. Are the laws lagging behind in addressing what has been called “robo-adjudication” of cases like this?

This really is a case of technology run amok. There are simply certain tasks that computers cannot perform. A computer cannot exercise discretion, weigh evidence, or determine credibility. The decision to use a computer to do something that only a judge or jury should be doing demonstrated a massive lack of judgment.
Unfortunately the robo-adjudication model is being used more and more frequently across the state and nation. I hope that this case brings awareness to the dangers of ceding too much power to computers. Yes computers are helpful to flag potential problems. But they cannot and should not be the sole determiner of guilt.

Thorpe: What’s next in this process?

What happens next is that we will take depositions of UIA officials and obtain documents to learn why and how this massive problem occurred. We will also learn when the UIA realized that MiDAS had gone out of control and why no one stopped it.

We will identify everyone who was harmed and exactly how much the UIA took from them. We know that the penalties and interest fund contains more than $68 million of seized dollars. Finally, the Judge’s opinion means that the thousands of victims will finally have their day in Court.