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Featuring Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed.

Collecting Unemployment when Company Goes Bankrupt

The benefits received from the filing and granting of unemployment come from federally mandated payments by the employing entity into the federally controlled “unemployment insurance” account.  When the employing company goes into bankruptcy and lays its employees off, these employees are entitled to file for and be granted unemployment benefits.  What can occur, as a company is spiraling downward towards bankruptcy, is the company stops paying into the unemployment account.  Yes, trouble with the federal law, but it happens.  Another occurrence is cutting employee pay, forcing employees to take it, or quit.  In this case, if the employee quits, it is likely that this former employee will NOT be granted unemployment benefits.  When a company decides to lay off employees, federal law requires specific events to happen in specific circumstances.  Add to this, each state’s own employment and unemployment laws around scenarios that the federal law does not handle can and do make a difference.  Federal law starts with companies carrying more than one hundred employees.  States often start with smaller companies.  Iowa, for instance, starts with companies that have twenty-five employees.   These rules govern how much notice must be given to the employees at risk.  It is typically as little as thirty days but can be as much as sixty days.   Federal penalties and state penalties both apply when their respective laws are violated.  Fines are usually “per day” that the violation existed without resolution.  If a company lays off 1,000 employees with no notice, the company is federally fined $30,000, for $500 a day times sixty days of violation.  This will also invite federal investigation around other required activities and documented execution of these activities.  Same situation applies with the state involved.  Fines and investigation is very likely.

In more than one situation some people called out in their experiences was a failure to get unemployment benefits.   These scenarios are very curious to those experts who analyzed and evaluated the content provided around these scenarios.  Some of the statements by these experts are very pertinent to this discussion.  To start, if the company is in bankruptcy and has kept its unemployment insurance up to date, and an employee is laid off, that employee would normally be granted unemployment benefits.  If the employee quit, benefits will not be granted.  If the employee was fired for cause, benefits will likely not be granted.  In this scenario, however, the employer can approve benefits.  Also, states have their own specific rules for unemployment, and these rules are as varied as the states themselves.   Another twist in some states is a requirement to apply to a specific number of jobs each week to become eligible and remain eligible for unemployment benefits.  Because it takes two weeks for a person to qualify for benefits, the state can require that the person show evidence of applying for at least two jobs each week.  Ohio is such a state.  In many cases, this is for extended benefits only.  Again, variety is the spice of states.

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