Meyer v. Industrial Claim Appeals Office

COLORADO COURT OF APPEALS 2016COA172

Court of Appeals No. 16CA0369
Industrial Claim Appeals Office of the State of Colorado
DD No. 20749-2015

Lizabeth A. Meyer,

Petitioner,

v.

Industrial Claim Appeals Office of the State of Colorado and Division of
Unemployment Insurance, Benefit Payment Control,

Respondents.

ORDER AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS

Division I
Opinion by JUDGE DAILEY
Taubman and Freyre, JJ., concur

Announced November 17, 2016

Law Office of Warren Domangue, Warren Domangue, Lakewood, Colorado, for
Petitioner

Cynthia H. Coffman, Attorney General, Evan Brennan, Assistant Attorney
General, Denver, Colorado, for Respondent Industrial Claim Appeals Office

No Appearance for Respondent Division of Unemployment Insurance, Benefit
Payment Control
¶1 In this unemployment compensation benefits case, petitioner,

Lizabeth A. Meyer (claimant), seeks review of a final order of the

Industrial Claim Appeals Office (Panel). The Panel upheld a hearing

officer’s decision that claimant had received an overpayment of

unemployment compensation benefits because of unreported

earnings from her employment. The Panel also upheld the

imposition of monetary penalties against claimant. We affirm the

Panel’s order in part, reverse in part, and remand the case for entry

of a new order.

I. Factual and Procedural Background

¶2 Claimant filed an unemployment compensation benefits claim

with an effective date of March 11, 2012. Following that date,

claimant worked part-time as a sales associate, and, in May 2012,

she obtained full-time work as a controller for another company.

¶3 A deputy for the Division of Unemployment Insurance

(Division) conducted an audit of claimant’s file and determined that

she had been overpaid unemployment compensation benefits in the

amount of $1712 for the period from March 18, 2012, through May

19, 2012. The deputy found that claimant had underreported her

hours and earnings for certain weeks during that period. The

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deputy also assessed a monetary penalty of $1112.80 against

claimant.

¶4 Claimant appealed the deputy’s determination and an

evidentiary hearing was conducted. At the hearing, claimant

conceded that the hours reported on her paystubs, rather than the

ones she reported online to the Division, accurately reflected the

hours she had worked. She asserted, however, that she was

required only to report her taxable, rather than gross, earnings to

the Division.

¶5 The hearing officer accepted, except for one week, claimant’s

concessions regarding the number of hours she had worked after

applying for unemployment compensation benefits. The hearing

officer concluded, however, that claimant had been instructed to

report accurately her gross earnings and hours for each benefit

week to the Division. Claimant had also been advised that giving

false information in her request for payment constituted fraud.

¶6 The hearing officer found that claimant knowingly misreported

her gross earnings and hours for certain weeks which resulted in

her being overpaid $1890.64 in unemployment compensation

benefits. The hearing officer also rejected claimant’s explanations

2
regarding the method she used to report her hours and earnings

and found that her misreporting was willful. The hearing officer

consequently assessed a monetary penalty of $1228.91.

¶7 Claimant appealed the hearing officer’s decision to the Panel,

which affirmed on review.

¶8 Claimant then brought this appeal. After the case was at

issue, we requested that the parties address the following question:

Whether any payment made to or on behalf of
an employee or his beneficiary under a
cafeteria plan (within the meaning of 26 U.S.C.
section 125), as specified under section
8-70-142(1)(c)(VIII), C.R.S. 2015, affects the
amount of wages a claimant must report as his
or her earnings when filing a claim for
unemployment benefits?

II. Standard of Review

¶9 We may set aside the Panel’s decision if the findings of fact do

not support the decision or the decision is erroneous as a matter of

law. See § 8-74-107(6), C.R.S. 2016; Colo. Div. of Emp’t & Training

v. Parkview Episcopal Hosp., 725 P.2d 787, 790 (Colo. 1986).

III. Reportable Earnings; Wages

¶ 10 Claimant contends that the Panel erred in determining that

she was required to report her gross earnings instead of her taxable

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earnings. Relying on section 8-70-142, C.R.S. 2016, claimant

asserts that she was not required to report as earnings any

contributions she made to her 26 U.S.C. section 125 (2012)

cafeteria plan. We agree with claimant that the term “wages”

excludes any contributions she made to a section 125 cafeteria

plan.

A. Legal Framework

¶ 11 Section 8-70-142 identifies what types of remuneration are not

included as “wages.” As pertinent here, section 8-70-142(1)(c)(VIII)

excludes “[a]ny payment made to or on behalf of an employee or his

beneficiary . . . [u]nder a cafeteria plan (within the meaning of 26

U.S.C. section 125).”

