Retired or Unemployed? – Reduction in Work Force Makes a Difference

On December 28, 2012, the Pennsylvania Supreme Court issued a decision which may impact whether your school district decides to offer an early retirement incentive (ERI) as part of planned furloughs.  In Diehl vs. Unemployment Compensation Board of Review, the Supreme Court applied the state’s unemployment compensation laws to a situation where an employee accepted an ERI which the employer offered as part of a workforce reduction.  Reversing longstanding Commonwealth Court precedent, the Supreme Court held that the employee was qualified for unemployment benefits.  Prior to the Diehl decision, the Commonwealth   Court had interpreted the “voluntary layoff” provision of Pennsylvania’s Unemployment Compensation Law to deny unemployment benefits for employees who accepted voluntary ERIs.

Diehl’s employer announced it would be reducing its workforce.  Diehl was not on the list of furloughed employees.  He was 63 and had worked as a shipping clerk for the employer, ESAB Welding and Cutting Products, for 23 years.  This made him eligible to take advantage of an offer made to senior employees to retire early to spare the jobs of newer employees.  The ERI provided extended benefits but no monetary compensation.  Diehl accepted the ERI.  After his claim for unemployment benefits was denied, he appealed.  On appeal, the Unemployment Board argued that the law’s voluntary layoff provision was not applicable to an early retirement.  A “layoff” is a temporary condition while a “retirement” is permanent.  The Supreme Court disagreed and found no distinction between a “voluntary layoff” and a “voluntary retirement” that is part of a workforce reduction.  The court stated that ERIs are simply “a different way to accomplish the workforce reduction of a layoff.”

Knowing that they will be eligible for unemployment benefits may encourage more employees to accept ERIs.  However, school districts must now consider the impact that the employees accepting an ERI will have on the district’s unemployment tax rate.  This must be included in the calculation of the cost of offering an ERI as part of anticipated furloughs.

 

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