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
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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
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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
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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
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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
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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
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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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