Over the last few months, claims for unemployment insurance benefits have increased exponentially due to the difficult financial circumstances public and private employers have been confronted with in the wake of the COVID-19 pandemic. Reductions in services and business closures have forced many employers to implement layoffs and furloughs, causing the dramatic increase in unemployment claims.
As employees are being laid off or furloughed because of the COVID-19 impacts, employers will receive notices from the Employment Development Department (EDD) when those laid-off and furloughed employees file unemployment claims. Employers should not erroneously presume it is unnecessary to respond to the notice or that the obligation to do so has changed amidst the COVID-19 pandemic. Irrespective of the reason for the claim or the employer’s decision to not contest a claim, the employer is obligated to respond to the notice in a truthful, complete and timely manner.
In 2013, the California Legislature responded to the federal mandate set out in the Unemployment Insurance Integrity Act (“Act”) by enacting Unemployment Insurance Code section 1026.1. The Act was intended, in part, to deter employers from ignoring unemployment claims and merely accepting them as a “cost of doing business” and sets forth a consequence for employers doing so. If an employer requests that its reserve account be relieved of charges related to benefits overpayments, the EDD will not provide the relief if the employer failed on at least two occasions to timely or adequately respond to the EDD regarding claims for unemployment benefits. For this reason, it is important for employers to provide truthful, complete and timely information to the EDD as requested on individual unemployment insurance claims, even if those claims result from COVID-19 furloughs or layoffs.
Also, it is important to remember that an employer’s response to the EDD can potentially be used as evidence in any related litigation, an additional important reason for the response to be truthful and complete. If litigation is likely or anticipated, employers should consider conferring with legal counsel about the response before submitting it to the EDD.
Similarly, employers seeking to reduce their workforce as a cost-saving measure may be considering severance agreements. If an employer elects to include a provision in those agreements that it will not contest unemployment benefit claims, the employer, nevertheless, must respond to inquiries from the EDD regarding the claims. Further, severance or settlement agreement terms that state the employer will not contest unemployment claims should include language that the employer will provide truthful, complete and timely responses to the EDD. Simply ignoring the EDD’s inquiries could result in denial of future requests for relief in cases of overpayment of benefits.
To ensure compliance with the EDD’s requirements, employers should consider having any layoff or severance agreement reviewed by legal counsel.