Former employees may be entitled to unemployment benefits depending on the circumstances under which they quit or were terminated. It's important to contest unemployment claims which are unjustified because successful unemployment benefit claims affect your tax rate, and you may discourage fired employees from pursuing wrongful discharge legal claims.
When an employee leaves or you have to fire someone, you may have to deal with the issue of unemployment benefits for that worker. There are two main reasons why you should care about whether your ex-workers are collecting unemployment, and why you should try to prevent an improper claim from being paid:
In order to determine when and how to contest claims, you should understand the workings of the unemployment system.
Don't let a possible unemployment claim stop you from firing someone who you feel should be fired. Even though a successful unemployment claim may raise your tax rates, don't let the fear of a rate increase keep you from firing an employee who is truly dragging your business down. One bad apple can destroy the morale of an entire office--or worse!
The unemployment insurance system was designed with two major goals in mind:
The benefits paid to jobless workers are financed through federal and state unemployment taxes paid by employers like you. To promote the two goals noted above, every state has a system that bases your unemployment tax rate on the amount of benefits that has been paid to your former workers.
Your actions affect your tax rate. This is one of the few times in life when you can influence your tax rate by your own actions. If you fire or lay off workers only when absolutely necessary, use the proper procedures to do it, and routinely contest unemployment benefit claims when you think the worker is ineligible, you can lower your unemployment tax rate. In some states, you can lower your rate to zero, and pay no unemployment taxes at all! On the other hand, if you don't pay attention to these things, you may well find your unemployment taxes eating into your bottom line.
To find out more about how the system works and how you can influence your tax rate, you need to know which workers are eligible for unemployment benefits and the actions that can disqualify an otherwise eligible worker.
To be eligible for unemployment benefits, a person must have at least some minimum amount of work experience within the last one and one-half years before filing for benefits.
State formulas are used and each state has a different formula for determining the minimum needed to obtain benefits in that state. Most of the states require that the employee worked at least some part of two different calendar quarters within the past one and one-half years, and a large percentage of states also have a specific dollar amount of wages that must have been earned.
Your local unemployment office should be able to tell you what the minimum is in your state. You should know what your state's minimum is, and think about setting up a probationary period for new hires that is less than the minimum time that would qualify a worker for benefits.
In most states, time spent and money earned in self-employment does not count toward these minimums. If you decide to pack up your business, you probably won't be able to get unemployment benefits.
In addition, there are a few other eligibility requirements. If you suspect your ex-employee doesn't meet them, consider contesting the payment of benefits.
Those who are eligible for benefits because they've worked and earned the minimum amount required in their state, and because they are available to work, can still be disqualified from receiving benefits, depending on how and why they lost their jobs.
Generally, unemployment benefits are designed for people who are laid off because the employer doesn't have enough work for them, or who lose their jobs because of something the employer did wrong. Therefore, a worker will be disqualified for benefits if:
There's no point in wasting your time and possibly running up legal bills, by contesting the payment of benefits to a worker who clearly deserves them. So, if you have to lay someone off because business is not booming as you had hoped, or if you fired someone because you want to hire your brother-in-law instead, don't bother to object when your ex-employee makes a claim.
On the other hand, if you have to fire someone for stealing or someone quits to start their own business, you can and should make an effort to prevent your tax rate from rising as a result.
What do you do if it's a gray area, and you're not sure whether the worker deserves benefits or not? Go ahead and contest the claim as discussed below, up to the point where you'd need to hire a lawyer. At that point, if the worker has won, you may want to reevaluate whether the issue is worth pursuing. Your lawyer should be able to tell you whether your chances of winning are good, or slim to none.
It's also true that there may be times when it's not in your interest to prevent your worker from collecting benefits, even if you would probably win if you tried. The most common situation is where you want to get rid of someone but don't have a good (or a legal) reason for doing it, or you suspect the worker is going to sue you. To solve the problem you "buy out" the worker by offering severance package. The package may include an agreement that you won't do anything to prevent the worker from collecting unemployment, along with some severance pay, continuation of health benefits, or other items.
If you go this route, just be sure to have the worker sign an adequate release of liability before he or she leaves.
The Business Tools contain a sample release from liability that you may find useful. A written release from liability is a type of contract. As in any situation where you are asking someone to sign a contract, your lawyer should read over the document before you use it and should be involved if negotiations with the worker demand changes in the contract.
When one of your former employees files for benefits, you'll get an official report from the state unemployment agency. Fill it out and return it within the deadline stated on the form! These deadlines are rarely extended, even if you have a good excuse. If you don't respond, or respond too late, the worker will automatically get benefits in most states. And follow these guidelines:
If you need to fire somebody because of excessive unexcused absences, don't just write "discharged for absenteeism" on the unemployment claim report. Instead, you need to say when the absences occurred, how many there were, and when prior warnings were given. You also need to say something about the final incident that led to dismissal. You might say, "Jocelyn was absent from work without notice six times within two months. She received oral warnings after the first two absences, and written warnings after the second two. After the fifth absence Jocelyn was warned in writing that another such absence would lead to being fired. On May 17, Jocelyn failed to return to work following a scheduled vacation and was dismissed."
It's a good idea to have an attorney represent you at any hearing, especially the first time you are involved in an unemployment case. Attorney representation becomes a virtual necessity if you lose at the hearing level and decide to appeal to the court.