September 3, 2013

“Cessation of work is not accompanied by cessation of expenses. – Cato the Elder (234 – 149 BCE)

UnemployedThe slow-but-steady recovery of the U.S. economy has improved the employment outlook. The good news for many is that they no longer have to worry about losing their jobs. A lot of employees are, however, getting a dose of bad news along with the good: They are keeping their jobs, but the hours they work will be cut back. Future paychecks will reflect the reduced hours. They are still employed, but will be earning significantly less money. Many employees who find themselves in this situation decide not to stay in the limbo of underemployment; they quit their jobs.

The rituals following job loss are all too familiar to many. It starts with applying for unemployment compensation. The purpose of unemployment compensation is to ease the financial burden on workers who lose their jobs through no fault of their own. It is axiomatic that a person who quits voluntarily is ineligible for unemployment. There is an exception, however, for employees who quit for good cause attributable to the employer.

What constitutes a “good cause” varies from state to state. As a rule, the phrase means that the employer did something that gives an employee good reason to quit. In some states, the term is defined more precisely to mean a substantial change in working conditions that has an adverse effect on the employee. The change must be permanent, not short-term or temporary.

The question is whether a reduction in work hours will be considered good cause attributable to the employer. In most states, it is, but the reduction in pay or hours must have been “substantial.” For example, in Texas, an employee has good cause to quit after a reduction in pay rate or working hours of 20% or more. If his pay or hours are reduced by less than 20%, there may still be good cause to quit if there were changes in the employment agreement, such as a demotion or a transfer to a position with inappropriate duties. Maryland law also considers quitting after a substantial reduction in pay to be good cause, but there does not appear to be a set figure for what is “substantial.” Illinois law determines the matter on a case-by-case basis. In Minnesota, a former employee will be eligible for unemployment benefits if she quits after a “substantial” reduction in pay or working hours. On the other hand, in one case, a Minnesota employee was denied compensation when he quit his job after he was changed from being a salaried employee to an hourly employee at the same rate of pay as his salary but with no guarantee of full-time hours, and after some fringe benefits were taken away. In that case, the change was due to a change in policy by the employer, prompted by the employee’s failure to meet performance standards.

Other states have somewhat different requirements. California law provides that an employee quits with good cause attributable to the employer if the employee’s rate of pay is decreased by a substantial amount, usually defined as at least 20%. Note the use of the term “rate of pay.” If an employee’s hours are cut, but the rate at which she is paid for those hours remains the same, the worker does not have good cause to quit.

Before quitting due to a pay cut, and filing for unemployment compensation, there are a couple of things you should know:

  • If your former employer contests your claim, you will have to prove the reason that you quit. That means that you will have to show that your reason for quitting was the pay cut, and not just general dissatisfaction with your former job. In some states, you may have to prove that you tried to change your employer’s mind about the pay reduction.
  • You will still have to show that you are otherwise eligible to receive benefits. The exact requirements vary from state-to-state, but typically, you will be required to show that you worked for your employer for a certain length of time, and that you earned more than a certain minimum amount.
  • In some states, you may not have to quit in order to recover benefits. Some states—such as Georgia and California, among others—allow claims for what is called “partial unemployment.” Partial unemployment will be paid if your hours are reduced due only to a lack of work, and the reduction is temporary. Your new rate of pay generally may not be more than the weekly unemployment benefit plus a small additional amount. You still will be an employee of your employer. Partial benefits may not be available in every state, and it is important to remember that the benefits may be obtained only if the reduction is temporary, and due to a lack of work. A reduction in hours as a cost saving measure will not qualify.

Remember that, although the broad language of the rules and laws may be similar, the way in which those rules are applied will vary among the states. Consult with an employment law expert before you take any steps that put you out of work.