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To Contest or Not to Contest: The Dilemma Involved in Unemployment Compensation Claims

September 20, 2010
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Richard D. Alaniz

Despite the bailouts and desperate attempts to fix the economy, layoffs continue to be an unfortunate occurrence for many employers. According to the most recent statistics from the U.S. Department of Labor, unemployment rates have been hovering around 9.5 percent, with 484,000 new jobless unemployment insurance claims in July.

Unfortunately, former employees occasionally seek unemployment benefits they don’t deserve, either because they are desperate, confused, or trying to cheat the system. Employers, ultimately bearing the cost of unemployment payments, must evaluate whether to challenge those unemployment claims.

That question has recently become more difficult. Many states are increasing the tax rate employers must pay into unemployment insurance, further increasing the burden on companies already sweating over the bottom line. And, generally, as unemployment claims by former employees increase, so too do the employer’s benefit rates. This has all been compounded by the recent expansion of eligibility to up to 99 weeks of benefits in certain circumstances.   

So, does it make sense to challenge every unemployment claim? Not necessarily. Appealing unemployment benefits is expensive and time consuming and success is not guaranteed. Employers should understand what is involved in the appeals process, recognize the long-term implications, involve the right people in the process, and carefully consider how to proceed when former employees claim benefits they have not earned.

MORE LAYOFFS EQUALS A BIGGER TAX BILL

According to the Department of Labor, the Federal-State Unemployment Insurance Program is designed to provide unemployment benefits to “eligible workers who are unemployed through no fault of their own.” Typically, when employees lose their jobs they can apply for unemployment benefits from the state’s department of labor, which will determine the employee’s eligibility for benefits. Generally speaking, those who are laid off are entitled to jobless benefits, while those who quit voluntarily or who are fired for cause are not eligible. If the state grants unemployment benefits, employers have the right to appeal.

For employers with operations across the nation, unemployment insurance can be particularly complicated, as each state administers a separate unemployment insurance program governed by federal guidelines. Despite federal guidelines, each individual state determines the eligibility, amount, and duration of benefits. In nearly every state, unemployment insurance is entirely funded by employers, but tax rates vary widely from state to state. Employers in Rhode Island pay 1.4 percent of total wages, those in California pay 0.69 percent, while Georgia employers pay only 0.38 percent.

Companies are bracing for even higher taxes in 2010. According to the National Association of State Workforce Agencies, 35 states have increased their unemployment insurance taxes on employers this year, and for some companies, the increase will be “substantial.”    

Employers that have initiated layoffs often see their unemployment insurance increase even further. This is because insurance rates are experience rated, meaning that companies with the highest claims from former employees face the highest unemployment insurance rates.

THINGS TO CONSIDER

Due to the financial consequences of unemployment claims, companies should carefully examine how to proceed when they receive notice that a former employee has applied for jobless benefits. In weighing the decision, there are several factors to consider.

Occasionally, former employees believe that they are entitled to some financial payout from the company, whether they truly deserve it or not. If employees are denied jobless benefits, in part due to employer resistance, an employee is more likely to consider a claim of discrimination, particularly retaliation. Although an employer may be completely justified in challenging the unemployment claim, it may find itself in the unenviable position of also having to respond to an inquiry from the Equal Employment Opportunity Commission.

Companies should also consider the true costs of mounting an appeal if a claim for benefits is granted. Certainly, paying unemployment taxes has a significant impact on the bottom line. But, appealing unemployment benefit awards for former employees does too. Before appealing an unemployment claim, the company should gather all of the necessary documentation and understand exactly what took place with that particular employee. If documentation has been lost, or if a supervisor did not comply with the company’s policies in matters of hiring, discipline, or firing, the company’s chances of winning an appeal can be significantly diminished.

Determining unemployment eligibility also takes time - someone must collect documentation and attend a hearing to testify on the company’s behalf. Although some states conduct hearings by telephone, others require participants and representatives to show up in person. Regardless of the procedure, the time lost in participating in the hearing is another cost to the employer.

Recently, companies have turned to “unemployment management” firms to help with the appeals process. By outsourcing this function, companies hope to free up their own people while tapping into specialized expertise. However, some of these firms have been so aggressive in appealing unemployment claims that they have generated bad publicity for the companies that use them.

There are other PR issues to consider when deciding whether to appeal an unemployment claim. While jobless claims are not usually front page news, companies may appear greedy or unsympathetic to current employees or the public if they actively work to deny workers jobless benefits, even when the company is in the right.

On the other hand, money and image are not the only factors to consider. If a company develops a reputation for turning a blind eye to questionable claims, other ineligible employees may also decide to file claims to see if they can gain benefits they aren’t entitled to. This “me too” mentality can quickly increase the company’s experience rating, ultimately leading to higher unemployment insurance rates.

Finally, in addition to the time, cost, and damage to the company’s public perception, employers also tend to lose most of their appeals. According to the Wall Street Journal, employers won only 36 percent of the 405,153 unemployment claims that they appealed in 2009.

WHAT TO KNOW IF YOU WANT TO APPEAL

If you do decide to appeal an unemployment claim, there are several things to keep in mind.

Don’t wait until a claim is filed to think about appeals.
For smaller companies with low turnover, an unemployment claim may be an unusual undertaking. Before a claim is ever filed, the company should have a system in place to quickly gather relevant information. If you have not considered the issue recently, now is a good time to do so. The company’s counsel and human resources professionals should review current policies to ensure accuracy and compliance with current laws and regulations, including those governing unemployment insurance.

Document everything.
Every company should have policies about the appropriate way to handle and document employment evaluations, firings, and layoffs. If an employee has been fired for cause, the employer must create a paper trail outlining exactly what the employee did wrong, how that person violated company policy, whether the employee was given a second chance to improve, and, if not, why the company chose immediate termination.

Hours and work history should also be documented and easily accessible - employees may not be eligible for unemployment benefits because they worked too few hours or were not employed for sufficient duration.

Consider the specifics of each situation.
Some cases may be weaker than others, and it’s important to understand exactly what occurred in each situation. Before appealing a claim, be sure that managers or supervisors handled a job dismissal appropriately and were clear that the employee was not entitled to unemployment benefits.

Find a point person.
Depending on the company’s size, it should designate one person or a certain group of people to review all unemployment claims. Those people should be educated about the claims process and be able to quickly access pertinent information and documentation. Because it sometimes makes sense to involve attorneys in the process and have them participate in hearings, the point person should know who to contact.

Don’t take any claim for granted.
For some companies, an unemployment claim may be a highly unusual event. For others, it may be routine. Either way, it’s important to take each claim seriously. Unprepared company representatives may misspeak during a hearing and damage the appeal or expose the company to future, unrelated claims.

An unemployment claim hearing can quickly turn into a case of he said-she said. However, with the right strategies, processes, documents, and knowledgeable professionals, employers can develop a good sense of which cases to appeal and ultimately boost their success ratio in those select appeals.

Publication date: 09/20/2010

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