Total and Partial Unemployment TPU 80.05
Compensation Not Payable or No Work Done
This category discusses the principles involved in determining whether a claimant is employed or unemployed when there is an employer-employee relationship, but no compensation is payable or no work is being done.
The claimant need not perform services and receive compensation to be "employed." In Benefit Decision 6038, the claimant’s appeal indicated that he didn’t consider himself employed because he had not been paid. The Board stated:
"The fact that such an individual earns no wages during the period in question does not qualify him for benefits, because . . . the Act requires that he must both perform no service and have no wages payable to him . . ."
A. No Service Performed
A claimant need not be performing an active service to be considered employed. Any attachment to an employer for which wages are payable constitutes a service to that employer.
The United States Supreme Court considered this question in Social Security Board v Nierotko. The Social Security Board held that a back pay award made to Nierotko was not wages because the claimant had not performed any service during the period, since he had not been engaged in productive activity. The court said:
". . . ’Service’ as used in this definitive phrase means not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer.
The decisions of this court leave no doubt that a man’s time may, as a matter of law, be in service of another, though he be inactive."
Various types of payments fall within the scope of this principle.
- Standby, Idle Time, and Show-Up Pay
A claimant may be paid a specific sum of money to do nothing but hold him/herself in readiness to perform services for the employer. A claimant who is paid standby, idle time, or show-up pay in an amount which is XE, is ineligible for benefits.
The court considered this problem in the case of Armour & Company v Wantoch. In holding that the claimant was employed, the court said:
". . . An employer . . . may hire a man to do nothing, or to do nothing but wait for something to happen. Refraining from other activity often is a factor of instant readiness to serve, and idleness plays a part in all employments in standby capacity. Readiness to serve may be hired, quite as much as service itself, . . . ."
This question was decided by the Board in Benefit Decision 5492, in which the Board quoted from Nierotko as follows:
"We think that ’service’ . . . means not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer . . . . A man’s time may, as a matter of law, be in the service of another though he be inactive. This is, practically speaking, the ordinary situation of employment in a standby capacity."
- Back Pay Award
This subdivision deals with the question of the employment status of claimants arising when the employer pays "back pay" to them after their discharge. Back pay awards derive generally from the employee filing a claim with his union for reinstatement or filing with the National Labor Relations Board. Once these payments have been made, it is necessary to determine the period they cover. There usually is no problem if the payment represents full back pay. In such cases, the payment is allocated to the entire period the claimant was requesting. However, often the payment is in the form of a settlement which is less than the full back pay. In these cases it becomes necessary to determine the period of time covered by the settlement. This would be done by first determining the claimant’s hourly or daily wage, and then dividing that amount into the amount of the settlement.
The resulting figure would then be used to determine the period of allocation.
For example, the claimant is off work for three months. He had worked at $3 per hour, 40 hours a week. He accepts a settlement in the amount of $1,200. You would divide the $3 into the $1,200 and get 400, which represents the number of hours covered by the settlement. Then by dividing the 400 hours by the number of hours worked in a week, in this case 40, it would be determined that the claimant received 10 weeks pay. The $1,200 should, therefore, be allocated to the first 10 weeks of unemployment following the last date for which the claimant had been paid at the time of the separation.
Once the wages have been allocated to a particular period it is the duty of the Department to determine if the claimant was unemployed during that period and eligible for benefits.
The question of whether or not back pay awards are "wages came before the court in the Social Security Board v Joseph Nierotko. The Supreme Court of the United States held that back pay is wages.
The case involved Nierotko whom the National Labor Relations Board found to be wrongfully discharged for union activity. He was reinstated by that Board in his employment with directions for back pay. Thereafter, Nierotko requested the Social Security Board to credit him with the sum of the "back pay." The Social Security Board refused, and it was taken to court.
The court held that "back pay" is "wages" and said:
"We think that ’service’ as used by Congress in this definitive phrase means not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer.
If, as we have held above, ’backpay’ is to be treated as wages, we have no doubt that it should be allocated to the periods when the regular wages were not paid as usual . . . ."
In a concurring opinion, Justice Frankfurter said:
"The decisions of this Court leave no doubt that a man’s time may, as a matter of law, be in the service of another, though he be inactive . . . . This is, practically speaking, the ordinary situation of employment is a stand-by capacity . . . . The basis of the backpay order . . . is precisely that. When the employer is liable for backpay, he is so liable because under the circumstances, though he has illegally discharged the employee, he still absorbs his time . . ."
