The unemployment rate in the United States has soared to 14.7%, the highest since the Great Depression of the 1930s, and is expected to continue to increase. In just the past few weeks alone, more than 1 million people have filed unemployment claims in New Jersey. In response to this pandemic caused economic crisis, the United States Congress created the Payroll Protection Program (PPP), a loan program originating from the Coronavirus Aid, Relief and Economic Security (CARES) Act. PPP is designed to provide a direct incentive for small businesses to keep their employees on payroll. Under PPP, loans granted by the Small Business Administration (SBA) to businesses will be forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
More specifically, PPP requires the employer to pay out at least 75% of the monies loaned in payroll. Because of this, many employers believe they can recall furloughed employees back to work at only 75% of the employees’ prior wage. This is very pleasant news for workers who while on unemployment have been receiving supplemental CARES Act unemployment insurance stimulus monies of $600.00 per week together with traditional unemployment insurance benefits. The maximum unemployment insurance benefit rate in New Jersey is currently $713.00 per week. This means many in New Jersey are collecting $1,313.00 per week (this comes to a yearly wage rate of $68,276) while home on unemployment. It is fair to state that this is likely more money than many of these workers have ever earned in wages during their adult life. Against this backdrop, consider the reaction of these same unemployed workers when notified they must return to work and accept a 25% pay cut because their employer who just received their PPP loan monies has no financial means other than the PPP loan to make payroll. Consequently, many furloughed employees called back to work face the ugly prospect of not only having to give up their traditional unemployment insurance benefits plus the $600 in weekly stimulus monies they’ve been receiving, but also must now endure a 25% cut in pay upon returning to work. Such a horrifying turn of events would leave an affected New Jersey worker to wonder whether they can refuse to return to work under such circumstance and continue to receive his/her unemployment benefits. As is often the case, the answer depends on the controlling facts.
Generally, an individual will be disqualified from benefits if he or she fails to accept suitable work. N.J.A.C. 12:17-11.5(a). However, suitability of work in terms of wages means 80% of the individual’s average weekly wage, including the value of the individual’s benefits, during the base year of pay. Id. Moreover, no work may be deemed suitable, and an individual will not be disqualified for benefits because of his or her refusal to accept work if the wages, hours, or other conditions of work offered are substantially less favorable than those prevailing for similar work in the labor market area. N.J.A.C. 12:17-11.5(b).
The case law in New Jersey also supports an employee refusing work that is more than a 20% pay cut. For instance, the New Jersey Appellate Division found an employee who left his job over a 25% reduction in pay was eligible to receive unemployment benefits. Johns-Manville Prods. Corp. v. Bd. of Review, 122 N.J. Super. 366, 370 (App. Div. 1973), adopted by the Supreme Court in Brady v. Bd. of Review, 152 N.J. 197, 220 (1997). Similarly, New Jersey courts have also found that a 20% reduction in pay may justify good cause for leaving a job. Frazier v. Bd. of Review, 439 N.J. Super. 130 (App. Div. 2015). In contrast, the SBA has found “[e]mployees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.” The following examples illustrate these conflicting opinions:
Example 1: If an employer offers a furloughed employee to return to work with a 25% reduction in pay, this would be considered a new offer of work. If the employee refuses, he or she may still be eligible for unemployment benefits. However, it is also possible that the New Jersey Department of Labor (“NJDOL”) may initially deny the employee unemployment benefits because it erroneously found the employee was refusing what it deemed suitable work. The employee can then appeal to the Appeal Tribunal and has likely success of proving the new offer of work was not suitable. However, this leaves the employee without pay and unemployment benefits for several weeks, if not longer. Thus, it is a risk to refuse new work from an employer, even if it would result in a substantial reduction in pay.
Example 2: If an employer offers a furloughed employee work at 80% of his or her previous pay, it is difficult to determine if the employee will be eligible for unemployment benefits. If an employee refuses to return to work on an 80% reduction of pay, he or she runs a significant risk of losing their unemployment benefits.
Example 3: If an employer offers a furloughed employee work at 90% of his or her previous pay, the employee should accept the new offer. Otherwise, refusal of said work would most likely leave the employee disqualified for unemployment benefits.
Overall, eligibility for unemployment insurance benefits is determined on a case-by-case basis and will depend on the specific facts of each unemployment claim. At Mashel Law LLC, we are well experienced in handling New Jersey unemployment appeals. If you believe you are being denied unemployment benefits, call the attorneys at Mashel Law (732) 536-6161 or fill out the contact form on this page for immediate help. At Mashel Law, LLC, located in Marlboro, New Jersey, we are dedicated to protecting the rights of employees.