Minnesota Supreme Court skeptical high penalties for unemployment fraud are unconstitutional

ST. PAUL (CN) — Minnesota’s Supreme Court seemed skeptical of a man’s argument that the penalty he must pay for unemployment benefits is unconstitutional.

The man, Christopher Thigpen, separated from his job at Target in March 2020. Between then and March 2022, he received unemployment benefits while working for Best Home Care as a home health aid for his grandmother.

Each week he applied for benefits, he noted that he was not working, which netted him an extra $24,005 over two years.

The Minnesota Department of Employment and Economic Development (DEED) conducted an audit and determined that Thigpen was ineligible for benefits. An unemployment law judge found that Thigpen was not truthful when he applied for benefits and ordered him to pay back the amount plus a penalty, a decision upheld by the Minnesota Court of Appeals.

Thigpen argues that he simply did not understand the question he was being asked, inferring that he was being asked if he was working at Target, not if he was working at all.

Minnesota’s penalty for misrepresenting something when applying for unemployment is 40% of the overpayment plus 12% annual interest. The penalty is also accompanied by a 10-year ban from applying for benefits until the penalty is paid. It gets erased if the debt is not paid off in 10 years.

The federally mandated penalty requires a minimum penalty of 15% of the overpayment with no interest.

Thigpen argues that the penalty is facially unconstitutional under the excessive fines clause and is asking the court to throw out the penalty in its entirety and tell the legislature to have another go at it.

According to Russell Squire of Southern Minnesota Regional Legal Services, who represented Thigpen during Monday’s arguments, having to pay back not only the overpayment but also a 40% penalty in addition to 12% interest means he is being punished for not having the money upfront to pay his fine.

“The consequences of DEED’s punishments could be catastrophic for Mr. Thigpen,” Squire told the court. “Collection actions could push him deeper into poverty or homelessness.”

Because of the 10-year ban and his inability to pay off the debt, if Thigpen loses his job again, he will have no access to the safety net of unemployment benefits, a program he still pays into, which is intended to prevent poverty, according to Squires.

“These penalties turn that system on its head, turning a misrepresentation finding into a poverty trap,” he told the court.

However, the excessive fines clause only applies to payments or in-kind payments and wouldn’t apply to ineligibility, according to Keri Phillips, who represented DEED during Monday’s arguments.

She said that even if the court considers the 10-year ban in its opinion, it would not be excessive.

“Unlike in many states with mandatory periods of disqualification or cancellation, appellant here can become eligible for benefits by paying back the overpayment and penalty,” Phillips told the court.

The amount Thigpen received in overpayments is typically higher than that of most unemployment cases because special pandemic-related programs like the CARES Act allowed Thigpen to collect payments for 104 weeks instead of the 26 weeks outlined in state statute. In addition, higher payments were furnished from extra federal unemployment benefits during this time.

While the justices grappled with how exactly a ruling in favor of Thigpen would work, whether to throw out the whole law or only apply it to Thigpen’s case, they appeared to be opposed to undoing something the legislature has already considered several times.

The state legislature has adjusted the statute over the last several years. Last year, a committee heard arguments regarding lowering the administrative penalties for misrepresenting information when applying for unemployment benefits.

At the time, a representative for DEED testified against lowering the penalties, and the idea never made it out of committee.

“This is the legislature doing what legislatures do,” Chief Justice Natalie Hudson said in court Monday.

She said Thigpen’s argument concerns her because even if the court agrees, it would not go back to the legislature immediately, leaving no penalty for misrepresentation as it applies to unemployment benefits.

“The excessive fines clause is a blunt tool,” Squire replied, adding that while the judiciary should be kept away from direct policy-making, it’s the place of the court to point out when legislators have gone too far.

Squire tried to bolster his argument Monday by adding that Thigpen would almost be better off financially if he were facing criminal charges instead. The fine would be around $4,000, and a 12-month sentence would be stayed with no criminal history score.

“We do want to leave things up to the legislature, but we don’t want to let the legislature do things that go too far or grossly disproportionate or, in this case, impose administrative penalties that exceed criminal ones,” Squire told the court.