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Archive for the tag “eligibility”

Accepting Voluntary Layoff Is Now Involuntary Termination

Decades of Pennsylvania law concerning eligibility for unemployment compensation after accepting an early retirement package has been overturned in the recent landmark Pennsylvania Supreme Court case of Diehl v. Unemployment Compensation Board of Review, 57 A.3d 1209

In Diehl, the Plaintiff, a sixty-three (63) year old man with twenty-three (23) years’ seniority with his employer, was given a memorandum from his employer which included a list of twenty (20) employees who would be laid off pursuant to a reduction-in-force; but Plaintiff was not on the aforesaid list. The employer also offered employees over the age of sixty (60) an early retirement program, for which Plaintiff was eligible. Plaintiff accepted the early retirement program and effectively quit his position with employer as a result; he subsequently applied for unemployment compensation benefits.

Plaintiff was ruled to be ineligible for benefits at every level of the litigation of this matter, prior to the Supreme Court’s decision which is the subject of this article. The reasoning of the lower decision-makers’ was based on Plaintiff’s voluntarily accepting the early retirement program which effectively served as a voluntary termination of his employment without a necessitous and compelling reason to do so. Plaintiff was not on the above-mentioned list and he was not compelled to accept the early retirement package, and there was no threat of termination by his employer, if he didn’t accept it.

The Supreme Court’s legal analysis centered upon the Voluntary Layoff Option Provision portion of 43 P.S. Section 802(b) which states the following: “[p]rovided further, [t]hat no otherwise eligible claimant shall be denied benefits for any week in which his unemployment is due to exercising the option of accepting a layoff, from an available position pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy.”

As one would expect, the tribunals below the Supreme Court cited to multiple cases over the last three (3) decades which would lead to the necessary conclusion that Plaintiff is ineligible for benefits due to voluntarily terminating his employment without a necessitous and compelling reason. These cases tend to focus on a judicially created distinction between early retirement and a voluntary layoff, with only the former allowing eligibility for benefits. However, the Supreme Court pointed out that, despite the long history of reasonably consistent decisions, it was apparent that none of other courts and tribunals actually read the statute they were applying and upon which they ruled.

The Supreme Court began its analysis of the decisions below by identifying an underlying interpretive framework for unemployment compensation which requires viewing the unemployment compensation law as liberally as possible in order to provide the maximum benefits possible. Furthermore, the Supreme Court pointed out that when attempting to apply a statute, courts must abide by the letter of the law when the language of the statute is clear and free from ambiguity using the common and approved usage of the words. As a result, the Supreme Court concluded that benefits should only be denied if the statute has explicit language to that effect; indeed there is a presumption that an applicant for unemployment compensation is eligible for benefits and the burden to prove the contrary lies with the employer.

Using the guidelines described above, the Supreme Court indicated that the Plaintiff was denied benefits, and the many cases in support of his denial, was the result of chronic misinterpretation of the Voluntary Layoff Option Provision portion of 43 P.S. Section 802(b), apparently in an attempt to harmonize it with the law regarding ineligibility upon voluntary termination. Despite this, however, the Supreme Court ruled that the language quoted above, taken on its face, uses the term “layoff” without any other modifier, therefore the term layoff can refer to either temporary or permanent separations initiated by an employer. Indeed, the Supreme Court specifically indicated that the Voluntary Layoff Option Provision portion of 43 P.S. Section 802(b) specifically forbids the denial of unemployment compensation benefits due to accepting a voluntarily offered plan by an employer. The Supreme Court asserted that the language of the aforesaid statute is so unambiguous that the legislature’s intent to equate someone falling within the statute with an involuntarily unemployed claimant as opposed to someone who voluntarily terminated his own employment without a necessitous and compelling reason.

To put it simply, the Supreme Court found no language in the aforesaid statute to prevent interpreting it to allow claimants to be eligible for benefits upon accepting employer-initiated early retirement packages offered pursuant to a workforce reduction.

Originally published in The Legal Intelligencer Blog on January 27, 2014 and can be seen here.

Alcohol Putting Unemployment Compensation to the Test

In the matter of Dillon v. Unemployment Compensation Board of Review, 2013 WL 2991042, the Commonwealth Court of Pennsylvania interpreted Pennsylvania Unemployment Compensation Law to include alcohol consumption within the meaning of 43 P.S. Section 802(e.1).

The Claimant in Dillon worked for the employer as a pipe fitter for about one (1) year. During that time, the Claimant tested positive in a random blood alcohol test and was provided a last-chance agreement in lieu of termination. Not long after the aforesaid test Claimant was subjected to another random blood test, tested positive again, and was terminated from his employment as a result of the positive test. Upon his termination, Claimant attempted to secure unemployment compensation benefits and was deemed ineligible due to having committed willful misconduct. Ultimately, the Court ruled that the Claimant is ineligible for unemployment compensation benefits. Strangely, however, instead of merely affirming the Board of Review and Referee’s findings that Claimant is ineligible, the Court embarked on what seems to be an unnecessary decision regarding which provision of the Unemployment Compensation law rendered the Claimant ineligible.

Under 43 P.S. Section 802(e), an unemployment compensation claimant is ineligible for benefits if he is terminated due to willful misconduct. The Court pointed out that as long as the employer in the instant matter can prove that the Claimant was aware of, and violated, a work rule (which the Court found the employer did prove), the Claimant could be determined ineligible for benefits. This seems to affirm the Unemployment Compensation Board of Review and Referee, yet the Court proceeded to rule that, although ineligibility could have been determined through the route just described, the Claimant was actually ineligible under 43 P.S. Section 802(e.1), which specifically addresses drug use.

The Court appeared to say that now that 43 P.S. Section 802(e.1) is available to use, it would not employ 43 P.S. Section 802(e) in drug and alcohol cases, even though the matter could reach same result. According to the Court, perhaps the most important application of 43 P.S. Section 802(e.1) over 43 P.S. Section 802(e) is that 43 P.S. Section 802(e.1) allows for ineligibility due to violation of a substance abuse policy absent any showing of willful misconduct.

