An employee who accepts an early retirement package may collect unemployment benefits under the “voluntary layoff option” proviso in the state’s Unemployment Compensation Law, the state Supreme Court has ruled, overruling a string of Pennsylvania cases along the way.

Justice Max Baer’s 24-page opinion in Diehl v. Unemployment Compensation Board of Review turned on the definition of “layoff,” which he said is not free of ambiguity. Baer reasoned that an employee’s acceptance of an early retirement plan, which was offered to avoid layoffs related to downsizing, was equivalent to accepting a layoff.

Writing for a four-justice majority, Baer said courts should determine benefits eligibility broadly in favor of claimants and rejected decisions that denied unemployment benefits to workers who accepted early retirement packages.

He said: “Had employee (Harold G. Diehl Jr.) not accepted the early retirement offer, another less-senior employee would have been laid off and would have been eligible for unemployment compensation. Given that we must interpret eligibility sections broadly in favor of the employee, we find no language that prevents the interpretation of the term layoff to include this employer-initiated, early retirement packages offered pursuant to a workforce reduction.”

Baer also noted that several other states have specifically included early retirement packages in similar VLO provisions, though Pennsylvania’s statute does not speak to the issue.

Diehl, who accepted the retirement package after his employer initiated workforce reduction in 2008, argued that a line of cases stemming from Renda v. UCBR incorrectly restricted eligibility and expanded disqualifications by restricting the VLO proviso in ways the statute’s plain language did not allow. In Renda, a collective bargaining agreement required the employer to offer “income security plans,” or financial incentives, prior to any layoff. The claimants in the case argued this was a “necessitous and compelling” reason to voluntarily terminate their employment. The Commonwealth Court in that case disagreed.

The Unemployment Compensation Board of Review argued the Commonwealth Court’s 1983 decision in W.R. Grace v. UCBR, was controlling. In W.R. Grace, the court found the VLO proviso applied to a worker who took a layoff offer with recall rights over different, less desirable hours. But cases that followed stood for the denial of benefits to workers who retired early voluntarily.

After W.R. Grace came Flannery v. UCBR, a 1989 Commonwealth Court opinion, and George v. UCBR, a 2001 Commonwealth Court opinion. In both matters, the Commonwealth Court refused to apply the proviso to employees accepting early retirement packages.

Diehl, on the other hand, asked the justices to overturn Renda and its progeny or, alternatively, recognize his case was distinguishable from Renda because Diehl only accepted medical benefits as part of his retirement package, as opposed to financial incentives.

The majority overruled Renda, but did not address whether health benefits should be characterized as financial incentives under the VLO.

Instead, it said the VLO applied to Diehl’s case.

According to the majority opinion, the board argued that the Commonwealth Court has adopted the narrow definition of the word “layoff” in three decades of rulings rejecting arguments that the proviso applies to permanent separation from employment, especially when it’s accompanied by some type of severance or “retirement” package.

That didn’t matter in Baer’s view.

“The UCBR, however, fails to acknowledge that the prior Commonwealth Court decisions upon which it relies have failed to provide any statutory analysis of the VLO proviso or explain why the prior decision in W.R. Grace, which did not involve an early retirement package, controls the question at bar,” he said.

In a footnote, Baer addressed the fact that many employees take early retirement offers and then go on to work elsewhere.

He noted the UCBR did not contest that point and instructed the parties on remand to determine whether Diehl was otherwise qualified for unemployment compensation.

That was the focus of a short concurring opinion from Justice Thomas G. Saylor, who joined the majority but concurred separately to say that an employee who accepts a package like Diehl’s must remain in the labor pool in order to claim benefits.

The majority’s opinion came over a dissent by Justice J. Michael Eakin, joined by Justice Debra Todd, who said the majority incorrectly lumped a retirement into the definition of layoff.

“‘Liberal interpretation’ of eligibility is not alchemy, and cannot turn a voluntary retirement into an involuntary layoff,” Eakin said.

The statute is found in Section 402(b) of Pennsylvania’s Unemployment Compensation Law, at 43 P.S. Section 802(b). The proviso says “no otherwise eligible claimant shall be denied benefits for any week in which his unemployment is due to exercising the option of accepting a layoff, from an available position pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy.”

According to Baer, the Pennsylvania General Assembly added the proviso in 1980 to the general rule in Section 402(b) of the law, which blocks benefits for any worker who voluntarily leaves with a “necessitous and compelling” reason.

Baer acknowledged this general rule alone would block benefits in the instant case, if it weren’t for the addition of the VLO.

Therefore, because Diehl did not accept the retirement package for fear that he would otherwise lose his job (a necessitous and compelling reason), he must fall under the VLO proviso, Baer said.

Regina C. Hertzig of Cleary & Josem in Philadelphia represented Diehl. Hertzig said the United Auto Workers union footed the legal bills of her client, a former shipping clerk, after he was initially denied benefits.

“This represents a tremendous victory for all workers in Pennsylvania,” Hertzig said. “It also points up the importance of labor unions and the assistance that they provide to all workers, not just immunized workers.”

As for the majority’s analysis, Hertzig said the court correctly interpreted the VLO proviso, which she added “clearly said it didn’t apply to negotiated agreements.”

The UCBR press office was not available for comment.

Ben Present can be contacted at 215-557-2315 or bpresent@alm.com. Follow him on Twitter @BPresentTLI.

 (Copies of the 28-page opinion in Diehl v. Unemployment Compensation Board of Review, PICS No. 13-0035, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •