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Kentucky Violated Federal Rules In Rush To Pay Some Unemployment Benefits

Bytemarks via Creative Commons

By late April, Kentucky’s unemployment insurance office was handling more than a hundred thousand claims a week, and Gov. Andy Beshear was urging anyone who was out of work to apply during his daily briefings.

He said the state was doing everything in its power to swiftly get money to people who lost work due to the coronavirus.

In its haste to help cash-strapped Kentuckians, however, Kentucky’s unemployment office took shortcuts that violated unemployment policies and drew criticism from federal officials in Washington, according to emails obtained by the Kentucky Center for Investigative Reporting through a public records request.

The U.S. Department of Labor, which oversees unemployment insurance, had gotten wind that Kentucky was mishandling payments to independent contractors and self-employed workers by automatically approving applicants for the state’s minimum weekly amount, plus the $600-a-week in extra federal money offered in response to the pandemic.

That got benefits out the door faster, but at a cost: The state was likely underpaying some workers while violating the CARES Act, which required states to determine how much money workers were eligible to receive before starting payments.

“Hoping that’s not the case,” wrote Gay Gilbert, the U.S. Department of Labor’s administrator of unemployment insurance in an email sent on April 20 to Kentucky’s executive director of unemployment, Muncie McNamara. “[B]ut can you confirm?”

McNamara responded three hours later to Gilbert’s email to confirm: yes, Kentucky had indeed been automatically providing applicants with the minimum payments. But in his email, McNamara attributed much of the confusion to Gilbert’s agency.

McNamara wrote that Kentucky’s leadership was frustrated with the lack of timely guidance from the federal government, which he described as “more of an obstacle.”

“Frankly, I feel like Kentucky is being punished for acting quickly, as we were encouraged to do,” McNamara wrote in his email. McNamara was quietly fired two weeks later, as KyCIR reported last month

Marjorie Arnold, chief of staff at the Kentucky Labor Cabinet, which now oversees the unemployment office, said in an email that McNamara’s correspondence with Gilbert “[does] not represent the Kentucky Labor Cabinet’s position with respect to the U.S. Department of Labor, but are representative of the type of unprofessional behavior that was exhibited on a regular basis.”

“As with any emergency program, federal guidance evolved over time, and as issues arose, the Office of Unemployment Assistance worked diligently with U.S. Department of Labor personnel to implement guidance as it was provided,” Arnold said.

McNamara said his supervisor at the unemployment office was aware of the tone and content of the email. He added that he was fired without cause.

A spokesperson for the Department of Labor said that many states had issues implementing the new unemployment policies, and that it is working to make sure states follow federal law.

Kentucky Problems

In the week before Gilbert’s email, Kentucky’s unemployment agency handled just over 103,000 initial unemployment claims.

The agency was scrambling to keep up with the influx of claims by adding staff to operate phone lines and answer questions. Congress had weeks earlier authorized the Pandemic Unemployment Assistance program, which allocated unemployment funds for state agencies to distribute to newly unemployed independent contractors and self-employed workers who lost work due to the coronavirus pandemic.

It was the states responsibility to calculate how much money such workers were eligible for based on previous earnings. The best way to do that would be to use earnings statements from tax filings. However, the deadline to file taxes was pushed back to July, so states like Kentucky didn’t always have the documents they’d need to quickly calculate eligibility and start paying benefits.

Kentucky’s solution was to approve every claimant for the minimum benefit, initially set at $180 a week, plus the additional $600 payment also authorized by the CARES Act.

“We decided it best to pay the minimum and the $600 to eligible PUA recipients so we could give them assistance as quickly as possible,” McNamara wrote to Gilbert.

This could result in underpayments, where the state paid unemployed workers less than they were entitled to, but McNamara wrote that if the agency later determined the individual was eligible for more money, the state would pay them in arrears and “make them whole.”

In a later email, Gilbert raised another issue with Kentucky’s administration of the federal unemployment program that could pose a more serious problem for people receiving benefits. The payments to independent workers were only supposed to be available to those whose unemployment was directly tied to COVID-19. Under federal guidelines, those workers were supposed to certify that the COVID-19 related conditions that led to their unemployment persisted for every week they filed a claim.

Gilbert attached a notice sent to people receiving benefits from Kentucky’s unemployment office that showed the state wasn’t asking people to certify their unemployment situation on a weekly basis, as required.

A spokesperson for the federal Department of Labor said it is working with states to correct policy violations such as these, but that states “may also be required to take specific corrective actions that may require reconsidering claims that may have been improperly determined as eligible for payment.”

Kentuckians who receive unemployment payments that are reconsidered and later determined to be improper will have to pay that money back. The state can collect on unemployment overpayment debts by withholding future benefits or even taking recipients to court.

Marjorie Arnold of the Kentucky Labor Cabinet said that Kentucky is “obliged to attempt to recover improperly paid benefits in accordance with federal and state law.”


In his emails to the federal Department of Labor, McNamara said he was frustrated, and this frustration was shared by other officials in Kentucky’s unemployment office.

McNamara said the federal Labor department was slow to provide guidance, or at times gave guidance that conflicted with earlier policies. For example, McNamara said the federal government had initially set Kentucky’s minimum weekly benefit amount for independent contractors at $180, only to lower that amount to $174 in later guidance. “These may seem like minor things but given the volume of claims we have this represents a tremendous amount of money,” McNamara wrote.

The issues were compounded by the fact that neighboring states were moving slower than Kentucky. Indiana didn’t start accepting claims from self-employed workers and independent contractors until April 24, nearly a month after Kentucky. McNamara thought Kentucky was bearing the cost of that delay.

“As a result of their tardiness, people who live in Indiana and might be an independent contractor or self-employed doing business on both sides of the river are applying for PUA benefits in Kentucky, because we are making payments and Indiana isn’t,” McNamara wrote to Gilbert.

‘Extremely Concerned’

When Gilbert responded two weeks later, the federal unemployment administrator was conciliatory. “Having been in your seat as a state UI director, I understand why there is sometimes frustration and tension when our system is asked to quickly ramp up new and complex programs,” Gilbert wrote on May 4.

However, Gilbert said that the federal government was “extremely concerned” that Kentucky and other states were not implementing unemployment programs properly. Gilbert wrote that states needed to make sure payments were going to eligible claimants and not just simply make payments and determine eligibility later.

McNamara never got a chance to respond, however. He was fired the next day, and emails show interim unemployment director Stefanie Ebbens Kingsley scheduled a call with Gilbert to talk about the issues with Kentucky’s unemployment process.

When McNamara was invited to testify before a legislative committee last month about the state’s unemployment office, he mentioned that Kentucky’s rush to pay unemployment benefits resulted in errors that delayed claims for months at a time. He also said they were clearing holds on unemployment claims in bulk, without investigating the claims individually, until the federal government ordered them to stop.

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