When an individual loses their job for no fault, they are eligible for unemployment benefits. Many people rely on these payments to cover basic needs. However, fraud threatens the integrity of the system. People who submit false claims or misrepresent information take away from those who genuinely qualify. Fraudulent activities cause significant losses and undermine people’s trust in these benefits. Prosecutors and law enforcement aggressively prosecute unemployment insurance fraud. Offenders may have their future benefits canceled by authorities over and above the legal penalties of a conviction.

If you are accused of unemployment insurance fraud, you need an experienced legal defense attorney. At Monterey Criminal Attorney, we will evaluate the evidence and determine the appropriate defense strategy to challenge the prosecution’s case and defend your rights. Contact us for assistance. Let us first look at unemployment insurance fraud in detail.

Overview of Unemployment Insurance

Unemployment insurance (UI) provides crucial help to workers in the country who have lost their jobs, through no fault of their own, due to layoffs, business closings, or loss of hours. Unemployment insurance, also known as unemployment benefits, is a financial benefit that provides monetary support and aids the unemployed in meeting their basic expenses like food, rent, and other utilities. This help remains in place while the individual actively seeks new employment. This program also helps stabilize the economy during downturns by continuing to spend.

Unemployment insurance operates as a partnership between the federal and state governments. It was established in the Social Security Act of 1935. The federal government establishes broad guidelines that states must follow. However, each state runs its program. They provide their eligibility guidelines, benefit amounts, and durations, all within federal limits. The Federal Unemployment Tax Act (FUTA) helps fund the cost of administration by the states, extends benefits to unemployed workers in states with high unemployment, and grants that the states can borrow from a federal trust fund when needed. Regulations in Title 20 of the Code of Federal Regulations require adequate protection of individuals to be reasonably uniform but allow states to tailor their provisions to their own needs.

The UI program in California is administered by the State Employment Development Department, which operates under federal and state law. Established in 1935, it only operates on employer contributions to the state’s UI Trust Fund. Workers who lose their jobs because of layoffs or their employer reducing their hours can receive benefits without having contributed directly first.

To get UI in California, claimants must meet specific requirements, namely:

  • Have an earning history — To qualify for unemployment benefits, applicants must have earned enough wages in the base period. The period under consideration is the first four of the last five completed calendar quarters. Moreover, they must have been unemployed through no fault of their own. Being made to work part-time from full-time counts as partial unemployment. Eligibility begins after the job separation.
  • Availability and job search — Applicants must be physically and mentally able to work. They must be available for immediate work and must be actively seeking work. They must report to the state about their job search status every two weeks.
  • Special case — People who quit or were fired may qualify under certain conditions, including unsafe work environments or being fired for reasons where no misconduct was evident. The Employment Development Department (EDD) evaluates these cases individually.

UI benefits could be as low as $40 or as high as $450, depending on your previous earnings. It takes three weeks from the initial application to when the first payment is issued. Standard unemployment insurance benefits allow workers to collect up to 26 weeks of pay. However, this may be extended by the federal government or a state government department should there be a recession. If the unemployment rate is high, you may receive an additional 13 or 20 weeks of Extended Benefits (EB).

One feature that is only available in California is the California Training Benefits (CTB) program. This allows beneficiaries to attend school or learn a trade while receiving benefits. This program assists employees in upgrading their skills for better jobs.

The U.S. Department of Labor verifies each state’s employment law to ensure that the state UI programs meet federal minimum standards. Key requirements include:

  • Timely payments — States must issue payments when due to ensure prompt payments to eligible claimants.
  • Coverage standards — UI benefits must be available to workers who lose jobs through no fault of their own, though specific eligibility rules vary by state.
  • Extended benefits — States participate in the EB program, which provides further UI assistance when unemployment levels are high. Further, the costs are shared or fully funded by the federal government.
  • Interstate coordination — The Interstate Benefit Payment Plan allows workers with wages in multiple states to combine their wages for UI.

California follows federal rules but adapts its program to its economic circumstances.

