The Basics of Unemployment Compensation Law|
by Gerard Panaro, BOL Guru
Any time an employee is discharged, or even quits of his or her own free will, s/he will file a claim for unemployment benefits. Employers are often ignorant of how the process works and do not know how to contest claims or whether it is worth it even to bother. This is an unfamiliar area even to many lawyers. The purpose of this article is to take the reader through the unemployment compensation process, using New York law as the basis, so that they will be better prepared to deal with claims the next time they arise.
Although there is a federal component to unemployment compensation, the system is governed by state law. And although there is a high degree of uniformity among the states, there are differences as well. New York law was chosen because it is one of largest states and a business, commercial and employment center.
Perhaps the place to start with unemployment compensation law is to note that the system is stacked against the employer; the bias is in favor of finding claimants eligible for unemployment benefits and this "tilt" is frankly expressed in the statutes themselves, albeit in more formal legislative and statutory language. Consider this statement of the public policy of New York, which is at the very head of its unemployment compensation law, and fairly typical:
As a guide to the interpretation and application of this article, the public policy of this state is declared to be as follows: Economic insecurity due to unemployment is a serious menace to the health, welfare, and morale of the people of this state. Involuntary unemployment is therefore a subject of general interest and concern which requires appropriate action by the legislature to prevent its spread and to lighten its burden, which now so often falls with crushing force upon the unemployed worker and his family. 1
So that's the first consideration in deciding whether to contest a claim for unemployment: knowing the deck is stacked against you, at least as a general proposition.
Employers are often unaware that a claimant can file for benefits either where s/he works or where s/he lives. Even if an employer has only a single employee in another state, it may be required to pay into the state's unemployment compensation fund.2 If it is not required to do so, it may elect to do so. Even if the employer is neither required to, nor elects to, contribute to an out-of-state fund, its employee may still apply for, and be eligible for, benefits in his or her state of residence.
Moreover, under certain circumstances, a primary employer which contracts with a secondary employer may still be liable for contributions to the unemployment fund. New York law, Sec. 560, provides:
Whenever one employer contracts with a second employer for any work which is part of the first employer's usual trade, occupation, profession or enterprise, the first employer shall be liable for any contributions otherwise payable by the second employer, based upon wages paid in respect to such work, unless the second employer is free to do business with anyone who may wish to contract with him. Contributions so paid by the first employer on behalf of the second employer shall be deemed paid by the second employer. If the first employer fails to pay, on the date prescribed by the commissioner, contributions due on wages paid by the second employer, the commissioner may collect such deficiency from the second employer.
New York law defines employment to include service inside or outside of the state. The definition of employment includes a person's service within and without the state, if the person's "base of operations" is in New York, or if "the base of operations or place from which such service is directed or controlled is not in any state in which some part of the service is performed, the person's residence is in this state." 3 In other words, if the employer is in Illinois, but the worker lives in New York, s/he is eligible for unemployment benefits in New York.
Moreover, New York also provides for cooperation with the unemployment compensation systems of other states. Section 536 of the New York statute says that the commissioner of unemployment "is authorized to enter into agreements with the appropriate agencies of other states or the United States whereby rights to benefits accumulated under the unemployment compensation laws of the several states or of the United States, or both, may constitute the basis for the payment of benefits under terms which the commissioner finds will be fair and reasonable as to all affected interests and will not result in any substantial loss to the [New York state unemployment compensation] fund."
The New York commissioner is further:
authorized to enter into arrangements with the appropriate agencies of other states or of the United States (i) whereby remuneration or services, upon the basis of which an individual may become entitled to unemployment benefits under the unemployment compensation law of another state or of the United States shall be deemed to be remuneration and weeks of employment for the purposes of this article, provided such other agency has agreed to reimburse the unemployment insurance fund for such portion of benefits paid under this article upon the basis of such remuneration or services as the commissioner finds will be fair and reasonable as to all affected interests, and (ii) whereby the commissioner will reimburse such agencies with such reasonable portion of unemployment benefits, paid under the laws of any such other states or of the United States upon the basis of employment or remuneration paid by employers for employment, as the commissioner finds will be fair and reasonable as to all affected interests.
The commissioner shall participate in any arrangements for the payment of benefits on the basis of combining a claimant's remuneration and services covered under this article with those covered under the laws of other states which are approved by the secretary of labor of the United States as provided in the federal unemployment tax act. The terms of any such arrangements shall be deemed to comply with the foregoing provisions of this paragraph.
