Software Firms Sued Over Mich. Jobless System

DETROIT (CN) – The Michigan unemployment agency’s “robo-adjudication” program falsely accused tens of thousands of unemployment claimants of fraud, a class claims in a federal lawsuit.

The Michigan Unemployment Insurance Agency’s automated system, known as the Michigan Integrated Data Automated System, or MiDAS, was implemented in 2013 at a cost of $47 million.

It caused an immediate spike in adjudications of fraud, but it turns out the spike was not a result of catching more people committing unemployment fraud.

A state review released in December found that from October 2013 to August 2015 the system wrongly accused at least 20,000 claimants of fraud, a staggeringly high error rate of 93 percent.

These people lost access to unemployment benefits, and in extreme cases, were issued fines of up to $100,000. Some had their federal and state taxes garnished based on the faulty accusations.

Three wrongly accused claimants sued the software companies that designed the now-discontinued system in Detroit federal court on Thursday – SAS Inc., FAST Enterprises, and Consumer Government Services.

Lead plaintiff Patti Jo Cahoo says she received a form letter issued by the system when it found a discrepancy between the record submitted by her employer and information she reported when applying for benefits.

The letter asked, “Did you intentionally provide false information to obtain benefits you were not entitled to receive?” and second, “Why did you believe you were entitled to benefits?”

The second question provides a list of responses, including “I needed the money,” “I did not understand how to report my earnings or separation reason,” and “Someone else certified (reported) for me.” (Parentheses in original.)

But none of these given responses are a valid reason for claiming unemployment benefits.

“The form does not provide an option for claimants to state that they believe they are legitimately entitled to unemployment benefits and have reported their information in good faith,” according to the complaint. “In order to give such an answer a claimant must write in their response under the ‘other’ section of the form.”

The lawsuit further states, “The document does not provide the claimant with notice of what the discrepancy actually is, making it nearly impossible for a claimant to formulate a proper response to the charge of misrepresentation.”

If a claimant did not respond to this letter within 10 days, the system automatically deemed the claimant to have knowingly defrauded the unemployment office, without review by an agency employee, and issued a letter demanding repayment of the benefits plus penalties, according to the complaint.

Michigan says 2,571 individuals have been repaid a total of $5.4 million after they were cleared of wrongdoing, but this is only a small percent of the amount of money collected during the system’s two-year period of operation.

As of September 30, 2016, the state unemployment agency’s contingent fund was $155 million, a major leap from a balance of $3.1 million in 2011.

The fund is now so well-provided that the Republican-led Legislature passed a bill in December to withdraw $10 million in surplus money from the fund to balance the state’s budget.

“This system and software, including its design and implementation, is constitutionally deficient and routinely deprives individual unemployment claimants, who are some of the state‘s most economically vulnerable citizens, of their most basic constitutional rights,” the complaint asserts.

Michigan settled federal claims related to the system’s errors in January by promising to issue mandatory refunds to the falsely accused.

FAST Enterprises Partner James Harrison confirmed Friday that his company is still involved in administering the state’s unemployment benefits system, and said a different system has been in place for a long time.

“These claims have been swirling around for years,” Harrison said, although he said he had only recently heard the percentage of incorrectly issued fraud letters hit 93 percent. He had not seen a copy of Thursday’s suit.

Cahoo and class members seek punitive damages for negligent design and violation of their due process rights, plus an injunction prohibiting the defendant companies from designing or maintaining any software used by the unemployment agency.

They are represented by Jonathan R. Marko with Ernst & Marko Law in Detroit.

SAS spokesperson Desiree Adkins said the company was aware of the lawsuit, but has not yet been served.

“We take this very seriously and are looking into it,” Adkins said.