Until recently, employers had largely ignored unemployment claims other than to contest an occasional claim. Now, however, as employers consider different options to address the impact of the COVID-19 pandemic on their business, they find themselves struggling to understand the system and the impact it may have on their operations. While unemployment rules and regulations will vary on a state-by-state basis, there are some general principles that employers should understand to help them develop the best business plan for their operations and their employees.

How does unemployment compensation work?

In a general sense, state unemployment statutes provide for a benefit that is generally a percentage (usually less than half) of past weekly earnings up to a maximum weekly benefit amount (WBA) set by each state. State unemployment statutes also provide for limits on the number of weeks an employee is able to obtain benefits (usually about 26 weeks) and generally require that an employee be able to work and actively seeking employment.

Does the reason that an employee was separated from service matter?

States generally require that an employee become unemployed through no fault of his or her own, and will disqualify employees who are terminated for misconduct or who resign without good cause. In addition, employees who leave work for medical reasons are generally not entitled to unemployment because they are not “available” for work.

Has the COVID-19 pandemic had an impact on those reasons?

During the COVID-19 pandemic, many states have lifted or loosened restrictions on employees who cannot work for medical reasons, particularly those who have an underlying health condition that may put them at higher risk of serious infection. States may also consider employees who leave work because of such risks, or who have a spouse or child at significant risk, to have resigned or refused work for “good cause.” Finally, many states are temporarily suspending the requirement that employees certify that they are actively seeking work during the pandemic.

What impact does the CARES Act have on unemployment compensation?

The CARES Act significantly increased the availability of unemployment for many employees, as well as the amount of benefits available. Section 2104 of the CARES Act, Federal Pandemic Unemployment Compensation (FPUC), generally provides for an additional payment of $600 per week to individuals who are otherwise eligible for unemployment compensation under either state or federal law. This provision of the Act remains in place through July 31, 2020.

Section 2107 of the CARES Act, Pandemic Emergency Unemployment Compensation (PEUC), provides up to 13 weeks of unemployment compensation to individuals who would otherwise be entitled but have exhausted all rights to regular unemployment compensation under state or federal law and are “able to work, available for work, and actively seeking work.” This additional 13 week period increases to 39 the total number of weeks generally available to employees under state unemployment compensation statutes. The amount of unemployment compensation received during the 13-week extension is equal to the normal state benefit plus, through July 31, 2020, the additional $600 weekly benefit under the FPUC. This provision of the CARES Act expires on December 31, 2020.

With the additional $600, some employees are making more in unemployment than they made while employed. Is that right?

The additional $600 FPUC payment results in an unemployment compensation payment that often replaces 100 percent of an employee’s earnings or even results in unemployment compensation payments that are higher than the employee’s actual earnings while employed. Needless to say, unemployment compensation payments that are equal to or greater than an employee’s compensation for working can lead to a disincentive to return to work when an employer makes a job offer or attempts to recall an employee.

Can employees get benefits if their pay or hours are reduced?

A reduction in pay that is not a result of a reduction in hours will generally not entitle an employee to unemployment, because the employee remains employed full-time, albeit at a lower rate of pay. However, if the lower pay is a result of a reduction in hours, the employee generally will be entitled to file for benefits. Wages earned by an employee must be reported to the state unemployment compensation commission by the employee on a weekly basis. The wages earned will be offset against the employee’s unemployment compensation amount. Some states use a dollar for dollar offset while others use a more generous formula. It is important to note that, regardless of the state involved, as long as the employee is entitled to $1 in unemployment compensation, she will also be entitled to the $600 FPUC payment through July 31, 2020.

Can employees get benefits if they are receiving paid leave, such as sick leave, family leave or PTO?

No, those employees are not considered unemployed.

What happens if an employee refuses to return to work after being recalled?

Generally, an employee must certify weekly to their state unemployment commission that the employee is able and available to work. Accordingly, an employee who refuses an offer to return to work will be disqualified from receiving benefits unless the unemployment commission determines the employee had “good cause” to refuse. Some states (such as Maryland) mandate that an employer report an employee who refuses to return to work or refuses a job offer. Other states permit such a report, and many have forms or reports that an employer may file. As a last resort, states have mechanisms by which unemployment fraud may be reported—often a hotline or online report.

For unemployment compensation purposes, does it matter why an employee refuses to return to work?

If an employee refuses work, the commission will review the reasons behind the employee’s refusal and determine if the reason offered by the employee does or does not qualify as good cause under the state’s unemployment statute. For example, an employee who refuses recall or turns down a job offer simply because she is receiving more money through unemployment than she would earn working will not be able to show good cause for turning down the job offer and should not be entitled to receive unemployment compensation. On the other hand, an employee who refuses recall or turns down a job offer because he has been ordered to self-quarantine or has an underlying health condition that makes him more vulnerable to COVID-19, may be determined to have done so for good cause and be entitled to unemployment compensation. The more difficult situation involves an employee who refuses recall or turns down a job offer because the employee has a general fear of returning to the workplace out of concern for becoming infected with COVID-19. Although it is too soon for state unemployment commissions to have opined on this issue, the DOL, in connection with advice provided concerning the CARES Act, has stated that a generalized fear of contracting COVID-19 is not a credible health concern that would allow an employee to turn down a job offer or refuse recall. See question and answer here. As such, it seems likely that state unemployment commissions, when ultimately faced with the issue, may make the same determination.

What steps should employers take as they prepare to reopen?

With all the changes to the laws, employees are often equally confused about the law, and may not understand their rights and obligations under unemployment regulations. HR departments should strongly consider providing resources to employees to help them understand not only their rights to unemployment compensation, but also the limitations. Many states are creating “FAQs” for employees to help guide them through this difficult time, and employers should consider directing employees to those resources.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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