In Precedent Benefit Decision 47, the Board considered the case of a claimant who had been discharged on October 27, 1967, and after union negotiations, was reinstated on January 16, 1968. During this period, the claimant drew $715 in unemployment benefits.
As a result of the agreement between the claimant’s union and the employer, the claimant received from the employer a gross amount of $934.80, which represented the wages he would have earned had he not been discharged, less the amount of unemployment insurance benefits he received during the period of unemployment.
The Board held that the claimant was in receipt of wages for that period. The claimant was liable for the overpayment of $715, and had to repay it to the Department even though the employer had already withheld that amount from the back pay award.
NOTE: Since P-B-47 was issued, the Legislature has enacted Section 1382 of the UI Code which provides that if an employer reduces the amount of the back pay award by the amount of UI benefits paid, the claimant is not liable for the overpayment. See discussion of Section 1382 following the discussion of P-B-128.
In Precendent Benefit Decision 128, the Board again dealt with a back pay award. In this case, after appealing his termination from federal employment the claimant was awarded retroactive wages of $6,600.72. During the period covered by this wage award, he had filed a claim and drawn 28 weeks of benefits in the total amount of $1,792. The Board said:
". . . Since the claimant in the instant matter received wages during the same period for which he received unemployment benefits, it would not be against equity and good conscience to require the repayment of the amount overpaid . . ."
In those instances where the employer pays the discharged employee the entire amount of the back pay award the claimant is liable for the overpayment. If, however, the employer deducts from the back pay award the amount of unemployment insurance benefits received by the claimant, the claimant is not liable for the overpayment.
Section 1382 of the California Unemployment Insurance Code provides, in part, as follows:
"No person shall be liable for the amount of benefits received for any period for which the person also received an award or settlement of backpay resulting from an action or grievance for wrongful discharge, if the amount of the back pay award or settlement was reduced by the amount of benefits received pursuant to this part. When the amount of the back pay award or settlement was reduced by the amount of benefits received, the employer shall pay to the Unemployment Fund an amount equal to the amount subtracted from the backpay award or settlement for benefits received by the person in order to reimburse the fund. . . ."
Thus, in those instances where the employer deducts the amount of benefits paid to the claimant, the claimant is not liable for the overpayment since the overpayment is satisfied. The employer is required to pay to the Unemployment Fund the amount withheld from the back pay award.
If the employer does not reduce the amount of the back pay award, the claimant is liable for the resulting overpayment.
Based on the facts in the Nierotko case and in P-B-47 and P-B-128, the Department and the Board took the position, for a number of years, that a back pay award did not constitute wages unless the individual was ordered reinstated in his or her job.
The California Court of Appeals (second appellate district) in Gwendolyn Oliver v California Unemployment Insurance Appeals Board (191 Cal. Rptr. 694) in 1993 considered whether a back pay award constitutes wages when the individual was not ordered to be reinstated in her job.
In this case the plaintiff (hereafter, claimant) worked as a janitor for the employer. She was discharged by the employer in July 1975 and filed with the National Labor Relations Board (NLRB) a claim against her employer for unlawful discharge. She also filed for unemployment insurance benefits and was held to be eligible for benefits. She received UI benefits until August 1976.
In the meantime, her NLRB proceeding was settled by payment to her of an amount equal to her back pay. The employer did not, in the settlement agreement, admit any unfair labor practice, but the Unemployment Insurance Appeals Board (hereafter Board) did acknowledge at the hearing that the award to the claimant was based on an unlawful practice.
The claimant attempted to file a second claim for UI benefits after August 1976. The claimant had to clear a lag test on the subsequent claim and the Department determined she did not have any wages in the benefit year of the prior claim nor had she performed some work as required by Section 1277 of the UI Code.
The claimant advised the Department she had received a back pay award and that this amount should be usable to clear the lag test since it was for the period she had been discharged. The Department held the payment was not wages since the claimant had not been ordered reinstated in her job and that, even if the payment were wages, the claim would still be invalid as she did not perform some work during the benefit year of the prior claim. The Department determined the claim was invalid under the provisions of Section 1277 and denied the claim.
The claimant appealed from the determination made by the Department. The ALJ and the Board affirmed the denial of benefits under the provisions of Section 1277 of the UI Code. The claimant filed a writ of mandamus and the trial court affirmed the Board’s findings. The claimant appealed from that decision.
