Personal Finance

Can unemployed workers collect benefits in re-opened states? It's a gray area

Key Points
  • More than a dozen states may have partially re-opened their economies within a matter of days.
  • Unemployed workers in these states may find themselves ineligible for jobless benefits under certain circumstances. 
  • Ultimately, states, which administer unemployment benefits, will have the final say. 
Esra Demir styles the hair of customer Ken Menendez at Salon Loft in Atlanta, Georgia on April 24, 2020. Governor Brian Kemp has eased restrictions allowing some businesses such as hair and nail salons to reopen today in the US state of Georgia after a four-week lockdown to stop the spread of the coronavirus. (Photo by Tami Chappell / AFP) (Photo by TAMI CHAPPELL/AFP via Getty Images)

More than a dozen state economies are poised to re-open for business in a matter of days. Many have already done so.

That could render millions of Americans applying for or receiving unemployment pay ineligible to collect those jobless benefits going forward. 

But the answer isn't clear-cut. There are several things confusing the issue, according to experts.

States may differ in their interpretations of who remains eligible to collect benefits once lockdown rules are lifted, for example. Some are likely to be stricter than others.

"As states start trying to open up, especially in the very short term, we're going to get into a gray area with unemployment insurance," according to Ernie Tedeschi, an economist at Evercore ISI.

US unemployment rate could hit 15%-20% peak in April: Moody's Analytics
US unemployment rate could hit 15%-20% peak in April: Moody's Analytics

The coronavirus pandemic has pushed states to impose shutdowns on non-essential businesses to stem the spread of Covid-19, which has infected more than 1 million Americans.

Jobless claims have surged to record numbers as a result, with more than 30 million people filing for unemployment over the last month and a half.

The relief law enacted in late March enhanced unemployment benefits, primarily by raising weekly jobless pay, increasing its duration, and expanding the pool of eligible workers to those like the self-employed.

In normal times, getting a job offer would generally mean an individual can't receive benefits.

In re-opened states like Georgia, that means jobless individuals may no longer be eligible for unemployment if they get an invitation from a prior employer to return to work, according to Michele Evermore, senior policy analyst at the National Employment Law Project.

But there are some nuances.

Furlough vs. layoff

For example, if called back to work, a furloughed individual may have a tougher time continuing to collect unemployment than one who was laid off, Tedeschi said.

A furlough, which is a temporary leave, means a worker is technically still an employee of the company. That's different from a layoff, whereby a formal employment relationship is severed.

That distinction means a state might have a more difficult time learning of a job offer in the case of a laid-off worker, Tedeschi said.

Obviously, state unemployment insurance agencies are stretched to the limits right now and don't have a lot of resources for enforcement.
Susan Houseman
research director at the W.E. Upjohn Institute for Employment Research

But refusing a work offer in hopes of collecting unemployment is a risk, he said. For one, a vindictive employer could always report the situation to the state and render the worker ineligible for unemployment.

It also might not make sense for individuals to refuse employment given the negative long-term financial consequences — like permanently lower wages — that generally accompany long-term unemployment, experts said. 

There are other murky areas: What about workers who get a job offer but don't want to return for fear of their safety, for example?

While the relief legislation extended jobless benefits to groups for some Covid-related reasons — for example, those who have to quit as a "direct result" of the virus — it's not clear such individuals can refuse a work offer if a state re-opens even partially, Tedeschi said.

Officials in Georgia allowed gyms, hair and nail salons, bowling alleys and tattoo parlors to re-open last Friday. Restaurants and movie theaters followed on Monday.

Eight other states — Alaska, Colorado, Minnesota, Mississippi, Montana, Oklahoma, South Carolina and Tennessee — have recently re-opened (or will soon re-open) their economies in some fashion. Seven others have expiring stay-at-home orders that governors may allow to lapse, as is the case in Texas.

Searching for work

Not all businesses will necessarily open their doors following the easing of restrictions. And many re-opened states are limiting customer capacity.

Current rules may offer grounds to refuse work and collect unemployment if conditions of work are no longer "suitable" due to being unsafe, Evermore said.

Clarifying many of the gray areas of the law will ultimately depend on states' interpretations, experts said.

Here's another thorny issue that will ultimately land in states' laps: work-search requirements.

Looking for work is generally a requirement to receive unemployment pay. That's a near-impossibility amid a pandemic, which is why most states have eased those restrictions.

However, officials in re-opened states could require residents to look for work as a condition of receiving jobless pay.

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"The CARES Act [legislation] gives states wide berth for that interpretation," Tedeschi said. "But they'll have to make a determination."

Theory vs. practice

Of course, this is all theoretical and it's unclear at this point what states will do. In practice, states may not be well-equipped to uphold their rules — meaning unemployed workers may continue to collect benefits even if they're technically no longer eligible.

"Obviously, state unemployment insurance agencies are stretched to the limits right now and don't have a lot of resources for enforcement," said Susan Houseman, research director at the W.E. Upjohn Institute for Employment Research.

Work-sharing programs, currently available in more than two dozen states, are another avenue, Houseman said.

These programs would allow employers to bring back workers on a part-time basis, and the workers would receive a paycheck plus a reduced unemployment benefit.

For example, a worker with 50% of their typical hours would be eligible for half their state unemployment benefit. In addition, the worker would receive the $600-a-week enhanced unemployment benefit through July, plus a paycheck through work, Houseman said.