43 P.S. Section 802(e.1) provides that a claimant can be determined ineligible for benefits if discharged for failing to pass a “drug test.” The issue clarified by the Dillon Court was whether alcohol, which is the substance abused by the Claimant, is a “drug” as contemplated by the aforesaid statute. The opinion of the Board of Review was that the language of the statute is clear: the word “drug” is used and not “alcohol,” therefore the Claimant cannot be deemed ineligible under 43 P.S. Section 802(e.1). In the Board’s view, if the legislature wanted to use the word “alcohol” it would have done so; as the legislature elected not to use it, it is not appropriate to read it into the law.

The Court, after an analysis which included looking at the definition of “drug” in both Black’s Law Dictionary and Webster’s Third New International Dictionary, concluded that alcohol can properly be considered a “drug” as the term is typically used and, indeed, read into the law. The Court further concluded, as a result, that the legislature intended to include “alcohol” as part of the definition of the word “drug” in 43 P.S. Section 802(e.1). Finally, the Court did not believe any analysis which would exclude alcohol from the definition of the word “drug” due to drugs being illegal and alcohol legal is persuasive. The Court pointed out that just as over-the-counter drugs are legal, but able to be abused, alcohol is also legal and able to be abused. In the Court’s estimation, it is the abuse of a substance that is relevant, not its legality.

In sum, then, while a claimant can be deemed ineligible for unemployment compensation benefits for violation of a drug and/or alcohol test on the basis of willful misconduct (pursuant to 43 P.S. Section 802(e)), the Court ruled that now that the statute is available, the ineligibility must now be pursuant to 43 P.S. Section 802(e.1) which speaks directly to issue of drugs.

Originally published in Upon Further Review on August 19, 2013 and can be seen here.

Is Working on the Sidelines Out of Bounds for UC?

As the economy remains precarious, unemployment compensation benefits remain vital to keeping many Pennsylvanians afloat. Of course, many applicants for unemployment compensation benefits attempt to make ends meet by doing some sort of job on the side, such as flea marketing or landscaping on the weekends for a few dollars here and there. The issue the courts have struggled with is attempting to determine whether that flea marketer or landscaper is an independent contractor or merely engaged in a sideline activity.

Under Pennsylvania unemployment compensation law, an independent contractor is considered to be self-employed and, therefore, ineligible for unemployment compensation benefits. An independent contractor is generally someone who is free from the control or direction of an employer but, rather, works for himself or herself. As the independent contractor is not an employee, he or she is ineligible for benefits if no further work is available under his or her contracts. The issue, of course, is that someone who works at a sideline activity is also similarly free from the control or direction of an employer. Would that person be similarly ineligible for benefits? The courts have generally indicated that engaging in a sideline activity does not render one ineligible for benefits, but the precise definition of what constitutes a sideline activity is still being developed.

The primary lines of distinction between independent contracting and a sideline activity include when the activity was first undertaken and whether someone is “customarily engaged” in the activity per the language of 43 P.S. Section 753(l)(2)(B) defining “employment.” The courts have ruled that earning money or engaging in a money-making enterprise for a few hours per week or month does not necessarily equate to independent contracting. The question is, after findings of fact, whether someone could be considered “customarily engaged” in the sideline activity. In fact, it is significant to note that a potential claimant engaged in a sideline activity may even consider himself or herself an independent contractor; however, this claimant’s self-identification is irrelevant, as the analysis is exclusively based on the factual underpinnings of each case.

For example, if someone, say a truck driver, loses his job and elects to work a few hours landscaping thereafter in order to earn some money to tide him over, does that make him a contractor or engaged in a sideline activity? It all depends on whether this former truck driver is now pursuing a new business venture as a landscaper or just trying to earn a little money to scrape by before he can engage actual employment. Obviously, the analysis to determine the difference between a new business venture and sideline activity is extremely fact-intensive and focuses on the number of hours spent at the work done and the amount of investment the person makes into the work. For instance, does this former truck driver help mow his neighbor’s lawns for $20 a cut every other week, or has he established “Ryan’s Lawncare” and purchased materials and advertising toward it? It likely goes without saying that the former is a sideline activity, which would not render him ineligible for unemployment compensation benefits, while the latter would be considered establishing a business (i.e., becoming an independent contractor), rendering him ineligible for benefits.

The other relevant issue in determining whether something is independent contracting or a sideline activity is when and how the work was established. If it began while one already had an established full-time job, it is more likely to be considered a sideline activity. For example, after a few years of practice, a full-time accountant may discover he enjoys doing Web design in the evenings or on the weekends for a few hours here or there for limited compensation. Would he be considered as customarily engaged as a Web designer? The likely answer would be no, as the Web designing a few hours per week arose while he was otherwise employed as a full-time accountant as opposed to after he became unemployed from his position as an accountant. Further, the accountant’s income and time is overwhelmingly because of being an accountant and, more than likely, when asked what he does for a living, he identifies as an accountant.

Finally, it should be noted that the precise number of hours or rate of compensation is not necessarily relevant to the analysis as neither is specified by the law. Take our accountant above as an example: If his five or six hours per week of Web design expanded to 10 or 15 after he lost his job as an accountant, the Web designing would likely remain a “sideline activity” and not render him ineligible for benefits. As far as compensation is concerned, someone who works on commission and, therefore, has compensation delayed for months, perhaps weeks, could be considered employed despite having no compensation for a long period of time, as compensation is contemplated in the future for the present work.

As the cases continue to be decided on the issue, the definition of “customarily engaged” will become more refined and clear. The fact pattern of each subsequent case will further refine and crystallize what a sideline activity is and help guide potential claimants in deciding whether to undertake such an activity. Of course, before embarking on an activity that could potentially risk one’s eligibility for unemployment compensation, it is always recommended that a claimant consult with an attorney first.

