Unemployment Compensation Claims

Employers must notify fired employees of their possible eligibility for unemployment insurance benefits. An employer who fails to provide this notice runs the risk of being sued if an eligible employee fails to timely file a claim. In most states, however, an employer can avoid this obligation by posting state-supplied information about unemployment benefits.

There are two major reasons you should care whether your ex-workers are collecting unemployment and why you should try to prevent an improper claim from being paid. First, your state unemployment tax rate is directly affected by the number of ex-employees who collected unemployment after leaving your business. Second, if there’s a chance that the worker is going to sue you for discrimination or wrongful discharge, you can discourage the lawsuit. If you establish that your conduct was appropriate in an unemployment compensation hearing, you're more likely to win in a later suit for wrongful termination. However, if you lose in the unemployment matter, you may decide that you should settle with the worker rather than going to trial in the other lawsuit.

On the other hand, there may be times when it’s not in your interest to prevent your worker from collecting benefits, even if you would probably win if you tried. The most common situation is where you want to get rid of someone but don't have a good (or a legal) reason for doing it, or you suspect the worker is going to sue you. In these cases you can "buy out" the worker by offering a severance package. The package may include an agreement that you won't do anything to prevent the worker from collecting unemployment benefits, along with some severance pay, continuation of health benefits, or other items. If you go this route, have the worker sign an adequate release of liability before he or she leaves.