Unemployment Insurance: Must You Pay for Misconduct?

The cost of unemployment is on the rise. The Department of Labor states that on average, employers have seen their unemployment taxes rise by more than a third since 2009. While the method for calculating unemployment rates varies by state, there is one factor in common—the more claims you have, the more you’re likely to pay.

Because unemployment insurance is experience based—it’s determined by the number of claims the employer has, rather than the actual cost of each claim—every approved application could potentially tip your organization into a new rate category. With the rising costs of claims, it may be worth your while to object to a case that you might have previously allowed to pass by. And if you don’t already have a mechanism in place to review and respond to claims, you may be allowing staff that aren’t really entitled to the funds to collect money from the company.

Who Can Collect Unemployment Benefits?
The specifics of unemployment benefits vary by state, so employers should carefully review state guidelines and eligibility criteria. However, there are some similarities between the states. For example, a laid off worker is almost always entitled to unemployment insurance, whereas an employee who was fired for egregious misconduct probably isn’t.

The definition of misconduct isn’t left up to the employer—each state assesses the particular conduct or reasons involved for the termination, and decides whether it meets the criteria.

It’s important to note that just because an employer has a legitimate, non-discriminatory, valid reason for firing an employee—multiple unacceptable errors, for example—it may not meet the test to disqualify the worker from unemployment insurance.

What is “Misconduct”?
Poor performance, or failing to fit in to company culture isn’t misconduct. Employees who didn’t work out for these reasons will be allowed to collect unemployment insurance in almost all states. And in most cases, unintentional errors, petty arguments and off duty incidents that were not connected to the job are unlikely to rise to the level of disqualifying misconduct, even though your company may consider them misconduct for disciplinary purposes.

Instead, disqualifying misconduct typically refers to intentional incidents by the employee, which have a significant adverse effect on the business. Theft, fraud, harassment and workplace violence are all likely to be considered misconduct. Unemployment appeal decisions are generally available to review, so you can assess the decisions in your particular state if you aren’t certain whether an incident is likely to be considered misconduct or not.

My Employee Resigned, So Unemployment Isn’t An Issue…Right?
Not necessarily. If the employee claims they resigned due to intolerable working conditions—in other words, a constructive discharge—or if the company specifically instructed the worker to resign, unemployment benefits are payable in most states. In some states, unavoidable spousal relocation, or a family crisis might also be reasons for resignation that still allow the former employee to claim unemployment.

Simple Misconduct and Gross Misconduct…What’s the Difference?
Several states distinguish between “simple misconduct”—basic errors in judgment, for example, such as tardiness or low-level insubordination—and “gross misconduct,” which typically involves extreme dishonesty or negligence, theft, or vandalism of company property to name a few examples.

In most states, gross misconduct will completely disqualify the applicant from unemployment benefits. Many states have qualification requirements specifying that the worker must get another job, and contribute a set amount or make payments over a certain period of time to become qualifying again. Simple misconduct doesn’t always disqualify the worker completely in the same way. The state might suspend the entitlement for a certain number of weeks, for example.

What Should Employers Do?

  • Review all claims. If you haven’t been reviewing your unemployment claims, now is the time to start. Don’t assume that the reason the applicant gave you for their resignation is the reason they put on the claim form. Likewise, a fired applicant may not confess the nature of the misconduct, minimizing the incident in an attempt to gain benefits.
  • Object immediately. If you dispute the claim, object before the initial determination is made. Provide sufficient detail in your objection so that a quality decision can be made.
  • Take it to a hearing. Either party has the ability to file an appeal and compel an unemployment insurance hearing if they disagree with the initial determination. The hearing is usually conducted in front of a specialized administrative law judge. You can bring an attorney—and so can the employee—but it’s not required. The hearing is more likely to be in a small conference room than a courtroom, and the standards for evidence and exhibits are similarly informal.
  • Document, document, document. It’s all well and good appearing at the appeals hearing, but if you haven’t documented the issues, the misconduct could be difficult to prove. And if you have documented appropriately, make sure to maintain files on departing employees long enough that the paperwork is available at the hearing.

LaborLawCenter™ posts  provide information about employment law, designed to help your company comply with your employment law needs. Please note that general legal information is not the same as legal advice—the application of law to the company’s specific circumstances. Although we go to great lengths to make sure our information is accurate, it is for informational purposes only. LaborLawCenter™ recommends you consult a lawyer for legal advice tailored to your company’s specific situation.

LaborLawCenter™ provides a variety of products designed to help you meet your compliance needs. Visit our website at www.laborlawcenter.com or call us toll-free at 1-800-745-9970 for assistance.

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