Some cases on this issue that the reader may find helpful include the following: Crocker v. Unemployment Board of Review, 63 A.3d 496 (Pa.Cmwlth. 2013), Minelli v. Unemployment Compensation Board of Review, 39 A.3d 593 (Pa.Cmwlth. 2012), and Kelly v. Unemployment Compensation Board of Review, 840 A.2d 469 (Pa.Cmwlth. 2004).

Originally published in The Legal Intelligencer Blog on August 2, 2013 and can be viewed here.

Peril of Losing Benefits While Vacationing Unemployed

When one loses one’s job, being unemployed certainly can free up some time to take a trip or visit people which one otherwise would not have the time to do due to the constraints employment can put on someone. Taking such trips, however, may have the unintended, and perhaps unexpected, consequence of having one’s unemployment benefits discontinued, as happened in the recent New Jersey case of Vialet v. Board of Review, Department of Labor, and Lundbeck Research, USA, Inc. Superior Court of New Jersey, Case No.: A-1226-11T2 (2012 WL 5274565).

The Claimant in Vialet was unemployed and eligible for benefits under the applicable unemployment compensation law. Claimant collected benefits for about two (2) months, from early October 2010 to early December 2010. Coincidentally to her termination from employment, Claimant was to travel to Jamaica on December 15, 2010 to be the maid-of-honor in his sister’s destination wedding. Claimant’s trip to Jamaica was originally scheduled to be a rather short trip. As it turned out, however, Claimant’s parents were of ill-health and living in the Virgin Islands, and, since Claimant was in the Caribbean neighborhood, she flew there to pay her parents a visit after the wedding. Claimant planned to stay in the Virgin Islands until December 27 but could not return home until December 31 due to inclement weather. Claimant asserted that she would not have been able to start new employment, were she to have received an offer for the same, until January 2011, presumably due to her sixteen (16) day trip to parts of the Caribbean.

When reviewing the facts of the case, as described above, the Unemployment Compensation Board of Review ruled that Claimant rendered herself ineligible when she decided to take a trip through the Caribbean, regardless of her reason. The logic employed was this: eligibility requires a claimant to be able and available for work as well as actively seeking employment. The Board of Review believed that being thousands of miles from one’s home and being absent until January meant that she was not able and available for suitable work, because potential employers could not contact her, and she could not appear at potential job interviews. The Board of Review obviously did not believe that the Claimant was “genuinely attached to the labor market” and did not have “good cause to refuse” employment. If Claimant was asked to start at a new job on, say, December 20, 2010, she would have had to refuse, due to being in the Caribbean for what the Board of Review believed to be something other than “good cause.” The Court noted that there were some exceptions to the requirement to be able and available for work, such as a close family member’s funeral or jury duty, but international travel to a wedding was not among them.

Claimant appealed the Board of Review’s decision, arguing that modern communication and internet technology made her job search possible anywhere in the country, if not the world. Claimant also argued that the Board of Review failed to consider possible employment opportunities which could be performed through electronic means. In essence, Claimant argued that there was some sort of parity between being electronically linked to the marketplace and being physically present in it.

In order to successfully appeal the Board of Review decision, the Claimant bore a burden which is rather substantial. Specifically, the Claimant had to overcome the presumption of correctness the Board of Review enjoys. Furthermore, the Court “accords substantial deference to an agency’s interpretation of a statute that the agency is charged with enforcing” and such an interpretation can only be overcome if it can be shown to be “arbitrary, capricious, unreasonable, unsupported by substantial, credible evidence in the record, or inconsistent with either legislative policy or the agency’s enabling statute.”

After a review of the matter, the Court did not believe Claimant’s arguments overcame the burden articulated above. The Court ruled that requiring a physical presence in the marketplace was not unreasonable or arbitrary, but was consistent with existing case law. Indeed, perhaps critical to Claimant’s inability to succeed on appeal, the Court refused to account for the influence of modern technology in interpreting existing law (which predates much of this new technology). The Court upheld the Board of Review’s decision that Claimant’s trip made her unavailable and unable for employment, which detached her link from her local marketplace, was consistent with the facts presented and applicable law, and Claimant’s arguments could not overcome her burden to demonstrate otherwise. As a result, Claimant was ruled to be ineligible for receipt of benefits while she was out of the country upon leaving for the Caribbean.

The message the Court is sending is pretty clear: a claimant for unemployment compensation benefits must at virtually all times be ready to accept a job offer if one were to come his way. A claimant should be leery of taking any extended trips anywhere of a relatively long distance which could impair the ability to interview for a job or accept employment nearly immediately. Until the Court incorporates or recognizes the advancement of modern communication technology and/or telecommuting, a claimant should stay close to home while collecting benefits.

Originally published in The Legal Intelligencer on June 25, 2013 and can be viewed here.

Is It A-OK Withdrawing From a 401(k) for UC?

A question was recently posed to me asking whether a withdrawal from a 401(k) would cause one’s unemployment compensation benefits to be denied, be diminished or even cease if already in payment. The answer to this inquiry is not totally clear.

43 Pa.C.S.A. 804(d)(2)(i) states: “Periodic payment, under a plan maintained or contributed to by a base period or chargeable employer, the weekly benefit amount payable to such individual for such week shall be reduced, but not below zero, by the pro-rated weekly amount of the pension as determined under Subclause (ii)” and 43 Pa.C.S.A. 804(d)(2)(ii) states: “If the pension is entirely contributed to by the employer, then one hundred per centum of the pro-rated weekly amount of the pension shall be deducted. … [I]f the pension is contributed to by the individual, in any amount, then fifty per centum of the pro-rated weekly amount of the pension shall be deducted.”

The obvious questions that arise are, is a 401(k) a pension under the above statutes, and what if someone withdraws funds from their 401(k) before he is of retirement age as one would withdraw funds from a bank account? Answers to these questions are not readily forthcoming from the cases decided under the unemployment compensation law, but need to be parsed from cases dealing with other retirement vehicles (Wise v. Unemployment Compensation 707 A.2dc 627 (Pa.Cmwlth. 1997)).