There is no set time within which a claimant has to file a claim for unemployment benefits, because the filing of a "valid claim" depends on the fulfillment of certain conditions. This is different from a statute such as Title VII, which requires filing a charge of discrimination within 180 days (or 300 days) of the occurrence of the violation and further requires filing suit within 90 days of receiving a "right to sue" letter from the EEOC. Thus, a person who files a claim for unemployment benefits may do so weeks or months after separating from employment, and the claim may be valid.
Under New York law, to file a "valid original claim," a claimant must meet four conditions: (a) be able to work and available for work; not be subject to disqualification or suspension of benefits; (c) the claimant's "previously established benefit year, if any, has expired; and, of course, (d) have been paid remuneration."4 So, for example, suppose the employer has discharged a pregnant employee and further that her doctor says that due to a medical condition related to the pregnancy, she is unable to work. As long as this condition exists, which may be for several months, the person cannot file a "valid original claim" because she is unable and unavailable for work. 5
Nor does the employee necessarily have to work for the employer for a set, pre-determined number of hours or months before being eligible to file a claim. Here again, unemployment compensation law differs from other statutes, such as the Family and Medical Leave Act, for example, which defines an "eligible employee" as one who has worked for the covered employer for at least 1,250 hours and the previous twelve months or ERISA, which likewise requires a minimum of 1,000 hours of service for eligibility under a retirement plan. Once the claimant has satisfied the minimum earnings requirements and some other conditions, s/he may be eligible to file a claim against the employer for unemployment benefits. In some cases, a previous employer may be liable for payment of some or all of the benefits, if the claimant is determined to be eligible.
This brings up a key question in unemployment compensation claims, the answer to which oftentimes amazes employers: when is a claimant entitled to, eligible for, or qualified for unemployment compensation? Perhaps the best way to answer the question is to ask its opposite: Under what circumstances will a claimant be disqualified for or ineligible for unemployment benefits? These are really two questions.
First, under New York law, which is fairly typical of other states' unemployment compensation schemes, a claimant must be totally unemployed to be eligible for benefits. This brings up the problem of fraud: it is not uncommon for claimants to file for unemployment, get the benefits, and still be working and earning wages. While this is undoubtedly fraud and the claimant could be required to pay back benefits, for most employers, it is simply not worth the effort to investigate whether the claimant is both working and receiving benefits. Sometimes, however, this comes to the employer's attention, in which case it may report the information to the unemployment board and seek to have benefits stopped.
A claimant "who is not capable of work or who is not ready, willing and able to work in his usual employment or in any other for which he is reasonably fitted by training and experience" is not eligible for benefits 6. Illegal aliens are not eligible for unemployment, but an alien authorized to work is 7 . Note that the statute says that "remuneration" paid to the claimant while s/he was an illegal alien does not count; thus, a person who was an illegal alien, but then becomes authorized to work, may receive unemployment benefits. Claimants are also ineligible for benefits on any day during which they were receiving paid vacation or holiday pay.
Under New York law, and this is fairly typical of other states' unemployment compensation statutes, a claimant is disqualified from receiving benefits under four circumstances: (1) if s/he voluntarily left work without good cause, (2) was discharged for misconduct (New York also disqualifies claimants who "provoked" their discharge by violating company rules or engaging in some form of misconduct), (3) refuses work, or (4) commits a felony.
None of these disqualifying events is as simple as may at first appear. The two that most often arise in the ordinary case are disqualification for voluntary quit and dismissal for cause. It is important to recognize that "good cause" under unemployment compensation law does not necessarily mean the same thing as "good cause" under any other statutory scheme, just as wrongful discharge or legitimate, nondiscriminatory, non-pretextual cause under anti-discrimination 8. This flows from the very first point made in this article: the public policy of unemployment compensation, under which the entire system is weighted, shall we say, in favor of finding the claimant eligible for benefits.
Both to illustrate the "good cause" standard and to show the similarity between New York's law and other states, consider Barney v. GNC Corp., 2002 WL 31002615 (Oh.App.2d Dist. 2002), in which the court held that an employee's dismissal because she failed to follow the company policy about calling in every day when absent and because she failed to provide additional medical information did not constitute "just cause" for denying her unemployment benefits under Ohio law. The court based its decision on the fact that a doctor's note provided notice that the employee couldn't work, so she didn't have to call in every day and the failure to provide the additional medical information was the doctor's fault, not the employee's.
