Employment at Will and Unemployment Compensation Claims

One of the most challenging aspects of working in employment in an “at will” state like Texas, especially in a company with numerous locations (i.e., numerous managers who hire and fire), is dealing with unemployment compensation claims.

The employment at will doctrine states that any hiring is presumed to be "at will” which means that the employer is free to terminate individuals "for good reason, bad reason, or no reason at all," and the employee is equally free to quit, strike, or otherwise cease work. In Texas, there are exceptions such as public policy (e.g. serving on jury duty) and statutory (e.g. refusing to commit illegal acts). Statutory exceptions also include the federal anti-discriminatory laws (i.e., age, gender, national origin, race, etc.) that started to be implemented in the mid-60s. It should also be mentioned that an employer, even in employment at will states, must follow his own policies and procedures when it comes to terminations. Of course, collective bargaining and other types of employment agreements can abrogate the employment at will status in specific employment situations.

However, in those employment situations when employment at will does apply, which is the vast majority, it becomes interesting because it is a legal concept and does not define operational policies and procedures which impact unemployment claims. From a practical standpoint, a company of just about any age or size should have formal policies and procedures that define employee-related practices. These can be in the form of an employee handbook or a supervisors manual, or both. Basically, these items should define everything that impacts employment with the company – from hire … to fire. I use the word “everything” loosely because something new will always come up.

In my experience, supervisors and managers generally make a good faith effort to document issues with employees. You know, lates to work, excessive absences, poor performance, etc. But let’s face it, most supervisors and managers are focused on getting some form of production “out the door”. Their livelihood and the company’s depends on it. So at the eleventh hour (i.e. the employee is about to be terminated or has just been terminated), you (i.e., HR or higher level managers) get a call from the manager asking for help.

Here’s how it goes: You ask why the person was terminated – lates to work. You’re ok there. It states clearly in your Employee Handbook excessive lates are grounds for termination. You ask if the person was given any warnings – yes. You’re ok there. You ask if the warnings were written – no. That may be a problem. The Employee Handbook says progressive discipline, including written warnings, will be used unless the infraction(s) is egregious. You ask if other employees have been terminated in this same department for the same or similar level of infraction – yes. That is good. You request a write up of the termination interview and any documentation related to the lates to work. (Sometimes this information will have to be created post-termination …)

You now pull the employee’s personnel file. The employee is a 52 year old high performing minority female who has been with the company for seven years. Any red flags there? Well, yeah …, aged 42 (protected class), high performing, minority (protected class) and maybe the female part. Here’s when you have to keep the exceptions to employment at will in mind (e.g. statutory), but you don’t let them stop you from doing what is right. In other words, if the employee was terminated because she was late so often, warned, but didn’t do anything about it and she was treated like others with the same problem, you’re going in the right direction. If any of that other stuff (i.e., protected classes …) came into it, you’ve got a problem.

The terminated employee goes to the Texas Workforce Commission (TWC) and files an unemployment claim. The TWC takes a very simple-minded approach to investigating unemployment claims. If at all possible, they are going to pay the terminated employee’s claim unless that individual quit the job. (… and in some cases they will pay even when the employee quits …) To avoid paying unemployment claims, you should follow your policies, have good written documentation leading up to the termination, and terminations should be based on some form of policy infraction (i.e. misconduct) and/or poor performance. Short of these things, they are likely to pay your former employee’s claim.

That’s the key. Employment at will allows most employees to be terminated essentially without cause. Not paying unemployment compensation almost categorically requires that the employee was terminated for cause and you can prove it. So often, employers think they can terminate for any reason or no reason, until an employee files an unemployment claim and their former employer gets the TWC questionnaire … Then the employer tries to backtrack, recreate history, etc. simply because they didn’t follow their own policies as far as documenting poor performance, poor attendance and so on.

The bottom line is … put your policy and procedure “ducks in a row”. Develop your Employee Handbook, your Supervisors Manual, train your employees and supervisors. (One of the most important things you can put in these manuals is a re-statement of the employment at will doctrine) Ensure that your supervisors understand the importance of documenting employee issues and policy infractions. It is also a good idea to become well-acquainted with the TWC’s website. It has numerous resources for employers (and employees) that are very worthwhile, especially the item entitled “Appeals Policy & Precedent Manual”.

As a friend of mine in HR said, ‘putting procedures in place and training your supervisors on them could save you some big unemployment claim dollars down the road’. Long story short, think and act now, don’t pay later.