As discussed in a prior alert, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which President Trump signed into law on March 27th, temporarily expands unemployment insurance benefits. Under the CARES Act, states that enter into agreements with the federal government will receive an infusion of federal funds to pay increased unemployment benefits, including for people who otherwise would not currently qualify for benefits under state law.
Many states have not yet issued the expanded benefits, waiting on the Department of Labor (DOL) to provide implementation guidance. Recently the DOL did just that. This alert will detail some important clarifications as well as raise some issues that still need to be resolved.
Section 2104: Federal Pandemic Unemployment Compensation (FPUC)
On April 4th, the DOL issued Unemployment Insurance Program Letter 15-20 (UIPL 15-20), which describes how states should administer the Federal Pandemic Unemployment Compensation (FPUC) program described in Section 2104 of the CARES Act. This provision provides an additional $600 per week to individuals who are collecting traditional state unemployment benefits, as well as those who are newly eligible for unemployment through the expanded programs provided for in the CARES Act. Each week claimants are entitled to the $600 FPUC payment, which is 100% federally funded, from the time the state enters into an agreement with the DOL through July 31st.
Partially Furloughed Employees
Prior to the issuance of the DOL’s guidance, it was unclear how the $600 FPUC payment would impact an employee’s eligibility for, and amount of, unemployment benefits if they had their hours and pay reduced (often referred to as a “partial furlough”). First, with respect to eligibility, a partially furloughed employee’s eligibility for any unemployment benefits depends, in part, on how much they continue to earn. Although states’ eligibility tests vary, they typically compare the amount of money that a partially furloughed employee continues to earn against the amount of benefits for which that employee would be eligible if fully unemployed (the “weekly benefit amount”).
For example, New York has a blanket rule stating employees continuing to earn more than $504 in a week (which is the maximum weekly benefit in New York) are not eligible for unemployment.
As another example, Massachusetts will disregard a certain portion of money that is earned (1/3 of an employee’s weekly benefit amount if fully unemployed), and then will reduce dollar-for-dollar the amount of unemployment a partially furloughed employee could receive based on the amount of money they continue to earn. Accordingly, the fundamental question with respect to the CARES Act $600 FPUC payment was whether it would be recognized as part of a state’s weekly benefit amount and therefore increase the earnings cap that determines whether a partially furloughed employee is eligible for benefits (for example, in New York, changing the earnings cap from $504 to $1104 per week).
In UIPL 15-20, the DOL clarifies that it does not. FPUC is only available to individuals who would otherwise be eligible for benefits. States are to calculate FPUC payments in two steps:
- Calculate the weekly benefit amount the individual is entitled to under regular unemployment compensation or one of the new expanded programs;
- If the individual is eligible to receive at least $1 of the underlying benefit for the claimed week, they receive the additional $600 FPUC payment.
Consequently, in New York, the $504 per week earnings cap still applies. And in Massachusetts, an employee who would be eligible for the maximum state weekly benefit of $823 per week if fully unemployed, would be ineligible for any unemployment benefit (state or federal) if the employee continues to earn $1,097 ($823 + $274 earnings disregard) or more in a week. On the other hand, if this same Massachusetts employee were laid off and had no earnings the employee would likely be eligible—until July 31, 2020—for $1,423 per week in unemployment benefits (the state $823 per week + the $600 per week FPUC payment).
Thus, at first blush, the CARES Act appears to encourage employers with a downturn in business—who are concerned for the welfare of their employees—to conduct layoffs rather than keep employees working at reduced schedules. To avoid this unintended consequence, the Act provides federal funding for state work share programs (referred to in the Act as “Short-Time Compensation” plans). Work share is a layoff aversion program which allows an employer to reduce the hours of a group of workers to avoid layoffs and permits those workers to receive a partial unemployment benefit. Under the Act, the federal government will reimburse states 100% of the unemployment benefit costs paid pursuant to a work share program, up to a maximum of 26 weeks per individual, for the time between March 27th and December 31st.