After a review of the Wise case, it appears that if someone withdraws money from a 401(k) after he has reached an age of 59½, which enables the withdrawal to be made without a penalty, then the statutory guidelines laid out above apply and unemployment compensation benefits are reduced, possibly to zero. If someone is under the age of 59½ and rolls over the funds in his 401(k) into another retirement vehicle/investment in order to avoid the penalty for withdrawal, but does not withdraw any of the funds in it, then the above guidelines laid out do not apply and the unemployment compensation claimant can receive benefits without the statutory reduction in the same. Indeed, the Wise court opined that a roll over is not actual receipt of the funds and the claimant ought not be penalized with a reduction of unemployment benefits.

Unfortunately, courts generally have not directly addressed a situation in which someone who is under 59½ withdraws all of his funds from his 401(k), and pays the 10 percent penalty required for so. The court appears to imply that it does not believe it is just, or consistent with legislative intent, to make someone pay a penalty on the withdrawal and also be subject to a reduction of unemployment compensation benefits per the above statutory guidelines, as that would amount to a double penalty; however, the court did not rule on this scenario.

One question that the court does not appear to have addressed at all is if a claimant withdraws all funds from a 401(k) (with penalty) under the age of 59½, which could lead to a reduction of unemployment compensation benefits, does it matter if the contributions were made solely by the claimant, were made solely by the employer or the contributions came from both sources. If the 401(k) is comprised entirely of a claimant’s own contributions, would not those assets be his own as if he had contributed to a bank account, which would not affect benefits at all under normal circumstances? Are an employer’s contributions somehow different?

Per the Wise court’s dicta, one could reach the conclusion that one can withdraw all funds from a 401(k) under the age of 59½, pay the penalty for doing so, and still be eligible for the full unemployment compensation benefit amount. In saying that, however, due to government budget constraints and current economic conditions, the Department of Labor (and sometimes the courts) has been trending toward finding and justifying reasons to reduce or eliminate unemployment compensation benefits. Indeed, even if a claimant would be ultimately successful using the arguments laid out above, I would not at all be surprised if the Unemployment Compensation Board of Review, taking advantage of the ambiguity described above, would rule an under-59½ year old claimant ineligible due to withdrawing his entire 401(k) and make the claimant appeal the decision and make the above arguments at a referee’s hearing.

Ultimately, I think the odds are that the law will ultimately settle on specifically permitting full benefits to be paid to someone who withdraws all funds from a 401(k) with a penalty while under the age of 59½. I think this is likely because it is consistent with the case law described above and it avoids having to formulate a policy to address a claimant’s own contributions to a 401(k) as distinct from an employer’s contribution. For the practitioner, I think it would be prudent to inform his client of the risks described above, and even if the chances of success are high, to be prepared to have to engage in the hearing process to arrive there.

Originally published on December 21, 2012 in The Legal Intelligencer Blog and can be seen here.

A question was recently posed to me asking whether a withdrawal from a 401(k) would cause one’s unemployment compensation benefits to be denied, be diminished or even cease if already in payment. The answer to this inquiry is not totally clear.

43 Pa.C.S.A. 804(d)(2)(i) states: “Periodic payment, under a plan maintained or contributed to by a base period or chargeable employer, the weekly benefit amount payable to such individual for such week shall be reduced, but not below zero, by the pro-rated weekly amount of the pension as determined under Subclause (ii)” and 43 Pa.C.S.A. 804(d)(2)(ii) states: “If the pension is entirely contributed to by the employer, then one hundred per centum of the pro-rated weekly amount of the pension shall be deducted. … [I]f the pension is contributed to by the individual, in any amount, then fifty per centum of the pro-rated weekly amount of the pension shall be deducted.”

The obvious questions that arise are, is a 401(k) a pension under the above statutes, and what if someone withdraws funds from their 401(k) before he is of retirement age as one would withdraw funds from a bank account? Answers to these questions are not readily forthcoming from the cases decided under the unemployment compensation law, but need to be parsed from cases dealing with other retirement vehicles (Wise v. Unemployment Compensation 707 A.2dc 627 (Pa.Cmwlth. 1997)).

After a review of the Wise case, it appears that if someone withdraws money from a 401(k) after he has reached an age of 59½, which enables the withdrawal to be made without a penalty, then the statutory guidelines laid out above apply and unemployment compensation benefits are reduced, possibly to zero. If someone is under the age of 59½ and rolls over the funds in his 401(k) into another retirement vehicle/investment in order to avoid the penalty for withdrawal, but does not withdraw any of the funds in it, then the above guidelines laid out do not apply and the unemployment compensation claimant can receive benefits without the statutory reduction in the same. Indeed, the Wise court opined that a roll over is not actual receipt of the funds and the claimant ought not be penalized with a reduction of unemployment benefits.

Unfortunately, courts generally have not directly addressed a situation in which someone who is under 59½ withdraws all of his funds from his 401(k), and pays the 10 percent penalty required for so. The court appears to imply that it does not believe it is just, or consistent with legislative intent, to make someone pay a penalty on the withdrawal and also be subject to a reduction of unemployment compensation benefits per the above statutory guidelines, as that would amount to a double penalty; however, the court did not rule on this scenario.

One question that the court does not appear to have addressed at all is if a claimant withdraws all funds from a 401(k) (with penalty) under the age of 59½, which could lead to a reduction of unemployment compensation benefits, does it matter if the contributions were made solely by the claimant, were made solely by the employer or the contributions came from both sources. If the 401(k) is comprised entirely of a claimant’s own contributions, would not those assets be his own as if he had contributed to a bank account, which would not affect benefits at all under normal circumstances? Are an employer’s contributions somehow different?