The plaintiff worked for GNC for only four months. One day, she failed to report to work, but she notified her supervisor that she couldn't work because she was sick. She also told her supervisor that she thought her illness was related to a workers compensation claim she had filed the month before. The plaintiff went to her family doctor who gave her a form saying that she'd be off work from that day and that her return-to-work date depended on the outcome of some tests her doctor was going to give her. GNC called the doctor to ask him when his patient might return to work and was told that the doctor would not be releasing her to return until he completed the testing he had ordered. Next, GNC contacted the employee and told her that she needed to provide documentation specifying a return-to-work date. The employee contacted her doctor and asked for a more specific note, but the doctor never sent it. Thus, the employee neither called in to GNC after the first day, nor returned to work after the first day.
GNC's employment handbook stated: "CALL IN: You must call in when advance notification is not possible. You must call in each day within 30 minutes of starting time. Any employee absent two (2) consecutive days without notifying his/her team leader, team captain, or the team manager, will be automatically discharged for job abandonment." When the plaintiff had missed more than six days of work without calling in, she was discharged by letter.
The employee filed a claim for unemployment benefits, which was initially allowed by the Ohio Department of Job and Family Services upon a finding of no just cause for dismissal. Upon GNC's request for reconsideration, the matter was transferred to the Ohio Unemployment Compensation Review Commission, which denied the claim after a hearing. A request for reconsideration by the employee was denied, and she appealed the decision in court. The court of common pleas reversed the Review Commission and so the Ohio Bureau of Employment Services appealed. On appeal, the trial court was affirmed: the court of appeals held that, for purposes of disqualification for unemployment benefits, the employee had not been dismissed for just cause.
The court of appeals ruled in favor of the plaintiff essentially for four reasons: (1) it wasn't her fault that her doctor didn't supply the additional information GNC requested; (2) she actually did comply with the handbook notice provisions, under the facts of the case; (3) the "public policy" of the state unemployment compensation statute is to provide financial assistance to people who are out of work through no fault of their own; and (4) under the definition of "just cause" for unemployment compensation purposes, the company lacked it to terminate the employee.
In this case, the parties didn't dispute the facts. The only issue was whether the facts supported the Review Commission's finding that the plaintiff was dismissed for just cause. The hearing officer for the Review Commission found that she was, because she had violated GNC's policy concerning absences without notification when she failed to provide additional medical documentation requested by GNC regarding the return-to-work date, and then failed to call in, per company policy.
The court of common pleas disagreed: it noted that the plaintiff had called in on the first day of her absence and provided a medical excuse which left her return date open-ended. GNC confirmed that she would not be released to work until certain tests were completed. "GNC had absolutely no legitimate or reasonable expectation that [Barney] would be medically able to return to work until released by her doctor," the trial court found. Although the excuse did not give an exact date of return neither was the absence for an entirely indefinite duration. To the contrary, GNC was on notice that it would receive more definite information pending the outcome of certain testing which GNC had no reason to believe would not be conducted expeditiously. "GNC discharged [Barney], not because it was in the dark about [her] absence but because she was in technical violation of its inflexible call-in policy," the trial court found.
The court of appeals agreed with this analysis. It cited the definition of "just cause" in the unemployment compensation context: Just cause "'is that which, to an ordinarily intelligent person, is a justifiable reason for doing or not doing a particular act." The definition of just cause has to be read in the context of the purpose of the unemployment compensation system, which is "to provide financial assistance to an individual who had worked, was able and willing to work, but was temporarily without employment through no fault or agreement of his own." As the formula states, "fault" on an employee's part is an essential component of just-cause termination. "Just cause" is determined on a fact-specific, case-by-case basis. Concluding that the claimant made a reasonable attempt to obtain from her doctor the additional information her employer demanded, the court of appeals agreed with the common pleas court that the claimant was discharged "without just cause."
The court of appeals concluded that there was no "fault" on the plaintiff's part as far as providing more information was concerned because it was undisputed that she called her doctor and asked him to provide more specific information. She could not compel him to do so. All she could do was ask, which she did.
Secondly, the court of appeals concluded, the plaintiff was in compliance with GNC's rule about calling in. The rule stated that an employee must call in daily "when advance notification is not possible." (See quote above.) In this case, the court of appeals said, the plaintiff did provide advance notice, in the form of her doctor's excuse, that she would be absent from work until released to return by her doctor. "Therefore, according to the language of the company policy, she was not required to make daily calls to the company during the time period covered in the note." It added: "The failure of the doctor to provide a return-to-work date was not [the plaintiff's] fault. [She] did not act unreasonably in failing to call in every day, as the doctor's excuse served as advance notice of her absence. Thus, an ordinarily intelligent person would not find her to be at fault."