¶ 12 A cafeteria plan allows an employer to offer its employees a

variety of benefits that may include tax advantages. See 26 U.S.C.

§§ 3121(a)(5)(G), 3306(b)(5)(G) (2012); Lee v. Emp’t Dep’t, 190 P.3d

453, 453 (Or. Ct. App. 2008). Contributions to a cafeteria plan by

an employer can be made through a salary reduction agreement

with an employee in which the employee agrees to contribute a

portion of his or her salary on a pretax basis to pay for the benefits.

Id. These contributions are not considered wages for federal income

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tax purposes and are not subject to Social Security and federal

unemployment taxes. Id.

B. The Division’s Arguments

¶ 13 In its supplemental brief, the Division acknowledges that the

term “wages,” as defined in section 8-70-142, excludes any

contributions made to a section 125 plan. However, without

specifically addressing the effect of this provision, the Division

argues that claimant failed to present sufficient evidence that the

cafeteria plan to which she contributed met the requirements for a

section 125 plan. The Division also argues that it properly

determined that clamant was responsible for the overpayment

because she willfully misrepresented her earnings and the number

of hours she worked for the nine-week period at issue.

C. Division Instructions Regarding Reportable Wages

¶ 14 During the hearing, the Division presented copies of online

forms claimant filled out in order to receive unemployment

compensation benefits. These forms requested claimant to list the

number of hours she worked during the week and the amount that

she was paid or would be paid. The forms also contained a

“certification agreement,” which specified that claimant understood

5
that “[i]f I work during any week for which I am claiming UI

benefits, I must report all gross earnings in the week earned

regardless of whether or not I have been paid.” (Emphasis added.)

¶ 15 The requirement to report “gross earnings” is repeated in an

administrative regulation. See Dep’t of Labor & Emp’t Reg. 2.9.2, 7

Code Colo. Regs. 1101-2:2.9. This regulation, which is entitled,

“Disqualifying Payments,” provides as follows:

For the purposes of determining weekly
benefits, “wages/earnings” is defined as any
income or remuneration received in exchange
for services performed, including amounts that
have been deducted under a plan for tax
exemption or deferral.

Id.

¶ 16 Thus, through this regulation, as well as the directions in the

online forms, the Division has required that a claimant report his or

her gross earnings for each week in which the claimant sought

unemployment compensation benefits. However, this requirement

is contrary to the plain language of the statute, which excludes

from the definition of “wages” certain contributions to a section 125

cafeteria plan. See also § 8-73-107(1)(f), C.R.S. 2016 (providing

that a claimant is ineligible to receive unemployment compensation

6
benefits for any week unless the claimant’s “total wages earned” are

less than the weekly benefit amount).

¶ 17 We therefore conclude that the Division erred in requiring

claimant to report her “gross earnings” rather than her “wages” as

defined by section 8-70-142 when reporting her “earnings” to the

Division during a benefit week.

D. Evidence Regarding Section 125 Contributions

¶ 18 We also conclude that there was sufficient evidence to show

that claimant contributed to a section 125 cafeteria plan for

unemployment purposes.

¶ 19 The administrative record included copies of claimant’s

paystubs during the relevant nine-week period. Claimant’s

paystubs from Coach, from the period from March 11, 2012,

through May 17, 2012, showed that she paid medical, dental,

vision, and FSA benefits using pretax earnings. These paystubs

also showed “FIT Taxable Wages,” which equaled claimant’s gross

earnings minus her pretax contributions. A paystub from

claimant’s other employer during this period (Sutrak), from May 6,

2012, through May 21, 2012, did not show any pretax deductions.

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¶ 20 In addressing whether claimant’s paystubs showed any

section 125 deductions, the Panel stated that they had not been

admitted as exhibits. However, that determination is incorrect. The

record shows that the hearing officer accepted the Division’s

submission of the paystubs into evidence and that claimant

testified about them extensively. Consequently, we also disagree

with the Panel’s statements that claimant only generally testified

about the deductions on her paystubs and that it was not clear

from her testimony whether the deductions met the requirements of

“26 U.S.C. 3306(b)(5)(G) and 26 U.S.C. § 125.” However, claimant’s

paystubs from Coach show that her federal taxable earnings were

reduced by the amount of her pretax contributions for medical,

dental, vision, and FSA benefits. Such deductions are

characteristic of section 125 cafeteria plans. See Lee, 190 P.3d at

453; see also Denver Post, Inc. v. Dep’t of Labor & Emp’t, 199 Colo.