Per the Wise court’s dicta, one could reach the conclusion that one can withdraw all funds from a 401(k) under the age of 59½, pay the penalty for doing so, and still be eligible for the full unemployment compensation benefit amount. In saying that, however, due to government budget constraints and current economic conditions, the Department of Labor (and sometimes the courts) has been trending toward finding and justifying reasons to reduce or eliminate unemployment compensation benefits. Indeed, even if a claimant would be ultimately successful using the arguments laid out above, I would not at all be surprised if the Unemployment Compensation Board of Review, taking advantage of the ambiguity described above, would rule an under-59½ year old claimant ineligible due to withdrawing his entire 401(k) and make the claimant appeal the decision and make the above arguments at a referee’s hearing.

Ultimately, I think the odds are that the law will ultimately settle on specifically permitting full benefits to be paid to someone who withdraws all funds from a 401(k) with a penalty while under the age of 59½. I think this is likely because it is consistent with the case law described above and it avoids having to formulate a policy to address a claimant’s own contributions to a 401(k) as distinct from an employer’s contribution. For the practitioner, I think it would be prudent to inform his client of the risks described above, and even if the chances of success are high, to be prepared to have to engage in the hearing process to arrive there.

– See more at: http://thelegalintelligencer.typepad.com/tli/2012/12/is-it-a-okay-withdrawing-from-a-401k-for-uc-.html#sthash.GsrbUtlX.dpuf

A question was recently posed to me asking whether a withdrawal from a 401(k) would cause one’s unemployment compensation benefits to be denied, be diminished or even cease if already in payment. The answer to this inquiry is not totally clear.

43 Pa.C.S.A. 804(d)(2)(i) states: “Periodic payment, under a plan maintained or contributed to by a base period or chargeable employer, the weekly benefit amount payable to such individual for such week shall be reduced, but not below zero, by the pro-rated weekly amount of the pension as determined under Subclause (ii)” and 43 Pa.C.S.A. 804(d)(2)(ii) states: “If the pension is entirely contributed to by the employer, then one hundred per centum of the pro-rated weekly amount of the pension shall be deducted. … [I]f the pension is contributed to by the individual, in any amount, then fifty per centum of the pro-rated weekly amount of the pension shall be deducted.”

The obvious questions that arise are, is a 401(k) a pension under the above statutes, and what if someone withdraws funds from their 401(k) before he is of retirement age as one would withdraw funds from a bank account? Answers to these questions are not readily forthcoming from the cases decided under the unemployment compensation law, but need to be parsed from cases dealing with other retirement vehicles (Wise v. Unemployment Compensation 707 A.2dc 627 (Pa.Cmwlth. 1997)).

After a review of the Wise case, it appears that if someone withdraws money from a 401(k) after he has reached an age of 59½, which enables the withdrawal to be made without a penalty, then the statutory guidelines laid out above apply and unemployment compensation benefits are reduced, possibly to zero. If someone is under the age of 59½ and rolls over the funds in his 401(k) into another retirement vehicle/investment in order to avoid the penalty for withdrawal, but does not withdraw any of the funds in it, then the above guidelines laid out do not apply and the unemployment compensation claimant can receive benefits without the statutory reduction in the same. Indeed, the Wise court opined that a roll over is not actual receipt of the funds and the claimant ought not be penalized with a reduction of unemployment benefits.

Unfortunately, courts generally have not directly addressed a situation in which someone who is under 59½ withdraws all of his funds from his 401(k), and pays the 10 percent penalty required for so. The court appears to imply that it does not believe it is just, or consistent with legislative intent, to make someone pay a penalty on the withdrawal and also be subject to a reduction of unemployment compensation benefits per the above statutory guidelines, as that would amount to a double penalty; however, the court did not rule on this scenario.

One question that the court does not appear to have addressed at all is if a claimant withdraws all funds from a 401(k) (with penalty) under the age of 59½, which could lead to a reduction of unemployment compensation benefits, does it matter if the contributions were made solely by the claimant, were made solely by the employer or the contributions came from both sources. If the 401(k) is comprised entirely of a claimant’s own contributions, would not those assets be his own as if he had contributed to a bank account, which would not affect benefits at all under normal circumstances? Are an employer’s contributions somehow different?

Per the Wise court’s dicta, one could reach the conclusion that one can withdraw all funds from a 401(k) under the age of 59½, pay the penalty for doing so, and still be eligible for the full unemployment compensation benefit amount. In saying that, however, due to government budget constraints and current economic conditions, the Department of Labor (and sometimes the courts) has been trending toward finding and justifying reasons to reduce or eliminate unemployment compensation benefits. Indeed, even if a claimant would be ultimately successful using the arguments laid out above, I would not at all be surprised if the Unemployment Compensation Board of Review, taking advantage of the ambiguity described above, would rule an under-59½ year old claimant ineligible due to withdrawing his entire 401(k) and make the claimant appeal the decision and make the above arguments at a referee’s hearing.

Ultimately, I think the odds are that the law will ultimately settle on specifically permitting full benefits to be paid to someone who withdraws all funds from a 401(k) with a penalty while under the age of 59½. I think this is likely because it is consistent with the case law described above and it avoids having to formulate a policy to address a claimant’s own contributions to a 401(k) as distinct from an employer’s contribution. For the practitioner, I think it would be prudent to inform his client of the risks described above, and even if the chances of success are high, to be prepared to have to engage in the hearing process to arrive there.

– See more at: http://thelegalintelligencer.typepad.com/tli/2012/12/is-it-a-okay-withdrawing-from-a-401k-for-uc-.html#sthash.GsrbUtlX.dpuf

More Work for Unemployment Compensation Lawyers in the Near Future?

When one applies for unemployment compensation benefits, there are generally two potential opponents: the claimant’s previous employer and/or the Department of Labor itself. Obviously, an employer can oppose claims for unemployment compensation benefits on bases such as the claimant voluntarily quitting or being fired for willful misconduct. However, even if an employer takes no action to oppose a claimant, the Department of Labor can. For example, the Department of Labor can oppose a claim if, upon its review of a claimant’s application for benefits, it appears that the claimant would be ineligible under the law based on the claimant’s own representations on the application. Unfortunately for claimants, it appears that the Department of Labor will be scrutinizing their applications closer than ever in the foreseeable future.