The Court of Appeals reversed the lower court and held that the back pay award received by the claimant was wages and that the back pay award satisfied the "some work" requirement of Section 1277 as well.
The Appeals Court cited the findings in Nierotko and said that in that case the U.S. Supreme Court had held that a similar settlement and award were "wages" for purposes of computing benefits under the Social Security Act. The Appeals Court held that while it was true that in Nierotko the employee was ordered to be reinstated in his job, that did not make a material difference. The issue before the court was whether the back pay was "wages." The U.S. Supreme court held that where an individual was wrongfully discharged, the back pay award was wages.
The Appeals Court went on to say that the additional victory Nierotko received in reinstatement of his job had no material bearing on the decision of the Supreme Court that the back pay was "wages". The Appeals Court concluded that the NLRB settlement paid to claimant Oliver was "wages." for UI purposes.
The Court the went on to consider whether the payment of the back pay award met the "some work" requirements of Section 1277. The Court said:
". . . Plaintiff did not perform services solely because her employer refused to let her perform services. Nothing in the record shows that, had the employer repented its unlawful discharge and recalled her, she would not have responded and resumed her janitoring. An employee ready, able, and willing to work, but involuntarily prevented from performing services, is working just as are many employees who report for work but are left standing idle because nothing at that time needs to be done . . . "
Allocation of Back Pay
The pay for a back pay award is allocated to the period the claimant was wrongfully discharged. It is allocated to the period immediately following the claimant’s last day of work through the period of time for which payment is made based on the total award of the claim. It is allocable to the period the claimant would have been working had he or she not been prevented from working due to the employer’s unlawful discharge.
Allocation of the back pay award to the period of time the claimant would have been performing services but for the employer’s wrongful discharge, is based on the findings of the Court in Nierotko.
The Court said that a back pay award was reparation to an employee for the loss of wages suffered by the employee from the employer’s wrong. The intent for the payment according to the Court was to make the employee "whole." The U.S. Supreme Court cited the findings of the Circuit Court of Appeals in the case under review which held that back pay must be allocated as wages to the "calendar quarters" in which the money would have been earned if the employee had not been wrongfully discharged. The U.S. Supreme Court stated it agreed with the findings of the lower court and stated:
"If, as we have held above, ’backpay’ is to be treated as wages, we have no doubt that it should be allocated to the periods when the regular wages were not paid as usual."
In P-B-47 the claimant was discharged on October 27, 1967, and filed a grievance with his union. As a result of an agreement between the union and the employer he was reinstated in his job and returned to work on January 16, 1968.
The employer and the union contended the pay was a "supplemental unemployment benefit" and not back pay. The Board held the purpose for the payment, as testified to by the employer and the union, was to make the claimant "whole" for the wage loss he had suffered due to his discharge in violation of the union agreement and was therefore back pay. The amount of money the claimant received represented what he would have been paid for full time work between October 27, 1967 and January 16, 1968, had his employment not been terminated. Citing the findings in Nierotko the Board held that the back pay constituted wages which were allocable to the period following October 27, 1967.
Again, in P-B-128, the Board held that the payment made by the employer to the claimant constituted a back pay award and was therefore wages for UI purposes with respect to the allocation of the back pay award the Board cited its findings in P-B-47 and said:
". . . In that case we concluded that the backpay award constituted wages allocable to the period following the claimant’s discharge and held that, since he received wages in excess of his weekly benefit amount, he was not unemployed during the period to which the back pay award was allocated. That is the situation in this matter and we arrive at the same conclusion."
- Residual Payments and Holding Fees
Residual payments and holding fees, which are paid to individuals in the entertainment industry and related fields, are payments made with respect to services performed in the past. In P-B-422, the Board held that such payments are wages for unemployment insurance purposes.
A claimant who receives residual payments or holding fees in an amount which is XE would not be an "unemployed" individual within the meaning of Section 1252, even though he/she performed no services in the week to which these wages are allocated. (For further discussion of residual payments and holding fees, including the method of allocation, see TPU 460.6).
A question of whether or not a claimant is unemployed also arises in the case of a suspension. Here again there is no severance of the employer-employee relationship and no active service is being performed. However, in this case, there are no wages payable to the claimant.
