Tuesday, April 17, 2012

New Unemployment Compensation Law may Affect Settlements

Pittsburgh residents need to be aware of a change to the Unemployment Compensation law that could adversely affect their right to unemployment compensation benefits.

Act 6 of 2011, which was signed into law on June 17, 2011, codified at 43 P.S. § 804 amended the Pennsylvania Unemployment Compensation Law in a number of ways. Of import for Pittsburgh workers is that the new law allows for severance pay to be offset against unemployment compensation benefits.  What's the big deal?  Well, if you receive severance pay from your employer of more than approximately $18,000, everything over that threshold counts as a credit against your unemployment compensation benefits.  So if you receive $30,000 in severance, the Department of Labor and Industry will refrain from paying you the first $12,000 in benefits you would normally be entitled to.  Under the new law, you have to exhaust that severance money before benefits kick in.

What is even more scary is that people that have received money through a legal settlement, specifically Compromise and Release ("C&R") agreements in the Workers' Compensation arena, are being deemed by the UC board as having received a severance.  This is a completely misplaced application of the new law but until a higher court ruling comes down specifying what is and is not a severance payment you can bet the UC board will continue to try and deny workers benefits under this theory.

What is the basis for my position that this type of denial is misplaced given the new law?  Well, under the new law, "severance pay" is defined as:
one or more payments made by an employer to an employe on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments. The term does not include payments for pension, retirement or accrued leave or payments of supplemental unemployment benefits.
When a worker enters into a settlement agreement via a C&R with their employer they are giving up their rights to seek wage loss and medical benefits in exchange for a lump sum payment.  In almost every C&R, the employer also requires the employee to either resign or have their position terminated.  But the separation from employment in these matters is not the basis of the settlement....the relinquishment of the worker's rights under the Workers Compensation Act is the basis.  To be a severance, the money received must be "on account of separation from the service of the employer."

The UC board, however, has jumped on the idea that C&R agreements are severance payments allowing them to offset benefits.  I know this because I just represented a client this morning in an appeal of a denial made on this very basis.  We argued that my client's C&R was clearly a settlement wherein she gave up her comp rights in exchange for a lump sum payment and that the money she received was certainly NOT a severance.  I got this idea from Philadelphia attorney John Gallagher's recent blog post Severance Pay, Settlements and Pennsylvania's New Unemployment Law.  I am hopeful that the referee will agree with our position that the C&R settlement was something all together different than a severance payment.

Workers' Comp attorneys, however, need to be aware of this new law (and how the UC board is using it) when negotiating settlement agreements for their clients.  It needs to be clearly specified that the C&R is a settlement agreement (not a severance) that is NOT based on the employee's resignation from the position.  If the employer is not willing to put the proper language into the C&R then the Claimant's attorney needs to bargain for more money to make up for the UC consequences.  Fortunately, most C&R agreements already adequately spell out that the agreement is a settlement not a severance.  But one can never be too careful.

I will keep you posted on how the referee in our appeal rules and provide some more case facts that will support the ruling.

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