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New law limits double-dipping of severance, unemployment

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in Compensation and Benefits,Human Resources

The Texas Legislature has amended the Texas Labor Code to limit un­­employment benefits for employees who receive severance pay after losing their jobs.

The change brings eligibility rules into alignment with those affecting workers’ compensation, disability pay and wages in lieu of notice. It is designed to prevent double-dipping. Employees can’t collect unemployment during the time covered by severance payments.  

However, exclusions provided under the law restrict the original in­­tent. The amendment’s definition of “severance pay” specifically excludes money an employee receives under a settlement agreement and release of claims based either on alleged violations of the Civil Rights Act of 1991 or pursuant to a claim or cause of action filed in connection with the employment relationship.

The Legislature apparently meant to avoid penalizing an employee who has already been subjected to some sort of wrongdoing.

Usually, an employer’s severance offer comes in conjunction with a full release of claims. But if a release falls within this exclusion, many em­­ployers may find themselves liable for un­­employment, too.

Advice: If you must choose be­­tween disqualifying em­­ployees from receiving unemployment and avoiding liability for employment-related claims, pro­­ceed with ob­­taining the general release. Reason: The potential exposure and cost of an employment-related claim will almost always be far greater than any claim for unemployment benefits.

Note: Expect more guidance in coming months from the Texas Workforce Commission.

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