SD4 - Executive Summary Pursuant to Senate Joint Resolution 16 (2012): Conforming Provisions of the Virginia Unemployment Compensation Act to Requirements of the Trade Adjustment Assistance Extension Act of 2011

    Executive Summary:
    Note: This executive summary of the Commission on Unemployment Compensation's work pursuant to Senate Joint Resolution 16 of the 2012 Session is submitted in lieu of a final report.

    In addition to this executive summary, the Commission on Unemployment Compensation has prepared an executive summary pursuant to § 30-224 of the Code of Virginia that addresses its other interim activities and work.


    The Commission on Unemployment Compensation (UC Commission) is established by Chapter 33 (§ 30-218 et seq.) of Title 30 of the Code of Virginia. The UC Commission is charged with evaluating the impact of existing statutes and proposed legislation on unemployment compensation and the unemployment trust fund; assessing the Commonwealth's unemployment compensation program and examining ways to enhance effectiveness; and monitoring the current status and long-term projections for the unemployment trust fund. The UC Commission's members are Senators John Watkins, Donald McEachin, and Frank Wagner and Delegates Bob Purkey, Lionell Spruill, Lee Ware, Joseph Morrissey, and Kathy Byron. Senator Watkins chairs the UC Commission, and Delegate Purkey is its vice chairman.

    The primary focus of the UC Commission's work over the 2012 interim has been the conduct of a study pursuant to Senate Joint Resolution (SJR) 16 of the 2012 Session, which was patroned by Senator Watkins. SJR 16 directs the UC Commission to study conforming provisions of the Virginia Unemployment Compensation Act to requirements of the Trade Adjustment Assistance Extension Act of 2011, P.L. 112-40 (TAAEA). In conducting its study, the UC Commission was directed to (i) recommend appropriate revisions to Title 60.2 of the Code of Virginia to ensure conformity of the Commonwealth's program with applicable federal law; (ii) ascertain the affects of such changes on the unemployment trust fund, employers, and claimants; and (iii) consider input from relevant stakeholders. SJR 16 provides that technical assistance shall be provided by the Virginia Employment Commission (VEC).


    The UC Commission was briefed on the relevant provisions of the TAAEA at its meeting on August 20, 2012. The TAAEA is Title II of H.R. 2832, the primary purpose of which was to extend the Generalized System of Preferences (GSP). The GSP provides duty-free trade preferences to products imported from developing countries. The portions of the TAAEA that prompted the introduction of SJR 16 are set out in Sections 251, 252, and 253 of Part I of Subtitle C of the Act. These provisions are intended to improve the financial state of the unemployment compensation system by improving its integrity and reducing improper payments. The UC Commission also received testimony regarding existing Virginia statutes and legislation enacted in other states in response to the TAAEA's program integrity provisions.

    Conforming the Commonwealth's unemployment laws to federal requirements will prevent the imposition of sanctions. If a state's unemployment compensation program is found not to conform to requirements of federal law, the state's employers will lose the 90 percent credit against employers' FUTA liability. A loss of the FUTA credit will increase the annual FUTA liability for each employee from $42 to $420. In addition, the state risks the loss of federal funding for the administration of its unemployment program.

    Three program integrity provisions of the TAAEA raise conformity concerns:

    1. Section 251: Mandatory Penalty for Fraudulent Claims

    Section 251 amends Section 303(a) of the Social Security Act to prohibit the Secretary from certifying a state for grants for unemployment compensation unless such state has a law that provides for assessment of a penalty for fraudulent claims made by an individual for unemployment compensation.

    As a condition of receiving a federal grant to administer its UC law, a state that has determined that an improper payment from its unemployment fund was made to an individual due to fraud committed by such individual is required to assess a monetary penalty of not less than 15 percent of the amount of the erroneous payment against that individual. The 15 percent penalty amount is the minimum amount required; states may impose a greater penalty.

