Unemployment Compensation: Contested Claim Backfires Into $1.3 Million Lawsuit; 4 Must-Know Guidelines For Handling Claims

Some employers routinely protest claims for unemployment benefits without much consideration of the facts of each case. But one company recently discovered that an automatic challenge can boomerang into a costly lawsuit. We’ll look at what happened and offer some practical legal tips on how to approach unemployment insurance claims.

Employee Fired Following Bogus Sex Harassment Charges

Raymond Wilkinson, a Shoney’s restaurant assistant manager, was accused by a co-worker of sexual harassment. While the complaint was being investigated, Wilkinson was fired, apparently for unrelated reasons. He was subsequently cleared of the sexual harassment charge.

Employer Challenges Unemployment Claim

Wilkinson filed for unemployment benefits. Shoney’s turned the matter over to NEC, a company it hired to contest unemployment claims. Shoney’s told NEC about the sexual harassment complaint, but allegedly didn’t reveal its conclusion that no harassment had occurred. Consequently, NEC, acting on behalf of Shoney’s, challenged Wilkinson’s unemployment claim on the ground that he was terminated for making sexually harassing statements to a co-worker.

Employer Appeals Benefit Award

Despite the company’s protest, Wilkinson was awarded unemployment benefits. Then, instead of dropping the matter, Shoney’s appealed the benefits decision, arguing that Wilkinson was fired because the harassment incident caused management to lose confidence in him. Again, however, Wilkinson prevailed.

Huge Verdict For Employee

Wilkinson then went to court and sued Shoney’s for maliciously prosecuting its objection to his unemployment claim. He charged that the company not only used false information in his case, but that it also had a long-standing policy of challenging all unemployment claims, regardless of their merit.

In response, Shoney’s justified its protest of Wilkinson’s claim on the ground that it was forced to defend two sexual harassment lawsuits that arose from his alleged conduct.

The jury sided with Wilkinson and ordered Shoney’s to pay $533,000 in damages. A judge later tacked on $800,000 in punitive damages. Shoney’s is appealing the award and would not comment.

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Four Practical Strategies

While many unemployment benefits claims are routine, this case demonstrates that you can wind up in an expensive dispute if you automatically challenge all claims or fail to carefully evaluate the facts of each case. Here are four important guidelines:

1. Know the eligibility rules. Many employers aren’t clear about when unemployment benefits can and can’t be denied. Generally, a worker who is fired for misconduct or who voluntarily quits without good cause isn’t entitled to compensation.

   Here are some examples:

    

   • Misconduct. This includes knowingly violating a company rule, insubordination, stealing or willfully damaging company property, falsifying records, drinking or fighting on the job, excessive unexcused absenteeism, intentionally failing to meet performance standards, or a single incident of gross negligence. In contrast, the following actions typically don’t amount to misconduct: inefficiency, unintended failure to meet performance standards, ordinary negligence (unless it continues after warnings or reprimands), good-faith errors in judgment, or misconduct committed during nonworking hours and away from your premises.

      

   • Voluntary quit. An employee has good cause for quitting-and will be entitled to collect benefits-if a serious health or safety risk arises at work, a change in circumstances causes an excessive commute, the person is the victim of sexual harassment or discrimination, or the employer violates the wage and hour laws. However, workers will generally be denied compensation if they resign to look for other work, attend school or become self-employed. Plus, an employee who quits in anticipation of a discharge or because of a personality conflict with a co-worker or supervisor usually isn’t entitled to benefits.

    

2. Carefully consider challenges. Even if you believe a worker is not entitled to collect benefits, it’s critical to evaluate whether it makes sense to contest the claim. Keep in mind that your challenge alone could incite the person to sue you for wrongful termination or discrimination. This risk may outweigh any benefit of lower unemployment insurance tax rates. If you do decide to file an objection, remember that the written and verbal statements you make in an unemployment case can be used against you later if there is a lawsuit.

    

3. Keep detailed records. If you contest a claim, you should have thorough documentation about why the employee quit or was fired. If the worker later questions your motivation for opposing the claim, you’ll be in a better position to defend your actions.

    

4. Thoroughly review information you submit. It’s imperative to provide complete and truthful information when responding to an unemployment claim. Otherwise, as in the Shoney’s case, you could be liable for malicious prosecution along with punitive damages. Worse still, you can be hit with fines and even jail time if you try to block an award of benefits by submitting false information or failing to disclose a material fact.