SEVERANCE PAY, SETTLEMENTS AND PENNSYLVANIA'S NEW UNEMPLOYMENT LAW

HOW DOES SEVERANCE PAY AFFECT YOUR RIGHT TO UNEMPLOYMENT UNDER PENNSYLVANIA’S NEW UNEMPLOYMENT LAW?

It is important to understand that, under the old Pennsylvania Unemployment law, there was not a “set off” for severance pay.  Hence, if you entered into a severance agreement prior to January 1, 2012, the new law does not apply to you.  Otherwise, it does.  

The new Act has no effect at all on persons receiving less than $18,000 in severance pay.  But, what happens if one is entitled to receive more than $18,000 in severance pay?  As I currently understand it, of you are entitled to severance pay in excess of $18,000, there is an offset assigned to each weekly benefit to which you would otherwise be entitled.  How is the offset calculated?

I believe they are taking the amount of severance IN EXCESS of $18,000 as a starting point, and then denying unemployment benefits until that excess payment has been received by a Claimant.

Example:

You are entitled to receive $573 per week in unemployment benefits.  You are going to receive $20,092 in severance.  Unemployment takes the $2,092 excess, and assigns $573 of it per week to your unemployment entitlement.  Thus, under this scenario, you would not receive any unemployment payment for the first 4 weeks of your eligibility (i.e. $573 x 4 = $2,092). 

WHAT IS SEVERANCE PAY UNDER PENNSYLVANIA UNEMPLOYMENT LAW?

True Severance = Voluntary Payment

Pennsylvania’s amended Unemployment law 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.” Severance pay does not include payments for pension, retirement, or accrued leave, or payments of supplemental unemployment benefits.

A common question certain to arise going forward is as follows:  What is a severance payment?

Clearly, if you receive an offer of severance at the time of your termination pursuant to a written company policy or standard practice, that would qualify as a severance payment. 

DO SETTLEMENT PAYMENTS FOR A WRONGFUL DISCHARGE OR DISCRIMINATION CLAIM AFFECT YOUR RIGHT TO PENNSYLVANIA UNEMPLOYMENT COMPENSATION BENEFITS?

But what happens if you get more severance than is originally offered because you threatened to file a  lawsuit for discrimination, wrongful discharge, etc.?

Pennsylvania’s Unemployment statute states as follows in this regard (emphasis added by me):

any person who has received or employer who has made a back wage payment pursuant to an award of a labor relations board arbitrator or the like without deduction for unemployment compensation benefits received during the period to which such wages are allocated shall notify the department immediately of the receipt or payment of such back wage award. The recipient of such back wage award, made without deduction for unemployment compensation benefits received during the period, shall be liable to pay into the Unemployment Compensation Fund an amount equal to the amount of such unemployment compensation benefits received.

Anything but a Jury Trial - We'll settle!

Thus, one could easily argue that, unless the settlement amount was awarded by a tribunal of some sort (as opposed to via voluntary settlement), one’s entitlement to unemployment is in no way affected by a voluntary settlement.

Hence, prior to the enactment of the new severance provision, it did not matter how such settlements were characterized (i.e. as severance versus simply as settlement proceeds).  Now, it does. 

WILL I LOSE UNEMPLOYMENT BENEFITS IF I ACCEPT A SETTLEMENT THAT IS DEEMED A SEVERANCE PAYMENT BY MY FORMER EMPLOYER?

So, I can foresee employers attempting to characterize payments of settlement proceeds as severance, simply to get out from under any responsibility for unemployment compensation benefits.

Don’t let this happen to you!  Under employment law principles, unemployment compensation benefits cannot be “counted against” your lost wages, and therefore cannot be used to reduce the value of your claim for lost wages.  Allowing your former employer to characterize a settlement payment as “severance” will, as a practical matter, have the effect of reducing your settlement by the amount of unemployment benefits you have/will receive(d), which is contrary to all employment law principles.

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Thank you for checking in on our Blog, and I wish you the very best. John A. Gallagher, Esquire

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