Employers Face Tough New Standards When Responding to Unemployment Claims

The Unemployment Insurance Integrity Act was passed in 2011 as part of the Trade Adjustment Assistance Extension Act (TAAEA) with the primary purpose of decreasing the amount of improper Unemployment Insurance (“UI”) payments and maintaining the integrity of the UI system.

Historically, for a variety of reasons, employers have opted not to respond to information requests in connection with claims for unemployment benefits with little to no consequence. However, because UI laws have new teeth, employers must now take the utmost care when responding to claim notices.

Under the Act, states are required to implement tougher standards designed to ensure that employers and their agents respond timely and adequately to claims for unemployment. As a result, in order to protect their federal funding, states are shifting the responsibility for the integrity of the UI system to employers by enforcing more stringent penalties for noncompliance moving forward.

Requirements Under the Act

The Act prohibits states from relieving employers of charges to their unemployment tax account when employers or their agents:

1. Fail to respond timely or adequately to a request by the state agency for information relating to a claim for UI benefits that was subsequently overpaid; and
2. Have established a pattern of failing to respond timely or adequately to requests from the state agency for information relating to claims for UI benefits.

States are given wide discretion in defining what a “pattern” of failing to respond would be. Each state may also take its own approach in determining what constitutes a “timely” and “adequate” response. Moreover, states are expressly permitted to apply stricter standards including denying a relief of charges in the first instance in which an employer fails to respond timely or adequately to a UI information request. Civil and criminal penalties may also be applied. The Act does not define “agent,” but it is fair to assume that the penalties can be applied with equal force to employers on account of inaction by Third Party Administrators (“TPAs”), who are widely used by employers as an unemployment cost management service.

State Law Implementation

The Act requires states to have adopted implementing legislation by October 21, 2013. To date, nearly all states have enacted legislation to comply with the heightened standards.

Pennsylvania

Pennsylvania’s newly enacted H.B. 421 amends several provisions of the State’s existing Unemployment Compensation law. Employers are penalized for responding “untimely” or “inadequately fail[ing] to respond to a request by the department for information regarding the individual’s eligibility for compensation.” A response to a request is untimely if filed “more than fourteen days after the department’s request for information.” A response is inadequate if “the response misrepresents or omits facts that, if represented accurately or disclosed, would have been a basis for the department to disqualify the individual from receiving compensation.” Note that in Pennsylvania, an employer can be penalized for a single failure to respond timely or adequately.

New Jersey

New Jersey also penalizes an employer’s failure to respond in a “timely or adequate manner,” but, unlike Pennsylvania, also requires that the employer has engaged in a pattern of untimely or inadequate responses. New Jersey defines a pattern of failure as a “repeated documented failure on the part of the employer . . . to respond to requests from the Division [of Unemployment and Temporary Disability Insurance] for information related to a claim for benefits.” Such a pattern will not be found under New Jersey law, however, if the number of failures is fewer than three, or less than two percent of the total number of requests from the Division, whichever is greater. New Jersey requires that employers respond to requests within ten days after mailing of the request.

What Employers Can Do

These new laws present unique challenges to employers. From the point of employment termination to the UI claim notice response stage, employers must have careful oversight of the process. This is particularly true when an employer has agreed not to contest an employee’s UI eligibility. Employers need to ensure that a system is in place to address these issues at each level of the process. Best practices to address these challenges include:

• UI Claim Manager. Appoint one individual within the organization to manage the receipt and response of UI claim notices. Ensure that if this individual is not in the Human Resources Department, he or she has access to personnel information and an HR contact.
• Training. Train human resources managers, payroll personnel and other administrative staff to identify a UI claim notice. Create a clear action plan for routing claims to a centralized location in order to ensure timely response.
• Coordinate with TPAs. Employers who use Third Party Administrators should ensure that they are responding timely, adequately and accurately to claim notices; have a quality assurance system in place for timely followup.
• Consult with Counsel. Have counsel review terminations and the applicable unemployment laws whenever there is a question regarding the information that should be provided to the state UI agency; particularly, when the employer has agreed not to contest the employee’s UI eligibility.
• Separation Agreements. When drafting a separation agreement, language such as “the employer agrees not to contest the employee’s unemployment compensation claim” could be problematic and subject an employer to heightened scrutiny by a state agency. Include language recognizing that the employer will respond “truthfully, adequately and completely” to any unemployment request for information.

For More Information

If you have any questions regarding this Client Alert, please contact Theresa M. Zechman at 717.399.6644 or the Stevens & Lee attorney with whom you normally consult for labor and employment issues.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.