COLORADO COURT OF APPEALS                                        2016COA172


Court of Appeals No. 16CA0369
Industrial Claim Appeals Office of the State of Colorado
DD No. 20749-2015


Lizabeth A. Meyer,

Petitioner,

v.

Industrial Claim Appeals Office of the State of Colorado and Division of
Unemployment Insurance, Benefit Payment Control,

Respondents.


               ORDER AFFIRMED IN PART, REVERSED IN PART,
                 AND CASE REMANDED WITH DIRECTIONS

                                 Division I
                         Opinion by JUDGE DAILEY
                       Taubman and Freyre, JJ., concur

                        Announced November 17, 2016


Law Office of Warren Domangue, Warren Domangue, Lakewood, Colorado, for
Petitioner

Cynthia H. Coffman, Attorney General, Evan Brennan, Assistant Attorney
General, Denver, Colorado, for Respondent Industrial Claim Appeals Office

No Appearance for Respondent Division of Unemployment Insurance, Benefit
Payment Control
¶1    In this unemployment compensation benefits case, petitioner,

 Lizabeth A. Meyer (claimant), seeks review of a final order of the

 Industrial Claim Appeals Office (Panel). The Panel upheld a hearing

 officer’s decision that claimant had received an overpayment of

 unemployment compensation benefits because of unreported

 earnings from her employment. The Panel also upheld the

 imposition of monetary penalties against claimant. We affirm the

 Panel’s order in part, reverse in part, and remand the case for entry

 of a new order.

                   I. Factual and Procedural Background

¶2    Claimant filed an unemployment compensation benefits claim

 with an effective date of March 11, 2012. Following that date,

 claimant worked part-time as a sales associate, and, in May 2012,

 she obtained full-time work as a controller for another company.

¶3    A deputy for the Division of Unemployment Insurance

 (Division) conducted an audit of claimant’s file and determined that

 she had been overpaid unemployment compensation benefits in the

 amount of $1712 for the period from March 18, 2012, through May

 19, 2012. The deputy found that claimant had underreported her

 hours and earnings for certain weeks during that period. The


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 deputy also assessed a monetary penalty of $1112.80 against

 claimant.

¶4    Claimant appealed the deputy’s determination and an

 evidentiary hearing was conducted. At the hearing, claimant

 conceded that the hours reported on her paystubs, rather than the

 ones she reported online to the Division, accurately reflected the

 hours she had worked. She asserted, however, that she was

 required only to report her taxable, rather than gross, earnings to

 the Division.

¶5    The hearing officer accepted, except for one week, claimant’s

 concessions regarding the number of hours she had worked after

 applying for unemployment compensation benefits. The hearing

 officer concluded, however, that claimant had been instructed to

 report accurately her gross earnings and hours for each benefit

 week to the Division. Claimant had also been advised that giving

 false information in her request for payment constituted fraud.

¶6    The hearing officer found that claimant knowingly misreported

 her gross earnings and hours for certain weeks which resulted in

 her being overpaid $1890.64 in unemployment compensation

 benefits. The hearing officer also rejected claimant’s explanations


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  regarding the method she used to report her hours and earnings

  and found that her misreporting was willful. The hearing officer

  consequently assessed a monetary penalty of $1228.91.

¶7     Claimant appealed the hearing officer’s decision to the Panel,

  which affirmed on review.

¶8     Claimant then brought this appeal. After the case was at

  issue, we requested that the parties address the following question:

            Whether any payment made to or on behalf of
            an employee or his beneficiary under a
            cafeteria plan (within the meaning of 26 U.S.C.
            section 125), as specified under section
            8-70-142(1)(c)(VIII), C.R.S. 2015, affects the
            amount of wages a claimant must report as his
            or her earnings when filing a claim for
            unemployment benefits?

