Employers who routinely brush aside the unemployment claims they do not intend to contest may want to rethink that strategy in light of recent legislation. New penalties for failing to provide a timely response to such claims may seriously affect employers’ bottom lines and even subject them to criminal liability.
In 2011, Congress enacted the Unemployment Insurance Integrity Act (the “Act”) as a subsection to the Trade Adjustment Assistance Extension Act of 2011 (the “TAAEA”). The Act prohibits states from relieving charges to an employer’s unemployment account if the state unemployment insurance (“UI”) agency determines that: (1) the payment was made because the employer failed to timely and adequately respond to the state agency’s UI claim notice (“Notice”), and (2) the employer has an established pattern of failing to respond timely and adequately to such Notices. The Act also requires states to assess at least a 15 percent penalty of the amount of overpaid UI compensation to any individual who received such payment from the state due to an individual claimant’s fraud. Additionally, all employers are required to report the rehire of employees after a separation of at least 60 days to the state directory of new hires. All states were required to adopt legislation implementing the provisions of the Act by October 21, 2013, but many employers are just beginning to feel the effect of this legislation.
Purpose of the Act
The Act is meant to remedy the relatively common practice of employers failing to respond to UI Notices and simply accepting the charges to their reserve accounts when a former employee applies for UI benefits. Prior to the Act, when the employer did not provide thorough information to the agency in a timely manner, it became difficult for the agency to make an accurate determination of whether the employee was eligible to receive UI benefits. According to one report from the U.S. Department of Labor, nearly $14 billion in unemployment overpayments were distributed in fiscal 2011-approximately 11 percent of all unemployment benefits paid out. While much of this overpayment can be attributed to fraudulent reporting by claimants and state agency errors, it is the employers who will suffer the brunt of these new restrictions and penalties.
Requirements and Penalties
Employers who do not adequately respond to a state agency UI Notice in a timely fashion will be charged for the benefits even if the claimant is eventually disqualified. The employer’s UI account will continue to be charged until a decision is rendered on appeal. For employers already paying a state’s highest UI tax rate, a failure to respond to a Notice in the past generally did not result in a higher UI tax rate. Thus, there was no incentive for employers to respond to such Notices where they were already paying the maximum rate and did not intend to contest the UI claim. However, employers should re-evaluate their practice with the possibility of penalties for failure to respond under the Act.
The Act expressly allows states to impose stricter penalties and standards than those it provides. For example, in Florida, an employer may be denied relief from the charges after one incident of an inadequate or untimely response. Other states have also imposed monetary fines and possible jail time for employers who refuse to comply with the state implementing legislation, in addition to precluding relief of the employer’s unemployment account from benefit charges. For example, California legislation permits a fine ranging between two and ten times the weekly benefit amount, to a maximum of $4,500, where an employer willfully makes a false statement or willfully fails to report a material fact concerning the employee’s termination.
The Act imposes these requirements not only on the employers, but also on their agents. Therefore, payroll services or unemployment cost management services (collectively “TPAs”) that handle agency Notices may place more pressure on their respective employers to complete responses to UI claims in order to protect themselves from potential liability. Employers should facilitate communication with their TPAs in order to ensure that the TPAs are responding to the Notices in an adequate and timely manner.
What Should Employers Do?
First and foremost, employers should ensure that they are paying close attention to each and every unemployment claim, including those that they do not intend to contest, in order to avoid penalties for non-compliance. Moreover, employers should revise any release agreement provisions to reflect that the employer will respond promptly to any claim for UI benefits but will not contest any such claim upon the termination of the employee. As mentioned, employers will need to keep a close eye on their TPAs and should respond to any request from them as quickly as possible. Lastly, employers should familiarize themselves with their respective state laws implementing the Act, including any timing and penalty provisions, and apply new procedures and best practices as needed. If you have any further questions regarding the Act or your state’s laws applying the new legislation, please do not hesitate to contact your Labor and Employment Counsel at Smith, Gambrell & Russell, LLP.