Unemployment Laws Have New Teeth under the Integrity Act: Are You Ready?

In 2011, President Obama signed the Unemployment Insurance Integrity Act (the "Act") as part of the enactment of the Trade Adjustment Assistance Extension Act of 2011 (“TAAEA”). The Act, which is a subsection of the Federal Unemployment Tax Act ("FUTA"), prohibits states from relieving employers of charges to their unemployment tax account when: (1) a payment was made because the employer, or an agent of the employer, was at fault for failing to respond timely or adequately to the request from the unemployment insurance division for information relating to the claim, and (2) where the employer or agent has established a pattern of failing to respond timely or adequately to such requests, even if it is later decided that the claimant is disqualified for benefits. The Act also requires states to enhance penalties for individuals who submit fraudulent claims and to revise the timing of "new hire" reports. In effect, the Act largely shifts the responsibility for unemployment insurance ("UI") integrity to employers. The Act requires states to adopt legislation implementing the provisions of the Act by October 21, 2013. In many states, employers are just starting to see the impact of the new legislation. This client alert summarizes key features of the new requirements which can impact an employer's bottom line.

Purpose of the Act

The purpose of the Act is to improve the integrity of the UI system by ensuring that only those individuals who are entitled to UI benefits receive them. It does this by incenting employers to provide complete, thorough, and timely information to enable state UI agencies to make more accurate eligibility determinations. In the past, many employers chose not to contest UI claims and, therefore, did not respond, or provided minimal information. This often allowed individuals who were not actually eligible for UI to receive benefits, also known as "overpayments." In order to restrict the wrongful payment of UI benefits and to facilitate accurate and informed state decision-making as to eligibility, the Act mandates that employers and their agents timely and adequately respond to a state UI agency's request for information regarding the claimant, irrespective of whether the employer believes the individual is entitled to benefits.

Requirements under the Act

If an employer or its agent establishes a pattern of failing to timely or adequately respond to a state agency's requests for information as to a claimant's UI eligibility, the employer's UI account will be charged for the benefits even if the claimant is eventually disqualified. The employer's account will continue to be charged until the appeal decision is issued and the erroneous payments cease. The increased charges may affect the employer's experience rating and, as a result, its tax rate.

Under the Act, states are given discretion in determining what constitutes a "timely" and "adequate" response, and states have taken a variety of approaches in enacting legislation to comply with these obligations. In order to comply with the intent of the Act, states may begin requesting more detailed information than they did in the past. Such requests may include details underlying the discharge, the nature of the information or reasons communicated to the claimant, and even requests to explain how the claimant's actions were detrimental to the employer's business, etc. Most state laws already provide for relatively short statutory response periods (less than ten days) to a claim notice, and although employers may be required to provide additional information surrounding the circumstances of the claimant's separation from employment, the time to respond was not extended by the Act and remains short.

State-specific Laws Implementing the Act

By now, all states have enacted implementing legislation. Some states have enacted laws that are more rigorous than the federal requirement while others have simply mirrored TAAEA's Section 252 mandate.  The following are a few examples:

California

Under California law, a pattern of failure to timely or adequately respond is defined as two offenses per individual claimant.

Connecticut

Connecticut law tracks the language of the Act and does not define what constitutes a pattern or practice of failure to respond timely or adequately.

Florida

Under Florida law, an employer may be denied relief from charges after only one occurrence of an inadequate or late response. Regarding timeliness, the law states that "the employer must respond to the notice of claim within 20 days after the mailing date of the notice, or in lieu of mailing, within 20 days after the delivery of the notice."

Illinois

Illinois law largely tracks TAAEA's Section 252 mandate. Although the law states that an employer may not receive relief from charges if the employer has "established a pattern of failing to respond timely or adequately" to requests for information, the law does not clarify or define what constitutes an "established pattern."

Massachusetts

Massachusetts law was already in compliance with the Act's requirements. Under Massachusetts law, absent good cause, a failure to respond to requests for information within ten (10) days of when the request is mailed will deprive the employer of the right to contest the agency's determination.

New York

New York State Governor Cuomo signed Senate Bill S.2607, which contains extensive changes to New York unemployment law, on March 29, 2013. To bring New York law in compliance with the Act, a provision has been added providing that an employer's account shall not be relieved from charges resulting in an overpayment of UI benefits when the employer or the employer's agent fails to respond timely or adequately to an information request relating to a claim. In New York, an employer must respond to an initial claim notice within ten (10) calendar days of the date on the claim notice. An employer, however, will not be liable for charges for the first occurrence of an untimely or inadequate response if the employer establishes good cause for such a failure. New York law already made it a misdemeanor for employers who made false misrepresentations or engaged in a pattern of false or misleading representations to the Unemployment Insurance Division.

New York's unemployment reform went beyond the requirements of the UI Integrity Act, however. A number of additional provisions become effective on January 1, 2014. For example, Section 591 of the New York Labor Law was amended to provide that no UI benefits will be paid to a person for any week in which the person receives dismissal pay. If the dismissal payment is in a lump sum amount it will be allocated on a weekly basis and the claimant will not be eligible for UI benefits for any week for which the dismissal pay or severance is allocated. In addition, the disqualification period for a misconduct charge and a voluntary quit without good cause has been increased. The law further increased the requirements for claimants to requalify for unemployment after exhausting benefits, being disqualified for misconduct, voluntarily quitting without good cause, or declining a job offer.

New Jersey

The New Jersey Unemployment Compensation Law was amended to define a pattern of failure as a "repeated documented failure on the part of the employer. . . to respond to request 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 (3), or less than two (2) percent of the total number of requests from the Division, whichever is greater. Similar to New York, New Jersey requires that employers respond to requests from the Division within ten (10) days after mailing of the request.

Implications for Employers

Employers need to ensure that they are thoroughly prepared to provide timely and accurate information in response to inquiries from state UI agencies. To do so, employers should consider:

  • Appointing an individual or group of individuals responsible for receiving and responding to UI claim notices and information requests. This is especially important if a threat of litigation is possible because responses to the UI agency's request are required to be truthful and are discoverable;

  • Training human resources managers and payroll staff to identify UI claim forms and ensure that they are timely directed to the appropriate person for completion;

  • Having the appropriate manager or human resources person document the information to be communicated to the employee because such information or rationale may be requested by the UI agency from the employer; and

  • Consulting with counsel because agreements with employees or former employees (or their counsel) not to contest UI benefit claims may trigger heightened scrutiny from regulators, as many state laws penalize employers for willfully failing to disclose material facts related to an employee's separation from employment.

Employers who use an agent, such as a payroll service or third-party administrator, to respond to UI claim notices need to ensure that these third-party agents are aware of the reporting requirements and deadlines imposed under the applicable state laws. Employers and third-party agents should further establish a clear process for notification and information transfer to ensure that appropriate and accurate information is communicated to the state UI agency in a timely manner. Again, keep in mind that disclosures to the third-party administrator may well be discoverable. Hence, it is even more important now that a human resources professional be the one communicating with the employer's agent.

Topics:  Compliance, FUTA, TAAEA, Unemployment Insurance, Unemployment Insurance Integrity Act

Published In: Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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