Recovery of Unemployment Insurance Over-Payments: The Role of Equity and Good Conscience


Section 597.4 of the New York State Unemployment Insurance Law gives the state a right to recover erroneously paid unemployment benefits after a determination is made either to decrease or deny them. The state may compel claimants who followed the prescribed procedures to repay benefits that were overpaid because of state error. Consequently, the statute enables the state to correct its own bureaucratic errors at the claimant’s expense, even if the claimant cannot afford to repay. Prior to the statute’s amendment in 1983, it permitted recovery only when the overpayments were caused by the claimant’s bad faith, false statement, or willful concealment regarding any fact pertinent to the benefits claim.

In contrast to New York, other states have statutes that explicitly prohibit recovery when such recovery would offend notions of equity and good conscience. Some states that do not provide an explicit statutory exception do provide common law protection for good faith recipients. For example, the Supreme Court of Delaware implies a fairness requirement and allows the state to recoup nonfraudulent overpayments only when equitable considerations “preponderate” in the State’s favor.

This Note will argue that a state should not have the automatic right torecover overpayments which result from its own errors. Recoupment should be based on the equities of each case. The New York statute discourages unemployed workers from using their benefits because they fear they will be forced to repay them later. To remedy this inhibition, the current statute should be amended or, at the very least, be interpreted by the courts to protect claimants from liability for state errors. This Note will present methods for advocates of the unemployed to challenge statutes similar to New York’s in administrative hearings and in the courts.

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