Fraudulent receipt of unemployment benefits and legal risks involved for employers

Fraudulent receipt of unemployment benefits and legal risks involved for employers

Unemployment benefits are provided to employees who involuntarily resign under the Employment Insurance Act, and the reason for separation is determined based on the substance of the case rather than its form.

Therefore, even if the employee is processed as having resigned upon recommendation due to “poor work performance”, the employee may be eligible for unemployment benefits only if it can be objectively proven that the separation was, in substance, initiated by the employer.

The government authority determines the reason for separation by considering factors comprehensively. In the following cases, there is a high possibility that the case may be deemed fraudulent receipt of unemployment benefits. In such cases, the reason for separation may be reclassified as voluntary resignation, and the unemployment benefits received may be subject to claw-back by the government.

- Where a voluntary resignation is falsely processed as a resignation upon recommendation of the company.
- Where there is no objective evidence supporting poor work performance.
- Where the employee is immediately processed as having resigned without being given an opportunity for improvement
- Where a mutually agreed separation is recorded as a resignation upon recommendation of the company.

In the event of fraudulent receipt of unemployment benefits, the employee may be subject to claw-back of the benefits received and additional assessment of up to five times the amount received. If it is found that the employer conspired with the employee by providing fraudulent employment separation certificate, etc., the employer may also be held responsible for the following legal risks.

- Joint and several liability for the amount fraudulently received
- Administrative sanctions and administrative fines
- Potential criminal punishments

A resignation upon recommendation due to poor work performance may be recognized as legitimate, however, objective evidence is essential. If supporting evidence is insufficient, the separation may deem to be a voluntary resignation, which may lead to a high risk of being regarded as fraudulent receipt of unemployment benefits. Therefore, employers should proactively manage legal risks by maintaining proper records throughout the overall personnel management process.