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January 22, 2002
Choose: Severance or Unemployment Benefits
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as workers who receive severance payments from their old employers may have waived their rights to unemployment benefits without realizing it, the Houston Chronicle reports.

Four former employees from Mitchell Energy & Development Corp. not only lost their unemployment benefits, but they also were hit with a $41,479 judgment after Mitchell Energy successfully argued in federal court that they relinquished their rights when they accepted an early retirement package.

The Chronicle reports that Mitchell and other employers are trying to reduce their state unemployment insurance tax by forcing employees to make a choice: Take either a company-sponsored buyout package or state unemployment compensation, but not both.

The lure is attractive to employers, the Chronicle explains, because they pay unemployment taxes based on the number of ex-employees who receive benefits: The fewer filings for unemployment benefits, the lower an employer's tax. The amount of weekly benefits received by former employees is based on salary levels.

The Chronicle says it's unclear how many companies have adopted this practice, but several employment law experts interviewed by the newspaper believe it will become far more common now that a federal judge has ruled they can do it.

It's a significant expense. Employers can pay as much as 6.54 percent of the first $9,000 in wages per employee, or $588.60 each year, when they have a lot of claims filed against them.

Employment taxes may be costly. But there's a problem when employers force employees to waive their rights to unemployment benefits: Texas law prohibits it. In fact, the penalty is a six-month jail term for an employer who even accepts a waiver.

Mitchell Energy, however, argued that such waivers do not break the law because its early retirement plan is covered under the federal Employee Retirement Income and Security Act and therefore supercedes state law.

Under ERISA, companies that provide benefits such as health insurance and pensions have a wide berth in structuring their plans, giving them freedom to override related state regulations.

Until now, no one questioned whether ERISA would pre-empt state law concerning unemployment compensation.

In mid-November, U.S. District Judge David Hittner ruled that because Mitchell's early retirement plan doesn't allow employees to file claims against the company, they're not entitled to unemployment benefits.

Hittner's ruling, according to W. Fulton Broemer, the attorney representing the four Mitchell workers, is the first time a federal judge in the United States has ruled ERISA overrides a state law that carries criminal penalties.

It's like saying that if a severance plan that's covered under ERISA requires you to kill a mockingbird before you can get your money, you must kill the bird, even though it's against state law in Texas, Broemer said.

To read the Houston Chronicle story, click here.

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