States ask people to return mistaken pandemic relief payments. Is it fair?

Crystal Farrington learned early on that hard work was her only option. Her parents, blue-collar workers raising nine children, took whatever odd jobs they could find. By the time she turned 15, she did the same, first at Burger King and later in retail and hotels. 

Now, a single mother in her mid-20s caring for a 7-year-old daughter, money is tight for Ms. Farrington. But she’s always managed to make ends meet. 

So when she woke up one morning in January to a message that she owed the state of North Carolina $15,056, her heart sank.

The “notice of overpayment,” as it’s called, explained that the pandemic unemployment benefits she’d received for six months in 2020 had been a mistake – and needed to be returned.

Ms. Farrington is one of millions of Americans who have received similar notices during the pandemic, demanding sums reaching beyond $30,000 in some cases. In North Carolina alone, around 117,000 people have been affected by overpayments totaling $350 million. In larger states the numbers are higher: California had sent 1.4 million overpayment notices by November of 2021.  

“If I had to make payments on this, it would put me under, and quickly,” says Ms. Farrington. 

And the unemployment money? Long gone. 

“It was my only source of income, so of course I spent it on bills,” she says. 

Two years into the pandemic, state agencies are grappling with the aftermath of a necessarily hasty rollout of an unprecedented $653 billion distributed in emergency unemployment assistance during the pandemic. The system wasn’t prepared to handle the onslaught of new claims, and mistakes abounded. Yes, there was fraud, but many of the errors were honest, caused for example by claimants’ confusion about eligibility and states’ not having enough time to verify information. Now, agencies are scrambling to recoup funds that should never have been approved.  

Underneath the mayhem lie questions about what constitutes “fairness” when it comes to the distribution – and clawback – of government benefits.

On the one hand, errors were bound to occur. “We were building the plane as we were flying, in terms of creating these brand-new, desperately needed pandemic relief programs,” says Alix Gould-Werth, director of family economic security policy at the Washington Center for Equitable Growth. 

On the other, she adds, “There are people across the country who have been doing their best faith effort to access benefits and then made an unintentional error … and they’re facing these really disastrous consequences.” 

Courtesy of Crystal Farrington

Crystal Farrington received an overpayment notice telling her she owed the state of North Carolina $15,056, money she received in pandemic unemployment benefits during six months in 2020. Her appeal was approved, but so far online records show her debt reduced by only a few thousand dollars.

What went wrong?

Normally, states have about two years to comply with new federal programs, which lets them address the inevitable technical or logistical questions that arise, says Michele Evermore, deputy director for policy at the Department of Labor’s Office of Unemployment Insurance Modernization. But there wasn’t time for that.

When the pandemic began in March of 2020, unemployment claims skyrocketed from 211,000 to 6.6 million a week. Lawmakers jumped into action and designed the most extensive emergency unemployment safety net in history under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Three new pandemic unemployment programs supported 53 million workers, before they ended less than two years later in September 2021.

Some level of improper payment is normal, generally hovering around 10% for regular unemployment insurance. It’s too soon to know what the overpayment rate was during the pandemic since states are still working through backlogs, but the Employment and Training Administration has estimated an improper payment rate of 18.1%, for a total of $163 billion potential payments made by mistake.

Fraud is an obvious reason to recoup funds from those, within the U.S. and abroad, who capitalized on systemic weaknesses in unemployment infrastructure. In one case, someone used a single Social Security number to apply for unemployment across the country, earning $222,532 from 29 states. 

These problems were most serious at the start of the pandemic; over time, state agencies figured out how to make the programs safer, says Ms. Evermore. 

The bigger issue is the large number of overpayments that occurred due to innocent mistakes. Those errors were caused by a number of issues, including outdated information systems, inadequate staffing, and unclear guidance from the Employment and Training Administration, according to the Department of Labor’s Office of Inspector General. 

In responding to those who were overpaid, the majority of state agencies are trying to act with compassion, says Ms. Evermore. In fact, unemployment offices across the country, represented by the National Association of State Workforce Agencies, urged the federal government in January to allow them to issue more waivers for nonfraudulent overpayments. In response, the Department of Labor updated its guidance, adding five new scenarios where blanket waivers can be granted, as long as the claimant was “without fault in the creation of the overpayment” and repayment would be “contrary to equity and good conscience.”

The latter is a concept Ms. Evermore admits is subjective, but still useful. “In general it means that recouping the overpayment would cause serious harm to someone,” she says. 

It’s reasonable and necessary to reclaim the money “if recovery of the overpayment isn’t going to hurt the claimant, and the claimant was legitimately overpaid,” she adds. “But what we’re seeing is the amounts that were overpaid are very frequently going to amount to a violation of ‘equity and good conscience.’ ... I personally don’t know anybody for whom a $20,000 bill is an easy thing.” 

Looking for help outside the system

The problem is trickiest when the source of the error isn’t clear.

When Kristi Rudisill began to receive an added sum of $600 per week in Pandemic Unemployment Assistance, she was grateful for the extra cash during a difficult time, but she had only applied for regular unemployment.

“They just automatically started giving it to me. They determined that I was eligible to receive it, but they determined it without even speaking to me or finding out any details,” she says. Now, she owes North Carolina more than $9,000. 

After many hours on the phone, Ms. Rudisill had her appeal denied and her case classified as fraudulent. She thinks it was because of the two days she accepted work making face masks before learning the salary was half of what she had been promised. She says she’d be happy to pay back benefits she received for that week, but that doesn’t explain why she received Pandemic Unemployment Assistance in the first place – and it doesn’t help that it’s so difficult to talk to a real human on the other end of the line. She continues to get payment requests in the mail and is at a loss as to what to do next.

Ms. Farrington also suspects her claim was judged fraudulent at first, most likely due to an error on her employer’s part. 

Both women turned to a Facebook group called “NC unemployment Overpayments” for help. Equilla Johnson Hawkins created the group back in 2020, her frustration mounting as she fought having to repay overpayments for herself and her 70-year-old mother. Their debt was eventually waived, and now she spends her free time counseling others facing the same problem, most of whom she says feel lost and scared. 

“No one knows where to go or what direction to take,” she says. She pushes people to be persistent in explaining their situation to the unemployment office. “I tell them to be honest. Be honest.”

Not everyone who comes to her manages to clear their overpayments, but she says the network offers a sense of solidarity. (Because of this experience, she hopes to start a nonprofit one day to help people navigate things like benefits, taxes, and job training.)  

Ms. Farrington hired a lawyer to help her appeal her overpayment, thanks to a recommendation from the Facebook group. In late March, she learned with relief that her appeal had been approved. But when she checked online, her overpayment had dropped only a few thousand dollars to $11,712. Perplexed and frustrated, she’s asked the group for help submitting a waiver request, and is even considering taking out a loan to clear the balance. 

There’s one thing she knows for sure: “I would rather go out and DoorDash, Instacart, deliver newspapers before I ever, ever think about applying for unemployment again.”   

For Dr. Gould-Werth, stories like that are “heartbreaking,” because the whole purpose of the unemployment system is to catch people when they fall, not kick them when they’re down. And that matters for everyone, she says, because when people don’t access needed benefits, unemployment insurance fails to act as a macroeconomic stabilizer to help buoy the economy.  

“When you have a program where there’s a lot of information and experiences that are negative, … then it can’t do its job and it harms all of us.”