Unemployment Compensation Claims: The Pros and Cons of Contesting
By: INGRID N. CULP
October 2003
Almost every employer has received a notice from the Minnesota Department of Employment and Economic Development (DEED) (formerly called the Minnesota Department of Economic Security) indicating that a former employee has filed for unemployment compensation benefits. Sometimes the employer elects not to contest the employee's claim only to wish later that it had. Other times the employer contests the claim only to wish later that it had not. The decision whether to contest an unemployment compensation claim is a tough yet important one that requires consideration of several key factors.
Background
Under Minnesota's Unemployment Insurance Law (UIL), most employees have the right to file for unemployment compensation benefits when they find themselves out of work through no fault of their own. Employees generally are eligible for benefits if the employer terminated their employment due to a lay-off or run-of-the-mill performance issues that did not involve "intentional, negligent or indifferent conduct," or if the employee resigned due to a "good reason" caused by the employer (e.g., significant reduction in pay, uncorrected sexual harassment). If an employee otherwise voluntarily resigns his or her employment, or is terminated for disciplinary "misconduct" as the UIL defines the term, the employee generally will not be eligible for unemployment compensation.
Factors for Consideration
Setting Up A Defense
Sometimes an employee's application for unemployment compensation benefits alleges that the company engaged in unlawful activity. For instance, the employee may claim that he or she is a whistleblower, was subjected to unlawful discrimination or harassment, or that the employer violated state and/or federal leave laws. Employers generally should respond to the employee's unemployment claim with the assistance of legal counsel, keeping in mind that the response will form the basis of the employer's defense to any claim of unlawful activity. An aggressive and sound response may serve to deter the employee from pursuing legal action against the company, or, if the employee pursues such action, establish a helpful record for future litigation.
Provoking Additional Claims
Even absent allegations of unlawful activity, it is common for departing employees to feel that their former employer should assist them in obtaining unemployment compensation benefits, or, at the very least, not contest a claim. If benefits are granted, the employee is more likely to put his or her relationship with the former employer to bed and move on. If, however, the employer contests the employee's claim, the employee may perceive this as an additional slap in the face and become angry. The company's opposition to the employee's claim may be just enough to provoke the employee to make additional claims against the company.
For example, the employee may file a charge of discrimination, make a claim for unpaid overtime, or pursue litigation against the company. Regardless of the merit of the underlying claims (or the strength of the employer's defenses), the employer would be forced to spend a great deal of time and money responding to such claims. An employer's thoughtful and prudent decision not to contest the employee's unemployment compensation claim may be enough to forestall such additional claims.
Financial Consequences
After the DEED's initial determination concerning an employee's eligibility for unemployment compensation benefits, both parties have an automatic right to three levels of appeal:
- appeal to the DEED,
- appeal to the Commissioner of the DEED, and
- appeal to the Minnesota Court of Appeals.
This is true even if each appeal is consistently decided against one party. Additionally, after obtaining a ruling from the Minnesota Court of Appeals, each party may petition the Minnesota Supreme Court to hear its case. Each time an appeal is filed, the employer incurs substantial out of pocket costs such as attorneys' fees, lost employee time, and, depending on where the employer is located, travel expenses.
While the appeal process can be expensive, the decision not to contest an employee's claim for unemployment compensation benefits also may have an adverse financial impact on the employer.
Each time an employee receives unemployment compensation benefits on wages attributed to the employer, the employer receives a hit to its "experience rating." An employer's experience rating determines the employer's unemployment compensation tax rate.
People Time
The process of contesting an employee's unemployment compensation claim can be distracting and a drain on the employer's human resources. For instance, the human resources director may need to spend hours compiling supporting documentation, working with the company's attorney and/or preparing the appeal papers. Additionally, employee witnesses may be taken away from their normal duties to prepare for and testify at the appeal hearing.
Protecting the System
An employer may choose to contest an employee's claim for unemployment compensation benefits because it is the right thing to do. Minnesota's UIL is in place for individuals who are out of work through no fault of their own, and should not be abused by undeserving employees. In fact, it is illegal for an employer to collude with a former employee "for the purpose of assisting the [employee] to receive unemployment benefits illegally . . . ."
Message to Other Employees
Employees talk with one another and have a general sense of management practices and policies. Employers should bear this in mind when formulating their approach to unemployment compensation claims. If an employer often contests such claims, employees may be more likely to file for unemployment compensation benefits only when they have a strong claim for eligibility. If an employer rarely contests such claims, employees may be more likely to file claims even when ineligible.
There are many factors a company must consider when faced with a claim for unemployment compensation benefits. Employers with questions should contact their employment counsel for assistance.