Gaming the system at the Division of Employment Security

Gaming the system at the Division of Employment Security

- in Law and the Courts
Dale Folwell heads the state’s Division of Employment Security.
Dale Folwell heads the state’s Division of Employment Security.

Update: A Wake County Superior Court  judge has  granted a preliminary injunction that  requires the North Carolina Division of Employment Security (DES)  to continue making hearing notices about contested unemployment claims available as it has done for the past decade.

With little fanfare in a quiet Wake County courtroom yesterday, Dale Folwell, the head of the state’s Division of Employment Security, squared off with a local attorney over a new agency directive restricting attorney access to unemployment appeal notices that had long been available for the asking.

While the question before Superior Court Judge Paul Ridgeway was whether those notices likely constituted public records such that he should stop DES from enforcing that directive pending a trial, what was said and unsaid by the parties spoke volumes about what the underlying intent of that policy shift just might be.

State attorneys told Ridgeway that DES had been providing those hearing notices to attorneys for years in error and in violation of confidentiality requirements, but Folwell’s testimony and his own actions leading up to the policy change demonstrated little concern for confidentiality.

What Folwell wanted to do instead was slow down the provision of the notices to attorneys and jack up the cost to them for that service, argued Jim White on behalf of the attorney challenging the new restrictions.

The effect?

According to former DES deputy chairman and chief counsel Thomas Whitaker, who testified yesterday, not releasing the notices would severely restrict unemployment claimants’ ability to retain counsel and have due process during any hearing,

And put the lawyers trying to reach these claimants out of business, added White.

“In the end, if these law firms are out of business and people don’t have affordable counsel, we can reduce the amount of unemployment that’s paid in the state,” White said.

Connecting claimants with attorneys

Over the past ten years, Monica Wilson has built a law practice around representing clients involved in unemployment appeals — most often people who’ve been denied benefits by the state.

The Durham attorney set out on that path after realizing from her experience as a former DES hearing officer that employers had a distinct advantage over individuals in the benefits review process. They had attorneys well-versed in this area of the law and knew the ins and outs of the state system, Wilson testified yesterday.

Critical to her success has been the ability to reach those individuals before scheduled appeal hearings and offer them her expertise at an affordable cost.

Wilson and other attorneys doing this type of work have been able to do that thanks to a decade-long DES practice of allowing them to obtain copies, on a daily basis but at a cost, of appeal hearing notices sent to claimants.

According to Thomas Whitaker, DES deemed those notices public records under North Carolina law — accessible by anyone asking and willing to pay the fee — pursuant to an Attorney General opinion and with the approval of the full Employment Security Commission in 2004.

Then along came Dale Folwell, appointed a year ago to run the beleaguered DES office, who in February sharply curtailed that practice because of professed concerns ranging from a breach of security to preferential treatment being given to local attorneys able to pick up daily notices.

With just two days’ notice, Folwell advised attorneys that after February 28 they could no longer pick up the hearing notices on a daily basis. Instead, notices would be batched out and mailed three times a month at a cost of $600 per month – twice the amount previously charged.

After attempts to flush out Folwell ‘s reasons for the change, including a recorded  telephone conversation with the director during which he offered only silence when asked for an explanation, Wilson filed a lawsuit claiming that he and DES were arbitrarily withholding public records.

A matter of public record

On March 3, Wake County Superior Court Judge Michael Morgan issued a temporary order preventing DES from changing the practice of providing copies of those notices on a daily basis until the court could consider further arguments from the parties and determine whether a preliminary injunction should follow.

After learning of that order from media reports or otherwise, the U.S. Department of Labor jumped into the fray, advising DES in a letter to Folwell dated March 7 that the “selling of notices of appeals” to attorneys violated confidentiality laws and that DES should stop the practice immediately, else risk losing federal unemployment grant money.

Against that backdrop, Superior Court Judge Paul Ridgeway heard testimony and considered other evidence yesterday during the preliminary injunction hearing to determine whether Wilson was likely to succeed on the merits of her public records claim and whether she would be harmed by the change in DES policy pending a final resolution of her case.

The state’s attorneys argued that unemployment records remained confidential until a final determination was made.

But White said that was an untenable position, because appeals could extend through the administrative process and the court appellate system. Consistent with the commission’s 2004 determination, unemployment records became public once the claim moved from the initial adjudication to an appeal.

And in any event, the notices only disclose the names, addresses and phone numbers of the employee and employer; the last four digits of the employee’s social security number; the date of the hearing; and the statutory provision involved.  No personal details regarding the claimant’s situation is revealed.

As for the position taken by the U.S. Department of Labor in the purported cease-and-desist letter, White argued that it had long been the practice of that agency to defer to state law on what did and did not constitute a public record.

What North Carolina deemed to be a public record, and how DES should proceed,  was thus a determination falling squarely within Judge Ridgeway’s domain.

Flags on the field

On its face this is a public records battle, with Folwell‘s attorneys claiming to be protecting DES “customers” – defined as both claimants of unemployment benefits and employers who’ve paid into the system – from the release of confidential information.

But Wilson has cast Folwell ‘s motivation in a more sinister light, insinuating that by cutting attorney access to people contesting unfavorable unemployment determinations he can reduce ultimate payments on benefit claims.

That suspicion aligns neatly with the director’s professed mission to rein in overpayments of benefits and reduce case backlogs, which he has recently attributed to having unspecified “flags thrown on the field.”

And it gains some traction in light of the shifting explanations given for the policy change.

Folwell testified yesterday that he was “astounded” to learn that hearing notices were being released, but his actions as late as February support the argument that his new policy had little to do with confidentiality and everything to do with slowing down attorney access and making it more expensive to reach claimants.

One attorney who submitted an affidavit along with Wilson’s complaint said that when she met Folwell in the DES mail room in late January while picking up hearing notices, he asked several questions about how attorneys used these notices, how they contacted claimants and what type of return they saw from those claimants.

And when he finally issued the new directive, he included no provisions regarding confidentiality.

Folwell also testified that he’d had concerns about security breaches, especially after “that state to the south” experienced a massive data breach (presumably the breach in the South Carolina unemployment office in January 2014).

And he alluded to an unspecified security breach in the building that someone (he couldn’t remember who) had told him about early in the summer of 2013.

Yet the only security concern identified in connection with the release of hearing notices was the practice of attorneys and couriers entering the DES building by a back entry to pick up those notices – certainly an issue that could be easily corrected.

Addressing these concerns during cross-examination, Jim White asked the director rhetorically where he directed his energies.

You knew about an alleged security breach in the summer, White said to Folwell, but you let that lie.  And what did you do to secure the mailroom?  Did you look at how FedEx, UPS, or private couriers entered? Did you question how the door gets answered?

No, said White, answering his own question. You only looked at the attorneys. Your focus was on the attorneys.

A decision from Judge Ridgeway on the preliminary injunction is expected today.

About the author

Sharon McCloskey, former Courts, Law and Democracy Reporter for N.C. Policy Watch, writes about the courts and decisions that impact North Carolina residents. McCloskey also wrote for Lawyers Weekly and practiced law for more than 20 years. Follow her online at or @sharonmccloskey.