The Board considered this question in Benefit Decision 5346. The claimant, a streetcar motorman, was temporarily suspended by the company as a disciplinary measure for his part in an accident. During the period of suspension, the claimant’s name remained on the company payroll but he performed no services nor was he paid any wages. In holding that the claimant was unemployed, the Board said:
"It is clear from the testimony that during his suspension the claimant performed no services for the employer, was under no obligation to reserve his services for the employer, and had no earnings. Therefore, he was unemployed within the meaning of that term as defined in the Act . . . ."
- Unable To Do The Work
There is at least one circumstance where the Board has held that a person performing no service and receiving no wages is not totally unemployed. It was the opinion of the Board that when there was no severance of the employer-employee relationship and the claimant was not working because of a lack of work, the claimant was a partially unemployed individual. For instance, in Benefit Decision 5975, the Board considered the case of a cannery worker who did not work during the week ending October 6, because during that week, the only work available was work on the sardine pack.
During the past three years, the claimant, for a compelling medical reason, has limited herself to work on the tuna catch.
The Board held that the claimant was a partially unemployed individual and said:
"That she performed no services and earned no wages during the week for which benefits are claimed also does not establish that she was not partially unemployed, as an individual who is totally unemployed for no more than two consecutive weeks may come within the scope of the partial claims procedure. The claimant’s status as partially unemployed thus depends on whether during the week ended October 6, 1951, she continued to be employed by a regular employer, worked less than her normal full-time hours for such regular employer because of a lack of full-time work, and was during such week continually attached to that employer because there did not occur any severance of the employer-employee relationship.
Since partial unemployment presupposes the continuance of the employer-employee relationship, the term ’work’ as it appears in the pertinent sections of the Act and the Administrative Code must be interpreted as the work on which that relationship is based. For the purpose of this decision it may be defined as the work the claimant normally performed for the employer, and, viewed prospectively, such other work as she was reasonably fitted to perform.
The claimant herein during a three-year period was unable to work on the sardine catch; nevertheless, she performed services for the employer and the employer-employee relationship continued. These facts establish that working on the sardine catch was not ’work’ on which the employer-employee relationship was based. It follows that such relationship was based on the other work performed by the claimant during her period of employment and since such other work was not available to her during the week for which benefits have been claimed, and there was not available any other work for which she was reasonably fitted, her unemployment during that week is attributable to a ’lack of full-time work’ . . . ."
- Waiting For Call-On Seniority List
In Benefit Decision 6208, the Board considered the case of a claimant who was on the seniority list at the union but was not called for work for two consecutive weeks. The claimant, an extra Linotype operator, would have her name put on the extra board upon becoming unemployed. The claimant’s name would advance from the bottom to the top of the extra board as those ahead of her were called for work. In order to keep her name on the extra board, it was necessary for the claimant to report to the composing room every night at 5:30. There was no work available for her for the weeks which ended January 30 and February 6. The Board held that the claimant was a partially unemployed individual and said:
"Since the claimant had not resigned from her employment and since the employer had not discharged the claimant. it clearly appears that, although there had been no work for the claimant and she had therefore not performed any work for the employer during the two weeks ended January 30 and February 6, the claimant fell within the definition of a ’partially unemployed individual.’ Since only two successive pay period weeks had elapsed during which the claimant performed no services for her regular employer, her status as partially unemployed individual was not terminated."
- Employer Fails to Recall or Hire Individual Designated in Union Contract
Occasionally an employer fails to follow an agreement with a union on the recall or hiring of an employee. For example, the employer may recall an employer with lower seniority than another, hire from another union, or hire a nonunion person. In these cases, the union may require the employer to pay wages to the union member who should have been hired according to the bargaining agreement. This payment which some unions call "run-around pay" is wages and must be allocated at the claimant’s hourly rate to the period following the date on which he was bypassed.
An employer-employee relationship exists, as the employer makes all regular deductions, and the claimant is entitled to all the benefits he would have received had he been called to actually perform the work.
- Informal Time Off - State Employees
State employees may be granted administrative leave (informal leave) for either a fixed or a prorated number of hours under circumstances such as occur during the December/January holiday season. The date(s) of informal leave are predesignated at the time the leave is granted (e.g., employees are granted 4 hours off on the afternoon of December 24 for Christmas or 4 hours off on December 31 for New Year’s).
The informal time off is not a holiday designated by contract, and must be treated differently than holiday pay for allocation purposes. Payment for the informal time off is considered to be wages, and is allocated to the week in which the employee takes the time off.
- Bereavement Pay
Some company plans and some collective bargaining agreements provide for bereavement pay to employees when there is a death in the family. The plan or agreement sets forth eligibility requirements for receiving bereavement pay.