                         II. Standard of Review

¶9     We may set aside the Panel’s decision if the findings of fact do

  not support the decision or the decision is erroneous as a matter of

  law. See § 8-74-107(6), C.R.S. 2016; Colo. Div. of Emp’t & Training

  v. Parkview Episcopal Hosp., 725 P.2d 787, 790 (Colo. 1986).

                    III. Reportable Earnings; Wages

¶ 10   Claimant contends that the Panel erred in determining that

  she was required to report her gross earnings instead of her taxable



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  earnings. Relying on section 8-70-142, C.R.S. 2016, claimant

  asserts that she was not required to report as earnings any

  contributions she made to her 26 U.S.C. section 125 (2012)

  cafeteria plan. We agree with claimant that the term “wages”

  excludes any contributions she made to a section 125 cafeteria

  plan.

                             A. Legal Framework

¶ 11      Section 8-70-142 identifies what types of remuneration are not

  included as “wages.” As pertinent here, section 8-70-142(1)(c)(VIII)

  excludes “[a]ny payment made to or on behalf of an employee or his

  beneficiary . . . [u]nder a cafeteria plan (within the meaning of 26

  U.S.C. section 125).”

¶ 12      A cafeteria plan allows an employer to offer its employees a

  variety of benefits that may include tax advantages. See 26 U.S.C.

  §§ 3121(a)(5)(G), 3306(b)(5)(G) (2012); Lee v. Emp’t Dep’t, 190 P.3d

  453, 453 (Or. Ct. App. 2008). Contributions to a cafeteria plan by

  an employer can be made through a salary reduction agreement

  with an employee in which the employee agrees to contribute a

  portion of his or her salary on a pretax basis to pay for the benefits.

  Id. These contributions are not considered wages for federal income


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  tax purposes and are not subject to Social Security and federal

  unemployment taxes. Id.

                       B. The Division’s Arguments

¶ 13   In its supplemental brief, the Division acknowledges that the

  term “wages,” as defined in section 8-70-142, excludes any

  contributions made to a section 125 plan. However, without

  specifically addressing the effect of this provision, the Division

  argues that claimant failed to present sufficient evidence that the

  cafeteria plan to which she contributed met the requirements for a

  section 125 plan. The Division also argues that it properly

  determined that clamant was responsible for the overpayment

  because she willfully misrepresented her earnings and the number

  of hours she worked for the nine-week period at issue.

          C. Division Instructions Regarding Reportable Wages

¶ 14   During the hearing, the Division presented copies of online

  forms claimant filled out in order to receive unemployment

  compensation benefits. These forms requested claimant to list the

  number of hours she worked during the week and the amount that

  she was paid or would be paid. The forms also contained a

  “certification agreement,” which specified that claimant understood


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  that “[i]f I work during any week for which I am claiming UI

  benefits, I must report all gross earnings in the week earned

  regardless of whether or not I have been paid.” (Emphasis added.)

¶ 15    The requirement to report “gross earnings” is repeated in an

  administrative regulation. See Dep’t of Labor & Emp’t Reg. 2.9.2, 7

  Code Colo. Regs. 1101-2:2.9. This regulation, which is entitled,

  “Disqualifying Payments,” provides as follows:

             For the purposes of determining weekly
             benefits, “wages/earnings” is defined as any
             income or remuneration received in exchange
             for services performed, including amounts that
             have been deducted under a plan for tax
             exemption or deferral.

  Id.

¶ 16    Thus, through this regulation, as well as the directions in the

  online forms, the Division has required that a claimant report his or

  her gross earnings for each week in which the claimant sought

  unemployment compensation benefits. However, this requirement

  is contrary to the plain language of the statute, which excludes

  from the definition of “wages” certain contributions to a section 125

  cafeteria plan. See also § 8-73-107(1)(f), C.R.S. 2016 (providing

  that a claimant is ineligible to receive unemployment compensation



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  benefits for any week unless the claimant’s “total wages earned” are

  less than the weekly benefit amount).

