By: Eric Janson & Marc Jacobs

In October 2011, President Obama signed the Federal Trade Adjustment Assistance Extension Act of 2011, which mandated that all states implement a number of changes to their unemployment insurance (UI) laws, including new “UI integrity” provisions that are designed to address one of the biggest weaknesses in the UI system — the payment of unemployment benefits in error.   As of October 21, 2013, all 50 states were required to adopt new UI integrity laws that would penalize employers (as well as their “agents” including third-party administrators), that:

  • Were at fault for failing to respond timely or adequately to the request of the state agency for information relating to a claim for unemployment compensation benefits that was subsequently overpaid; and
  • Have established a pattern of failing to respond timely or adequately to requests from the state agency for information relating to claims for unemployment insurance benefits. 

In other words, employers cannot simply sit on their hands and do nothing.  Employers must now provide a complete and timely response to the state agency’s first request for information about an unemployment claim or potentially face serious consequences.  While penalties for non-compliance vary by state, many of these new or revised state UI integrity laws include civil fines and penalties, as well as losing credit for the payment of UI benefits that are later overturned or otherwise paid in error (i.e., the employer will still be “charged” for the claim on its experience rating). 

Employers must obviously take immediate steps to familiarize themselves with each state’s specific requirements and adopt or revise their procedures to ensure that they timely and adequately respond to initial UI information requests.  However, proper compliance becomes more problematic when dealing with an initial request about a separated or terminated employee who has a separation or settlement agreement that includes a provision where the employer has agreed to not challenge their claim for unemployment benefits.   Does the employer risk facing steep fines and penalties from the state or potentially run the risk of violating the terms of their separation/settlement agreement and end up in litigation?   Fortunately, most states will not deem an employer as having engaged in a “pattern” of failing to respond based an isolated incident — i.e.  a “one-off” existing agreement not to challenge unemployment will not likely result in civil penalties.  Nevertheless, employers are best served to begin implementing a number of changes in their future negotiations with separating employees to ensure compliance with new state UI integrity laws.

  • Employers can no longer agree to ignore initial UI notices or provide inaccurate or misleading information about the reasons for an employee’s separation;
  • Employers should revise their template separation/settlement agreements and remove or revise any language about not contesting unemployment benefits;
  • Employers should train their managers to refrain from making any type of verbal or written promises not to contest unemployment benefits or making any specific commitments regarding how the company will respond to initial requests for information from state UI offices;
  • Employers should craft clear language in an employee’s separation or settlement agreement stating how the employer will respond to initial requests for information from UI offices – including the precise reasons for separation;
  • Managers and human resources professionals should be reminded to consult immediately with legal counsel upon receiving an initial UI information request regarding any employee with a written separation or settlement agreement;
  • Employers should also consult with their TPA’s to ensure they are complying with their state’s UI integrity laws on the company’s behalf.

 If you have further questions regarding the implications of the UI integrity laws, please contact the authors or your Seyfarth attorney.