House Bill 1090 currently pending before the North Carolina General Assembly, would make a significant change in the state’s treatment of unemployment compensation to displaced workers receiving severance pay.  Under current law, employees who receive severance are not considered unemployed until the severance runs out, making them not eligible to collect benefits.  The proposed law would eliminate this delay, allowing employees who receive severance pay from their employers to immediately begin receiving unemployment insurance benefits as well.

The bill appears to be based on a legislative misperception that severance pay is rare or minimal in most layoff situations.  In actuality, the majority of employers faced with recent cutbacks have provided significant severance benefits to employees.  Given pressures on North Carolina’s unemployment insurance system, changing the law to expand benefits to employees who are still being paid by their employer seems counterintuitive.  Employers faced with additional expense from increased UI experience ratings may decide to reduce severance benefits to offset the expense of this additional eligibility.

H.B. 1090 has been referred to the Commerce Committee for hearings.  It may come up for votes in both chambers of the General Assembly later this year.