According to a recent article in The Philadelphia Inquirer, Pennsylvania’s unemployment compensation fund was in the red by approximately $300 million in 2011. Although currently trying to borrow money to meet the current demand for benefits, legislators in Harrisburg are now searching for ways to close the gap, and due to the current political climate, raising taxes does not seem to be among the options being considered. Instead, one of the solutions that is gaining some traction is to withhold benefits from claimants who are not very “attached” to the economy. In other words, earning the bulk of one’s income over a very short period of time may cause issues with one’s eligibility, as there may be a preference for more evenly compensated employment over a longer period of time. Of course, this potential change would likely affect the underemployed more than others, as they tend to work shorter-term jobs.

Regardless of how the Pennsylvania Legislature resolves the unemployment compensation fund’s solvency problems, its desired result is to reduce the number of eligible claimants by 10 percent, or approximately 50,000 people. This will potentially affect unemployment compensation practitioners, as each denied claimant will have the right to appeal his or her denial to a hearing before a referee and beyond. Of course, claimants can be represented by an attorney to help them through such appeals and/or hearing appearances. Therefore, these new changes could also potentially increase the unemployment compensation practitioners’ caseload by up to 10 percent as more claimants may retain them to litigate the increasing number of adverse decisions against them by the Department of Labor.

Originally published on June 8, 2012 in “The Legal Intelligencer Blog” and can be found here.

The Benefits from Sleeping on the Job

Being caught sleeping on the job is almost always grounds to be fired from one’s job and, as a result, being denied Unemployment Compensation; however the recent case Philadelphia Parking Authority v. Unemployment Compensation Board of Review would seem to indicate otherwise in certain circumstances.

The unemployment compensation claimant in the matter-at-issue, Charlene L. Henney (hereinafter “Claimant”) worked the 3:30pm to midnight shift for the Philadelphia Parking Authority (hereinafter “Employer”). Due to the late hours, and the lack of work for her to do, she would occasionally become drowsy. In order to combat her drowsiness, she often requested additional work from Employer for her to do. Despite the Claimant’s efforts to secure additional work, Employer failed to provide any save on two occasions. Claimant eventually developed some health problems, was hospitalized, and diagnosed with sleep apnea.

On at least four separate occasions Claimant fell asleep during her 3:30pm to midnight shift. Employer terminated Claimant’semployment and contested her application for unemployment compensation. At an unemployment compensation referee’s hearing, Employer argued that Claimant committed willful misconduct and demonstrated that Claimant slept on the job, that it had a specific work rule proscribing sleeping on the job of which Claimant was aware, and that it was Claimant’s alleged violation of the rule against sleeping on the job that caused her to be terminated. In response, Claimant did not deny sleeping on the job. Instead, she testified that she suffered from sleep apnea which caused involuntary sleeping. In addition, she further testified that she requested additional work from Employer in order to help her remain awake during the late hours of her shift and Employer failed to provide the work requested.

In making its decision, the Court had to determine what constitutes willful misconduct. In its review of the applicable law, the Court noted that willful misconduct requires a wanton, intentional, or willful disregard for an employer’s interests, deliberate violation of an employer’s rules, and/or intentional disregard for standards an employer can expect from an employee. The employer has the burden to prove that the claimant was aware of the work rule and willfully, intentionally, and/or deliberately violated it. A Court is to review all of the claimant’s actions in light of all the surrounding circumstances, including the reasons for non-compliance with the work rule. If the employer can meet its burden as described above, the burden shifts to the claimant who then has the burden to prove that her decision to violate the employer’s work rule was for good cause. A physical illness can constitute good cause to violate a work rule. If the claimant had good cause to violate the work rule, then a claimant can be eligible for unemployment benefits. A claimant’s own testimony can serve a competent testimony to her own medical problems.

The Court ruled that the Employer did not meet its burden of proof. The Court found that the Claimant recognized that working late hours with little work to do made her understandably drowsy. The Court further found that the Claimant acted in a responsible manner by informing the Employer of her lack of work, and drowsiness, by asking for additional work. The Employer had the opportunity to provide the work, but failed to do so. Based on the all of the surrounding circumstances, the Court ruled that Claimant’s falling asleep at her position was not the result of any willful, deliberate, or intentional act but the natural result of late nights with little to no work to do. In other words, the Court ruled that Claimant did not intentionally go to sleep while on duty. Due to the fact that the Employer did not meet its burden, the Court did not have to engage in any analysis into Claimant’s sleep apnea as the burden never shifted to Claimant.

In the final analysis, when it comes to whether a claimant is eligible for benefits, a Claimant must commit willful misconduct to be deemed ineligible. If the action – though misconduct – was not done willfully, then a claimant will be eligible for unemployment compensation benefits, even if that misconduct was sleeping on the job.

Originally published on May 2, 2012 in “Upon Further Review” and can be found here.

Double Dipping: Unemployment Compensation and Other Benefits

In the episode of the Seinfeld television series called “The Implant,” George is spotted dipping the same potato chip into dip more than once after taking a bite out of it. Annoyed, his girlfriend’s brother, Timmy, approaches him, interrogates him about his “double dip,” and scolds him sharply, saying “just take one dip and end it!” Timmy’s admonition to George may not just apply to those attempting to enjoy a second bite of a dip-covered potato chip, but also to those who collect some other sort of disability benefit while also attempting to collect unemployment compensation (hereinafter “UC”) benefits.

Before moving forward, for the sake of clarity, any references to social security benefits (“SBB”) herein will not refer to the collection of the social security pension benefits (hereinafter “SSPB”) due to one reaching a certain age. There is no conflict between collecting a SSPB and UC at the same time as long as each agency is appraised of the income received from the other.