466, 469, 610 P.2d 1075, 1077 (1980) (employee benefits in the

form of medical, life, sickness, accident insurance, and pension

contributions did not constitute wages for unemployment

purposes); City & Cty. of Denver v. Indus. Comm’n, 707 P.2d 1008,

1010 (Colo. App. 1985) (payments made to police officers on

8
account of accident disability were not counted as wages for

determining monetary eligibility for unemployment compensation

benefits).

¶ 21 Therefore, based on the foregoing and the fact that

unemployment compensation benefit hearings are to be expedited

proceedings, we conclude that claimant met her burden to establish

that the amounts she paid for these benefits while working for

Coach were excludable from her “wages” under section

8-70-142(1)(c)(VIII). See Campbell v. Indus. Claim Appeals Office, 97

P.3d 204, 210-11 (Colo. App. 2003) (recognizing that unemployment

compensation hearings are intended to be informal and expeditious,

and it would impose an onerous burden on an employee to present

evidence that is not directly relevant to the circumstances of his or

her separation from employment); Ward v. Indus. Claim Appeals

Office, 916 P.2d 605, 607 (Colo. App. 1995) (in an unemployment

compensation proceeding, the initial burden is on the claimant to

establish a prima facie case of entitlement).

IV. Eligibility; Overpayment; Penalty

¶ 22 Claimant next contends that the Panel erred in upholding the

hearing officer’s determination that she knowingly failed to report

9
her earnings accurately and that both the hearing officer and Panel

erred in determining that she had received an overpayment and in

imposing a monetary penalty. We agree in part.

A. Legal Framework

¶ 23 Section 8-73-107(1)(f) provides that a claimant is ineligible to

receive unemployment compensation benefits for any week in which

the “total wages earned” for the week exceed the weekly benefit

amount. In addition, if the claimant’s earnings are less than the

weekly benefit amount, section 8-73-102(4), C.R.S. 2016, requires

that a claimant’s weekly benefit amount be reduced by the amount

by which the “wages payable” to the claimant for a particular week

exceed twenty-five percent of the weekly benefit amount. Further, a

claimant is not entitled to unemployment compensation benefits if

fully employed, which equates to thirty-two or more hours per week.

See § 8-70-103(12.5), C.R.S. 2016 (definition of “fully employed”);

see also § 8-70-103(19) (definition of “partially employed”).

¶ 24 The Division is required to recover any unemployment

compensation benefits a claimant receives due to fraud. See

§ 8-74-109(2), C.R.S. 2016; see also Dep’t of Labor & Emp’t Regs.

15.1.3, 15.2, 7 Code Colo. Regs. 1101-2:15 (allowing for the write

10
off or waiver of overpaid benefits in certain circumstances).

Colorado regulations consider it a “false representation” when an

individual makes a report “that he or she knew to be false or any

representation made by an individual with an awareness that he or

she did not know whether the representation was true or false.”

See Dep’t of Labor & Emp’t Reg. 15.2.5, 7 Code Colo. Regs.

1101-2:15.2.5.

¶ 25 Section 8-81-101(4)(a)(II), C.R.S. 2016, imposes a monetary

penalty of sixty-five percent of the overpayment amount if the

overpayment resulted from the claimant’s “false representation” or

“willful failure to disclose a material fact.” See Woollems v. Indus.

Claim Appeals Office, 43 P.3d 725, 726 (Colo. App. 2001). This

statutory standard does not require an intent to defraud, but rather

is met when the false representation is made or the failure to

disclose is done “knowingly.” See Div. of Emp’t & Training v. Indus.

Comm’n, 706 P.2d 433, 435 (Colo. App. 1985). In addition,

Regulation 15.2.6 defines a “willful failure to disclose a material

fact” as “knowingly withholding material information from the

division.” Dep’t of Labor & Emp’t Reg. 15.2.6, 7 Code Colo. Regs.

1101-2:15.2.6. A claimant’s mental state may be inferred from

11
circumstantial evidence. See Div. of Emp’t & Training, 706 P.2d at

435.

B. Application to This Case

1. Sutrak Earnings

¶ 26 Initially, we need not consider whether the earnings claimant

reported for Sutrak were considered “taxable wages” or “gross

earnings” because claimant was not otherwise eligible for

unemployment compensation benefits for the period she worked for

Sutrak.

¶ 27 The hearing officer found, and the record supports, that

claimant worked over thirty-two hours per week for Sutrak during

the period from May 6, 2012, through May 21, 2012. In addition,

claimant’s income during those weeks exceeded the amount that

claimant received in unemployment compensation benefits. Thus,

although claimant received unemployment compensation benefits of

$500 a week for the two weeks she worked for Sutrak, she was

ineligible to receive these benefits based on her weekly earnings,

which exceeded $1000 per week, for which no pretax deductions

were taken, and because she worked full-time during this period.

