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On March 13, 2020, and effective retroactively to March 1, 2020, President Trump declared a major disaster due to the widespread occurrence of COVID-19 in the US. Subsequently, numerous states and localities have issued stay-at-home orders and temporarily closed nonessential businesses to contain the spread of the virus.

The impact on the US-jobless rate has been significant. The US Bureau of Labor Statistics reported that total nonfarm payroll employment fell by 701,000 in March 2020, and the unemployment rate rose to 4.4%.

In response to the significant increase in the unemployed, the US Department of Labor (DOL), under the direction of the Trump Administration, and Congress acted quickly to expand on the existing state unemployment insurance (UI) programs for lost wages related to COVID-19. The result is a dramatic increase in the number of persons eligible for UI benefits and the weekly amount that will be paid to them.

Because COVID-19 benefits are not paid under the existing Disaster Unemployment Assistance (DUA) program, states will not be implementing the emergency provisions automatically. Instead, they must sign an agreement with the DOL agreeing to provisions making them eligible to receive federal funds for the UI benefit payouts. To comply with the requirements for federal funding, states will have to make any needed administrative changes to their programs, systems, laws and policies. Accordingly, state requirements and procedures could vary, and states will not come online at the same time. This means that employers must track state developments as they occur.

The usual DUA programs do not apply

Typically, when the President declares a major disaster that is eligible for public and private assistance, it is usually in response to a request by a state's governor because a major disaster occurred within the state. When this occurs, DUA provided under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 93-288, as amended, becomes available to affected workers within the state who are ineligible to collect unemployment insurance (UI) benefits through the normal UI benefit process.

The value of the DUA program is that once triggered, it is uniformly administered and implemented by all US states and territories. Unfortunately, DUA is not clearly appropriate for the COVID-19 health emergency because the President's declaration does not meet the definition of a "major disaster" under the Stafford Act, as follows:

"Major disaster" means any natural catastrophe (including any hurricane, tornado, storm, high water, wind driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this Act to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby. (United States Code, Title 42. The Public Health and Welfare, Chapter 68. Disaster Relief, §102(2).)

Accordingly, in addition to DOL state guidance to adopt flexibility in their UI laws, legislation was enacted under the FFCRA and the CARES Act that provides funding to states that expand their UI programs according to policies issued by the DOL and accommodate the special needs that the COVID-19 national emergency creates.

DOL urges states to adopt flexibility in their UI laws

The US Department of Labor announced that federal law has the flexibility to allow states to pass legislation or amend regulations that would allow workers affected by COVID-19 to collect state unemployment insurance (UI) benefits under certain circumstances.

The announcement specifies that federal law allows states to pay UI benefits in connection with COVID-19 where:

• An employer temporarily ceases operations due to COVID-19, preventing employees from coming to work.
• An individual is quarantined with the expectation of returning to work after the quarantine is over.
• An individual leaves employment due to a risk of exposure or infection or to care for a family member. In addition, federal law does not require that an employee quit to be eligible to receive UI benefits in connection with COVID-19.

The announcement notes, however, that a worker receiving paid sick leave or paid family leave is not eligible for UI benefits because the worker is still receiving pay and is not considered to be unemployed.

The Department issued Unemployment Insurance Program Letter No. 10-20 to assist state workforce agencies in implementing UI benefit law and regulation changes due to COVID-19.

Families First Coronavirus Response Act (FFCRA) UI benefit provisions

The Emergency Unemployment Insurance Stabilization and Access Act of 2020 (the Act) enacted under the FFCRA provides federal grants to states that comply with requirements to ease their UI benefit requirements, allowing workers not eligible for regular state UI benefits to collect UI benefits during the COVID-crisis.

The Act provides as much as $1 billion for emergency transfers to states in fiscal 2020 to process and pay UI benefits. Individuals in states with rising unemployment can qualify for an additional 13 weeks (20 in some states) for unemployment benefits.

States must meet certain stringent criteria to be eligible for federal grants, including the requirement that the benefits not be chargeable to employer accounts. As previously mentioned, these federal funds do not constitute DUA that is funded directly by the federal government (and also not charged to employer accounts) in the event of a qualifying major disaster declaration.

Under the Act, to be eligible for federal funds, states must change their UI laws and/or regulations as follows.

