Federal Statute Creates New Burdens for Employers Filing Unemployment Claims

A little noticed federal statute – the Unemployment Insurance Integrity Act – has the potential to create some big problems for employers who deal with unemployment insurance claims.  The statue was passed in 2011 to little fanfare.  It was focused on trying to deal with unemployment insurance fraud, but seems to have focused on relatively minor employer fraud issues, rather than the much larger and pervasive employee fraud problem, and basic government mismanagement of the unemployment insurance programs at the state level.

The statute provides that states' unemployment compensation schemes must require employers and their agents to timely and adequately respond to a state unemployment agency's request for information.  This is true regardless of the state of the employee's claim, and includes the initial unemployment claim, something that is frequently ignored by employers who do not wish to contest unemployment claims by their terminated employees.  The statute requires that if an employer engages in a pattern of non-existent or inadequate responses, the state is to charge the employer's unemployment insurance account for all benefits claimed, even when the claimant is determined to be ineligible.  In other words, an employer can lose the right to challenge frivolous unemployment claims if it supplies bad information, or no information, in response to an initial unemployment charge.  States are also required to put civil and criminal penalties in place for these failures to respond.

So employers should pay attention to these new requirements, particularly since state unemployment insurance agencies only allow a limited period for filing responses.  The required state laws penalize an employer for willfully making a false statement or willfully failing to disclose a material fact related to termination of an employee with penalties that are imposed based on repeated instances this conduct.  Traditionally, states have not required an employer to respond to an unemployment notice under circumstances where eligibility for the unemployment insurance is not in dispute, such as in a layoff situation.  Under the new statute, a response is likely required, regardless of the circumstances.  For employers that have traditionally elected to simply not contest a claim for benefits (for whatever reason) the statute works a major change.  Simply put, employers should now never ignore a request for information from an unemployment insurance agency, even in situations where the employer is electing not to challenge the claim for benefits.  Depending on the state, the company could find that two failures to respond (or a failure to respond that is late by more than a day) could constitute a pattern of failure under the state statute, and subject the employer to the loss of its ability to challenge bogus claims in the future.

So, some quick advice: do not provide written separation agreements to terminating employers providing that an employer will not contest an unemployment insurance claim.  Regardless of whether the employer wants to, a response is now required, with accurate information.  Employers must consider that their payroll service or unemployment insurance contractor will be faced with accelerated requests for information and may lean heavily on the employer to provide this information quickly.  Accordingly, employers should review their state laws and train their staffs to recognize these claims and notices for unemployment insurance so that they can be flagged for quick follow-up action.  To facilitate processing, the employer should consider using a system similar to that for managing workplace absences (and if you don’t have such a system in place for workplace absences, you should get one) involving a single or limited point of contact for all unemployment insurance inquiries and responses.  Finally, employers should consider eliminating the offer of not contesting unemployment compensation from their severance plans.  This will require some thought with respect to severance terms and offers, given that unemployment compensation is frequently a significant economic benefit to a departing employee.