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Unemployment Claims: When Are Employers Liable?

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Some unemployment claims are clear cut, in favor of either the displaced worker or the employer. Laid off full-time workers are always eligible. Employees caught stealing on the job are never eligible. But some cases fall into a gray area — and employers are often caught by surprise when they find that they are indeed on the hook to pay unemployment benefits for dismissed workers or for workers who quit their jobs.

Laid-Off Full-Time Employees

During periods of economic downturn, employers sometimes shed workers through layoffs. Many laid-off workers are performing well enough, but financial circumstances make it necessary to let them go. Employers generally accept that full-time employees who are laid off are entitled to unemployment benefits. However, many part-time employees who are laid off also qualify for unemployment benefits, depending on depending on how many hours they worked per week and the laws of your jurisdiction.

Dismissed Independent Contractors

Unlike employees, independent contractors are not eligible for unemployment benefits, even if they work on site. However, improperly classifying workers as contractors leaves employers vulnerable to potential adverse legal action, including stiff penalties imposed by the IRS. In general, if you control where and when a worker reports for duty, cover that worker’s job-related expenses and provide benefits such as health insurance, that person likely qualifies as an employee.

Even if you don’t provide benefits such as health insurance or paid vacation, if you exercise significant control over how, when and where workers do their jobs, those workers may be reclassified by the IRS as employees. If this occurs, you will be on the hook for providing Social Security and Medicare at a minimum along with potentially paying out unemployment compensation if he or she is let go.

Employees Terminated for Poor Performance

Employees are frequently dismissed for reasons such as poor performance or excessive absences. Such dismissals are both understandable and completely legal especially where at-will employment is involved.

However, in many cases, employees who are terminated for poor performance are still eligible for unemployment compensation, just as they would be if they were laid off. Contesting unemployment claims in such circumstances is often unsuccessful. Likewise, letting someone go because he or she could not get along with other coworkers is often not sufficient to successfully contest an unemployment claim.

Employees Terminated for Cause

Employees who have assaulted customers or who have been caught unlawfully siphoning off company funds may be dismissed with impunity. No warning or notice is necessary. In most cases, employers simply have to demonstrate that employees were dismissed for cause to successfully contest an unemployment claim. However, employees who are dismissed for cause related to relatively minor offenses may still be entitled to unemployment compensation, depending on the laws in your state.

Likewise, employees who successfully claim that they were wrongfully terminated may successfully appeal a company’s attempt to contest their unemployment claims. Examples of wrongful termination include discrimination or retaliation by employers, or being dismissed for refusing to perform illegal actions.

Employees Who Quit their Jobs

Employees who quit their jobs voluntarily are usually not eligible for unemployment compensation. However, offering employees the choice of quitting or being fired usually does not qualify as voluntary resignation – and such employees are frequently eligible to collect unemployment benefits. Likewise, employees who successfully demonstrate that they left their jobs for what is known as “good cause” may still collect benefits. Each state has its own regulations for determining “good cause” for quitting a job. However, the following list represents a few reasons that frequently qualify as “good cause” for quitting a job – at least as far as collecting unemployment benefits is concerned.

  • Sexual Harassment and Bullying
  • Unsafe Working Conditions
  • Spouse or Family Member Deployed for Military Duty
  • Caring for a Seriously or Terminally Ill Family Member

Contesting Employee Unemployment Benefits

If you decide to contest a worker’s claim for unemployment benefits, you will be allowed (and expected) to present evidence to support your challenge to the state unemployment office. Providing extensive documentation of misconduct by the dismissed worker such as evidence of using illegal drugs while on the job, or proof that the worker was a contractor rather than an employee significantly enhances your chances of prevailing in an unemployment benefit challenge.

Disclaimer: This article provides a general description of circumstances where employers may be required to pay unemployment benefits. It is not intended to provide legal advice. Please consult with the unemployment office in your state, or with an attorney who specializes in employment related issues with specific questions concerning payment of unemployment benefits to your company’s workers.

Audrey Henderson

Posted In: Legal, Management

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