From a posting dated February 12 on the Reed Smith Employment Law Watch page we learn that the Pennsylvania Supreme Court has overturned precedent and awarded unemployment compensation benefits to employees who accepted an early retirement incentive package. The Court has decided that employees who accept early retirement are to be treated as employees who accept voluntary layoffs using the arguments that both constitute terminations of employment initiated by the employer. Nice non-work if you can get it.
Whatever one thinks of the logic or illogic of this position, it clearly represents a windfall for employees who accept an early retirement package. The only real question at this point is who pays for those benefits? According to the Reed Smith writer, employers can actually take advantage of this ruling in two ways. Paraphrasing the author, (1) the employer can dangle the unemployment benefits as an added incentive to take the retirement package and (2) the employer could reduce the planned retirement incentive by the amount of the unemployment benefits. We would add that some combination of the two is also possible.
Here’s the rub. While the Court ordered unemployment benefits will likely lead to higher employer insurance payments and a bump up in their tax rate, for employers that reduce the severance package by the amount of the unemployment compensation, the increased payments will almost certainly be smaller than the reduction in the severance package thereby saving the company significant amounts of money. . Moreover, the higher insurance and tax payments are unlikely to cover the unemployment compensation received by the early retirees. Therefore, other contributors to the unemployment insurance plan or taxpayers will be stuck with most of the early retirees’ unemployment compensation. Not a good plan for the economy.
This is clearly something the state will need to keep an eye on. It could lead to serious excessive use of early retirement if companies can use the Court ruling to save themselves a lot of money by passing off a chunk of the cost to other contributors to unemployment funds.