¶ 17   We therefore conclude that the Division erred in requiring

  claimant to report her “gross earnings” rather than her “wages” as

  defined by section 8-70-142 when reporting her “earnings” to the

  Division during a benefit week.

           D. Evidence Regarding Section 125 Contributions

¶ 18   We also conclude that there was sufficient evidence to show

  that claimant contributed to a section 125 cafeteria plan for

  unemployment purposes.

¶ 19   The administrative record included copies of claimant’s

  paystubs during the relevant nine-week period. Claimant’s

  paystubs from Coach, from the period from March 11, 2012,

  through May 17, 2012, showed that she paid medical, dental,

  vision, and FSA benefits using pretax earnings. These paystubs

  also showed “FIT Taxable Wages,” which equaled claimant’s gross

  earnings minus her pretax contributions. A paystub from

  claimant’s other employer during this period (Sutrak), from May 6,

  2012, through May 21, 2012, did not show any pretax deductions.




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¶ 20   In addressing whether claimant’s paystubs showed any

  section 125 deductions, the Panel stated that they had not been

  admitted as exhibits. However, that determination is incorrect. The

  record shows that the hearing officer accepted the Division’s

  submission of the paystubs into evidence and that claimant

  testified about them extensively. Consequently, we also disagree

  with the Panel’s statements that claimant only generally testified

  about the deductions on her paystubs and that it was not clear

  from her testimony whether the deductions met the requirements of

  “26 U.S.C. 3306(b)(5)(G) and 26 U.S.C. § 125.” However, claimant’s

  paystubs from Coach show that her federal taxable earnings were

  reduced by the amount of her pretax contributions for medical,

  dental, vision, and FSA benefits. Such deductions are

  characteristic of section 125 cafeteria plans. See Lee, 190 P.3d at

  453; see also Denver Post, Inc. v. Dep’t of Labor & Emp’t, 199 Colo.

  466, 469, 610 P.2d 1075, 1077 (1980) (employee benefits in the

  form of medical, life, sickness, accident insurance, and pension

  contributions did not constitute wages for unemployment

  purposes); City & Cty. of Denver v. Indus. Comm’n, 707 P.2d 1008,

  1010 (Colo. App. 1985) (payments made to police officers on


                                    8
  account of accident disability were not counted as wages for

  determining monetary eligibility for unemployment compensation

  benefits).

¶ 21   Therefore, based on the foregoing and the fact that

  unemployment compensation benefit hearings are to be expedited

  proceedings, we conclude that claimant met her burden to establish

  that the amounts she paid for these benefits while working for

  Coach were excludable from her “wages” under section

  8-70-142(1)(c)(VIII). See Campbell v. Indus. Claim Appeals Office, 97

  P.3d 204, 210-11 (Colo. App. 2003) (recognizing that unemployment

  compensation hearings are intended to be informal and expeditious,

  and it would impose an onerous burden on an employee to present

  evidence that is not directly relevant to the circumstances of his or

  her separation from employment); Ward v. Indus. Claim Appeals

  Office, 916 P.2d 605, 607 (Colo. App. 1995) (in an unemployment

  compensation proceeding, the initial burden is on the claimant to

  establish a prima facie case of entitlement).

                  IV. Eligibility; Overpayment; Penalty

¶ 22   Claimant next contends that the Panel erred in upholding the

  hearing officer’s determination that she knowingly failed to report


                                    9
  her earnings accurately and that both the hearing officer and Panel

  erred in determining that she had received an overpayment and in

  imposing a monetary penalty. We agree in part.

                           A. Legal Framework

¶ 23   Section 8-73-107(1)(f) provides that a claimant is ineligible to

  receive unemployment compensation benefits for any week in which

  the “total wages earned” for the week exceed the weekly benefit

  amount. In addition, if the claimant’s earnings are less than the

  weekly benefit amount, section 8-73-102(4), C.R.S. 2016, requires

  that a claimant’s weekly benefit amount be reduced by the amount

  by which the “wages payable” to the claimant for a particular week

  exceed twenty-five percent of the weekly benefit amount. Further, a

  claimant is not entitled to unemployment compensation benefits if

  fully employed, which equates to thirty-two or more hours per week.