The advantage of a work share program is that employees’ earnings would not foreclose their eligibility to receive some unemployment benefits. Instead, the benefit amount corresponds to the amount of reduction that participating employees experience. For example, if employees experience a 25% reduction in hours and pay, they would be eligible to receive 25% of the unemployment benefits they would receive were they fully unemployed, even if they would previously have been foreclosed from unemployment benefits based on the level of their continued earnings. Additionally, the Department of Labor’s recent guidance specifies that workers collecting unemployment through a Short-Time Compensation program (i.e., a work share program) are entitled to receive the additional $600 in FPUC (note: as of yet, the Department of Labor or state-specific guidance has not mentioned proration of the FPUC benefit).
Based on the updated Department of Labor guidance, the CARES Act makes implementing a Short-Time Compensation plan a potentially attractive option for employers looking to avoid layoffs. Employers who wish to participate must submit a plan to the applicable jurisdiction for approval. Each state has its own rules for participation, but they are generally consistent—among other conditions, the percentage reduction must be the same for each employee selected to be part of the plan, the reduction must be between 10% or 20% and 60%, and an employer must maintain access to fringe benefits for impacted employees, including health benefits.
Section 2102: Pandemic Unemployment Assistance (PUA)
One day after issuing guidance on the FPUC program, the DOL published Unemployment Insurance Program Letter 16-20 (UIPL 16-20), which provides states with operating instructions for the Pandemic Unemployment Assistance (PUA) program described in Section 2102 of the CARES Act. The PUA program generally allows states that enter into an agreement with the federal government to pay up to 39 weeks of unemployment benefits to individuals who are not currently eligible for benefits under state law. Individuals qualify for PUA benefits where they are otherwise able and available to work, except that they are unemployed or partially unemployed, due to one of the 10 COVID-19 related reasons listed in the Act.
UIPL 16-20 provides examples and explanations for workers who are covered under each of the 10 categories. Although the examples do not represent an exhaustive list of qualifying circumstances, the DOL emphasizes that states must administer benefits in a manner consistent with the examples given.
Notably, the guidance clarifies the qualifying category that received the greatest amount of attention after the passage of the CARES Act: “The individual has to quit his or her job as a direct result of COVID-19.” Many employers were concerned that an employee with a generalized fear of contracting COVID-19 could invoke this category as a justification to quit and apply for expanded employment benefits (including an additional $600 per week in FPUC for four months).
Instead, the DOL’s clarifying example of an eligible claimant interprets “has to quit” narrowly:
An individual was diagnosed with COVID-19 by a qualified medical professional, and although the individual no longer has COVID-19, the illness caused health complications that render the individual objectively unable to perform his or her essential job functions, with or without a reasonable accommodation.
Additionally, the guidance explains that an employee “has to quit” within the meaning of section 2102 “only when ceasing employment is an involuntary decision compelled by the circumstances identified in the section.” This appears to foreclose eligibility for an otherwise able-bodied person who is anxious about going to their worksite and decides to quit.
Furthermore, in UIPL 16-20 the DOL reaffirms that, even for PUA benefits, the fundamental principle of unemployment still applies: individuals are only entitled to benefits if they are no longer working through “no fault of their own” and “quitting work without good cause to obtain additional benefits would be fraud.” To ensure that states are not overly generous in dolling out federal funds, the CARES Act includes an appropriation of $26 million to the Office of the Inspector General to carry out audits, investigations, and other oversight activities to make sure states are adhering to the CARES Act as interpreted by the DOL.
Besides explaining the meaning of “has to quit,” UIPL 16-20 also includes a couple other important clarifications. First, although an individual providing care for a family member who has been diagnosed with COVID-19 may qualify for PUA benefits, an individual who is assisting a family member who is able to adequately care for himself is not considered to be “providing care.” Finally, an individual typically would not qualify for PUA due to COVID-19 related childcare responsibilities if their job allows for telework; however, a person would qualify under this category if their childcare obligations require such ongoing and constant attention that it is impossible for them to perform work at home.
WilmerHale’s employment team will continue to track CARES Act developments and is available to provide legal guidance specific to your company’s needs.