Bereavement pay is remuneration for personal services and is therefore wages for unemployment insurance purposes. As with vacation pay and sick pay it is additional compensation for an individual’s services, the payment of which is delayed to a future date.
As with sick pay, if an individual receives bereavement pay during a week in which he or she was scheduled to work but was unable to work because of the death in the family, the bereavement pay is wages allocable to the days for which it was granted.
As with sick pay, if it is paid to an individual who is on an indefinite layoff, it would not constitute wages since there is a termination of the employment relationship.
B. Wages Due - No prospect of Collecting
If a claimant cannot reasonably expect to receive wages owed to him or her, these wages are not considered payable" within the meaning of Sections 1252 or 1279. Therefore, UI benefit would not be reduced or denied because of these wages.
This subject was addressed by the Appeals Board in Benefit Decision 6364. In this case, the claimant had been laid off because the employer ceased operations. Under the provisions of the collective bargaining agreement between the employer and the claimant’s union, the claimant was entitled to receive two weeks of pay in lieu of notice of termination. The claimant was not paid the amounts owed because the employer, who was forced into bankruptcy, was unable to meet all current obligations. The board held that the unpaid wages did not constitute wages payable" under Section 1252, and reasoned as follows:
"In this case, the employer was obligated to pay the claimant the wages set forth in the collective bargaining agreement; but, by reason of the bankruptcy proceedings, he was unable to meet its obligation and apparently this claimant could not expect any payment from the trustee in bankruptcy. In view of this fact and recognizing that the term ’payable’ has no single definite meaning but its meaning can only be determined in the light of the situation and circumstances of its use, we hold that the term, as used in Section 1252 of the code, implies a reasonable ability on the part of the employer to pay the wages and a reasonable expectation of payment on the part of the claimant . . . .
We conclude that, under the circumstances of this case, the right of the claimant to . . . wages in lieu of notice of termination do not constitute wages payable within the meaning of Section 1252 of the code, because there is no reasonable prospect that any such payment will ever actually be paid to him. Therefore, the claimant was unemployed . . . ."
C. Services Performed, No Wages Paid
An employment relationship exists if an individual is performing services as an employee, even though wages will not be paid for the services. Nevertheless, if the individual is only performing the services on a part-time basis, he/she would be considered "unemployed within the meaning of Section 1252 and would be eligible for full weekly benefits, assuming that all other eligibility requirements are met. If, however, the individual is performing uncompensated services as an employee on a full time basis, he/she would not be "unemployed" and, therefore, would not be eligible for benefits.
Court Imposed Fine:
On occasion, if an individual has been found guilty of some infraction of the law and the Court has imposed a fine on the individual, the Court will allow the individual to perform community service to pay off the fine. Generally, in such instances, the individual’s probation officer will assign the individual to perform work with a specific entity, e.g.. a convalescent hospital. The individual receives a monetary credit for hours worked and this is applied towards reduction of the fine.
In such instances there is a "contract" or agreement between the Court and the individual to perform community services in exchange for credit towards payment of the fine. Although the individual does not receive a cash payment for his or her services, the credit received towards reduction of the fine is considered to be remuneration for services performed and therefore wages.
Section 926 of the UI Code provides, in part, ". . . ’wages’ means . . . the reasonable cash value of all remuneration payable to an employee in any medium other than cash."
The claimant was convicted of a vehicular offense and was sentenced to 38 days in jail or the payment of a $2,500 fine. The claimant served the first eight days in jail and agreed to perform community service to pay off the balance of the fine. The court allowed $35 of credit toward the fine for each eight hours spent in community service. The claimant was assigned to work at a convalescent hospital.
The claimant is performing services and the remuneration she receives for her services (the credit towards payment of the fine) is wages for unemployment insurance purposes and is therefore deductible from the weekly benefit amount under Section 1279 of the Code. These wages are not subject to coverage, however, and cannot be used to establish a claim. In this instance the hourly remuneration for the claimant’s service is $4.37 ($35 credit for eight hours work). The hourly rate is used in calculating the claimant’s gross earnings for the week. If the claimant performs services on a full time basis (40 or more hours per week) or if the wages are excessive, the claimant would be ineligible for benefits under Section 1252. If the remuneration received by the claimant is not excessive, Section 1279 applies.
These wages can be used for purposes of clearing a Lag Test and for purging a disqualification. They are exempt wages, however, and cannot be used in the calculation of the claim award.