  See § 8-70-103(12.5), C.R.S. 2016 (definition of “fully employed”);

  see also § 8-70-103(19) (definition of “partially employed”).

¶ 24   The Division is required to recover any unemployment

  compensation benefits a claimant receives due to fraud. See

  § 8-74-109(2), C.R.S. 2016; see also Dep’t of Labor & Emp’t Regs.

  15.1.3, 15.2, 7 Code Colo. Regs. 1101-2:15 (allowing for the write


                                    10
  off or waiver of overpaid benefits in certain circumstances).

  Colorado regulations consider it a “false representation” when an

  individual makes a report “that he or she knew to be false or any

  representation made by an individual with an awareness that he or

  she did not know whether the representation was true or false.”

  See Dep’t of Labor & Emp’t Reg. 15.2.5, 7 Code Colo. Regs.

  1101-2:15.2.5.

¶ 25   Section 8-81-101(4)(a)(II), C.R.S. 2016, imposes a monetary

  penalty of sixty-five percent of the overpayment amount if the

  overpayment resulted from the claimant’s “false representation” or

  “willful failure to disclose a material fact.” See Woollems v. Indus.

  Claim Appeals Office, 43 P.3d 725, 726 (Colo. App. 2001). This

  statutory standard does not require an intent to defraud, but rather

  is met when the false representation is made or the failure to

  disclose is done “knowingly.” See Div. of Emp’t & Training v. Indus.

  Comm’n, 706 P.2d 433, 435 (Colo. App. 1985). In addition,

  Regulation 15.2.6 defines a “willful failure to disclose a material

  fact” as “knowingly withholding material information from the

  division.” Dep’t of Labor & Emp’t Reg. 15.2.6, 7 Code Colo. Regs.

  1101-2:15.2.6. A claimant’s mental state may be inferred from


                                    11
  circumstantial evidence. See Div. of Emp’t & Training, 706 P.2d at

  435.

                        B. Application to This Case

                            1. Sutrak Earnings

¶ 26     Initially, we need not consider whether the earnings claimant

  reported for Sutrak were considered “taxable wages” or “gross

  earnings” because claimant was not otherwise eligible for

  unemployment compensation benefits for the period she worked for

  Sutrak.

¶ 27     The hearing officer found, and the record supports, that

  claimant worked over thirty-two hours per week for Sutrak during

  the period from May 6, 2012, through May 21, 2012. In addition,

  claimant’s income during those weeks exceeded the amount that

  claimant received in unemployment compensation benefits. Thus,

  although claimant received unemployment compensation benefits of

  $500 a week for the two weeks she worked for Sutrak, she was

  ineligible to receive these benefits based on her weekly earnings,

  which exceeded $1000 per week, for which no pretax deductions

  were taken, and because she worked full-time during this period.

  See §§ 8-70-103(12.5), (19); 8-73-107(1)(f).


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¶ 28   Therefore, we conclude that the Division properly determined

  claimant was overpaid $1000 in unemployment compensation

  benefits for the two-week period from May 6, 2012, through May 21,

  2012. We also conclude that the Division did not err in upholding

  the imposition of a sixty-five percent penalty ($650) for this period.

  As the hearing officer determined, with record support, claimant

  knowingly underreported her hours and earnings for this period.

                            2. Coach Earnings

¶ 29   In contrast, claimant’s paystubs from Coach showed that she

  did not work more than thirty-two hours in any week. In addition,

  the amounts she reported as “wages” for those weeks were less than

  her benefit amount. Thus, we conclude that claimant was not

  automatically ineligible from receiving unemployment compensation

  benefits for the weeks she worked exclusively for Coach and

  therefore we need to consider what her “taxable wages” were for this

  period.

