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Employment Development Department
Employment Development Department

Total and Partial Unemployment TPU 460.39

Wage Continuation Pay

Under special circumstances, payments which at first might be thought of as severance pay, will, under closer investigation, turn out to be wage continuation pay. Wage continuation pay is considered wages.

A. Wage Continuation Pay

In P-B-4, the Board considered the case of a claimant who was informed by his employer that he was to perform no services for the employer subsequent to June 8. However, the employer advised the claimant he would be kept on the payroll at full salary through July 15. In holding that this type of payment constituted wage continuation pay, the Board stated:

"It was not shown that the payments received by the claimant were the result of any plan or system or collective bargaining agreement, nor was there any showing that such payments were available to a class or group of employees. The payments in the present case were not made in a lump sum, usable immediately in their entirety like normal severance payments. They were paid in installments at the regular wage-payment times, as though the claimant's services had been continuing. The amounts were, therefore, clearly for the particular weeks for which similar wage payments would have been made on the same dates had the claimant remained in service."

From this decision, it is clear that where the employer has no policy or plan for allocating severance payments, and where payments continue to be made in the regular manner, even though the claimant is no longer performing service for the employer, these payments are to be considered as wage continuation payments.

In a California Court of Appeal case, Citroen Cars Corporation vs. CUIAB, (1980) wage continuation pay, as described in P-B-4, was distinguished from severance pay.

The employer stated that the purpose of the payments was not to supplement unemployment insurance but, in part, to avoid liability for benefits during the time the payments were made. The employer stated that as in P-B-4, the payments it made were not paid pursuant to any plan and not intended to supplement unemployment insurance.

The court, in holding that P-B-4 did not apply and that the payments were severance pay, stated:

"Such reliance is misconceived. First, that decision pertained to a situation involving one claimant; this case pertains to payments made to all employees of Citroen in Los Angeles, even though only two are claimants. Indeed, the Appeals Board itself distinguished between circumstances involving one claimant and those affecting a group or class of employees: 'It was not shown that the payments received by the claimant were the result of any plan or system or collective bargaining agreement, nor was there any showing that such payments were available to a class or group of employees. (P-B-4, supra.)' Second, nowhere in Unemployment Insurance Code Section 1265 or in the cases arising out of it does there appear any language defining when a plan shall have been established to come within its terms."

Refer also to TPU 460.35 for further discussion of the Citroen court case.

B. Wages - Accrual of Service Credits

Increasingly, employers are reporting payments to terminated employees which they refer to as "wage continuation", "salary continuation", or just plain "wages", etc. The payments are available to all employees who are terminated because of the reduction in force.

Many companies have established plans or policies which provide for making "wage continuation" payments or "salary continuation" payments to individuals who are terminated due to a reduction in force or closure. The companies generally make the payments at regular pay period intervals and so refer to the payments as "wage continuation" or "salary continuation" pay.

Although a company may refer to the payments as "wage continuation" or "salary continuation" pay, these payments do not constitute wage continuation pay since they are paid in accordance with a company plan or policy and since they are available to a class or group of employees.

The company, however, reports that during the period covered by the "wage continuation" pay the terminated employees are continuing to accrue all service credits just as if they were actively working. That is, they are earning additional vacation time; additional sick time, if the company allows accrual of sick time; seniority for vesting purposes; seniority for purposes of calculating a pension in the future, etc. Under these circumstances, the payments are considered to be wages as provided in Section 1252 of the Unemployment Insurance Code, since the employees continue to accrue all service credits just as if they were on the job and actively performing services for the employer. We do not attach any special label to the payments; we just refer to them as wages.

On occasion, a company will pay the amount due in a lump sum but will report it covers a specific number of weeks following an individual's last day of work and that the individual continues to accrue all service credits through the number of weeks covered by the payment. This lump sum payment constitutes wages since the individual accrues all service credits through the period covered by the payment. The field office would thus allocate wages immediately following the last day of work through the number of weeks represented by the lump sum payment.

If the company reports that the terminated individual continues to accrue seniority for the period the "wages" are paid but that the individual does not earn additional vacation time, for example, or that the individual continues to earn seniority and vacation time but does not continue to accrue sick leave, the payment is not wages.

For the payment to constitute wages, the terminated employee must continue to earn all service credits that he or she earned while working Prior to the termination. If the terminated employee does not continue to accrue all service credits, the payment would constitute severance pay.

The payments would meet the criteria of being designated as severance pay because the payments are made under the provisions of a company plan and the payments are available to a class or group of employees. See the discussion of Citroen in TPU 460.35.