    States are required immediately to deposit receipts of the federally-mandated penalty amounts into the state's unemployment fund. The penalties apply to overpayments of both the state unemployment benefits and benefits that are paid by the federal government, such as trade adjustment benefits and extensions of UI benefits. Notices advising claimants of these overpayments must include, along with the claimant’s appeal rights, the penalty amount and an explanation of the reason for the overpayment and the reason the penalty has been applied. The penalties are mandatory for any fraudulent payments established after October 21, 2013. States may opt to apply the penalty to fraudulent payments established earlier than this date.

    2. Section 252: Noncharging when Employer at Fault

    Section 252 amends the Internal Revenue Code to provide that a state law satisfies requirements with respect to the allowance of a federal unemployment tax (FUTA) credit to an employer only if the law provides that an employer's unemployment compensation account will not be relieved of charges relating to a payment from the state unemployment fund if (i) that payment was made because the employer (or agent) was at fault for failing to respond timely to a state agency request for information regarding an unemployment compensation claim, and (ii) the employer or agent has established a pattern of failing to respond timely or adequately to such requests.

    States are provided some latitude in implementing the new requirement, including what constitutes timely and adequate information and what constitutes a pattern. The timeliness and adequacy of responses from the employer or agent must be based on an initial written request for information relating to a claim for compensation. States will also apply the prohibition of noncharging provision to any other requests for information required for the establishment of a claim for unemployment compensation in addition to separation information, if the employer is potentially chargeable for the overpaid benefits in question.

    3. Section 253: Reporting of Rehired Employees to the Directory of New Hires

    Section 253 amends the Social Security Act to require each employer to report to a state directory of new hires certain information on employees the employer has rehired after at least a 60-day separation. This section is expected to enhance a state's ability to detect and prevent overpayments when states conduct cross-matches with their state directory of new hires.

    This provision expands the scope of individuals reported to the state directory of new hires by specifically defining a "newly hired employee" as an employee who "has not previously been employed by the employer" or who "was previously employed by the employer but has been separated from such prior employment for at least 60 consecutive days." Newly hired employees meeting either of these terms must be reported to the state directory of new hires.

    Under Section 253(b), the new definition is effective six months following the date of the enactment, April 21, 2012. However, if a state must amend its law in order for the State Plan for Child and Spousal Support required to meet the requirements imposed by this new definition, a state will not be deemed to have failed to meet these requirements until the first day of the second calendar quarter that follows the close of the first regular session of the state legislature that begins after the effective date of the amendment.

    The Virginia New Hire Reporting Center is operated under the authority of the Division of Child Support Enforcement of the Department of Social Services. Currently, employing units are required to report the initial employment of any person within 20 days of his employment. The federal Department of Health and Human Services has notified the Division that the Virginia statute does not comply with Section 253 of the TAAEA.


    In response to the UC Commission's request that legislation to address TAAEA nonconformity be developed and shared with interested stakeholders, the VEC convened a work group that met on September 28, October 23, and November 13, 2012. The recommendations of the work group were shared at a meeting of stakeholders on November 28, 2012. The work group, which was led by VEC Chief Administrative Law Judge W. Coleman Walsh, Jr., included LaTonya Reed of the Virginia Poverty Law Center, Marty Wegbreit of the Central Virginia Legal Aid Society, Pat Levy-Lavelle of the Legal Aid Justice Center, Keith Martin of the Virginia Chamber of Commerce, T.J. Smith of Huntington Ingalls-Newport News Shipbuilding, and Nicole Riley of the National Federation of Small Businesses. Alice Burlinson of the Office of the Attorney General and Cindy Coyner of the Department of Social Services also assisted the work group with regard to the development of recommendations regarding the state directory of new hires.

    A. Penalty for Fraudulent Claims

    TAAEA requires states to impose a 15 percent penalty on fraudulent claims and specifies that all penalties collected must be deposited in the state's unemployment trust fund. States have the option of imposing a penalty that is greater than 15 percent, and have the option of depositing penalties collected that exceed the minimum 15 percent in other funds.