• Employers must be required to provide notification of the availability of UI benefits to employees at the time of separation from employment. Such notification may be based on model notification language issued by the DOL.
• The state must ensure that applications for UI benefits, and assistance with the application process, are accessible in at least two of the following: in-person, by phone, or online.
• Applicants must be notified when an UI benefit application is received and is being processed and, if an application is unable to be processed, provide information about steps the applicant can take to ensure the successful processing of the application.
• The state must demonstrate steps it has taken or will take to ease eligibility requirements and access to UI benefits for claimants, including waiving work-search requirements and the waiting week, and non-charge employers that are directly impacted by COVID-19 due to an illness in the workplace or public health officials directing that workers be isolated or quarantined.
• The state must express its commitment to maintain and strengthen access to the unemployment compensation system, including through initial and continued claims.

CARES Act UI benefit provisions

The CARES Act provides additional funding of $250 billion to states that further expand their UI benefits in connection with COVID-19 by increasing the weekly benefit amount, increasing the number of weeks of benefits, and extending coverage to additional categories of individuals.

Following is a summary of the CARES Act UI benefit provisions of interest to employers as contained in the DOL's program letter to the state workforce agencies. (DOL UIPL 14-20).

• Additional weeks of UI benefits. Provides an additional 13 weeks of UI benefits beyond what states typically allow starting with weeks of unemployment beginning on or after January 27, 2020 and ending on or before December 31, 2020.

• Extend UI benefits to more individuals. Extend UI benefits to individuals who are self-employed, seeking part-time employment, or whom otherwise would not qualify for regular unemployment compensation (UC) or extended benefits (EB) under state or federal law. Coverage also includes individuals who have exhausted all rights to regular UC or EB under state or federal law.

To qualify for these benefits, individuals must demonstrate that they are otherwise able to work and available for work within the meaning of applicable state law, except that they are unemployed, partially unemployed, or unable or unavailable to work because of the COVID-19 related reasons.

• Emergency unemployment relief for governmental entities and non-profit organizations (reimbursing employers). The DOL is authorized to issue guidance to allow states to interpret their state laws in a manner that would provide maximum flexibility to reimbursing employers as it relates to timely payments in lieu of contributions and assessment of penalties and interest.

This section of the CARES Act also provides for transfers to a state's account in the unemployment trust fund from the Federal Unemployment Account to provide partial reimbursements (generally 50% of the amount of payments in lieu of contributions) to state and local governmental entities, certain nonprofit organizations, and federally recognized Indian tribes for weeks of unemployment between March 13, 2020 and December 31, 2020. These partial reimbursements apply to all payments made during this time period, even if the unemployed individual is not unemployed as a result of COVID-19.

• Additional weekly cash benefit. Additional UI benefits of $600 per week are extended to individuals who are collecting regular UC. This provision is available for weeks of unemployment beginning after the date on which the state enters into an agreement with the DOL and ending with weeks of unemployment ending on or before July 31, 2020.

States are prohibited from changing the computation method governing regular UI law in a manner that results in the reduction of average weekly benefit amounts or the number of weeks of benefits payable.

• Short-term compensation (STC) also known as shared work or work share. States may be reimbursed for 100% of STC benefits costsup to a maximum of 26 weeks of STC per individual. These reimbursements are available starting with weeks of unemployment beginning on or after March 27, 2020 and ending with weeks of unemployment ending on or before December 31, 2020.

If a state enacts a new law providing for the payment of STC after March 27, 2020, then reimbursements are available starting with the effective date of the state law enactment and ending with weeks of unemployment ending on or before December 31, 2020.

States without an existing STC program in the state's UC law may provide STC benefits under an agreement with the DOL and be reimbursed for 50% of STC benefit costs, with the employer paying the other half, up to a maximum of 26 weeks of STC per individual. This federal STC program is available for weeks of unemployment beginning on or after the date on which the state enters into an agreement with the Department and ending with weeks of unemployment ending on or before December 31, 2020.

A $100-million grant to be shared across states for implementation or improved administration, and promotion and enrollment of a state's STC program.

Ernst & Young LLP insights

Unlike the DUA program, availability of the expanded UI benefit provisions under the FFCRA and CARES Act is dependent on each state and territory meeting the requirements for federal funding. The result is that the speed and manner that the expanded UI benefits are adopted and implemented will vary by jurisdiction.

Employers and employees will be challenged to deal with the inconsistencies in the COVID-19 UI benefit procedures and policies across the states and territories.

Finally, because most states and territories paid COVID-19 UI benefits before they had the appropriate programs and policies in place, employers will need to be diligent in identifying employees eligible for UI benefits due to COVID-19 and to confirm that their accounts were not incorrectly charged for those benefits.

Summary of unemployment benefit provisions under the CARES Act*

*Source US Department of Labor program letter 14-20.

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