Question: Sir: I am going through a hostile takeover of my business in which I own 47%. My partner owns 48%, and one of our employees owns the other 5%. Well, they have gotten together, and teamed up against me, and now they have stopped my pay and cancelled my health insurance.

Can I get unemployment benefits? Thanks! 

Russell
Pittsburgh, Pennsylvania 

Answer: Dear Russell: That is a really great question, because so many people ask it, and because so many people erroneously believe the answer is “No.” As you will see, the answer is neither “yes” nor “no,” but a bit complicated and generally depends on Seven Factors. Here’s the analysis:   

1. Eligibility rules for unemployment compensation vary from state to state in the U.S. Although the U.S. federal government assists in the funding of unemployment compensations programs, financial assistance for those who have lost their jobs is essentially a state function. Because of this, each state in the U.S. has the right to set its own rules for eligibility. 

Each state’s procedures, rules and applications to file for unemployment benefits are easily found on the internet. By entering the name of your state and the words “unemployment benefits” into any search engine, chances are you will come upon your state’s website devoted to unemployment benefits. In my experience, they are all quite user-friendly. 

For great info and insight, consider viewing our 12-minute Sklover-On-Demand Video entitled “Unemployment Insurance Benefits – The 12 Basics You Need to Know.” To do so, just [click here.]

2. Whether or not people are entitled to unemployment benefits generally depends on “Five Basic Factors.” These five basic factors are whether the applicant was: (1) an employee, (2) who involuntarily lost his or her job, (3) through no fault of his or her own (4) is ready, willing and able to work, and (5) is actively seeking work. I believe all states, to varying degrees, use these five basic factors in assessing eligibility for unemployment benefits.

Very few states have a blanket rule that says, one way or the other, “Someone who owned a business cannot collect unemployment benefits.” If that was the case, then for example, an employee of IBM who owned one share of IBM stock would be precluded from collecting unemployment benefits on the mere basis of that ownership, which would make no sense whatsoever. While ownership – partial or complete – of a business might count against that employee seeking unemployment benefits, that alone will rarely be the sole test for eligibility.

Remember, though, that rules vary from state to state, and other factors may come into play in your state. It is possible that ownership alone – partial or complete – might be the “determining factor” in your state.       

3. In many states, there is a general “presumption” that owners of businesses cannot collect unemployment benefits. I have seen many state laws that provide, in general, that an owner of a business – especially if he or she is a sole owner, with no partners or co-shareholders – is ineligible for unemployment benefits.

This presumption seems to arise from the common sense view that “A person who has laid himself or herself off has not really “involuntarily” lost his or her job. But, here, too, there are exceptions.

The presumption against “owners” being “unemployment-eligible” also seem to reflect the common practice of many business owners: they usually do not pay “payroll taxes” on themselves, that is, their businesses do not pay unemployment taxes for themselves, and so they cannot later claim those benefits.   

Though I am not licensed to practice law in Pennsylvania, my review of Pennsylvania law suggests that Pennsylvania does not disqualify owners of businesses from collecting unemployment benefits, but does subject them to the usual Five Basic Factors noted above.

4. Even in states with the general presumption against “owner-eligibility,” benefits are often granted to unemployed business owners if they satisfy Two Additional Factors: (6) the company paid in unemployment taxes for the owner over the years, as if he or she was an employee, and (7) he or she lost his or her job truly involuntarily, provided, of course, the Five Basic Factors noted above are met.  If (6) the business did contribute every week to the state unemployment fund for the owner-employee, and (7) the owner truly did lose his or her job against his or her will, and, of course, the owner meets the other criteria noted above, the owner may be found eligible for unemployment benefits.

In one state whose law I am familiar with, if a company “voluntarily” declares bankruptcy, its owners cannot collect unemployment insurance, because “voluntarily” filing for bankruptcy seems to be “voluntarily” losing your job.  However, in that same state, if a company is “involuntarily” brought into bankruptcy court by its creditors – against the will and preference of the owners – then unemployment benefits are granted to owners of these companies, because the owners of that company did, in fact, lose their jobs “involuntarily.”

5. Before you apply for unemployment benefits, consider asking your former partners not to contest your application. Whether or not you are eligible for unemployment benefits, it is always easier to be successful in this regard if your former “employer” does not contest your application for the benefits. For this reason you might want to consider urging your former partners not to act in this potentially adversarial way.

You might be helped by using our “Model Letter Requesting Employer’s Assurance Not to Contest Your Unemployment Application” with Ten Great Reasons. To get your copy, just [click here.] Delivered by Email – Instantly!  

6. When you apply for unemployment benefits, make it VERY clear that you satisfy all of the eight (8) criteria noted above. If you meet most or all of the above eight criteria, you should apply for unemployment benefits because there is no downside to your doing so. When you do fill out and submit your unemployment application, and especially if you are required to either answer additional questions or attend a hearing, do everything you can to emphasize that you meet most or all of these eight (8) criteria.

7. One thing is for sure: You will never know unless and until you try. As it is in so many aspects of life, you will never be sure if you are eligible for unemployment benefits unless and until you try. I encourage you to apply and when you do so take these points – and especially the Eight Factors noted above, into account.

Applying for Unemployment Benefits can be confusing! Eliminate the confusion and make sure you don’t forget anything – use our 132-Point Guide & Checklist for Unemployment Benefits. To get your copy, just [click here.] Delivered by Email – Instantly! 

Russell, I hope this proves helpful, and that  you will find yourself in better times quite soon. Thanks for writing in, and I wish you the best.   

My Best,
Al Sklover

P.S.: If you would like to speak with me directly about this or other subjects, I am available for 30-minute, 60-minute, or 120-minute telephone consultations, just [click here.] 

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