The U.S. Department of Labor (“DOL”) issued supplemental CARES Act guidance  on May 8, 2020, that addresses the interplay between the Federal Pandemic Unemployment Compensation (FPUC) program and partial unemployment benefits at the state level.  The FPUC program is the portion of the CARES Act that enhances state unemployment insurance benefits by $600 each week a claimant is eligible for state benefits.  That program is in effect only between the week ending April 4, 2020 and the week ending July 31, 2020.

Under most state unemployment laws, individuals whose hours have been reduced to less than full-time (according to the state’s definition of full-time) can be eligible for “partial” unemployment benefits.  If, however, the value of their part-time earnings in any week exceeds the state’s maximum weekly benefit (or an amount based on a formula that takes into account the maximum weekly benefit), individuals normally will be disqualified from receiving state UI benefits for such weeks. Questions persist as to whether that state-level earnings disqualification also extends to FPUC benefits, or whether a reduction in hours in and of itself would create entitlement to the FPUC $600 payment. The May 8 guidance reiterates that individuals must be eligible to receive at least one dollar ($1) of state benefits for the claimed week in order to also collect the FPUC payment for that week.

On the other hand, if an individual’s state UI benefits are reduced because of a benefit offset – a reduction in benefits attributable to a previous UI overpayment – the FPUC supplement will still be available, even if the offset reduces the state UI payment to zero.  Conceptually, these benefit repayments are still “payments” under the state UI system, even though they are diverted from the claimant to the state for repayment purposes due to a prior overpayment.

The May 8 guidance explains that up to fifty percent (50%) of any FPUC payment can be used to offset intrastate state overpayments, or federal unemployment compensation overpayments, provided the state has in place the applicable intrastate and federal offset agreements.  A state can offset the underlying state benefit payment in the amount permitted under its own law, and then offset the FPUC benefit separately.

The potential for moral hazard associated with the FPUC program has created concern among some employers that furloughed employees might refuse to return to work if they can make more money being unemployed through July 31, 2020, than they earned through full time employment.  Each unemployment program established under the CARES Act makes clear that refusal to accept full-time work for this particular reason constitutes fraud, and is subject to prosecution under federal law.  The supplemental FPUC guidance instructs the states to pursue FPUC fraud cases “in the same manner as all other federal UC fraud cases.”

A 2005 Memorandum of Understanding between the Office of Inspector General for State Workforce Agencies and the DOL’s Office of Workforce Security establishes a $5,000 threshold for referring unemployment fraud cases to DOL’s Office of Inspector General (“OIG”). State agencies therefore bear responsibility for prosecuting FPUC fraud cases of less than $5,000 under their own laws and procedures.  This adds yet another burden to state unemployment agencies that are already experiencing incredibly high claim levels.