Vermont Labor Department begins rulemaking to allow waivers for unemployment overpayments

The Vermont Department of Labor has begun the administrative rulemaking process to let adjudicators waive some unemployment insurance overpayments under an "equity and good conscience" standard created after the COVID-19 pandemic, department officials updated the Senate Economic Development, Housing & General Affairs Committee.

The rule change implements language from Act 184 and the federal CARES Act-era guidance, officials said. "The change that came out of, Act 184, was around amending our rules to include a provision called equity in good conscience," Robert Depper, chief general counsel for the Department of Labor, told the committee. The department filed required notices with the Secretary of State in March and the public-comment notice was published March 26; a public hearing is scheduled for April 30 and the comment period runs 30 days.

Why it matters: During the pandemic the state temporarily paid benefits far beyond typical volumes and federal guidance evolved repeatedly, creating situations where claimants were paid from the wrong program or received benefit “bumps” added by federal or state programs. Michael Harrington, commissioner for the Department of Labor, told the committee that Vermont typically paid benefits to about 16,000 people in a year, but in 2020 paid benefits to about 98,000 people "to the tune of about $1,200,000,000." The department said much of the post-pandemic work is untangling program misclassifications and identifying improper payments created by shifting federal rules.

What the proposed rule does: The changes modify Employment Security Board rules to authorize weighing case facts and waiving overpayments when collecting them would be "against equity and good conscience." Department staff said the rulemaking will apply to overpayments determined on or after July 1, 2024, and that the department will notify those claimants about the waiver process when it issues determinations. If a claimant already repaid an overpayment and is later granted a waiver, department staff said the claimant would be refunded the amount paid, "unless there's another credit." (Department officials described the refund process but noted interactions with other credits could affect net amounts.)

Rulemaking and timeline: Department staff said they filed a notice with the Secretary of State on March 20 and it appeared on the Secretary of State's weekly publication March 26. After the public comment period closes and the department reviews comments, it plans to file finalized rules with LCAR; the department's goal is to have rules in place by the start of the next fiscal year, July 1, 2025. Depper described the Employment Security Board as the appeals body for UI adjudications; the department currently has three administrative law judges and is hiring a fourth.

Operational and system work: The department also described continuing operational work to identify and categorize overpayments. Harrington said the agency lacks a reliable historic breakdown of overpayments by cause (for example, claimant fraud, identity theft, or agency error) because legacy systems do not aggregate types easily; he said staff will try to produce a historical breakdown on request. The department is also modernizing its IT systems and aims for a live rollout around May–July 2026, allowing better tracking and reporting. "We're keeping tabs on this very closely," Harrington said; he added the modernization team includes roughly 40 contractors and about 20 department staff.

Public outreach and next steps: Department staff said they will issue notices to claimants who received overpayments within the covered window and will triage waiver requests when determinations are filed. The department emphasized the rule is not retroactive beyond the specified window and that the waiver authority would be exercised case by case. The department offered to return to the committee with written or in-person updates after the public comment period and to provide historical overpayment figures broken out by category where possible.

Committee concerns and clarifications: Senators asked how the public is notified (the Secretary of State publishes rule notices weekly), how many claimants will be affected (department staff said the exact number was not yet specified), and how the waiver process would interact with prior technical corrections discussed elsewhere. The department noted that some pandemic-era overpayments resulted from program misclassification rather than deliberate fraud and that federal guidance during the pandemic repeatedly changed.

What's next: Public comments on the Employment Security Board rule will be accepted through the Secretary of State process; the department will hold a hearing April 30 and then compile and review comments before filing with LCAR. The department's stated goal is an effective rule by July 1, 2025, and additional operational improvements tied to an IT modernization project are targeted for mid-2026.