The issue of funding is key for unemployment insurance. California’s Unemployment Insurance Trust Fund is funded through employer contributions. California has made tax rates contingent on an employer’s layoff history. The federal FUTA tax further supports state UI operations. However, the state has had long-term financial woes since the COVID-19 pandemic began. Because California heavily borrows from the federal government, the projected debt is estimated to reach $22.9 billion by 2026, increasing FUTA tax rates for employers. This increases business costs that could affect hiring and wage decisions.

Federal assistance during economic crises is a key stabilizer of the UI system. Programs like Pandemic Unemployment Assistance (PUA) and Federal Pandemic Unemployment Compensation (FPUC) expanded unemployment insurance benefits for gig workers, while the latter supplemented UI benefits in response to COVID-19 with an extra $600 per week. Even though these programs stopped in 2021, they showed how the federal government could help states during tough times.

What is Unemployment Insurance Fraud?

Fraud in unemployment insurance schemes refers to deception by people or businesses that involves submitting false or incomplete information to collect benefits. California’s weekly unemployment insurance benefits system is an appealing target for fraud, especially during economic downturns.

Fraudulent unemployment insurance claims soared during the COVID-19 pandemic, with California alone losing billions of dollars. Many fraudsters took advantage of the emergency relief set up to support workers during the crisis. This made it the most significant fraud period for unemployment benefits in history.

A Nigerian national who submitted more than 1700 fraudulent claims in over 25 states, including Washington State, perpetrated one of the most well-known and infamous instances of UI fraud. The accused fraudulently pocketed $2.7 million, though the value of the claims sought was $25 million. Investigations into other similar cases are currently ongoing.

California police confirmed elaborate schemes of fraud. Using stolen identities, fraudsters withdrew over $900,000 from California state funds. Those who ran these schemes tended to have ties with organized crime and used sophisticated methods to exploit the system.

UI fraud investigations continue to uncover large-scale rackets with international links. Criminal groups have sometimes worked together to defraud the unemployment program on a large scale. These cases illustrate the severity of the issue while highlighting the vulnerability of unemployment benefits to abuse.

Common Types of Unemployment Insurance Fraud

Both employers and employees can violate unemployment insurance laws. However, these laws also affect people who are neither employers nor employees but commit unemployment insurance fraud. When this happens, it disrupts the system administered by the Employment Development Department.

Some of the common violations include the following:

Employer Violations

Employers commit unemployment insurance fraud in the following ways:

  • Providing false information about an employee’s firing — If you falsely claim that an employee was terminated for misconduct but, in reality, they were laid off, you violate Unemployment Insurance Code (UIC) 2101(a). You should not give false information that affects another’s unemployment benefits. If you do this to lower your UI taxes, you could be charged with insurance fraud under Penal Code (PC) 550(a).
  • Misrepresenting employee wages — It is against Unemployment Insurance Code 2101(a) and 1086 to downgrade wages to lessen UI tax liability or limit an employee's eligibility. Because benefits depend on reported wages under UIC 1280, it is a misrepresentation that disparately impacts the employee's entitlement.
  • Withholding UI deductions without remitting to the EDD — If you fail to pay the EDD after deducting UI-related funds from your employees’ paycheck(s), you are committing a misdemeanor violation, per Unemployment Insurance Code 2116. However, if you use those funds for your benefit, you may also face embezzlement charges under Penal Code 503.
  • Reprisal against employees for filing UI claims — If you fire or discipline an employee to dissuade them from filing a UI claim, you violate Unemployment Insurance Code 1256.1 and Labor Code 98.6. This illegal act can have legal impacts, including civil penalties and wrongful termination actions.
  • Failing to register or pay UI taxes — If you do not register with the EDD or do not pay UI taxes on wages of more than $100 in a calendar quarter, you violate Unemployment Insurance Code 1088. Willful failure to do so is a misdemeanor violation under UIC 2117 and damages the UI Trust Fund, risking benefits for eligible claimants.
  • Classifying workers as independent contractors to avoid UI taxes — It is unlawful to label staff as contractors to prevent payment of unemployment insurance taxes. You must report full pay. Assembly Bill 5, Labor Code Section 2750.3, implements the ABC test to classify workers. If EDD later reclassifies your workers as employees, you could face back penalties.

