Ferrara Fiorenza P.C.

Unemployment Insurance Reforms Penalize Employers for Late Responses to Inquiries and May Effect the Next Severance Agreement You Negotiate

Due in part to a 2011 Congressional amendment to federal unemployment laws (which required States to change certain unemployment insurance [UI] practices to continue receiving federal funds) and in part to the fact that New York’s Unemployment Insurance Fund is grossly underfunded, the New York legislature recently enacted a number of UI reforms designed to comply with the new federal guidelines and to save the UI Fund some money. Two of these reforms are of particular importance to New York employers: 1) new penalties for failing to respond in a timely and complete fashion to requests for information by the New York State Department of Labor’s Unemployment Insurance Division (Division) when it receives a UI claim; and 2) severance pay will be taken into consideration and may delay a former employee’s receipt of UI benefits.  The former change took effect on October 1, 2013 and the latter will become effective on January 1, 2014.

Late Responses to UI Inquiries

The first New York reform penalizes employers who provide incomplete information on -- or who are late with their responses to -- the Division’s request for information.  This request is a standardized form which is automatically sent out to the individual’s former employer when the Division receives a UI claim.  The form requests information about -- among other things -- the employee’s previous pay and the circumstances of his/her separation from employment. The form generally must be completed and returned to the Division within 10 days. The Division bases its initial determination about whether an applicant is entitled to benefits, at least in part, on the information received from employers on that form.  If the individual is initially awarded benefits, the employer has the right to appeal the decision and have the case heard before an administrative law judge (ALJ).  Prior to the recent reforms, employers received a credit for any UI benefits paid to a former employee when the employer wins its appeal (i.e., when the Division’s ALJ determines that the individual is ineligible for benefits or otherwise received a mistaken overpayment of UI benefits). 

As of October 1, 2013, if an employer is late in responding to the Division’s form or provides incomplete information, the Division will no longer credit the employer's account for these overpayments.  In other words, even if the Division’s ALJ decides that the former employee is not entitled to benefits or has been otherwise overpaid, the Division will not credit the employer's account; instead, that money will be paid into the State’s general Unemployment Insurance Fund.

The bottom line for employers is if you plan to contest a UI claim, you need to make a timely and complete response to the Division's initial request for information.

Severance Agreements Effected

The second important amendment changes how UI benefits will be paid to individuals who receive severance payments from their former employer.  Beginning January 1, 2014, if the Division determines that an individual is entitled to UI benefits but learns that the individual is also receiving severance payments (within 30 days of his/her separation from employment), the former employee may not be permitted to collect UI benefits immediately.  Specifically, if the severance amount is greater than the maximum UI benefit rate, the UI benefits will not begin until the severance pay has been exhausted.

In other words, if you plan to give severance to a departing employee in exchange for a waiver and release of all claims against your company, for example, you may need to negotiate further with the outgoing employee to account for this delay in receiving UI benefits.

If you have any questions or need assistance with respect to the foregoing, please feel free to contact us.