Back in 2021, a change to the state’s unemployment compensation law might have been overlooked. After all, the provisions didn’t go into effect until January 1, 2024.

Alas, the time is now for employers to pay attention.

The state Department of Labor has a whole list of all the changes going into effect but I want to focus on one specific change because it may impact how employers deal with severance payouts (and the negotiations with employees about it).

Under existing law, an employee’s receipt of severance pay did not disqualify the employee from also receiving unemployment compensation at the same time if the severance was part of a separation agreement.

Effective January 1, 2024, an employee’s receipt of severance pay will now result in disqualification from receiving unemployment compensation benefits for the period of time covered by the payment.

It’ll be interesting to see how this law is implemented. In the text of the law, the disqualification for benefits is “during any week with respect to which the individual has received or is about to receive remuneration in the form of…wages in lieu of notice or dismissal payments, including severance or separation payment by an employer to an employee beyond the employee’s wages upon termination of the employment relationship or any payment by way of compensation for loss of wages.”

So the obvious questions arise: If an employer gives an employee a lump sum severance payment, is the employee disqualified for just that week payment is received or, if the severance is equivalent for 4 weeks of pay, for the next four weeks? Additionally, can an employer and employee characterize the payment as something other than severance or separation pay in order to avoid the application of the law? And would employers want to? Might an employer structure any payments as an “add on” to the payments that the employee is otherwise receiving from unemployment compensation?

These are issues that are best discussed with your company’s attorney as this law may impact separation agreements and potentially settlement agreements of existing claims too.

Last week, the state DOL issued proposed regulations attempting to further clarify some of these issues. The comment period will end December 21, 2023. Suffice to say that until the dust settles on the application of the law, questions will remain.