(HR) Will New Tax Law Punish Employers That Agree Not To Consent To Unemployment Claims?

A little-publicized addition to the Federal Unemployment Tax Act (“FUTA”) quietly became law on October 21, 2013.  Known as the Unemployment Insurance Integrity Act of 2011 (“Act”), it suggests that employers will have to take a new tack when responding to agency info requests about departed employees’ unemployment compensation (“UC”) claims—if the employer previously has agreed not to contest their UC eligibility.

Prior to this Act, employers routinely would agree to “We won’t contest” clauses in their employment separation agreements.  These clauses often were key to securing legal releases from departing employees, even when the reason for their departures might disqualify them from UC eligibility.  Employers also, in the past, have deflected UC agency notices and information requests by responding, “The Employer does not contest the Claimant’s eligibility for benefits.”  The Act may nullify and punish this type of time-honored departure arrangement.

The Act.  Among its provisions, the Act requires, at a minimum, that all states have laws by October 21, 2013 that:

(1) punish employers (and their agents) who show a “pattern” of not responding “timely or adequately” to agency information requests regarding UC claims; by

(2) refusing to relieve those employers of charges to their unemployment tax accounts for any UC payments made to their former employees erroneously.

The Act also endorses state laws that do more to promote UC integrity.  One example is imposition of stricter standards and more severe penalties on employers.  Many states have done so, by passing new laws that punish an employer for a “one-time” untimely or inadequate response, and/or impose steep civil and sometimes criminal penalties.

Impact on Separation Agreements: It remains to be seen how far individual states will “push” their enforcement of UC integrity under the Act.  This uncertainty dictates caution by employers.  Separation agreement clauses that state only, “the Employer agrees not to contest the employee’s unemployment compensation claim,” may put employers at risk, at least in states that construe and enforce the Act aggressively.

    At a minimum:  marry such language with express assurances that you will respond “truthfully and completely” to any UC agency information request.

In that way, you can respond more fully to agencies that “won’t take no for an answer,” without violating your “not to contest” promise to the employee.  Without the added language, an employer is between the proverbial rock and a hard place.  It risks either state law sanctions, or a claim by a departed employee that, “You went back on our deal” by supplying facts about the employee’s termination to a demanding UC agency.

To be safe, seek guidance from a lawyer who knows how far “your” state is “pushing” the Act’s “cooperate or else” warning.

Source: Forbes.com