Digest of Benefit Entitlement Principles Chapter 18 - Section 5

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18.5.0 Calculating a claimant penalty

18.5.1 Calculating a claimant penalty

Case law supports the Commission policy of calculating a penalty based on a formula Footnote 1 . This approach creates consistency in determining an appropriate penalty, while providing the adjudicator flexibility to consider mitigating circumstances which may justify a reduction in the final penalty amount.

18.5.1.1 Factors in calculating a penalty

The Commission considers three monetary values in establishing a final penalty when there is an active or inactive claim:

  • a penalty value based on the net overpayment, multiplied by a percentage determined by the level of misrepresentation and, if applicable, reduced due to mitigating circumstances;
  • a legal validation amount, which is the maximum penalty the law allows; and
  • a cap, set by policy, based on the level of misrepresentation and the total dollar value of all the penalties for that benefit period.

18.5.1.2 Level of misrepresentation - a percentage value

Misrepresentation occurs when there is a finding of false statement(s) knowingly made based on proof of any infraction listed under EIA 38(1) or EIA 39(1).

Repetitive misrepresentation occurs when there is at least one previous incident of misrepresentation assessed in the past 260 weeks, including the imposition of a non-monetary penalty in the form of a warning letter or a successful prosecution. A first level misrepresentation means there is no history of infraction; a second level misrepresentation occurs when it is a second incident; and a third level misrepresentation when it is a third. For the purpose of setting a maximum penalty amount, if an infraction represents a fourth (or higher) level of incident, it falls under the same considerations as a third misrepresentation.

A finding of repetitive misrepresentation only affects the calculation of the penalty. It does not affect the amount of the overpayment, nor does it affect the value of the violation. See section 18.10.4 regarding subsequent violations.

Second or third level misrepresentations happen only when the infraction occurred after the claimant was notified that a penalty was imposed, a warning letter was issued or the claimant was found guilty following a prosecution.

These conditions must all exist to conclude repetitive misrepresentation:

  • there must be a current misrepresentation;
  • there must be one or more previous misrepresentations;
  • the current misrepresentation is repetitive only if it occurred after the claimant was notified of the previous penalty or warning; and
  • the previous notification occurred less than 260 weeks ago.

The level of misrepresentation sets a maximum penalty based on a percentage of the net overpayment:

Level of misrepresentation
Level of misrepresentation Maximum percentage
First 50% of net overpayment
Second 100% of net overpayment
Third 150% of net overpayment

A penalty can never be increased, but it must be reduced if there are mitigating circumstances on the file. These mitigating circumstances can be presented by the claimant in the course of investigation, or there may be other documentation that supports a lower penalty.

18.5.1.3 Reducing a penalty

Reducing the penalty amount is discretionary. The manner in which a penalty is reduced is set out by policy, but the adjudicator determines if facts on a file warrant a lesser penalty. When the claimant submits an explanation for a misrepresentation, or if an explanation is evident on the claim file, the Commission must address these facts. If the circumstance is mitigating, the Commission reduces the percentage of the penalty value Footnote 2 .

Reduction means that the Commission changes the percentage amount of the penalty because of the mitigating circumstances. For example, the adjudicator can decide that it is appropriate to reduce a penalty from 50% of the net overpayment to 30%, or 10%, or any other figure less than 50%. Similarly, a penalty for a third incident of misrepresentation cannot exceed 150% of the net overpayment and can be reduced to any percentage amount between 0 and 150% of that overpayment. Any reduction in this percentage is based on the facts and on the adjudicator's knowledge and judgement. The Commission must be able to justify the final percentage applied.

When the Commission determines a fact does not constitute a mitigating circumstance, it must explain why that circumstance is not mitigating in this case.

Once the Commission completes this calculation, it must calculate and apply any limitation the legal validation amount creates.

18.5.2 Mitigating circumstances

18.5.2.1 Definition

A mitigating circumstance is a situation or condition that explains the misrepresentation but does not remove a finding of knowingly made. The Commission also considers a claimant's current circumstances when a penalty is assessed. Mitigating circumstances can exist when a claimant makes a misrepresentation or at the time the penalty is imposed.

18.5.2.2 Application

Mitigating circumstances may be on the file or presented during the investigation. A factor may be mitigating in one case and not in another; evidence of mitigating circumstances must be assessed on a case-by-case basis. Further, a mitigating circumstance cannot be presumed. There must be clear evidence that a condition exists that constitutes a mitigating circumstance. The evidence of the mitigating circumstance must be identified in the Commission's reasoning.

