A federal appeals panel says an Indiana woman’s constitutional rights were not violated by requiring her and others who falsely claimed they did not receive any income to repay unemployment benefits they may have received, plus a penalty.
Indiana provides weekly unemployment benefits to people who are unemployed and partially employed. People working part-time jobs qualify, but they must accurately report their income so the Indiana Department of Workforce Development can reduce the weekly payout accordingly. A claimant who knowingly fails to disclose earnings on a weekly application must repay all benefits received for that week and is subject to a civil penalty of 25% of that forfeited amount. The claimant could also face criminal penalties.
According to court documents, Susan Grashoff violated the reporting requirement by omitting her part-time income on 24 weekly applications. After an investigation, the Workforce Development Department determined she knowingly violated the law and assessed a forfeiture and penalty totaling $11,190 -- the sum of all benefits she received for each of the 24 weeks, plus the 25% penalty.
An administrative law judge affirmed the sanction, finding Grashoff had knowingly failed to report the income from her part-time job. Grashoff did not seek state judicial review. Instead, she filed a federal suit alleging the sanction violates the Eighth Amendment’s Excessive Fines Clause.
After U.S. District Judge Holly Brady ruled in favor of Indiana, Grashoff appealed.
However on appeal, a three-judge panel of the U.S. Seventh Circuit Court of Appeals - which handles appeals from federal courts in Illinois, Indiana and Wisconsin - also rejected Grashoff's claim.
The Seventh Circuit decision was authored by Judge Diane Sykes. Circuit Judges Thomas L. Kirsch II and Michael Y. Scudder concurred in the decision.
For decades, Susan Grashoff worked at McDonald’s, including as an assistant manager. Throughout her career, she also taught swimming lessons at her local YMCA, and resumed that part-time work in 2010 to supplement her income from McDonald’s. In late 2016, she lost her job at McDonald’s and applied for and received unemployment benefits starting in December of that year. She submitted 24 weekly claims from then until May 2017, and the Department paid her $373 for each of those weeks.
Grashoff continued to work at the YMCA during this period, earning a total of $2,829 from swimming lessons. But she never disclosed this income to the Department when she submitted claims for benefits, so her payments were not reduced as they should have been under the law. She failed to do so despite repeated warnings and instructions, according to court documents.
In the decision, Sykes addressed whether the forfeiture of benefits is classified as remedial or punitive. Purely remedial sanctions are not subject to Eighth Amendment review. Grashoff argued the forfeiture falls on the punitive side of the line because she remained eligible for some benefits during the 24-week period despite her part-time income, Sykes said. The appeals panel rejected that argument and classified the entire forfeiture as remedial.
The judges held that a penalty of 25% of the total forfeiture amount is not an excessive sanction for knowing violations of the reporting requirement.
The court found Grashoff knowingly failed to disclose her income on 24 applications for public benefits, and each time she falsely certified she had reported her earnings and given truthful answers on her applications. The court noted on 24 occasions she knowingly withheld information about her income to obtain a higher benefit from a limited fund meant to support economically vulnerable people in Indiana.
While Grashoff was not criminally prosecuted, Indiana’s criminal penalties for conduct similar to Grashoff’s demonstrate the state takes this kind of public benefits fraud seriously, the judges said.
The court noted harm from Grashoff’s conduct goes beyond overpayment of benefits. The state asserted its workers must spend time and resources investigating fraud and, when detected, remedying it. When some claimants don’t comply with the baseline requirement to honestly report their income, it becomes harder to administer the fund and complicates the distribution of benefits to all claimants, the state argued. Fraud also undermines the integrity of the fund and the public’s faith in the state’s ability to administer it efficiently and fairly, the state said.
The court recognized $8,361 is not a small sum. But even if Indiana could recoup overpayments and effectively deter unemployment fraud with a lesser sanction, the Excessive Fines Clause does not require the state legislature to adopt an antifraud statute that penalizes claimants no more than necessary. Because this sanction is not grossly disproportionate to the gravity of Grashoff’s offense, the judges said it was not unconstitutionally excessive.
The judges noted the U.S. Supreme Court has declined to address whether the sanctioned person’s financial condition is relevant to the excessiveness inquiry. However, the appellate judges determined Grashoff had the ability to pay the sanction.