Understanding the Unemployment Insurance Provisions in the CARES Act

1. The CARES Act creates three new emergency initiatives for states to expand UI coverage.

The CARES Act creates three initiatives for states to extend UI to individuals affected by COVID-19, generally by (1) expanding the amount of time an individual may collect benefits from 26 to 39 weeks, (2) increasing the amount of benefits an individual may receive by $600/week through July 31, 2020, and (3) including individuals who do not otherwise qualify for UI benefits, such as independent contractors, individuals who are self-employed, and gig economy workers. The initiatives are briefly summarized here. 

2. The CARES Act allows states to temporarily extend UI benefits to individuals who are directly affected by COVID-19 as well as to individuals who are ineligible for regular UC.

Under the PUA program, states may extend UI coverage to individuals who are generally ineligible for regular UC. The program seeks to temporarily bring under the UI system workers who are not typically covered by UI such as self-employed individuals, independent contractors, and gig economy workers.

To receive PUA, a “covered individual” cannot be eligible for regular compensation or extended benefits under state or federal law and the individual must self-certify that he/she is otherwise able to work and available for work except the individual is unemployed, partially unemployed, or unable or unavailable to work because of a COVID-19-related reason. The Act provides a non-exhaustive list of qualifying scenarios which are further explained by hypotheticals in UIPL No. 16-20. For instance, federal law allows states to pay UC benefits where:

• An employer temporarily ceases operations due to COVID-19;
• An individual is quarantined with the expectation of returning to work after the quarantine is over;
• An individual leaves employment to care for a family member. This includes an individual whose job allows for telework, but who cannot perform work at home due to the demands of child or other dependent care.
• An individual has to quit their job as a direct result of COVID-19. But UIPL No. 16-20 notes that “quitting work without good cause to obtain UI is fraud under PUA.”

States have expressed concerns that the federal law and guidance fail to clearly indicate how an individual’s eligibility for regular compensation should be determined. The guidance does not address whether workers will first need to apply for regular unemployment benefits and be denied compensation before they can claim PUA.

3. The federal government will cover 100 percent of the temporary emergency increase in weekly UC.

The federal government is fully funding the FPUC, i.e., the $600 increase in weekly benefit amount. As of March 28, 2020, all states had executed agreements with the Department of Labor under the FPUC to receive this benefit.

The CARES Act also indicates that the federal government will cover 100 percent of assistance provided by the states under the PUA and the PEUC programs subject to a federal-state agreement entered into by the state and the DOL.

4. The federal government will fully fund short-time compensation programs in certain states until December 31, 2020.

Employers who are considering a reduction in force (RIF) as a result of the economic impact of COVID-19 may consider looking into whether their state has a short-time compensation (STC) program in law. In certain states, the federal government will cover 100 percent of the costs of adopting an STC program to enable employers to preserve skilled labor and prevent mass layoffs.

STC programs, also known as work-sharing, provide employers an alternative to layoffs. Under an STC program, an employer can reduce the hours of employees from full-time to part-time to avoid layoffs and supplement a portion of the lost wages through UI benefits. Close to 30 states have adopted STC programs.

Section 2108 of the CARES Act provides that the federal government will cover 100 percent of the amount of STC paid under pre-existing programs for up to 26 weeks per individual until the end of 2020. This does not apply where an individual is employed on a seasonal, temporary or intermittent basis.

For states that have yet to implement STC programs, the CARES Act provides that such states may be reimbursed for one-half of STC benefit costs. The other half must be paid by the employer. Section 2110 provides for a $100 million grant to be shared across states for implementation of STC programs.

5. Whether the COVID-19-related increase in UC benefits will be charged to an employer’s experience rating will vary state by state.

When individuals apply for UI benefits, there is a risk that employers’ contributions to UI could increase if the spike in UC benefits is charged against the employer’s account, thereby impacting their experience rating. This risk is heightened in situations involving mass layoffs.

As a result of the current crisis, many states have issued executive orders preventing employers from being penalized with higher UI tax rates in future years because of pandemic-related layoffs. In fact, some states are urging employers to encourage their employees to file claims. However, other states have indicated that employer charges will not be waived due to COVID-19 related issues.

Likewise, states are taking action to implement new and different filing and notice requirements. For example, certain states are now requiring employers to file for unemployment benefits on behalf of their employees or setting up streamlined application processes to encourage employers to file on behalf of groups of laid-off employees. Similarly, states are implementing notice requirements that all employees be informed of their right to file for unemployment benefits at the time of layoff. We recommend that regardless of state law, all employers inform employees of their right to apply for unemployment benefits following layoff, along with filing instructions and directions to the applicable state website.

States are moving very quickly in these regards, so it is important to consult state resources regularly for updated information.

6. Individuals that have exhausted their rights to regular UC may still receive benefits through December 31, 2020.

Per Section 2107 of the CARES Act, individuals who have already exhausted their UI entitlement may be provided with up to 13 additional weeks of benefits under the PEUC program. PEUC benefits are available through the end of 2020.

An individual may also be eligible for additional time under the PUA program, up to 39 weeks total.

Under both PEUC and PUA, individuals may receive FPUC, i.e., the additional $600 in weekly benefits. However, while an individual may receive PUA or PEUC through December 31, 2020, FPUC is only available through July 31, 2020.

The federal government has created opportunities for states to expand the UI benefits available to individuals out of work due to the COVID-19 crisis. Employers are urged to consult with counsel to determine what specific programs may be available to their workforce as they navigate the upcoming months of economic uncertainty. Pillsbury clients may obtain advice and strategic input by contacting Laura Latham, Andrea Milano, Stephanie Rosenberg or other Pillsbury lawyers, who can also coordinate involvement of colleagues on the Pillsbury Crisis Management Team and COVID-19 Taskforce.

Pillsbury’s experienced multidisciplinary COVID-19 Task Force is closely monitoring the global threat of COVID-19 and providing real-time advice across industry sectors, drawing on the firm’s capabilities in crisis management, employment law, insurance recovery, real estate, supply chain management, cybersecurity, corporate and contracts law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.