For nearly three decades Pennsylvania courts held that employees who voluntarily accepted early retirement packages were not eligible to receive unemployment compensation benefits. This era came to an end on December 28, 2012, when the Pennsylvania Supreme Court decided Diehl v. Unemployment Compensation Board of Review. In Diehl, the Supreme Court held that an employee who voluntarily retires pursuant to an employer-initiated workforce reduction is eligible to receive unemployment compensation.
As background, under the general provisions of the Unemployment Compensation Law, an employee who voluntarily accepts a layoff offer (either permanent or temporary) is not eligible for compensation, absent a compelling and necessitous reason. However, the voluntary layoff option proviso (“VLO Proviso”) allows certain claimants to qualify for unemployment compensation who otherwise would not qualify under the general rules.
The Diehl Court focused on the proper interpretation of the VLO Proviso. The VLO Proviso states: “Provided further, that no otherwise eligible claimant shall be denied benefits for any week in which his unemployment is due to exercising the option of accepting a layoff, from an available position pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy.” 43 P.S. § 802(b).
For the past thirty years, the Commonwealth Court held that the term “layoff” did not encompass permanent separations from employment. Therefore, employees who voluntarily accepted early retirement packages (i.e. permanent layoffs) without a “necessitous and compelling reason” were ineligible for benefits.
In Diehl, the Supreme Court disagreed, and held that the term “layoff” included both temporary and permanent separations from employment. Thus, an employee who accepts an early retirement plan offered pursuant to an employer-initiated workforce reduction is now eligible to receive unemployment compensation in Pennsylvania.
The outcome of this case has major implications for Pennsylvania employers. Employers who wish to reduce their workforce can no longer avoid unemployment claims on the basis that the employee voluntarily accepted an early retirement package. Accordingly, employers who are considering early retirement programs as part of a workforce reduction must now factor in the costs of unemployment compensation claims.