Severance pay not a disqualification for jobless benefits

Can They Do That?

Your Money

October 31, 2004|By Carrie Mason-Draffen

I was laid off in April 2002 after 29 years with a major telephone company. I collected unemployment benefits for 10 months. The next year, I again applied for unemployment benefits because I wasn't able to find a job.

I filled out a form stating that I hadn't worked or earned a salary since filling out my initial claim form. The unemployment benefits office checked with my former employer and granted me another 10 months of benefits - or so I thought.

The unemployment office now tells me that I need to pay back the second round of benefits. That's because my former employer reported that my severance pay was a salary paid weekly for the last year.

Severance isn't a salary; it's a separation package based on my years with the company. Why did the benefits people approve the benefit in the first place if I wasn't eligible?

Don't despair. You'll probably find some solace below.

As a general rule, severance pay shouldn't disqualify you from unemployment benefits, said Alan L. Sklover, a New York employee-rights attorney and the author of Fired, Downsized or Laid Off: What Your Employer Doesn't Want You to Know About How to Fight Back (Henry Holt and Co., $15).

"The laws in almost all states are consistent to that effect," Sklover said.

However, that assumes the severance pay you receive represents payments for being a faithful employee and is calculated on years of service.

On the other hand, most states draw a "line in the sand" when companies grant that pay in exchange for services from employees or former employees.

For example, notice pay, money given to employees before an official discharge from service, and continuation pay, given to former employees to make sure they are available if needed to help in transition, "will often both disqualify an unemployment application," Sklover said.

Money paid in return for any kind of services is wages, resulting in a denial of unemployment insurance benefits, he said.

Also, if you must provide services to your old employer, you're unavailable to search for new employment, a key requirement for receiving unemployment benefits.

Some states also check to see if your benefits - such as health insurance, life insurance and savings plans - are continuing, and, if so, presume you're being paid. Thus, you're left with the burden of establishing that no services are required during those periods of payment.

Your letter suggests that a miscommunication or misunderstanding may have occurred between your company and the agency that handles unemployment claims, resulting in your severance being mischaracterized, Sklover said.

He strongly suggests that you take your case directly to your state's labor department.

Carrie Mason-Draffen is a columnist for Newsday, a Tribune Publishing newspaper. E-mail her at yourmoney@ tribune.com.

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