When an Agency-supplied Contingent Worker Files for Unemployment Benefits | DCR Workforce Blog

When an Agency-supplied Contingent Worker Files for Unemployment Benefits

Unemployment Benefits ClaimWhen companies secure contingent workers through staffing agencies, those workers are considered employees of the staffing agencies, and are entitled to unemployment benefits.   As with all workers, benefits are entitled if workers:

  1. Are unemployed due to reasons beyond their control, like a layoff.
  2. Meet the State’s requirements for time worked or wages earned
  3. Are actively looking for employment

Of course, the government always introduces areas of grey that make it difficult to determine whether an individual qualifies. Fired employees can claim unemployment benefits if they were terminated because of financial cutbacks or because they were not a good fit for the job for which they were hired. They can also receive unemployment benefits if the employer had a good reason to fire the employee, such as being late for work several times, but the infractions were relatively minor, unintentional, or isolated. To be disqualified, the worker must have been fired for “gross misconduct”. The State – not the company – determines the definition of gross misconduct.

Similarly, an employee who quits a position but can demonstrate a “compelling good cause” (such as unaddressed issues of worker safety) can qualify for unemployment benefits.

The level of complexity – and difficulty of determining eligibility – increases when agency contactors file unemployment insurance claims. Staffing agencies, as employers of record, pay the worker’s unemployment insurance (UI) taxes, workers’ compensation premiums, and other payroll taxes. Like all employers, the unemployment rate paid by each staffing agency is determined by their “experience rating”, which is tied to whether or not their employees file valid UI claims and receive UI benefits. Staffing agencies are motivated to keep this number low, even though the very nature of their business would result in a higher than average number of former workers placing claims as workers are hired for a limited time by the agency to meet the short-term needs of an agency client.

Workers assigned to short-term, low wage engagements will usually fail to meet the minimum State eligibility standards. When confusion and conflict arise, the causes generally are disagreements regarding:

Is the worker actively looking for employment?Some states specify that a temporary worker must regularly (weekly) contact the staffing agency to determine if a suitable position is available and document each inquiry as proof of an active job search. This must be done prior to filing for unemployment. Otherwise, the worker is considered to have voluntarily terminated employment. The only federal requirement for “able and available” is that a worker be registered for jobs that are listed through the States’ unemployment agencies, and that s/he be able to certify on weekly claim forms that s/he is able to work and available for work.

What is deemed to be suitable work?Federal law says that states may not deny unemployment benefits to eligible employees for refusing to accept a position if the “wages, hours, or other conditions of the work offered are substantially less favorable to the individualthan those prevailing for similar work in the locality.” The Department of Labor specifies that the comparison need not be “temp position to temp position”, but should be based on an assessment of market conditions for related positions in that locality.   The fact that a position does not offer equivalent fringe benefits, or is temporary, does not in itself make the position “significantly less favorable”.

Did the cause for termination qualify as “gross misconduct”?Most contracts between staffing agencies and their clients specify that if the client is dissatisfied with a worker, the worker will be terminated and replaced. In these cases, a “third party employer” is making the judgement while the staffing agency is motivated to satisfy the client. While termination may be warranted, terminations tied to lack of required skills or experience, poor work habits leading to excessive absence or tardiness, or personality conflicts do not disqualify a worker from receiving unemployment benefits.

Should the staffing agency challenge an unemployment claim?

Sometimes, unemployment claims are filed, though they are not deserved. The decision to contest unemployment benefits, or not needs a lot of thought, given the time and expense involved in the process, the potential for a wrongful termination suit, and the negative publicity that may result.

Employers typically fight unemployment claims for one of three reasons:

  • The employer is concerned that their unemployment insurance rates may increase.
  • The employer is concerned that the employee plans to file a wrongful termination action. The unemployment application process can be valuable in gathering evidence from the employee and from witnesses.
  • Many states assume that the employee has a right to unemployment benefits, and places the burden of proof largely on the employer. As a result, the outcome typically favors the employee.

When challenging a claim, employers should be confident that there is enough documentary evidence to make a win seem feasible and be confident that an appeal against a claim would not generate a negative image of the company. As importantly, employers should consider whether failure to contest an obviously fraudulent claim could unleash a flood of more claims from other ineligible ex-employees.

Some employers indicate in termination papers that they will not contest any claim for unemployment. In exchange, ex-employees must usually agree that they will not pursue claims of wrongful dismissal. Even when these agreements are reached, some employers truthfully state the cause of termination (misconduct) on the unemployment paperwork. Thus, they could refuse to contest a claim but leave the decision to the unemployment claims office.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.