Opinion: Undoing the harm of MiDAS’ fraud designations

Steve Gray and Casey Farrington

With devastating efficiency, a faulty algorithm adopted by Michigan’s Unemployment Insurance Agency branded at least 42,000 innocent Michiganders as frauds over the span of two years. Their crime? Applying for unemployment insurance benefits to stave off financial ruin.

The Michigan Supreme Court has a chance to address this crippling wrong on Wednesday, when it hears argument in Bauserman v. Unemployment Insurance Agency. The state legislature and governor should step up as well.

The program that caused all this trouble was part of the Michigan Integrated Data Automated System (MiDAS), a $47 million computer project that, unchecked by human review, went on a fraud-designating spree from October 2013 to August 2015.

The authors write: "A faulty algorithm adopted by Michigan’s Unemployment Insurance Agency branded at least 42,000 innocent Michiganders as frauds."

Ninety-three percent of those designations were wrong. MiDAS incorrectly—and appallingly—stamped tens of thousands of struggling individuals with a label they didn’t deserve and may never recover from.

Once labeled a fraud, the law required you pay back all of the unemployment benefits you received since losing your job. You also had to pay a 400 percent fine. Many false fraud victims were forced to pay several thousand dollars, with some confronting bills as high as $100,000.

That money could have gone to rent, and groceries, and medical bills. It could have been used to pay for heat in the winter, childcare in the summer, and school supplies in the fall. But instead it went to state actors that were as careless in its operations as it has been callous about owning up to and finding a solution for the harm it caused.

Last year, the state finally repaid the money it wrongfully took from the victims of this “robo-fraud.” But these workers deserve so much more. Simply returning what victims initially paid does not make up for the ripple effect of suddenly losing your income and, on top of that, having to pay an unexpected and exorbitant penalty. A reimbursement check, especially one way past due, can’t offset the ruined credit scores and poisoned relationships that resulted from these unlawful designations.

A class of workers is now seeking its own solution from the Michigan Supreme Court in the case Bauserman v. Unemployment Insurance Agency. The class includes people who were forced to pay back benefits along with that 400% fine. Targeting the state’s failure to properly notify workers of the system’s fraud designation and its consequences, they are aiming to win damages reflective of the actual harm MiDAS’s repeated mistakes inflicted on their lives.

The Bauserman lawsuit, if successful, is an important step toward righting MiDAS’s wrongs, but it will not make all the victims whole. Many of MiDAS’s victims are not part of the Bauserman class, and even Bauserman cannot completely restore victims’ reputational losses. Regardless of the case’s outcome, state decisionmakers will still need to take action to make all false fraud victims whole. There are two simple steps that can help bring resolution to this nightmare.

First, the legislature needs to allocate funds to make all the victims whole. The Unemployment Agency has millions of dollars set aside in a contingency fund – the legislature need only allocate those funds to adequately compensate the victims.

Second, the Attorney General should stop fighting attempts to make the victims whole. Stop sending attorneys to unemployment hearings to fight victims with late appeals. Stop appealing the remaining outstanding individual victims that are successful in getting their fraud cases dismissed. Stop challenging cases like Bauserman all the way to the Michigan Supreme Court.

Steve Gray is a clinical assistant professor and director of the University of Michigan Law School Unemployment Insurance Clinic.

Casey Farrington is a second-year law student in the Unemployment Insurance Clinic at the University of Michigan Law School.

Law students in MLAW's Unemployment Insurance Clinic represent claimants in Unemployment Insurance proceedings and research and advocate on Unemployment Insurance policy issues of importance to Michigan workers.