Mitigating circumstances include, but are not restricted to:

  • lack of education; language difficulties; personal or family health problems; coercion by a third party; genuine regret; the overpayment is already repaid; alcohol or drug addiction; gambling problems; and financial hardship.

Mitigating factors are always considered when calculating a penalty, whether the infraction is a first, second, third or greater level of misrepresentation. The adjudicator is obliged to take mitigating circumstances into account when determining the amount of a penalty. A true mitigating circumstance will always reduce a penalty.

Finally, unless otherwise noted in this chapter, mitigating circumstances are considered only when calculating a penalty value based on the overpayment amount. Mitigating circumstances do not reduce the calculated Legal Validation Amount or the penalty cap.

18.5.3 Legal validation amount

The legal validation amount, or LVA, means the maximum penalty that can be calculated under the Act. There are two possible calculations. When a claim was established and benefits paid, the maximum penalty is:

3 x benefit rate x the number of false statements Footnote 3 .

When a claim was not established, the maximum penalty is:

3 x maximum benefit rate in effect when the act or omission occurred

x false statements Footnote 4 .

If the penalty based on the net overpayment is more than the legal validation amount, the penalty is reduced so it does not exceed the LVA.

18.5.4 Caps on penalties

Commission policy limits penalties based on the level of misrepresentation. As with the percentage caps, the maximums are defined on the basis of first, second or third infraction. Like repetitive misrepresentation, the penalty cap counts previous infractions only if they occurred within the last 260 weeks. For a misrepresentation exceeding the third level, the third level maximums apply.

Level of infraction
Level of infraction Maximum penalty per benefit period
First No more than $ 5,000.00
Second No more than $ 8,000.00
Third, or more No more than $10,000.00

The penalty amount cannot exceed the cap. The only consideration in setting the cap is the level of infraction. In most cases this is simple. For instance, if there is a conclusion of misrepresentation on a benefit period, and this is a first incident of misrepresentation the penalty cap is $5,000.00.

For the purposes of the penalty cap, the level of misrepresentation can increase the level of infraction on a subsequent benefit period. For example:

A finding of first level misrepresentation resulted in a penalty cap of $5,000.00 on the first benefit period. There is a determination of a second incident of misrepresentation on a second, benefit period, or claim. Even though this second misrepresentation occurs on a different benefit period the determination of a second level of misrepresentation means that the penalty on the second benefit period can be as high as $8,000.00.

18.5.5 Record of employment: reason for separation altered

A claimant may submit a Record of Employment on which the Reason for Separation was knowingly altered, but the Commission identifies the misrepresentation before any benefits are paid. The claim is established with a benefit rate, but is disqualified-meaning no benefits are paid, so no overpayment occurs. Submitting a Record of Employment, knowing that the reason for separation was altered, even when no benefits were paid is serious enough to warrant a monetary penalty. Since there is no overpayment, the penalty is calculated based on a straightforward application of EIA 38(2)(a) by multiplying:

  • 100 / 200 / 300% (level of misrepresentation) by
  • the actual benefit rate by
  • 2 misrepresentations (one count each for the application and the Record of Employment).

First infractions are subject to a maximum penalty calculated at 100% of the benefit rate per false statement. Subsequent infractions of a similar nature are subject to higher penalty calculations based on 200% for a second misrepresentation, or 300% for a third or greater incident. Mitigating circumstances are considered, and the penalty is reduced by a percentage value if applicable.

Violations are recorded based on the amount of the actual or potential overpayment. No real overpayment will occur if the Commission discovers the misrepresentation before benefits are paid. In this case, the potential overpayment is calculated based on the guidance at Digest 18.10.3.2. The violation is coded based on the potential overpayment. Violations are discussed in detail in section 18.10.

If the Commission allows the reason for separation and sets up the claim free of disqualification, the misrepresentation must still be adjudicated. If the Commission determines a penalty applies, it will issue a warning letter under the provisions of EIA 41.1 and record an unclassified violation.

18.5.6 Claim not established or cancelled retroactively

A benefit period is considered as not established in two cases:

  • the claim is set up. Benefits may or may not be paid. The Commission receives or discovers information that means the benefit period should never have been established; or
  • the Commission may determine a benefit period cannot be established when completing the initial work on a file. In this case, no claim is ever started, so no benefits are paid.

In either situation, no legal claim exists. Therefore, there can be no benefit rate on which to base a legal validation amount under EIA 38(2)(a). The provisions of EIA 38(2)(c) apply in these cases. The violation is recorded as minor, based on an overpayment value of $0.00 Footnote 5 .