Even if a claimant is disqualified for benefits because s/he voluntarily left without good cause, the disqualification is not permanent: the claimant becomes eligible for benefits once s/he has worked "and earned remuneration at least equal to five times his or her weekly benefit rate."9 While an employee who quits work because of domestic violence is not disqualified, an employee who quits because s/he got married is. 10
Under New York law, a claimant is also disqualified for benefits if s/he refuses work. But as in the case of voluntary separation, disqualification for refusing work is neither automatic nor permanent: if the refusal to work was allowed by the statutory exceptions, it will not disqualify the claimant. Section 593(2) of the New York unemployment compensation law provides:
No refusal to accept employment shall be deemed without good cause nor shall it disqualify any claimant otherwise eligible to receive benefits if:
(a) a refusal to accept employment which would interfere with a claimant's right to join or retain membership in any labor organization or otherwise interfere with or violate the terms of a collective bargaining agreement shall be with good cause;
(b) there is a strike, lockout, or other industrial controversy in the establishment in which the employment is offered; or
(c) the employment is at an unreasonable distance from his residence, or travel to and from the place of employment involves expense substantially greater than that required in his former employment unless the expense be provided for; or
(d) the wages or compensation or hours or conditions offered are substantially less favorable to the claimant than those prevailing for similar work in the locality, or are such as tend to depress wages or working conditions.
Misconduct (including, under New York law, "provoking" one's dismissal through misconduct) also disqualifies a claimant from receiving benefits, but only until the claimant "has subsequently worked in employment and earned remuneration at least equal to five times his or her weekly benefit rate."
There have been scores, if not hundreds, of cases litigated on whether particular conduct constitutes misconduct sufficient to justify disqualification from benefits and obviously we cannot begin even to cite or summarize them in this article. However, the following reasons have been found to constitute either "provoking" discharge or misconduct disqualifying the claimant from benefits: absences, abusive conduct, alcohol abuse, alteration of records or documents, violation of appearance/dress codes, argumentative or disruptive conduct, arguments or conflicts with one's supervisor, assaults or fights, betting activity, card games or gambling; failure to comply with company policy or procedures, taking bribes or gratuities, conduct detrimental to the employer's interests, conflict with co-workers, supervisor's criticism (i.e., you can't quit just because your supervisor criticized you), failure to cooperate in an investigation or giving false information, falsification of records or documents (including misrepresentations on a job application and falsification of time records), engaging in dangerous behavior, refusing to follow direct orders or instructions, drug abuse, insubordination, lying or making misrepresentations, failing to follow rules and regulations, leaving one's work station or employment early, offensive language, taking time off for personal affairs, sleeping on the job, engaging in slowdowns, strikes or work stoppages, tardiness, theft, making threats and using vulgar language.
Again, do not assume that just because an employee has engaged in one or more of these behaviors, s/he will always and automatically be deemed disqualified from receiving unemployment benefits. Decisions are made on a case-by-case basis.
In terms of procedures for contesting unemployment compensation claims, New York's scheme is fairly typical. The claimant files a claim and an initial determination is made. It appears, from the New York statute, that the employer may not be present at, or even aware of, this initial determination. Section 620(1)(a) of the statute says: "A claimant who is dissatisfied with an initial determination of his or her claim for benefits or any other party, including any employer whose employer account percentage might be affected by such determination may, within thirty days after the mailing or personal delivery of notice of such determination, request a hearing." Later in the same section it says that an employer shall have free access to all records, "irrespective of whether or not such employer was a party to a hearing brought hereunder," implying that at least at the initial determination stage, the employer may or may not have been a party.
Of course, once the employer is aware of the initial determination, it may appeal it to a hearing referee. If the employer doesn't like the referee's decision, it may appeal it to the appeal board, but only if the employer was present at the referee's hearing. The appeal must be filed within 20 days. Review of an appeal board decision is available in the New York courts (at the trial court level, and then to the Court of Appeals).11 At both the referee hearing and the appeal board hearing, the normal rules of evidence do not apply. 12
But again, to take an appeal to the appeal board, the employer must have appeared at the hearing below. New York law gives the appeal board very broad discretion: it can base its hearing solely on the record below (in which case, an appeal is not like a new trial; the employer has to rely on the record made at the referee's hearing) or it may hear argument or hold a further hearing (like a new trial). It may also remand the case to a referee. The appeal board may affirm or reverse, wholly or in part, or modify the decision appealed from. 13
One tremendous advantage that the New York statute gives to employers, however (which may or may not be available in other states) is that it requires the appeals board to:
establish and maintain a current index, by topic, of the principles of law established by the decisions rendered by the board and the courts concerning matters arising under this article. Such index shall cite all appropriate authority which supports such principles and, where appropriate, all conflicting authority. Such index shall also contain a glossary of technical and statutory terms commonly used by the board in its decisions. Copies of such index shall be open for public inspection and examination, and shall be made available at all locations where unemployment insurance hearings, authorized or mandated by section six hundred twenty of this chapter, are conducted. 14
Summary and conclusion
Although an everyday occurrence, unemployment compensation law is not very well understood by employers and even by many lawyers. As a matter of public policy, the balance is struck in favor of granting benefits to persons separated from work, even when no legal remedy might be available for the discharge under other statutory schemes.
