Employers faced with the need to reduce their workforces often look to voluntary departure incentives to avoid having to lay off employees.  In many cases, the retirement package option is coupled with the fact that employees subsequently chosen for layoff will not receive as lucrative a severance payment.  In these cases, is the early retirement process truly voluntary?

The North Carolina Supreme Court addressed this issue last week in a case dealing with eligibility for unemployment benefits.  In Carolina Power & Light Co. v. ESC, a CP&L employee was part of a group offered a voluntary retirement incentive package in 2005.  His position had already been eliminated in a downsizing, and at the time the incentive was offered, the plaintiff was working in a temporary position.  When he asked whether he would have a job if he refused the package, the plaintiff claimed that CP&L never answered the question.

The plaintiff accepted the retirement incentive, and then filed for unemployment benefits.  He contended that under the unemployment insurance statute, he had left work for good cause attributable to the employer, and was therefore eligible to receive benefits.  CP&L disagreed, taking the position that the retirement was voluntary, and that this disqualified the employee from unemployment benefits.

The North Carolina Supreme Court sided with CP&L, denying the plaintiff unemployment benefits.  The court found no evidence that the plaintiff would have been laid off had he not accepted the incentive retirement package.  The use of early retirement incentives as part of a downsizing process does not mean that individual employees offered the package would lose their jobs.  Good cause attributable to the employer typically means the creation of some intolerable working condition, and not the possibility of layoff.

Based on this decision, North Carolina employers can construct early retirement incentive programs with the assumption that unemployment benefits will not be awarded to employees who accept the offer.