Employee Violations

When, as an employee, you are accused of having committed unemployment insurance fraud, you likely engaged in the following activities:

  • Falsifying income or employment status — If you do not report everything you earn, do not report a second job, or collect benefits after you have started working full time, you are violating Unemployment Insurance Code 2101. You must be truthful. Not updating the EDD on your status change is considered fraud.
  • Using false identification — You commit UI fraud when you apply for unemployment benefits with stolen personal information. Moreover, prosecutors could charge you with a Penal Code 530.5 violation for identity theft.
  • Misreporting or concealing employment — Taking a job while drawing unemployment insurance benefits is a crime, and the EDD will lead to prosecution.
  • Submitting false documents — Criminal charges are likely If you provide fabricated or altered tax records, job histories, or other documents to obtain more UI benefits. You will face charges under Penal Code 550. Generally, this violation goes along with a breach of the Unemployment Insurance Code, which means you will be charged with both crimes.
  • Claiming benefits while employed — If you continue receiving unemployment benefits while working without reporting your income, you will likely face felony charges under Penal Code 550.
  • Exaggerating eligibility or employment status — Prosecutors will formally charge you with unemployment insurance fraud if you misrepresent your efforts to secure a job or falsely claim you were unemployed when you were not to receive benefits. This is a violation of UIC 2101.

Unemployment Insurance Fraud Penalties

If you violate California’s Unemployment Insurance Code 2101 or Penal Code § 550, you could face serious penalties depending on the nature and extent of the fraud.

Submitting False Statements to Obtain Benefits

If you knowingly provide false information or omit pertinent information to fraudulently obtain unemployment benefits, you can be charged with a misdemeanor or felony.

If found guilty, a misdemeanor may result in:

  • A jail term of up to one year
  • A fine of up to $20,000

If you are found guilty of a felony violation, you could face:

  • A prison term of 16 months, two years, or three years
  • Fines of up to $20,000

General Insurance Fraud

Penal Code 550 covers several types of insurance fraud, including unemployment fraud. Any violations of this law could result in misdemeanor or felony charges.

When the fraudulent amount is equal to or less than $950, you can be:

  • Sentenced to a maximum of six months in jail
  • Fined up to $1,000

If the fraud is more than $950 but prosecutors pursue misdemeanor charges, a conviction will result in:

  • Up to 1 year in jail
  • A fine of up to $10,000

When the fraud amount exceeds $950 or is $950 over 12 months, the prosecution could pursue felony charges. If convicted, the court could order you to pay a fine of $50,000 or double the fraud amount, whichever is higher.

Administrative Consequences of Unemployment Fraud

If found guilty of UI fraud, you will face serious administrative penalties along with criminal ones. California’s EDD imposes the following consequences:

  • Repayment of fraudulent benefits — If you fraudulently receive benefits, you must repay it all with a 30% penalty on that amount, too. For instance, if you received $10,000 in benefits you were not entitled to, you would have to pay $10,000 back plus a $3,000 penalty, or $13,000 total.
  • Loss of future benefits — If you are convicted, you may not receive any future unemployment benefits for a maximum of 23 weeks. This can make it hard to receive support after you lose a job later on.
  • Professional license consequences — If you have been found guilty of UI fraud and have a professional license, your licensing board could impose disciplinary actions. Depending on your occupation, this can result in suspension, revocation of your license, or other forms of discipline.
  • Restitution and collections — If you are ordered to pay restitution, the EDD could collect the amount owed by withholding tax refunds or reducing future benefits. Some actions can cause more financial strain on top of criminal penalties.

Defenses You Can Use to Challenge Unemployment Fraud Accusation

If you are charged with engaging in unemployment insurance (UI), there are several defenses that you can use. An attorney with experience in UI fraud cases will look closely at the facts of your situation. They will use defense strategies designed to challenge the prosecution’s evidence or prove that the crime's elements have not been established beyond a reasonable doubt.