When comparing UC and SSB, a baseline principle was enunciated by the court when it declared “[u]nemployment compensation is not health insurance and does not cover physically or mentally ill persons during periods they are unemployable.” Carter v. Com, 442 A.2d 1245. In other words, in order to collect UC one must be able and willing to work. However, when applying for SSB, one must allege to the Social Security Administration (hereinafter “SSA”) that s/he is completely disabled as to not be able to work at all to be eligible for benefits. Obviously, a conflict arises between the requirements for UC and SSB: if someone is completely disabled as to render him/her unable to do any work s/he is, by definition, not eligible for UC benefits, although s/he may be eligible for SSB benefits of some sort. In saying that, in practical terms, it is highly doubtful that an employer in a UC matter will request discovery or cross-examine a claimant on the issue of what s/he indicated on an application for SSB benefits. Therefore, many cases may be slipping through the cracks simply because there is incomplete analysis into a claimant’s dealings with the SSA.

Although in the typical case one cannot lawfully collect both UC and SSB simultaneously due to the fact that the requirements for each diametrically conflict, there is an exception where someone can collect both UC and SSB. The exception centers on the definition of “substantial gainful activity” (“SGA”). Under the rules of the SSA, someone can work and receive an income and still be eligible to receive SSB as long as his/her work and income are not SGA due to the claimant’s disability. Much case law has developed over time to determine what SGA exactly is and is not, but at least in terms of income, it is clear. The maximum income one can receive at one’s job before it becomes SGA is determined per the national average wage index, which currently stands at +/-$980/mo. Therefore, by way of example, a person legally determined to be disabled can work part-time at his/her local McDonald’s earning $750/mo. That same person may also be eligible for SSB because s/he makes less than the SGA minimum of $980/mo and can prove s/he has a disability which prevents him/her from being able to do work that qualifies as SGA. If s/he loses his/her McDonald’s job due to no fault of his/her own, and is ready and able to work again at the same or similar job, s/he can apply for and receive UC benefits. S/he may then receive both UC and SSB presuming s/he meets the requirements for UC. As always, s/he will have to inform SSA of his/her UC benefits.

In terms of private disability, one can collect UC and private disability at the same time. Again, UC must be informed of the disability income and the claimant must still be ready and able to work. As with SSB, the possible issue that arises is whether the claimant is disabled. Each private disability insurer has a different definition/standard of what disability is; therefore, not all private disability insurers have definitions/standards for disability that would conflict with the UC definition/standard of being ready and able to work. As with SSB, it is unlikely that an employer in a UC matter would delve into what the claimant indicated on his/her private disability application. However, if UC rules that the claimant’s disability is such that s/he cannot work any job, then s/he will be ineligible for UC benefits. By contrast, if the claimant can work at some sort of job, just not necessarily the same one s/he left, then UC benefits may be awarded absent any other reason for ineligibility.

When it comes to sick leave and/or having to quit a job due to a health reason (physical or mental), a claimant must first inform his/her employer of the condition to allow the employer to make an attempt at an accommodation (as a brief aside, it should be noted that how exactly one goes about informing one’s employer of one’s condition, and who has the right to see the information provided, is a process that is heavily regulated by the Family Medical Leave Act and the Americans with Disabilities Act and will not be discussed herein). If the employer refuses to accommodate or cannot sufficiently accommodate, a claimant will be deemed to have been constructively discharged against his/her will and, therefore, eligible for UC if that same claimant can show s/he is still ready and able to work at some other job as long as his/her disability is or can be accommodated. Sometimes an employer can offer sick leave. If the sick leave is paid at normal salary, then UC benefits will be denied as the claimant’s income is stable. If unpaid or paid at less than normal salary, a claimant will only be eligible for benefits only if s/he maintains a relationship with his/her employer and intends to return to work at the end of the leave interval. In addition, Claimant would have to demonstrate s/he was given leave because of a health condition, which essentially constructively discharged him/her from his/her employment. In other words, the leave would have to be the employer’s method of accommodation of the disability which claimant accepts. The leave can be either under FMLA or any other sort of leave offered by employer. At the end of the leave, claimant would have to resume work or show that the accommodation was insufficient. In showing whether the accommodation was insufficient, Claimant must still be ready and able to find alternative employment to be UC eligible. If s/he cannot work any job, UC will deem him/her ineligible as not being ready and able to work. If, while out on leave, the position one expected to re-assume is eliminated, then the claimant will be considered to have been involuntarily discharged, making him/her eligible for UC, presuming s/he is ready and able to work.

In the current precarious economic climate, it is important to know one’s rights relative to what benefits one may be entitled to when unemployed. If one can receive more than one stream of benefits, the opportunity should be pursued. Perhaps Timmy was wrong; maybe one does not have to “end it” after dipping once.

This article was originally published in Upon Further Review on February 8, 2010 which you can see here or on my website here.

The Secret to Unemployment Compensation Defense

I have litigated dozens, if not hundreds, of unemployment compensation cases.  I represent both claimants and employers but I more frequently represent claimants.  I think it is fair to say that claimants are more likely to win an unemployment compensation case against an employer due the nature of the law, but I think employers could increase their chances of success if they just spent a little more time and effort pursuing, preparing, and presenting their cases.

When I represent claimants I object pretty aggressively to the testimony, documentation, and evidence presented by employers mainly because they almost always are, to some degree if not totally, hearsay.  I think my success in representing claimants is due, at least to some degree, in preventing the employer’s evidence from being presented.

Now, I admit that I don’t want to give my opponents any advantages, but I think some very basic things could go a long way for employers.  Employers just do not present sufficient competent evidence to win.  Documentation, as much as is relevant, is always helpful.  When wondering whether to bring something, it is always wiser to bring it and not need it than the opposite.  Unfortunately, much of the documentation brought as evidence contains the statements of people who do not appear at the unemployment compensation hearing and is, therefore, hearsay.

