Pennsylvania Supreme Court Decision: Acceptance of early retirement incentives no longer precludes receiving Unemployment Compensation Benefits

On December 28, 2012, the Supreme Court of Pennsylvania in Diehl, Jr. v. UCBR, No. 51 MAP 2011, overturned 30 years of Commonwealth Court precedent. The Court held that the voluntary layoff provision of unemployment compensation law allows employees to accept early retirement incentives from their employers without forfeiting their rights to unemployment benefits.

Diehl v. UCBR Opinion.

In a series of decisions referred to as the Renda line of cases, Pennsylvania courts had consistently refused to apply the voluntary layoff provision of the state unemployment compensation law to employees who had accepted early retirement incentives.

Harold Diehl was 63 years old and had spent 23 years working as a shipping clerk for ESAB Welding & Cutting Products. In December 2008, due to financial conditions, the company announced a reduction in work force. Diehl accepted the early retirement incentive package offered to high seniority employees.

The early retirement incentives included payment of unused vacation time, payment of three years of health insurance premiums, and partial payment of insurance for two years.

After accepting the early retirement incentives package, Diehl also filed for unemployment compensation benefits. Diehl’s claim was denied because he had voluntarily quit his job “without a necessitous and compelling reason.”

In issuing its December 2012 Opinion, the Supreme Court of Pennsylvania reversed the denial of benefits. The opinion stated that Pennsylvania state unemployment compensation law did not allow the denial of benefits to an employee because they had accepted a voluntary employer-initiated workforce reduction.

The Court argued that, if the legislature had intended to exclude those who accepted early retirement incentive packages from receiving benefits, it would have made this intent clear. The Court concluded that early retirement incentives fit the definition of “layoff.”

The Diehl decision overturned a long held precedent in Pennsylvania. The Opinion clearly stated that “such programs are merely a different way to accomplish the workforce reduction of a layoff.”

The Sarbanes-Oxley Act of 2002 (SOX) provides protection for corporate whistleblowers from retaliation by their employers. One area of the law that courts have focused on in recent years is the type of complaint that Sarbanes-Oxley covers.

A decision by the United States Court of Appeals for the Third Circuit in Wiest v. Tyco Electric Corp increased protection for corporate whistleblowering employees under the Sarbanes-Oxley Act.

The Third Circuit (which includes Pennsylvania, Delaware and New Jersey) was the first federal Court of Appeals to approve the employee-friendly standard that the Administrative Review Board (ARB) of the Department of Labor announced in Sylvester v. Parexel LLC.

In Sylvester, the ARB ruled that a whistleblower could claim retaliation under the Sarbanes-Oxley Act based on a complaint that does not claim a specific violation of one of the fraud or securities laws.   Examples of violations of fraud or securities laws are:  mail fraud;  wire, radio, or TV fraud; securities fraud; violation of any rule or regulation of the Securities and Exchange Commission; or any provision of federal law relating to fraud against shareholders.

This Third Circuit ruling makes it easier for corporate whistleblowers to bring retaliation claims.  As long as an employee reasonably believes that his or her employer has engaged in fraud or securities law violations, then the employee is protected against retaliation as a corporate whistleblower —  regardless of whether the employer actually broke the law.  There are many important issues to consider in any corporate whistleblower case.

Feinstein Doyle Payne & Kravec, LLC Partner Joel Hurt can assist you in evaluating a potential whistleblower claim to be brought under the Sarbanes-Oxley Act.