Employers in all 50 states may be seeing big changes to how they are required to respond to notices of unemployment benefit claims – namely, they will be legally required to respond in a timely and adequate manner to every notice they receive. The reason is an amendment to the federal Trade Adjustment Assistance Act that recently took effect.

Why the Change?

On October 21, 2011, President Obama signed into law the Trade Adjustment Assistance Extension Act of 2011. The main focus of the TAA is to provide retraining and other enhanced benefits to workers who lose their jobs as a result of increased imports. A portion of the Extension Act, called the Unemployment Insurance Integrity Act, requires states to implement measures designed to ensure prompt and complete employer responses to claims for unemployment. The required measures apply to all claims for unemployment, not just claims that might be eligible for TAA benefits.

States that do not comply risk losing federal subsidies for unemployment benefits, and employers would risk losing the ability to receive state unemployment insurance credit against their Federal Unemployment Tax Act ("FUTA") taxes.

The TAAEA requires that, by October 21, 2013, states issue laws that provide that "an employer's account shall not be relieved of charges relating to a payment from the State unemployment fund if the State agency determines that": (1) the employer was "at fault for failing to respond timely or adequately" to a claim or request for information on a claim for compensation, and (2) the employer established a "pattern" of failing to respond to such requests. The TAAEA applies to "agents" as well as "employers," but does not define "agent."

In other words, an employer who does not comply with the applicable state law in place by October 21, 2013, will be subject to whatever sanction is set by the state law.

So, What Are States Doing?

The federal statute, while giving general guidelines, allows each state to take its own approach on implementing conforming laws. Among other things, states have had to define what a "pattern" of failing to respond would be. Some states, like Georgia, have created a "three strikes and you're out" policy, where employers that do not respond both timely and adequately to three or more claims in a calendar year will have their accounts charged, and those charges will not be relieved even if a later appeal reverses the finding that benefits were authorized. Other states like Alabama have said that "two or more" failures to respond constitute a "pattern," but do not specify a time period that applies to those failures to respond.

Still other states, including California, have instituted criminal or civil penalties.

What Does this Mean For You?

With these new laws in place, employers will have to closely monitor claims for unemployment, including the ones that the employers may not intend to contest. Some "best practices" include making sure that all staff understand how to identify a notice and how to get it to the correct department for response as quickly as possible, and creating a clear action plan that begins with any termination of employment. Employers who use third-party administrators for their unemployment benefits will have to ensure that the TPAs are responding as required by the applicable statutes. (Some, but not all, unemployment TPAs have been notoriously slow in handling claims and have even been known to miss hearing deadlines.)

Employers who do not intend to contest an employee's claim for unemployment should consult with counsel regarding applicable state law. Many states penalize employers for willfully failing to disclose material information on UI notices. Depending on a given state's unemployment integrity law, employers may have to disclose more details, which may result in a disqualification.

Finally, employers should be mindful that changes may be made at the state level over time as states attempt to comply with these federal requirements.