An Employer’s Guide to Unemployment Benefits

When a worker makes a claim for unemployment benefits, it affects their former employer’s UI contribution rate (their “experience rating”) and, by extension, the amount that former employer will pay in future UI premiums.  Despite the financial stakes, many employers do not understand what triggers a valid claim for benefits or how best to minimize claims.  This is a critical mistake that can cost a small business thousands of dollars a year.

So what are the basic requirements for a claimant to receive benefits?  In general, an individual will be eligible to receive benefits provided that they have received enough wages during their “base period” to establish a claim (either $1300 in one quarter of their base period, or at least $900 in their highest quarter and total base period earnings of 1.25 times their high quarter earnings), they are physically able and available to immediately accept work, actively seeking work, and unemployed through no fault of their own.

Layoffs will in most circumstances entitle a claimant to benefits.  Resignations will in most circumstances result in the denial of benefits, since employees who resign are generally found to be unemployed “through fault of their own.”  Most disputes over entitlement to benefits arise when an employee is fired “for cause.”  (Note that in the vast majority of circumstances an employer doesn’t need to demonstrate cause to effect a lawful termination, but entitlement to UI benefits is judged on a different standard–the standard of “fault.”)

A “for cause” termination will result in the denial of unemployment benefits if the EDD determines the claimant was terminated for “misconduct”–that is, conduct evidencing a willful or reckless disregard for the interests of the employer.  A finding of misconduct requires more than simply showing an employee wasn’t good at their job.  Indeed, the Appeals Board has made clear that termination for ordinary poor performance cannot form the basis for a denial of benefits.  “Misconduct” is more egregious. Theft, insubordination, and unexcused absenteeism without good cause are good examples of misconduct.

How can employers ensure that if they terminate an employee for believed misconduct that the employee won’t be eligible for benefits?  The best way is through documentation.  Write-ups (preferably with the employee’s signed acknowledgement), email exchanges documenting disciplinary communication, and personnel file notations are all good ways to keep track of misconduct so that when it comes time to fire an employee for cause, the employer has sufficient evidence to support denial of the UI claim.

Another good way to minimize UI claims is to permit, and in certain circumstances encourage, undesirable employees to resign.  As noted above, resignation will generally result in the denial of unemployment benefits, but only so long as the resignation is truly voluntary.  If an employee is told point blank to either resign or be fired, they did not truly “resign” because the employee did not have a choice to remain employed.  Although there is a fine line, informing an employee that their time at the company is limited, or curtailing their responsibilities or opportunities for advancement, will guide the employee toward resignation without forcing their hand.  When an undesirable employee does resign in response to these pressures, the EDD will typically deny their claim for benefits.

While discussion of strategies to prevent meritless claims for UI benefits may seem calloused, the intention is only to prevent abuse of the system.  No employer should feel bad about doing that, especially given the financial consequences of permitting meritless claims.