New Jersey: No Unemployment Benefits Where Claimants Took Employer's Voluntary Separation Package

Posted: June 24, 2009

Mitchell Boyarsky

A New Jersey appeals court has denied unemployment benefits to 1,100 former managers based on their acceptance of a voluntary severance package. Black-Melone, et al. v. Board of Review, et al., A-0395-06T3 (N.J. Super. Ct. App. Div. June 5, 2009). Affirming a judgment in favor of the former employer, the Court found that the plaintiffs were disqualified from receiving benefits because they “left work voluntarily without good cause attributable to the work.”

In September 2003, after the company determined that approximately 18,000 employees nationwide were eligible for retirement, it offered its employees a voluntary, incentive-driven separation plan. The employer did not limit the number of employees who could participate and told them that they are free to participate or not, “without pressure.”

Company documents described the package to employees. The question-and-answer section of the materials on unemployment benefits stated that eligibility is determined by state law. It said only the applicable state agency may determine eligibility. Furthermore, employees were told that, in most cases, those who accept the separation package may not be eligible for unemployment benefits.

After the former employees’ claims for unemployment insurance benefits were denied, a number of them sued the state agencies and the company arguing that denial was improper. In March, 2004, their cases were consolidated into a “mass hearing.” A total of 12 hearings were conducted April 14, 2004, and May 6, 2005. Only two of the 35 complainants testified.

Under New Jersey’s Unemployment Benefits Law, a claimant may be disqualified from receiving unemployment benefits if he or she “voluntarily” leaves work “without good cause attributable to such work.” N.J.S.A. 43:21-5(a). Thus, the Law covers employees who are involuntarily terminated as well as employees who leave their jobs for good cause attributable to their work.

The first complainant who testified said that, based on internal data and news articles, she believed that the company would engage in further layoffs. However, she admitted that she was not certain that her job would be eliminated. She also admitted that her decision to accept the package was based on other personal considerations.

The second testifying complainant stated that he accepted the package because he believed he would be terminated for failing to meet his business quota under a three-month probationary performance improvement plan (“PIP”). However, he conceded that he only learned of the voluntary severance package when the probationary period ended. Furthermore, he admitted that he accepted the severance package voluntarily.

First, the appellate court noted that the New Jersey Supreme Court held in Brady v. Board of Review, 152 N.J. 197, 222 (1997), that employees who accept incentive packages for early retirement are disqualified from receiving unemployment benefits unless they can show:

a well grounded fear of imminent layoff, and
that they would suffer substantial economic loss if they did not accept the incentive package.

The New Jersey Administrative Code defines “imminent layoff” as “one in which the individual will be separated within 60 days.” In Brady, former employees accepted an early retirement plan after they were notified that the company intended to close its factory by the end of the following year. The Supreme Court found that since the notices targeted specific employees and did not specify a closing date, there was no fear of imminent layoff.

The Black-Melone Court then examined cases where unemployment benefits were denied based on a voluntary separation plan. In Fernandez v. Board of Review, 304 N.J. Super. 603, 608 (App. Div. 1997), a New Jersey appellate court found that the plaintiff did not demonstrate sufficient fear of imminent harm because he was not informed directly that his job was at risk. He had received a letter stating that, following reorganization, the size of his department would decrease. He also had read an article in The Wall Street Journal indicating that the company was suffering financially. However, because the letter was not specifically addressed to him, and thus did not infer that he would be affected by the downsizing, the court denied unemployment benefits for failing to show imminent harm.

In this case, the Court held that the plaintiffs did not establish a well-grounded fear that they would be terminated within 60 days after they were notified of the separation plan. Notably, the employer reiterated that the plan was voluntary and did not target specific employees.

This decision points out that under New Jersey’s Unemployment Benefits Law a grant of severance benefits pursuant to a well-described voluntary buyout plan can be a bar to unemployment benefits. Among other things, such a plan should offer benefits on a voluntary basis and not be presented in the face of pending or reasonably imminent layoffs.

Jackson Lewis attorneys are available to assist employers with regard to employee separation and other matters.