Introduction to Texas Unemployment Law.
Unemployment claims have been on the rise since the COVID-19 pandemic began. Navigating through the Texas unemployment system presents many challenges. The most common involve: (1) an employee’s eligibility for benefits; (2) when is an employee’s separation from work voluntary, particularly when the employee receives severance pay; and (3) what constitutes separation from work for misconduct that renders the employee ineligible for benefits. Many employees qualify for unemployment and should receive those benefits; however, not every claim for benefits is appropriate. For example, an employee who voluntarily resigns his or her position, refuses to accept alternative suitable work or who is terminated for misconduct at work, is not eligible for benefits. All 50 states, including Texas, have unemployment laws that must meet federal guidelines, including monetary, eligibility and continued qualification for benefits requirements. The general purpose of unemployment insurance is to provide compensation to those workers “who are unemployed through no fault of their own.” Collingsworth Gen. Hosp. v. Hunnicutt, 988 S.W.2d 706, 709-710 (Tex. 1998)).
In Texas, the Unemployment Compensation Act (“TUCA”) is found in Texas Labor Code Sections 201.001, et seq. The TUCA is administered by the Texas Workforce Commission (“TWC”). Too often, employers are unsure of how to respond to a claim for benefits, which is made even more difficult when they fail to document the file sufficiently to justify the TWC’s decision in favor of the employer and against the employee. After several unemployment claims that result in a “Charge Back” amounts to the employer, an employer’s unemployment tax rate will increase. This article explains basic TUCA concepts and provides important practice pointers for employers who seek to better understand the Texas unemployment insurance system, and how best to defend claims that the employer believes should result in an award of benefits.
Who is an Employer and who is Eligible for Benefits?
Employer – An “Employing Unit” is defined as any person who has: (1) employed an individual to perform services for the Employing Unit (Tex. Lab. Code § 201.011); and (2) paid wages of $1,500 or more during a calendar quarter in the current or proceeding year; or has employed at least one individual in employment for a portion of at least one day during 20 or more different calendar weeks of the current or preceding calendar year. (Tex. Lab. Code §201.021).
Temporary Staffing Firms – A “Temporary Help Firm” as it is defined by the TUCA means a person who employs individuals for the purpose of assigning those workers to clients on a temporary basis during employee absences, as an introductory period, for special projects or during periods of increased work load. (Tex. Lab. Code §201.011). Generally, the Temporary Help Firm” will be considered the employer of an individual employee for purposes of the TUCA, rather than the client of that firm. (Tex. Lab. Code §201.029).
- Practice Tip – Employers who utilize temporary staffing agencies should make sure that any contract with such an agency clearly states that the agency, and not the client, will be responsible for unemployment insurance.
Unemployment Defined – An individual may be eligible for benefits if he or she is “totally unemployed” or “partially unemployed,” which may result from continued employed with a reduction in hours at the workplace.
- Total Unemployment – occurs when an individual is performing no services for wages in excess of the greater of:
- $5; or
- 25 percent of the benefits amount.
- Partial Unemployment – occurs when an individual is performing less than full-time work if the individual’s wages payable for that benefits period are less than the sum of:
- The benefits amount the individual would be entitled to receiving if the individual was totally unemployed; and
- The greater of
- $5; or
- 25 percent of the benefit amount.
Tex. Lab. Code §201.091. In addition to being unemployed for a minimum of at least 7 calendar days, the individual must: (a) submit a claim for unemployment benefits, (b) report to the unemployment office, and (c) be actively seeking and available to perform work. See TWC v. Wichita County, 548 S.W.3d 489, 493 (Tex. 2018)(explaining total and partial unemployment).
Independent Contractors – Independent contractors performing services who are “free from direction and control” of the employer are ordinarily not eligible for unemployment benefits. Employers should be cognizant of the fact that workers who are determined to be misclassified as independent contractors will be treated as employees eligible for benefits. See e.g., Dozier v. Texas Employment Com,’n, 41 S.W.3d 304, 310-311 (Tex. App. – Houston [14th Dist.] 2001, no pet.)(upholding finding that claimant was an independent contractor not entitled to benefits).
- Practice Tip – Review independent contractor arrangements to make sure independent contractor agreements have been executed and that the job duties and particular arrangements qualify for independent contractor status. For example, if an employer pays for certain expenses such as a cell phone, computer or provides other benefits typically reserved for employees, a worker who might otherwise qualify for independent contractor status may be designated as an employee.
Voluntary Separation From Work.
An individual is disqualified from unemployment benefits if he or she left the last place of employment voluntarily without “good cause” connected with work. Tex. Lab. Code §201.045. When an individual is ineligible for benefits under this section, the person must again become eligible by working 30 hours a week for at least 6 weeks or earning wages equal to six times the benefit amount for that 6-week period. Tex. Lab. Code §201.045. An employee who tenders a written resignation without being requested to do so by the employer, has voluntarily resigned and is not eligible for unemployment. See Rogers v. Paris Regional Medical Center, No.: 4:20-cv-110-SDJ-KPJ, 2021 WL 5622119, at *2, *8 (E.D. Tex. Oct. 22, 2021)(Sherman Division)(employee who tendered written resignation could not claim later that she verbally revoked her resignation, and was deemed ineligible for unemployment benefits).
Voluntary separation also occurs when the individual refuses to accept alternative suitable work for personal reasons when his or her original position with the company is eliminated. Tex. Lab. Code §201.047.
- Practice Tip – if an employee’s position or department is eliminated, it is prudent to prepare a formal offer letter for the employee to review and sign. The letter should explain the reason that his or her original position was eliminated and a description of the new position. If the employee rejects suitable work without good cause, this will render that person ineligible for benefits.