See §§ 8-70-103(12.5), (19); 8-73-107(1)(f).

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¶ 28 Therefore, we conclude that the Division properly determined

claimant was overpaid $1000 in unemployment compensation

benefits for the two-week period from May 6, 2012, through May 21,

2012. We also conclude that the Division did not err in upholding

the imposition of a sixty-five percent penalty ($650) for this period.

As the hearing officer determined, with record support, claimant

knowingly underreported her hours and earnings for this period.

2. Coach Earnings

¶ 29 In contrast, claimant’s paystubs from Coach showed that she

did not work more than thirty-two hours in any week. In addition,

the amounts she reported as “wages” for those weeks were less than

her benefit amount. Thus, we conclude that claimant was not

automatically ineligible from receiving unemployment compensation

benefits for the weeks she worked exclusively for Coach and

therefore we need to consider what her “taxable wages” were for this

period.

¶ 30 The hearing officer prepared a table which showed the

difference between what claimant reported in earnings and the

amount of “taxable wages” that was shown on her paystubs. Based

on that table, we may calculate the amount claimant was overpaid

13
by using the formula set forth in section 8-73-102(4). This formula

requires a deduction from the weekly benefit amount of any wages

that are in excess of twenty-five percent of the weekly benefit

amount.

¶ 31 The Division calculated claimant’s weekly benefit amount as

$500. Thus, the maximum wages claimant could earn in any week

without a deduction was $125. Using this information, the

following chart shows claimant’s “taxable earnings,” her reported

earnings, unemployment compensation benefits paid, and any

overpayment for each week she worked exclusively for Coach.

Week Taxable Reported Benefits Overpayment
Ending Wages Wages Paid Amount

3/24/12 $165.00 $75.87 $500.00 $40.00
3/31/12 $160.69 $160.69 $464.00 $0.00
4/7/12 $165.71 $160.69 $464.00 $5.00
4/14/12 $95.49 $165.71 $459.00 ($41.00)
4/21/12 $161.32 $95.49 $500.00 $37.00
4/28/12 $158.56 $165.00 $460.00 ($6.00)
5/5/12 $165.46 $125.00 $500.00 $41.00

Total $76.00

¶ 32 The hearing officer, in determining that claimant had been

overpaid benefits, did not calculate the overpayment based on

claimant’s “taxable wages,” but rather on her gross earnings. As is

14
apparent, if “taxable wages” are used, the amount that claimant

was overpaid is substantially less than the amount calculated by

the hearing officer, only $76 versus $890.64.

¶ 33 Nevertheless, in imposing a monetary penalty, the hearing

officer found that claimant knowingly misreported her earnings and

hours for these weeks. Although the hearing officer found that

claimant misreported her earnings based on the difference between

her gross earnings and the “taxable wages” she reported to the

Division, the hearing officer also found that claimant reported

working only 84 hours when she actually worked 153 hours during

that period. The hearing officer further found that claimant was

aware of her obligation to report her earnings and hours accurately

and deliberately failed to do so. Moreover, the hearing officer noted

that even if the hearing officer accepted claimant’s argument that

she was to report only her “taxable earning,” she failed to do that.

¶ 34 Accordingly, in light of the foregoing, we conclude that the

hearing officer did not err in concluding that a monetary penalty

was appropriate. However, because claimant was overpaid only $76

in unemployment compensation benefits for this period, the sixty-

five percent monetary penalty is only $49.40, for a total of $125.40.

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V. Continuance of Hearing

¶ 35 Claimant further contends that her due process rights were

violated because the hearing officer erred in not continuing the

hearing so that she could submit a document showing that

cafeteria plan deductions were not considered wages for purposes of

unemployment. However, we conclude that this contention is moot,

and we need not address it, based on our determination that the

hearing officer erred in not using claimant’s “taxable wages” in

determining whether she had been overpaid unemployment

compensation benefits during the period she exclusively worked for

Coach.

VI. Conclusion

¶ 36 We affirm that part of the Panel’s order holding that claimant

was overpaid $1000 in unemployment compensation benefits for

the two-week period she worked for Sutrak. We also affirm the

imposition of a sixty-five percent monetary penalty, in the amount

of $650, for this period. We reverse that part of the Panel’s order

holding that claimant was overpaid $890.64 in benefits for the

period she worked exclusively for Coach, as well as the imposition

of a sixty-five percent monetary penalty on this amount, and

16
remand this issue to the Panel with directions to enter a new order

holding that claimant was overpaid $76 in benefits for this period

and imposing a sixty-five percent penalty of $49.40, for a total

payment of $125.40.

JUDGE TAUBMAN and JUDGE FREYRE concur.

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