My question involves unemployment benefits for the state of: Massachusetts.
My company hired a young non-US worker for occasional office projects as a 1099 worker. She worked in this capacity for about 10 months, then we brought her on as an employee. We then found out that she did not have a work permit for the period she had worked before then (This was not clear on her social security card). But by this time, she had just gotten her work permit and was pregnant ( and recently married) and she said she needed the work, so we decided to be kind and keep her on.
She said she wanted to continue working for us after having her baby and only wanted to take about six weeks off. We are a very small company. We stressed that it is important that she let us know if she planned not to come back after the baby since we would need to plan accordingly. She repeatedly said that she wanted to continue working after the baby.
Her baby was born six weeks prematurely (we sent flowers; bought gifts for the baby). Four days after the baby was born, she came in to work for a couple of hours (which we thought was strange). At that time, she said she wasn't sure about when she could come back to work. We asked if she would come back after say 3-4 months when her baby was bigger (as she previously had said)' we asked if she could work fewer hours/days, we asked if she could come in to train a new person, we said she could bring her baby to work - to all of these things, she said she would think about it. She called the next day to say she didn't want to work any more and wanted to stay home with her baby. A couple of days later, she filed for unemployment, saying we had fired her. By then, she had been our "employee" (some times part-time) for less than three months.
We called unemployment and explained that she quit after just having had a premature baby! They denied her claim because she "had not earned sufficient wages in the base period".
Three months later, she has applied again for unemployment. We received a questionnaire from unemployment, saying that the question of whether an employer/employee relationship exists between us and this worker has arisen. We assume she is questioning the period during which she was paid as a 1099, trying to prove she was an employee not a contractor. Except during that time, she did not have permission to work in the US!!
Her claim is ridiculous on so many levels. Now, it seems she is assuming that we won't say that she was an illegal worker, because it will get our company into trouble.
We helped this person in many ways, so we are horrified by these actions. She completely duped us.
We have to call unemployment tomorrow morning about this. We think we should them that, for the "base period", she was working illegally. Would this disqualify her for unemployment? What would be the consequences for our company? We would greatly appreciate advice on this.
Thank you in advance.

