The Pennsylvania Supreme Court recently overturned 10 years of precedent and awarded unemployment compensation benefits to employees who accepted an early retirement incentive package. In Diehl v. Unemployment Compensation Board of Review, attached here,the Supreme Court analogized early retirees with employees who accepted voluntary layoffs, a category expressly eligible for benefits under the state statute.
In Diehl, the employer offered unionized employees over sixty years old an early retirement program to encourage high seniority employees to leave so that the less senior employees on the list would not be laid off. The offer included three years of full health insurance, two additional years of subsidized health insurance and payment for unused vacation days.
Generally, employees who voluntarily quit their positions are ineligible for benefits unless they have a “necessitous and compelling” reason to quit. Prior to Diehl, the UC Board and the Commonwealth Court treated early retirees as employees who voluntary quit their jobs. Accordingly, the agency and the Court granted benefits to early retirees only where they demonstrated a justifiable belief that their job was imminently threatened.
Rather than applying this “voluntary quit” analysis, the Supreme Court applied the “voluntary layoff option” section of the statute. Under that provision, employees who voluntarily resign are eligible for benefits if they exercise “the option of accepting a layoff ... pursuant to an established employer plan, program or policy.” In reversing the Commonwealth Court’s long-standing practice of applying the “voluntary quit” rather than the “voluntary layoff” analysis, the Supreme Court held that early retirement plans are equivalent to voluntary layoff plans, as they both constituted terminations of employment initiated by the employer.
While the Diehl decision is an apparent win for employees, informed employers are well-positioned to take advantage of this ruling. Employers may either (1) use this benefit eligibility as a further incentive for employees to accept early retirement or (2) offset the amount of monetary compensation offered under the package by the amount of unemployment compensation available to the early retiree. While the increased benefits will likely result in an increase in the employer’s insurance premiums and tax rate, any such increases are typically less than the money directly paid out under the package.
Note: As we discussed here, unemployment compensation in Pennsylvania may be offset by significant severance payments.