As a general proposition, an employee who has voluntarily quit without good cause, or who has engaged in misconduct, is disqualified from receiving benefits. However, these general rules are so riddled with exceptions that employers may legitimately wonder whether it is worth it (financially, at least) to contest claims for unemployment benefits.
If the employer does decide to contest the initial determination (of which the employer may not even be aware until it receives notice that a determination has been made), the procedure is generally a three-step process: hearing before a referee or claims examiner; appeal to a board of appeals within the unemployment compensation agency; review in the courts, which may either be "de novo" (you start from scratch: a whole new trial), on the record (court simply reviews record below) or otherwise limited.
The scores or hundreds of cases decided on questions such as what is "voluntary quit," "good cause," and/or "misconduct" will provide guidance, but no certitude, as to whether a contest is warranted in the particular case. If the unemployment compensation agency has public records of its decisions, this will be a tremendous help to the employer.
In any case, given the devastating, catastrophic consequences unemployment can have on any individual, including that person's family and dependents; given the relatively low benefits levels available in unemployment and the limited duration of those benefits; and weighing the time, effort and cost of contest, any employer must think carefully about opposing a claim for unemployment, even if there may be grounds to do so.
1 McKinney's Consolidated Laws of New York Ann., Ch. 31 Labor Law, Art. 18, Sec. 501 (2002)
2 § 560 of the New York provides: "Any employer shall become liable for contributions under this article if he has paid remuneration of three hundred dollars or more in any calendar quarter...".
3 Sec 511.
4 § 527. "A claimant's 'benefit year' means the period of fifty-two consecutive weeks beginning with the first Monday after he files a valid original claim. Sec. 521. In other words, a claimant can't file a new claim for unemployment if s/he is already receiving unemployment.
5 Note, however, that the mere condition of pregnancy, in itself, does not make a person unable or unavailable for work. The law will not assume, just because a person is pregnant, that she cannot work and therefore is not eligible for unemployment benefits. Indeed, outlawing such presumptions has been a fundamental consequence of the Pregnancy Discrimination Act which states, in relevant part, "and women affected by pregnancy, childbirth, or related medical conditions shall be treated the same for all employment related purposes, including receipt of benefits under fringe benefit programs, as other persons not so affected but similar in their ability or inability to work."
6 § 591, effective Dec. 7, 2002.
7 Section 590: "Remuneration received by a claimant who was an alien at the time such remuneration was paid shall not be taken into consideration for the purpose of establishing rights to benefits under this article unless the claimant was then lawfully admitted for permanent residence in the United States, was then lawfully present for purposes of performing such services or was then permanently residing in the United States under color of law, ..."
8 In one case cited in the annotations to this provision of the New York code, for example, the holding was that "While an employer may be completely justified in discharging an employee, the grounds for firing may not constitute misconduct so as to render employee ineligible for unemployment compensation benefits; every discharge for cause does not mean that the cause constitutes misconduct, although it may." Tarver v. Ross (3 Dept. 1978) 64 A.D.2d 760, 406 N.Y.S.2d 928, cited in the annotations.
9 Sec. 593(1).
10 Sec. 593 (1) (a) and (b): "A voluntary separation may also be deemed for good cause if it occurred as a consequence of circumstances directly resulting from the claimant being a victim of domestic violence."
"(b) A disqualification as provided in this subdivision shall also apply after a claimant's voluntary separation from employment if such voluntary separation was due to claimant's marriage."
11 Court review will not necessarily be de novo.
12 Section 622: "At any hearing held as herein provided, evidence may be offered to support a determination, rule, or order or to prove that it is incorrect. The appeal board and the referees, in hearings and appeals under any provision of this article, shall not be bound by common law or statutory rules of evidence or by technical or formal rules of procedure but may conduct the hearings and appeals in such manner as to ascertain the substantial rights of the parties."
13 Section 621.
14 Section 534.
First published HR Advisor, November/December 2002, vol. 8, #6.
About the Author:
Gerard P. Panaro has more than 25 years' experience in employment law and is available to assist readers on an individual basis. You may reach him at 202-861-1314. Mr. Panaro is of counsel with Howe & Hutton, in the Washington, DC office.
First published on BankersOnline.com 7/14/03