Texas Supreme Court: Employees are “Unemployed” While on Unpaid Leave

On May 25, 2018, the Texas Supreme Court held that an individual taking unpaid leave under the Family & Medical Leave Act qualifies as “unemployed” for purposes of the Texas Unemployment Compensation Act.  This expansive definition of “unemployed” potentially allows individuals on unpaid leave to obtain unemployment benefits – even though they remain employed.  Consequently, employers should review and update leave and outside work policies immediately to avoid exposure from this potentially far-reaching decision.

In TWC v. Wichita County, employee Julia White went on FMLA leave for severe anxiety and depression.  The County continued to provide benefits during her unpaid leave.  Before White returned to work, she filed a claim for unemployment benefits.  The Texas Workforce Commission (“TWC”) determined at the administrative stage that White was “unemployed” while on her unpaid leave of absence and that it could pay her benefits if she met all other requirements.  A Texas trial court reversed and the court of appeals affirmed that reversal, concluding that it would be “absurd” for an individual to be entitled to unemployment benefits during FMLA leave.  TWC appealed the ruling, arguing that the application of the “absurdity doctrine” should not override the plain language of the Unemployment Act – which provides income benefits to individuals not earning wages.

The Supreme Court agreed with the TWC, and found that the Unemployment Act “expressly and unambiguously defines ‘unemployed’ in a manner that does not require severance of the employer–employee relationship.”  An individual qualifies as “unemployed” so long as the individual’s wages are low enough (below $5 or 25% of the benefit amount during the period).  Thus, an individual on unpaid medical leave satisfies the Act’s definition of “unemployed” and may qualify for unemployment benefits if the Act’s eligibility requirements are met.

On its face, this finding that an employee is “unemployed” is illogical.  This decision, however, is limited because an individual also must establish eligibility for unemployment to receive benefits.  As the Act is structured, to receive benefits an individual must be “unemployed” and “eligible,” as well as not otherwise statutorily excepted or disqualified.  An unemployed individual’s eligibility to receive benefits for a benefit period hinges on satisfaction of several statutory requirements, including being able to work; being available for work; and actively searching for work.  Tex. Lab. Code § 207.021(a) (3)–(5).

The application of this decision will be determined on a case-by-case basis and there are many instances in which an employee on leave could still be part of the workforce, able to work and thus “eligible” under the Act.  For example, employees that require unpaid leave to care for a family member with a serious health condition could potentially be able and available to work; and represent that they have satisfied the statutory requirements to be eligible for benefits.  Under the Wichita County case, those employees would receive unemployment benefits during leave.

There are several ways to protect against this situation.  First and foremost, employers should involve counsel in all issues related to employee leave and in opposition to claims for unemployment.  Additionally, the potential impact for employers can be diminished with carefully crafted policies, such as a valid, uniformly-applied policy governing outside employment.  Under the FMLA, an employer can continue to enforce a supplemental work policy with respect to an employee on FMLA leave.  See 29 C.F.R. § 825.216(e).  Properly drafted policies putting limitations on moonlighting for all employees regardless of leave status will help protect against employees on leave from being deemed eligible for unemployment benefits, and also prevent leave abuse.  Texas employers should contact an employment law attorney to review leave and outside work policies – or risk paying unemployment to current employees!


For more information regarding this development and other employment-related issues, contact Cokinos | Young’s Board Certified Labor & Employment Law Specialist Team:  
Shannon Gatlin
Wilson Stoker

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