Can A Utah Employee File for Unemployment Benefits After Signing a Severance Agreement?

Under Utah law, an employee’s right to unemployment benefits cannot be waived in a severance agreement. However, the terms of a severance agreement may affect the employee’s entitlement to unemployment benefits in several ways.

Nature of Termination

If the severance agreement states that the employee has resigned or that the parties have mutually agreed to end the employee’s employment, the employee may be ineligible for unemployment benefits. Eligibility for unemployment benefits is generally limited to former employees who were involuntarily terminated without cause or who resigned for “good cause.”

Severance Payments and Vacation Payouts

Under Utah law, a former employee is not eligible for unemployment benefits “[f]or any week with respect to which the claimant is receiving, has received, or is entitled to receive” severance payments, vacation payments, or other leave payments. However, if the payment amount is less than what the unemployment benefit would be, the former employee can receive the difference between the two. Utah Code § 35A-4-405(7).

This means that if an employee receives three months of severance payments and two weeks of unused vacation payments, the employee will not be eligible for unemployment benefits until three months and two weeks after her termination. It does not matter whether the employee received these benefits in a lump sum or whether the payments were spread out over time. See Bayle v. Bd. of Review of Indus. Comm’n of Utah, Dep’t of Employment Sec., 700 P.2d 1135 (Utah 1985).

In most cases, an employee with a severance agreement will be able to obtain unemployment benefits only if (1) the employer does not oppose the application for unemployment benefits and/or reports that the employee was involuntarily terminated without cause or (2) the employee demonstrates “good cause” to have ended the employment relationship. Parties entering severance agreements should be thoughtful in their characterization of the termination and may want to expressly address the manner in which the employer will respond to any applications for unemployment benefits.

Non-Disclosure, Confidentiality, and Non-Disparagement Clauses

This third section involves some amount of speculation as to the effect of non-disclosure, confidentiality, and non-disparagement clauses on a former employee’s ability to seek unemployment benefits.

As a threshold matter, any application for unemployment benefits requires the applicant to disclose all severance and other payments made by the employer. Thus, if the severance agreement prohibits disclosure of the payment amount, it would arguably constitute a breach of contract for the employee to disclose the severance amount in an application with the Department of Workforce Services (DWS).

Further, in order to demonstrate that a termination was involuntary or that the employee resigned for “good cause,” the employee may need to present evidence of unlawful or unseemly conduct by the employer. It would be difficult, if not impossible to do so without arguably breaching a non-disparagement clause. Similarly, it may be necessary to submit the employer’s confidential information in order to demonstrate that the employee was terminated without cause or that the employee had “good cause” to resign.

Perhaps Utah courts would hold that such disclosures are in furtherance of public policy and that employers cannot prevail against former employees who make such disclosures to DWS. After all, The Utah Code prohibits employers from “directly or indirectly” requiring employees to waive their rights to unemployment benefits. See Utah Code § 35A-4-103(1)(c). On the other hand, the trade secret case of InnoSys, Inc. v. Mercer, 2015 UT 80, 364 P.3d 1013 demonstrates an unwillingness on the part of the Utah Supreme Court to protect disclosures to DWS. In Innosys, a former employee filed an unemployment claim after being terminated for allegedly poor performance. To demonstrate she was terminated without cause, “[s]he submitted a number of protected documents—protected emails and a confidential business plan—into the administrative record.” Her employer later sued her for misappropriation of trade secrets, based largely on these disclosures to DWS. The trial court determined that “[a]ny and all disclosures regarding InnoSys made by [the former employee] whether verbal or in the form of emails, specifically to Workforce Services; to the Administrative Law Judge; and to defendant’s attorneys were necessary and appropriate in dealing with the issue of unemployment compensation.” But the Utah Supreme Court disagreed, emphasizing that the Utah Trade Secret Act provides “no basis for a ‘necessary and appropriate’ defense to the unauthorized disclosure of a trade secret.” The Utah Supreme Court found that the former employee’s disclosures to the Department of Workforce Services (DWS) constituted “a prima facie case of misappropriation” of trade secrets.

Although the Innosys case involved trade secrets rather than a non-disclosure, confidentiality, or non-disparagement clause, it is plausible that if disclosure to DWS can constitute a violation of trade secret law, such a disclosure might also constitute a violation of a contractual obligation. Accordingly, employees negotiating severance agreements should consider requesting carve-outs from non-disclosure, confidentiality, and non-disparagement clauses that permit them to make disclosures to DWS when seeking unemployment benefits.