18.5.7 Counting the false statements: the impact of a false ROE or ROE containing false information

18.5.7.1 Record of employment and application

There are common elements in counting the number of false statements on a claim that is never established or that is retroactively cancelled. These are:

  • submission of a false ROE or an ROE containing false or misleading information may constitute one count of false statement knowingly made; and
  • submission of an application for benefits may constitute a second false statement knowingly made.

18.5.8 Claimant reports and payments

The link between claimant reports, benefits paid and misrepresentation is subject to special consideration. A claimant may submit an ROE and application that constitute misrepresentation and claimant reports that accurately declare no work or earnings. Therefore, the simple submission of claimant reports cannot be considered misrepresentative. However, the Commission can reasonably conclude that claimants who file a claim with false information know they have no right to receive benefits. Under EIA 38(1)(e) accepting or cashing benefits is an offence for which a penalty may be imposed. When counting incidents of misrepresentation, the Commission does not include any claimant reports submitted Footnote 6 . The Commission must include every payment made and accepted, whether by warrant or electronic deposit as a misrepresentation.

As an example, a claimant submits:

  • an application declaring a loss of employment due to shortage of work;
  • a Record of Employment altered from a quit to a lay-off;
  • three claimant reports accurately declaring no work and no earnings for which the claimant accepts three payments.

The application and Record of Employment are two counts of misrepresentation. The claimant reports are not misrepresentation. Keeping each of the three payments constitutes three counts of misrepresentation. Therefore, legal validation amount would be based on five counts of misrepresentation.

As long as the claimant report is accurately declared, the waiting period cannot be counted as misrepresentative because no warrant, or payment, was issued. However, if a claimant makes a false statement on the claimant report, a penalty may be considered for that false statement. Only one penalty can be assessed in respect of any two week period, whether it is considered because of misrepresentation on the claimant report or negotiating the payment.

18.5.9 The penalty calculation under EIA 38(2)(c)

When a claim is cancelled, there is no legal benefit rate. Therefore, no net overpayment can be calculated. This means a penalty cannot be calculated based on 50, 100 or 150% of the overpayment. For a cancelled claim, the Commission calculates the penalty based on EIA 38(2)(c).

In this case, the penalty is limited to no more than three times the maximum benefit rate Footnote 7 that existed when the act or omission occurred per misrepresentation. The policy respects the principle of increased penalty for repetitive misrepresentation:

Repetitive misrepresentation
Level of misrepresentation Calculation
First maximum rate x 100% x # of misrepresentations
Second maximum rate x 200% x # of misrepresentations
Third maximum rate x 300% x # of misrepresentations

The Commission considers mitigating circumstances and applies a percentage reduction to the calculation. For example, if the adjudicator considers the mitigating circumstances warrant a 30% reduction in a first instance of misrepresentation, the calculation would look like this:

maximum rate x 70% x number of misrepresentations.

Because this is a first infraction, the final penalty calculation is subject to the policy caps of $5,000.00. Repetitive misrepresentation is subject to penalty caps of $8,000.00 and $10,000.00 as described above.

18.5.10 Violation

A violation may be issued when a penalty is imposed, but coded based on the amount of the overpayment. The Commission may not set up a claim if the misrepresentation is discovered before paying benefits. In this case, the overpayment, at $0.00, is less than $1,000.00, and therefore, the violation may be coded as minor. Violations are discussed in detail in section 18.10.

[ September 2010 ]

18.5.11 Subsequent investigation for the same period

There are cases when benefits are reconsidered, an overpayment and penalty established and violation recorded. A second investigation reveals other misrepresentations on the file that, were it not for the previous decision, would result in an overpayment, penalty and violation. The overpayment will not increase in this case. However, there are additional misrepresentations on the file. The legal validation amount is re-calculated and the penalty adjusted, if appropriate, to reflect the new LVA. As an example:

  • Investigation #1 results in the retroactive imposition of a disqualification for quitting a job;
  • an overpayment is raised for all the weeks paid after the quit;
  • there is one false statement arising from the failure to declare the quit;
  • because there is only one false statement, the penalty is reduced to the legal validation amount;
  • Investigation #2 reveals that the claimant failed to declare work and earnings on four claimant reports after quitting the previous work;
  • no new overpayment arises, since the previous disqualification cancelled all payment;
  • the count of false statements increases from one to five;
  • the Commission re-calculates the legal validation amount based on five, rather than one misrepresentation;
  • the Commission tests the new legal validation amount against the penalty arising from the net overpayment;
  • the penalty amount may be increased from the initial penalty amount to the lesser amount of:
    • 50-100-150% of the net overpayment,
    • the legal validation amount, or
    • the penalty cap of $5000.00, $8000.00 or $10,000.00;
    • a subsequent violation may also be issued.
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