    Currently, subdivision 4 of § 60.2-618 of the Code of Virginia provides a 52-week disqualification for any individual who obtained or sought to obtain benefits through false statements or misrepresentations. In addition, overpayments resulting from frauds must be repaid in full before the individual would ever be eligible for benefits again.

    The work group agreed that the imposition of a 15 percent penalty as required in order to comply with TAAEA was appropriate. In the course of its discussions, Ms. Reed proposed amending subdivision 4 of § 60.2-618 to allow an individual who received benefits as a result of fraud to be eligible for benefits after the 52-week disqualification period, in order to allow the overpayment of benefits to be recovered by the VEC through offsetting the uncollected overpayment against the benefits. Such an amendment would give the VEC a new way of collecting some fraudulent overpayments that under current law it may never recoup. Members of the work group did not express concerns with the proposal. However, such a change is beyond the scope of the directive of SJR 16 to propose conforming amendments. Consequently, the work group agreed that the UC Commission should be presented with alternate versions of the fraud penalty legislation, one including only the changes necessary to conform to the TAAEA and the other with those changes plus the elimination of the requirement that fraudulently-obtained benefits be repaid as a condition to future benefit eligibility.

    B. Prohibition on Noncharging of Overpayments

    Section 251 of the TAAEA is intended to address a situation where employers fail to provide timely or adequate information when requested by a state's unemployment agency. The lack of adequate information from an employer may lead the state to award benefits to a claimant. Thereafter, the employer would file an appeal of the award of benefits and obtain a reversal of the award. The reversal on appeal would create an overpayment. In addition, the reversal would relieve the employer's tax account of any benefit charges associated with the award, despite the fact that the employer had either failed to respond to the agency's initial request for information or provided inadequate information. Such a situation adversely affects the solvency of the trust fund because the overpayments are not fully recovered and the employer's tax account has been relieved of the benefit charges.

    The TAAEA addresses this situation by prohibiting states from relieving an employer's account of benefit charges if two conditions are met. First, the employer or its agent must have failed to respond promptly to a request by the agency for information or failed to provide adequate information when requested by the agency. Second, the employer or its agent must have an established pattern of failing to respond promptly or failing to provide adequate information when requested. The VEC noted that this provision has the potential to increase its workload by as much as 1,500 additional cases annually by introducing a new issue for which appeal rights must be afforded. The TAAEA allows states a great deal of latitude with regard to several aspects of compliance with this provision, such as defining what constitutes a pattern of not responding and what constitutes an inadequate response.

    The VEC floated a proposal for consideration by the work group. Elements of the concept, described as the "four by four" proposal, included:

    • An employer (or its agent) would have a pattern of non-responsiveness if it failed to respond, or responded adequately, to the agency's request for information four times in a four-year period.

    • For purposes of establishing a pattern, the VEC would look at the four-year period that the agency uses in computing employer tax rates each year. Tax rates are based on the benefit charges to an employer's tax account during the four-year period ending on the June 30 preceding the start of the calendar year in which the tax rate applies.

    • The agency will provide employers a warning letter on the first three occurrences of a failure to respond or respond adequately. On the third occurrence, the employer would be assessed a $75 civil penalty, which is the amount of the penalty for late filing of a quarterly tax report. Upon the fourth occurrence in the specified four-year period, the benefit charge would not be removed for that occurrence or subsequences in the same four years.

    • The measure will include a good cause provision exculpating employers who show that their failure to respond or respond adequately, was due to a substantial and compelling reason beyond the employer's control.

    • Chargeability would be an issue on appeal before the Appeals Examiner in every case where the liable employer filed an appeal from an award of benefits, and the Appeals Examiner's ruling on chargeability would be subject to appeal in the same fashion as any other appeal from a decision issued by an Appeals Examiner.

