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Navigating the Minefield: Receipt of Disability Benefits, Unemployment Compensation, and Wrongful Termination Damages

Lane Schiff, Esq. on 1/21/2014

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Mr. Schiff is an Associate at the Law Office of Faye Riva Cohen, P.C and practice in the areas of Labor, Employment, Disability, and Civil Rights Law

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Article Image In my practice of employment, civil rights, and disability law, I frequently deal with clients who have recently lost their job and are worried about their financial situation. It is always important to give these clients advice to maximize their earning potential – both in the short and long term. However, a client’s receipt of one type of income may limit or prevent their receipt of another type of income.

The following issues commonly arise: (1) May an individual proceed with a claim for Social Security Disability Insurance (“SSDI”) benefits and a wrongful termination lawsuit? (2) May an individual apply for both SSDI and Unemployment Compensation (“UC”) benefits? (3) Does the receipt of UC benefits preclude or affect damages in a wrongful termination suit? (4) Will an individual have to repay the Commonwealth for UC benefits received if that individual eventually recovers damages in connection with a wrongful termination suit? As expected, the answers to these questions are generally not black and white.

First, an individual may, but not always, proceed and recover SSDI benefits and damages for wrongful termination. At first glance, this seems counter-intuitive. In order to proceed in a wrongful termination suit, one must effectively assert that he was able to work, but for the unlawful actions of the employer. Conversely, to receive SSDI benefits, one must show that his medical condition prevents him from working in his previous position or any other field and that he is not currently seeking employment. Nevertheless, in Cleveland v. Policy Management Systems Corp., 526 U.S. 795 (1999), the U.S. Supreme Court concluded that in limited circumstances, both claims could coexist. Specifically, the Court reasoned that claims for SSDI benefits and lawsuits pursuant to the Americans with Disabilities Act did not inherently conflict. SSDI does not take into effect one’s ability to work with a reasonable accommodation, but only evaluates whether a person can work without a reasonable accommodation. An individual, however, may be able to work with a reasonable accommodation from the employer, but the employer is unlawfully failing to provide one. Therefore, in this limited situation, both claims may be able to proceed.

Second, an individual may, but not always, apply for both SSDI and UC benefits. As is the case above, this too seems counter-intuitive. In order to receive UC benefits, one must assert that he is ready, willing and able to work but cannot find employment. However, adopting the reasoning of the Supreme Court, the Social Security Administration (“SSA”) has officially taken the stance that the receipt of UC benefits does not preclude the receipt of SSDI Benefits. The receipt of UC benefits is simply one of many factors that the SSA must consider when determining whether a claimant is disabled. That being said, individuals who apply for both UC benefits and SSDI should always be wary of possible problems down the road, and some serious scrutiny from an administrative law judge assigned to the case, and should only make such applications if they can reasonably explain their inconsistent positions.

Third, the receipt of UC benefits generally does not preclude or affect damages in a wrongful termination suit. In these suits, back-pay is generally the plaintiff’s primary amount of damages. Back-pay is the amount of money that employees would have earned had their employer not unlawfully terminated their employment. As is the case in most areas of law, employees have an obligation to mitigate their damages by looking for comparable work. Therefore, many employees are often concerned that collecting unemployment benefits may limit their ability to earn damages in the future. However, the Third Circuit has consistently held that UC benefits should not be calculated when determining back-pay. Therefore, the receipt of UC benefits should not affect damages in a wrongful termination suit.

Last, a settlement of damages in a wrongful termination suit should not affect UC benefits already paid. However, Pennsylvania Unemployment law states that “any person who has received or employer who has made a back wage payment pursuant to an award of a labor relations board arbitrator or the like without deduction for unemployment compensation benefits received during the period to which such wages are allocated shall notify the department immediately of the receipt or payment of such back wage award. The recipient of such back wage award, made without deduction for unemployment compensation benefits received during the period, shall be liable to pay into the Unemployment Compensation Fund an amount equal to the amount of such unemployment compensation benefits received.” Therefore, if an employee is awarded back-pay by some type of tribunal, that individual will be required to pay back the UC benefits received. However, the statute is silent on whether this applies to a negotiated settlement, so settlement agreement between the employee and employer should not affect the employee’s previous receipt of UC benefits.

Therefore, this area of the law can be a minefield with regard to potential offsets. Lawyers should be prepared to discuss these issues with their clients, who may be disappointed in learning that they could be prohibited from keeping the entire amount of their benefits or awards in different forums.

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