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Darby v. Board of Review

359 N.J. Super. 479, 820 A.2d 666 (App. Div. 2003)

UNEMPLOYMENT INSURANCE—An employee who receives a salary and fringe benefit continuation in lieu of severance pay can be denied unemployment benefits.

In connection with termination of employment, an employer and its employee signed a letter agreement that provided that the employee’s “‘employment relationship that has existed will end effective March 23, 2001,’ but ‘that as consideration,’ she ‘will continue to be on active payroll status from March 26, 2001 through May 31, 2002, in lieu of separation pay.’” Consequently, her “separation date” was acknowledged to be May 31, 2002. The employee was required to honor her “confidential duties” under a prior secrecy agreement. The agreement also included a settlement of any possible claim she might have had resulting from her termination about fourteen months before she was eligible for retirement and a full pension.

She had worked for the company for 23 years and she would have been entitled to two weeks’ earnings for every year that she worked “if she accepted or had been laid off and given severance pay.” That, together with five weeks vacation time, totaled 51 weeks of pay that she would have received had she accepted the same severance package offered to other employees laid off at the same time. After “actually” leaving employment, she applied for unemployment benefits. In doing so, she argued that she was “not disqualified from the receipt of employment compensation because she was being paid for past services, not ongoing employment.” According to the Court, “[t]he point [was] colorable because ‘[t]he receipt of severance or separation pay in periodic payments or in a lump sum shall not be a bar to eligibility for unemployment benefits.’” Here, pursuant to the agreement negotiated with her employer, she was carried on her employer’s books for fourteen months “so that she qualified for an age and service pension at age fifty-five.” Further, she did not have to pay COBRA (as she would have been required to do had she accepted the regular severance package), and she “continued to receive the equivalent of her salary as well as medical and dental benefits.” She also continued to accrue time towards her pension. According to the Court: “In essence, claimant had the best of both worlds: she was no longer in an ‘employment relationship’ but was on ‘active payroll status.’ She could even find work elsewhere and earn additional income, subject to certain restrictions contained in the agreement.” Normally, when an employer “elect[s] to continue wage or salary payments and forego the services normally performed by [its] employee through the date of employment provided for by contract or other agreement[, a] claim filed by an individual receiving such benefits shall be invalid and he or she shall be ineligible for benefits through the date of termination of contract or other agreement.” Accordingly, the Court did “not believe that [the] claimant [was] entitled to unemployment benefits in these circumstances or that the unemployment compensation system was designed to benefit someone who, though formally being paid for work previously performed or for ‘past services,’ is continued on ‘active payroll status’ and receives his or her same pay and benefits in order to achieve a vested pension.”


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