Being on Leave Makes Current Employees Unemployed: Texas Supreme Court’s Counterintuitive Unemployment Act Decision

Usually disputes over unemployment focus on whether a former employee was fired for work-connected misconduct or quit for a good enough work-connected reason. But when exactly is a person unemployed, so that he or she can file for unemployment in the first place? The Texas Supreme Court’s answer: an individual “qualifies as unemployed so long as her wages are low enough,” even if the individual continues to have an employment relationship with the employer, for example when out on FMLA leave. TWC v. Wichita Cty., Tex., No. 17-0130, 2018 WL 2375140, at *4 (Tex. May 25, 2018).

Unemployment Act’s definition of “unemployed.”

The Court based its conclusion on that statute’s plain language. That language starts by defining a benefit amount based on the person’s recent wages (very roughly, it is 1% of annual wages). The 2018 maximum benefit amount is $494 a week (so roughly based on someone earning $49,400 or more a year).

The statute then says that a person is totally unemployed, if in a given week, he or she “does not perform services for wages in excess of $5 or 25% of the benefit amount,” whichever is greater. Tex. Lab. Code § 201.091(a). This means that someone earning enough in recent wages to earn the maximum benefit amount of $494 will be “totally unemployed” if he or she earns less than 25% of $494, or $123.50, a week.  And a person is partially unemployed (and eligible for partial benefits) if he or she earns between that 25% amount and 125% of the benefit amount in a week. For a person eligible for maximum benefits, this would be between $123.50 and $617.50 a week.

Leave can cause wages to drop enough to make an employee “unemployed.”

When would someone who recently has been earning $49,400 a year earn less than $617.50 a week? Typically, this happens when the person has been discharged or quit. But the Court found that the statute does not actually require “a formal severance of the employer-employee relationship.”

The upshot is this: if your employee is on FMLA leave, short-term disability, long-term disability, or other leave, and is therefore not earning wages for “performing services,” that employee is unemployed for unemployment-benefits purposes. While it may be common sense that a person who is on leave from his or her job with the employer cannot be unemployed, the statute says otherwise.

Employees on leave are ineligible for benefits because they are unavailable for work.

So what should an employer do if faced with a claim for unemployment by an employee on leave? The employer should respond to any unemployment proceedings based on the employee’s ineligibility for benefits, not his or her status as “unemployed.”

In Wichita County, the Court noted that being unemployed is not enough to entitle someone to unemployment benefits—the person must also be “eligible.” And a person is not eligible if they are not “able to, available for, and actively seeking work.” So in an unemployment response or hearing where an employee is seeking benefits while on leave, the employer should point out that the employee is not able to work and is not available for work. This inability and unavailability should follow directly from the underlying reason for the leave—after all, if the employee could work and was available to work, he or she would be working for the employer, not on leave.