AUGUSTA — A controversial bill that would increase the penalties for unemployment fraud and the qualifications to receive out-of-work benefits is meeting stiff resistance from worker advocates. 

The proposal, LD 1725, was presented by the Department of Labor, which argued that an increase in unemployment claims has been accompanied by an increased possibility of fraud. Additionally, employer advocates are championing a provision in the proposal that would stop exempting vacation pay from the waiting period to receive benefits. 

Opponents, however, say the bill’s proposal to increase potential criminal penalties for unemployment fraud from a maximum of one year to 10 years in prison is extreme for a state that has one of the nation’s lowest unemployment fraud rates. In addition, they say the bill’s increased work-search mandates will force unemployed workers to take a job well beneath their skill and wage level.

The vacation pay provision would reverse a law passed by the Legislature in 2010 that exempted earned time off from the period a laid-off worker must wait before receiving unemployment benefits. The 2010 proposal was fiercely opposed by business advocates like the Maine State Chamber of Commerce, which argued that it increased the costs of maintaining the Unemployment Insurance Fund.

The fund is supported by Maine employers, who pay taxes to keep it solvent. According to the Maine Department of Labor, the state has one of the healthiest unemployment funds in the country. However, business groups worry that increased utilization is threatening the program.

The bill unveiled last week is supported by Gov. Paul LePage, who touted it last year as a crackdown on fraud.

Laura Boyett, director of the Bureau of Unemployment Compensation, told the Legislature’s Labor Committee last week that LD 1725 is designed to protect “the integrity” of the unemployment insurance fund. Boyett added that increased reliance on unemployment benefits has led to an increase in overpayments.

“With the increased claim volumes and durations, we’re also seeing an increase in overpayments and, unfortunately, unemployment fraud,” Boyette said. “This has triggered a renewed focus on program integrity to reduce overpayments, both fraud and non-fraud.”

Democrats on the committee and worker advocates countered that the overpayments had little to do with fraud.

According to the U.S Department of Labor, Maine has the fifth lowest rate of unemployment fraud in the country and lowest in New England. Its fraud rate is almost five times lower than the national average.

Maine labor statistics show that fraud represents less than half of 1 percent of unemployment claims. 

Those statistics led some Democrats on the Labor Committee to wonder if the fraud discussion was being used to advance a proposal that would establish some of the most punitive fraud penalties in the country and that target the unemployed.

“Some would argue that this is an attempt to exploit human emotion by talking about fraud,” Rep. John Tuttle, D-Sanford, said.    

If it passes, the bill would create a new fraud penalty ranging from less than a year in jail and up to 10 years if the fraud is in excess of $10,000.

Peter Gore, representing the state chamber, said employers valued the strengthening of fraud laws because employers ultimately funded the unemployment insurance fund. 

Gore noted that in 2010 employers saw a 68 percent increase in their UI taxes — about $54 million. He said the rate increased another 10 percent in 2011. It has remained flat in 2012. 

Given the investment by employers, he added, it was important that the system maintain its integrity by ensuring that benefit recipients are actively looking for a job and aren’t illegally receiving benefits. 

Opponents of the bill countered that the real problem is a lack of jobs, not Maine’s unemployed workers.

The bill contains a provision that would halve the amount of time a worker has to look for a job that offers wages and skills comparable to their last one, from 12 weeks to six weeks. 

Christine Hastedt, of Maine Equal Justice Partners, told lawmakers that the change subverted one of the primary goals of the unemployment insurance law. By forcing workers to take jobs below their skill level, she said, the bill undermined principles designed to ensure that workers aren’t forced to take jobs significantly below their prior wage level.

“This standard exists to ensure that workers can continue to make their highest contribution to the economy,” Hastedt said. 

There was also much debate about repealing the vacation pay exemption. Advocates for the current law argue that vacation pay is no different than earned wages and therefore shouldn’t be used to push back the time an individual can receive unemployment benefits.

“Vacation is just like wages, pay that workers earn before they get laid off, and it should be treated like any other wage,” said Matt Schlobohm, with the AFL-CIO.

Gore, with the state chamber, said the current law increased the costs to fund the unemployment insurance fund. He added that it also allowed unemployed workers to “double dip,” meaning an individual could keep their vacation pay while continuing to collect unemployment. 

The bill is expected to be one of the more hotly contested proposals this session. The public hearing was held last week. A work session and committee vote on the proposal is expected in February.

[email protected]