COVID-19 & Your Business: Frequent Questions

If my business has to lay off employees, will they be able to get unemployment compensation payments? How will such payments affect my business’ unemployment insurance tax rate?

After the promulgation of shelter-in-place orders by state and local governments that required many businesses to close for weeks, some businesses were forced to lay off workers in order to manage cash flow and survive. The current business slowdown is still causing lay-offs to occur.

If a laid-off employee has accumulated paid time off, and that paid time off is available to the employee under the employer’s policies, then the employee is still considered to be receiving pay for the time period to which the paid time off applies, and the employee would not be eligible for unemployment compensation during that period.

After a lay-off, and if no paid time off is available, laid-off employees may be eligible to apply for unemployment compensation payments. Also, if an employer keeps the business open, but reduces working hours, affected employees may be eligible for partial unemployment.

Generally, workers are eligible for unemployment compensation if they have worked a sufficient period, become unemployed (or have hours reduced) through no fault of their own, are able and available for work, and actively search for work. Many states, including Texas, have also imposed a seven-day waiting period after a lay-off before unemployment compensation payments are available. The Texas Workforce Commission initially waived the work search requirement for all claimants and the waiting week for those claimants affected by COVID-19. Other states did the same. Moreover, the CARES Act provided federal funding for payment of unemployment for the first week of unemployment benefits and further provided an additional $600 per week payment to each recipient of unemployment insurance for up to four months. On June 16, 2020, the Texas Workforce Commission announced that, effective July 6, 2020, Texans receiving unemployment benefits will once again have to prove they have searched for jobs or tried to reopen their businesses in order to continue to receive aid.

As to the recent shelter-in-place orders, if a business closed because of a closure order from a governmental entity and faced unemployment compensation claims, Texas employers can argue that the Texas Labor Code allows the employer to ask for chargeback protection against the employer’s Texas Workforce Commission unemployment compensation account. Because unemployment compensation systems are run by each state, different rules may apply in other states.

Last updated June 22

These materials are made available by Jackson Walker for informational purposes only, do not constitute legal or medical advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Jackson Walker. The facts and results of each case will vary, and no particular result can be guaranteed.