    The work group's proposal to implement the four-by-four concept provides that a response is timely if it is within 10 calendar days from delivery or mailing of the request and creates a rebuttable presumption that information is adequate if the employer fully answered all questions on request or participated in the fact-finding interview. The VEC would be barred from finding that an employer has established a pattern of failing to timely or adequately respond unless it has provided the required warning notices.

    While members were responsive to the concept, some large employers were concerned that four failures would be a small percentage of the total number of claims in which they were involved, and they asked that the group consider using a percentage of claims to trigger the noncharging decision. After consideration of such an alternative and the additional administrative burdens it would entail, the work group reached a consensus that the four-by-four approach would be acceptable if it included adequate safeguards, such as a provisions clarifying that only the failure to provide information that is material to the proceeding would count as an inadequate response.

    C. New Hire Reporting

    Federal law requires employers to report their newly hired employees to the state directory of new hires within 20 days of their hiring. The Virginia Directory of New Hires is maintained by the Division of Child Support Enforcement in the Department of Social Services. While the primary purpose of the reporting requirement is to enhance the enforcement of child support obligations, information about new hires is accessed by state employment agencies to determine if an individual receiving unemployment benefits has gained employment. As such, the directory is an important tool for controlling unemployment benefit overpayments.

    Section 253 of the TAAEA requires each state's definition of a new hire to include an employee who was previously employed by the employer but that has been separated from such prior employment for at least 60 consecutive days. The measure includes a provision, recommended by the Department, that addresses the Division of Child Support Enforcement's use, disclosure of, and access to information. Staff, the Department of Social Services, and the Office of the Attorney General developed a proposal that expands the definition as required by the TAAEA and makes a number of clarifying and technical adjustments.


    At its meeting on December 4, 2012, the UC Commission received information regarding the effort of the work group and made the following recommendations:

    1. Penalty for Fraudulent Claims

    The work group presented two versions of legislation assessing on any person who is disqualified for unemployment benefits as a result of a fraudulent act or omission a penalty of 15 percent of the amount of any unemployment benefits received for which he was not entitled. The bills differed with respect to whether persons who had been found by the VEC to have obtained a benefit as a result of a fraudulent act or omission would, after the 52-week period of total disqualification, be ineligible for future unemployment benefits until he has repaid the sum that was fraudulently obtained. After much discussion, the UC Commission endorsed the version that would allow individuals (after the 52-week period of disqualification) to be eligible for future benefits, thereby allowing the VEC to recover the fraudulently-obtained benefits by offsetting against unemployment benefits. Members noted that if this approach is shown not to work as intended, they will revisit the issue.

    The UC Commission endorsed this recommendation. It also endorsed combining this recommendation with the recommendation on the prohibition on the noncharging of certain overpayments into a single bill.

    2. Prohibition on Noncharging of Overpayments

    Mr. Walsh provided the UC Commission with an overview of the four-by-four approach that had been endorsed by the work group. He noted that the legislation includes an enactment clause requiring the VEC to monitor its effectiveness and to report to the UC Commission in July 2015 on issues related to the implementation of the program.

    The VEC responded affirmatively to a question posed by Delegate Ware regarding whether any employers would have been found to have failed to respond timely or adequately to a request for information about a claim for benefits. The VEC observed that it conducted a random review of appeals examiner decisions and examined cases where an initial determination of eligibility was overturned. The review found that in 58 percent of the cases where the employer prevailed on appeal, the employer had not responded or had not participated in the initial hearing.

    The UC Commission endorsed the legislation as presented.

    3. New Hire Reporting

    Staff presented a recommendation developed with the assistance of the Office of the Attorney General and Department of Social Services for addressing the requirement of Section 253 of the TAAEA regarding the duty to report the rehiring of employees after a separation of at least 60 days.

    The UC Commission endorsed the legislation as presented.


    The UC Commission greatly appreciates the expertise provided by Commissioner John Broadway and the VEC, as well as the valuable contributions of each member of the work group.

    Materials from the UC Commission's meetings in the 2012 interim may be found on the UC Commission's website at