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Unemployment Compensation: Employees Electing a Buyout May End Up Losing Unemployment Benefits

09.01.2009

The Kentucky Supreme Court recently considered whether employees are entitled to unemployment benefits when electing early retirement and cash incentives as part of a buyout.  In a case involving a reduction in force (RIF) of approximately 160 workers, the court concluded that the employees couldn’t receive unemployment benefits because they had voluntarily chosen between continued employment and early retirement.

Background

In 2002, the U.S. Department of the Army adopted a mock RIF of approximately 160 civilian employees after hiring a private contractor to replace their jobs.  The employees were given a choice to continue working for the next two years in a different capacity at the same pay rate with no guarantee of work at the end of the two years, or they could elect early retirement and cash incentives as part of a buyout package, which included a $25,000 severance payment.

Some of the employees opted for early retirement and filed for unemployment compensation.  Initially, the Kentucky Unemployment Insurance Commission (KUIC) awarded benefits.  The Army challenged the decision, and the trial court upheld the commission’s decision to provide short-term unemployment benefits to employees who had voluntarily elected early retirement and the severance package.

On appeal, the Kentucky Supreme Court unanimously reversed the KUIC’s decision and denied the employees unemployment benefits because they had voluntarily resigned their employment and didn’t qualify under the limited exception to the rule that employees who voluntarily leave work are ineligible for unemployment benefits.

Court’s analysis

In general, an employee who voluntarily leaves his job is disqualified from receiving unemployment benefits.  However, there is a limited exception when the employee voluntarily leaves for “good cause attributable to the employment.”  The Kentucky Supreme Court defines “good cause attributable to the employment” as analogous to “constructive discharge,” meaning the employment environment is so burdensome on the employee that he feels he has no option but to resign.

In assessing “good cause,” the controlling question is whether the job conditions are so intolerable that a reasonable person would believe he had no alternative but to quit.  For example, a waitress who quit for refusing to comply with her employer’s dress code was found not to have “good cause attributable to the employment” to resign, and she was ineligible for unemployment benefits.  On the other hand, an employee who resigned when his employer moved the business to another state was found to have good cause and was therefore entitled to unemployment benefits even though he voluntarily resigned.

In this case, the Kentucky Supreme Court found no “good cause attributable to the employment” for employees electing the buyout package, especially when they were offered continued employment at the same salary.  Because the Army offered a choice of accepting a severance or continuing employment, there was no question that the employees’ actions were voluntary.  Brownlee v. Com., No. 2007-SC-000126-DG, 2009 WL 1819488 (Ky., June 25, 2009).

Bottom line

Employees who quit their jobs are ineligible for unemployment benefits unless they can show that the circumstances left them with no choice but to resign.  In electing to receive a severance package as part of a buyout, employees should be mindful that they might not qualify for unemployment benefits.

 


If you have any questions or need help, please contact any member of the Greenebaum Doll & McDonald Labor and Employment Department. Find us online at www.gdm.com.

Copyright 2009 M. Lee Smith Publishers LLC
KENTUCKY EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Kentucky employment law.  Questions about individual problems should be addressed to the employment law attorney of your choice.

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