This leads me to the single biggest error made by employers at unemployment compensation hearings, which is their failure to bring witnesses.  If an employer wishes to have documentation with the statements of others introduced into evidence at an unemployment compensation hearing, then the employer must bring the person(s) who made the statements to the hearing to provide testimony as to the statements in the documentation.  Furthermore, if someone is terminated for cause, then a witness to the incident(s) of misconduct giving rise to the termination is critical to win an employer’s case.  Many employers will bring the “boss,” whether that is the C.E.O. or president or manager or what have you, as a witness.  The problem is that the boss is usually too disconnected to have any personal knowledge of the claimant’s alleged misconduct which gave rise to his termination.  Therefore, any testimony from the boss about the misconduct is hearsay.

Another typical mistake is to bring the human relations person to the hearing.  The same problem with the boss applies to the HR person.  While the HR person can certainly introduce documentation in a person’s employee file, this person too is almost always too disconnected from the claimant’s alleged misconduct to have personal knowledge of it; as a result his testimony is hearsay as well.

When it comes down to it, an employer must bring sufficient witnesses who have personal knowledge of the issues at hand to win its case, otherwise employers will consistently be at a disadvantage at unemployment compensation hearings.

The Hidden Inequity in Unemployment Compensation Law

As everyone knows, the current financial climate is precarious at best, which makes knowing one’s rights under Pennsylvania Unemployment Compensation Law vital to one’s financial future. Conventional wisdom, which is largely correct, is the following: an employer must pay unemployment compensation taxes for employees and those employees can collect unemployment compensation benefits if separated from employment (presuming, of course, they meet the statutory eligibility requirements). For unemployment compensation purposes, an employee is basically defined as someone who is dependant upon the business for which he works for income, works for a fixed rate of remuneration from the business for which he works, and whose work is completely controlled by that same business.

Perhaps an employee is best described by what it is not. In contrast to an employee is an independent contractor. Independent contractors, by statutory definition, are ineligible for benefits. An independent contractor is defined by 43 P.S. § 753(l)(2)(B), and the cases decided thereunder, as the following: (1) being free from the direction and control of a purported employer and (2) having an independent business that is not reliant upon a single source for his business. While the above language means is often determined on a case by case basis, general guidelines have been provided in well established Pennsylvania case law. Characteristics of someone who is free from direction and control include, but are not limited to, the following: the individual (1) does not have his taxes withheld by an alleged employer; (2) can accept or reject work at his own discretion; (3) can work for competing entities without fear of reprisal; (4) can control how a job is performed; (5) works without a fixed rate for remuneration; (6) supplies his own tools and/or supplies to accomplish his work; (7) does not receive “on the job training” from the alleged employer; (8) sets his own hours of work; (9) sets his own parameters for his work; and (10) is not dependant upon a single source for his business. As an independent contractor is not an employee, and therefore not eligible for benefits, if one contracts with an independent contractor no unemployment taxes need be paid for that person.

The general rule is if unemployment compensation taxes are paid for an individual, then that person can collect benefits; in the alternative if someone cannot collect benefits, then the unemployment compensation taxes do not have to be paid for that person. However, is there a situation where the tax must be paid for someone but that individual cannot collect? In the context of Unemployment Compensation, the analysis of what makes an employee, as contrasted from an independent contractor, converges onto an owner of a business in a way that is inequitable. The inequity appears to be derived from exploiting both sides of businesses as legal entities independent from both its owners and employees.

An owner of a business, who works and earns income for the business he owns, is considered to be an “employee” for whom unemployment compensation taxes must be paid because the owner depends upon the business for his income and the business completely controls the owner’s work. However, in reality, as the owner of the business, he controls what work the business does and how it is performed. Therefore, the business owner simultaneously controls and directs the business (fitting the criteria for an independent contractor) on the one hand, while being dependant upon and controlled by the business for both work and income (fitting the criteria for an employee) on the other hand. Taking full advantage of a business owner’s dual role as independent contractor and employee, Pennsylvania Unemployment Law as presently written and interpreted, treats a business owner as either an employee or independent contractor when it most benefits the government as opposed to the owner. Therefore, although a business owner pays unemployment compensation taxes on his own income from his business because he fits the criteria of an employee, if that same business owner becomes separated from the business for any reason (except for the exception detailed below) then that business owner is ineligible to collect unemployment benefits because he also meets all of the criteria for an independent contractor listed above. Therein lays the hidden inequity: a business owner must essentially pay a tax for which he cannot receive the benefit.

The only exception that would allow a typical business owner to collect unemployment benefits is if he is forced to terminate his relationship with the business through an involuntary bankruptcy. An involuntary bankruptcy is considered to be analogous to the involuntary termination of one’s employment from an employer. Perhaps this is a clue as to the rationale behind the general rule that business owners must pay for but cannot collect unemployment benefits for themselves. A business owner is essentially his own employer and could hire himself and lay himself off repeatedly at will, theoretically making himself eligible for unemployment benefits over and over again. Perhaps lawmakers believed a business owner holds too much control over the employment relationship with the business itself to allow him to collect benefits.

It is interesting to note that, aside from the above exception, a Pennsylvania statute specifically carves out an exception for real estate and insurance agents in 43 P.S. § 753(l)(4)(17). The statute specifically indicates that although real estate and insurance agents may own, at least in part, the businesses for which they work, unemployment compensation law will specifically deem them to be exclusively independent contractors as opposed to simultaneously employees. Therefore, there is no requirement under Pennsylvania statute for real estate and insurance agents to pay unemployment compensation taxes. Thus far, the cases decided under 43 P.S. § 753(l)(4)(17) have not expanded its application beyond the specific exceptions for real estate and insurance agents to include individuals in other professions but with the same sort of owner/employee arrangement relationship.

Most people expect to have the safety net of unemployment compensation benefits if they unfortunately lose their job. However, if one owns a business and pays unemployment compensation taxes for oneself, he should be aware that the payment of the tax does not entitle him to collect the benefit. This may be clearly inequitable on its face, but until it is changed it is imperative that business owners be aware that the safety net they may be hoping for will not catch them if they can no longer work for their business.

Originally published in “Upon Further Review” on October 8, 2009 and can be found here and on my website here.

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