Below are common defense strategies used in UI fraud cases.

Lack of Intent

A salient component of UI fraud is its requirement to prove that you acted with criminal intent. The prosecution must show that you knowingly and intentionally made false statements or concealed facts to obtain benefits. If you misunderstood something or made an honest mistake, your attorney can argue that there was no criminal intent.

For example, if you did not report part-time income because you did not know it affected your ability to receive benefits, your attorney could claim you had no intent to commit fraud. Your attorney will argue that you did not commit fraud because you complied with EDD rules or did not know you were supposed to report the income.

Insufficient Evidence

The prosecution is required to prove beyond a reasonable doubt that you committed UI fraud. Your attorney may challenge the evidence's sufficiency if it is weak or does not definitively connect you to the fraudulent activity. If the state lacks strong evidence demonstrating that you falsified your income or did not declare income, this could lead to the dismissal of your charges.

Mistaken Identity

Fraud cases of unemployment insurance fraud increased during the pandemic. Cases of identity theft related to UI fraud cases also increased. If your allegations could have arisen from someone using your identification to file claims, your lawyer could argue it is a case of mistaken identity. Your attitude will show that you were a victim of identity theft rather than a fraud perpetrator.

You can prove that you did not file for benefits with evidence such as:

  • Incorrect bank account numbers
  • Mismatched IP addresses
  • Employment records

Your lawyer could produce evidence of identity theft to show the filing was done by someone else and not you if your identity was stolen to make such claims.

No Material Misrepresentation

A statement or omission must be material to be classed as fraud. A case in point, it has to affect eligibility for benefits. If the statement or omission was minor or did not affect your eligibility, your attorney can argue that it is not fraud.

For example, if you made a minor entry in your job search logs that did not affect your claim, your attorney would argue that it was an insignificant error. EDD guidelines in California state that only material misstatements resulting in wrongful payment should be considered fraudulent. Based on this, your attorney can argue that the alleged misrepresentation is not fraud.

You Were Entrapped

Entrapment is a defense that you can rely on in rare cases where police or government agents entice you to commit a crime you would not ordinarily commit. An entrapment legal defense could apply if an EDD employee or law enforcement misled you into providing false information or encouraged you to make fraudulent claims.

Your attorney will show that the government officials forced or persuaded you to commit fraud to prove entrapment. If the case is built correctly, your lawyer can get the charges dismissed, or at least reduced, based on your lack of intent.

Duress or Necessity

If you committed UI fraud due to grave hardship or threats, your lawyer could argue that you did so under duress or necessity. For example, if you provided false information on your claim to stop eviction or provide immediate cash, your attorney could argue that your circumstances left you no option but to act in a way you usually would not.

Although duress or necessity might not free you from all criminal liability, it can be used to lessen the severity of the punishment. To back this up, your attorney will need to show proof, including financial hardship, a witness statement, or other evidence showing harm will come.

Statute of Limitations

California imposes a statute of limitations for bringing charges for UI fraud. Generally, felonies have a statute of limitations of 3 years, while misdemeanors carry a statute of limitations of 1 year per Penal Code Sections 801 and 802. If the prosecution brings charges after the statute of limitations has expired, your attorney can file a motion to dismiss the case.

In certain situations, the statute of limitations can be extended if the fraud was concealed or not immediately discovered. If the prosecution pursues charges after the allowed time, your attorney can argue that they are time-barred and get them thrown out.

Find a Fraud Crimes Defense Attorney Near Me

The state actively seeks to prosecute cases of unemployment insurance fraud because it causes great harm to the fund and legitimate beneficiaries. Filing a fraudulent claim drains resources meant to help those in need. Due to the substantial losses caused by these fraudulent claims, prosecutors, police officers, and other investigators are aggressive when pursuing UI fraud cases.

Being accused of unemployment insurance fraud could mean facing harsh penalties. You need a strong defense to protect your rights. At Monterey Criminal Attorney, we can effectively challenge those allegations. Our team will closely look at the evidence and fight to get you a fair outcome. Contact us at 831-574-1791 today to discuss your case.