Good Cause for Leaving Work and Medical Illness.
In some instances, an employee who voluntarily quits a job will be determined to have had “good cause” for his or her resignation. One of those exceptions occurs when the individual leaves work due to “a medically verified illness.” Tex. Lab. Code §201.045 (d). This can potentially occur when an employee is on medical leave under the Family Medical Leave Act (“FMLA”). In TWC v. Wichita County, 548 S.W.3d 489 (Tex. 2018), the Texas Supreme Court explained that an employee on FMLA is the same as one who quits her job for medical reasons under Section 201.045(d), because a formal separation from employment is not necessary. Id at 495. The court, however, noted that the employee must still satisfy the other criteria necessary to be eligible for benefits such as be able to show availability for work and an active search for work. Id. at 496. The good news is that non-reimbursement employers (those who pay a contribution based on a tax rate) will not receive what is called a Charge-Back for benefits paid due to a medically verifiable illness. Tex. Lab. Code §204.022; See also Wichita County, 548 S.W.3d at 496-497 (explaining reimbursing versus non-reimbursing employers).[1]
Severance Agreements and Payments in Lieu of Notice.
Section 207.049(1) & (2) of the TUCA states that a claimant will be disqualified from receiving unemployment insurance for any benefit period in which he is receiving wages in lieu of notice. Section 207.049 of the Texas Labor Code defines “severance pay” as dismissal or separation. Income paid on termination of employment in addition to wages due at the time of termination of the employment relationship, usually pursuant to a benefits plan that pays per years of service or a previously negotiated contract. To the contrary, severance agreements that make payments to departing employees in exchange for a release of potential liability under various employment laws do not bar claims for unemployment benefits, even if the agreement states that the separation was mutual or voluntary. The question is whether the employee was free to retain his or her employment. If the answer is no, the TWC will treat the separation as involuntary and designate the employee eligible for unemployment benefits. An option to reduce an employer’s obligation when severance pay is provided for a release of claims is to pay the amount as salary continuation for several weeks or months. The claimant will be ineligible for unemployment benefits during the period of salary continuation, which allows additional time in which the employer is not obligated for unemployment and for the claimant to locate alternative employment.
- Practice Tip – Wages in Lieu of Notice – The period of salary continuation and amount of each paycheck should be stated clearly in the severance agreement. Taxes should be deducted from each paycheck in accordance with ordinary payroll procedures. When responding to a Wage Separation Details sheet from the TWC, indicate YES for the question that asks whether the employer paid additional wages instead of providing advanced notice or severance.
What is Separation From Work For Misconduct?
Under section 207.044 of the TUCA, an individual who has been discharged for “misconduct connected with the individual’s last work” is disqualified from obtaining benefits until “the individual has returned to employment and worked for six weeks or earned wages equal to six times the individual’s benefit amount.” Misconduct is more than just poor performance or the inability to perform the job competently. Misconduct is specifically defined in the TUCA as “mismanagement of a position of employment by action or inaction, neglect that jeopardizes the life or property of another, intentional wrongdoing or malfeasance, intentional violation of a law, or violation of a policy or rule adopted to ensure the orderly work and the safety of employees.” Tex. Lab. Code §201.012. See also Kellum v. TWC, 188 S.W.3d 411, 414 (Tex. App. – Dallas 2006, no pet.)(employee’s belief that deferred adjudication did not involve adjudication of guilt for purposes of employment application was not unreasonable and did not constitute misconduct); Collingsworth Gen. Hosp. 988 S.W.2d at 710 (violent act of employee against another that occurred off duty constituted misconduct connected with work).
Conduct such as repeated absences, tardiness, or poor job performance will not rise to the level of misconduct. Unless the conduct at issue involves violence, theft or fraud, an employer ordinarily must link the conduct to a written company policy that has been violated and terminate the employee close in time to the event. For example, terminating an employee for an event that occurred many months or years earlier may not support a finding that the termination from was due to misconduct. In that instance, the individual may qualify for benefits. For this reason, it is best not to wait long periods of time before firing an employee who has violated company policy.
- Practice Tips:
- Have a handbook that contains important policies regarding topics that include: discrimination and harassment prevention, violence prevention, safety protocols, time clock and electronic devices procedures and standards of conduct towards other employees. Make sure that every employee receives a copy of the handbook or manual, and signs an acknowledgement.
- Use detailed discipline and termination forms and be specific concerning which policy or policies were violated by the employee. A discipline form showing that the employee was warned about the same or similar behavior close in time to the termination from employment will be helpful when defending against a claim for unemployment benefits.
- For policy violations, the initial response to a claim for unemployment benefits should include a copy of the policy violated, the acknowledgment form signed by the employee, and the termination form explaining the violation for which the employee was terminated.
The information contained in this article is not designed to address specific situations. If you have questions concerning this topic, you may contact me directly or consult with other legal counsel for advice on fact specific matters.
Robin Foret is a Managing Member at Seltzer, Chadwick, Soefje & Ladik, PLLC, and is Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization. Robin Foret is a frequent speaker and writer on employment law compliance topics. She also provides training for companies to assist them comply with federal and state employment laws. She can be reached at rforet@realclearcounsel.com or by telephone at (469) 626-5358. You may also visit our website for more information about our law firm’s services at www.realclearcounsel.com.
[1] A “reimbursing employer” is one who generally must reimburse the TWC for benefits paid to employees, while non-reimbursing employers pay a tax associated with the government’s payment of benefits (governmental entities generally have this option). See Wichita County, 548 S.W.3d at 496. Reimbursing employers are not alleviated from the Charge-back requirement for verified medical illness separations from work. The exclusion is reserved for non-reimbursing employers who make contributions to their accounts, which are most employers.
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