Act 6 of 2011 – Changes to PA Unemployment Compensation

Recent changes to Pennsylvania’s unemployment compensation (“UC”) law which will impact employers who offer large severance packages to employees. 

Where previously, a UC claimant could collect full benefits regardless of the amount of severance pay he or she received, Act 6 of 2011 (“Act”) provides that severance pay may serve as an offset against unemployment compensation benefits.  The Act was signed into law on June 17, 2011 by Governor Tom Corbett, and the offset will apply to severance agreements reached on or after January 1, 2012. 

Under the new law, claimants whose severance pay is in excess of forty percent (40%) of the average annual wage in Pennsylvania will have his or her UC weekly benefits offset by an amount determined by the PA Department of Labor and Industry.  Based on current average annual wage figures, any severance pay in excess of $17,853.00 will trigger an offset of UC benefits. 

The Act defines severance pay as one or more payments made by an employer to an employee on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments.  The term does not include payments for pension, retirement or accrued leave or payments of supplemental unemployment benefits.

To guard against potential challenges to the validity of their severance or separation agreements, employer will need to revise their severance agreement forms.  If you have any questions on how Act 6 of 2011 will impact your business or need help revising your severance or separation agreements, please contact me at jhp@mbm-law.net or by calling 412.242.4400.