¶ 30   The hearing officer prepared a table which showed the

  difference between what claimant reported in earnings and the

  amount of “taxable wages” that was shown on her paystubs. Based

  on that table, we may calculate the amount claimant was overpaid


                                    13
  by using the formula set forth in section 8-73-102(4). This formula

  requires a deduction from the weekly benefit amount of any wages

  that are in excess of twenty-five percent of the weekly benefit

  amount.

¶ 31   The Division calculated claimant’s weekly benefit amount as

  $500. Thus, the maximum wages claimant could earn in any week

  without a deduction was $125. Using this information, the

  following chart shows claimant’s “taxable earnings,” her reported

  earnings, unemployment compensation benefits paid, and any

  overpayment for each week she worked exclusively for Coach.

       Week       Taxable    Reported Benefits     Overpayment
       Ending     Wages      Wages    Paid         Amount

       3/24/12    $165.00    $75.87      $500.00   $40.00
       3/31/12    $160.69    $160.69     $464.00   $0.00
       4/7/12     $165.71    $160.69     $464.00   $5.00
       4/14/12    $95.49     $165.71     $459.00   ($41.00)
       4/21/12    $161.32    $95.49      $500.00   $37.00
       4/28/12    $158.56    $165.00     $460.00   ($6.00)
       5/5/12     $165.46    $125.00     $500.00   $41.00

                                         Total     $76.00

¶ 32   The hearing officer, in determining that claimant had been

  overpaid benefits, did not calculate the overpayment based on

  claimant’s “taxable wages,” but rather on her gross earnings. As is



                                    14
  apparent, if “taxable wages” are used, the amount that claimant

  was overpaid is substantially less than the amount calculated by

  the hearing officer, only $76 versus $890.64.

¶ 33   Nevertheless, in imposing a monetary penalty, the hearing

  officer found that claimant knowingly misreported her earnings and

  hours for these weeks. Although the hearing officer found that

  claimant misreported her earnings based on the difference between

  her gross earnings and the “taxable wages” she reported to the

  Division, the hearing officer also found that claimant reported

  working only 84 hours when she actually worked 153 hours during

  that period. The hearing officer further found that claimant was

  aware of her obligation to report her earnings and hours accurately

  and deliberately failed to do so. Moreover, the hearing officer noted

  that even if the hearing officer accepted claimant’s argument that

  she was to report only her “taxable earning,” she failed to do that.

¶ 34   Accordingly, in light of the foregoing, we conclude that the

  hearing officer did not err in concluding that a monetary penalty

  was appropriate. However, because claimant was overpaid only $76

  in unemployment compensation benefits for this period, the sixty-

  five percent monetary penalty is only $49.40, for a total of $125.40.


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                       V. Continuance of Hearing

¶ 35   Claimant further contends that her due process rights were

  violated because the hearing officer erred in not continuing the

  hearing so that she could submit a document showing that

  cafeteria plan deductions were not considered wages for purposes of

  unemployment. However, we conclude that this contention is moot,

  and we need not address it, based on our determination that the

  hearing officer erred in not using claimant’s “taxable wages” in

  determining whether she had been overpaid unemployment

  compensation benefits during the period she exclusively worked for

  Coach.

                             VI. Conclusion

¶ 36   We affirm that part of the Panel’s order holding that claimant

  was overpaid $1000 in unemployment compensation benefits for

  the two-week period she worked for Sutrak. We also affirm the

  imposition of a sixty-five percent monetary penalty, in the amount

  of $650, for this period. We reverse that part of the Panel’s order

  holding that claimant was overpaid $890.64 in benefits for the

  period she worked exclusively for Coach, as well as the imposition

  of a sixty-five percent monetary penalty on this amount, and


                                    16
remand this issue to the Panel with directions to enter a new order

holding that claimant was overpaid $76 in benefits for this period

and imposing a sixty-five percent penalty of $49.40, for a total

payment of $125.40.

     JUDGE TAUBMAN and JUDGE FREYRE concur.




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