Employees Entitled To State Benefits

November 27, 2002 (PLANSPONSOR.com) - The Fifth Circuit Court of Appeals has ruled that severance agreements cannot prevent employees from seeking state unemployment compensation, according to a story in the Houston Chronicle.

The US Fifth Circuit Court of Appeals, overturning a lower court decision, ruled it illegal for an employer to include stipulations in a severance agreement prohibiting employees from seeking unemployment assistance.  

The case stems from a lawsuit filed by Mitchell Energy & Development against four former employees who had filed for, and been awarded, state unemployment assistance.   Mitchell claims this act was in violation of an agreement signed when they received company severance packages.  

The Court found that Mitchell Energy & Development was not allowed to deny former employees an opportunity to obtain state unemployment compensation, allowing the four former employees to retain the unemployment compensation received.

Former Enron employees, laid off prior to last December’s bankruptcy, seeking unemployment compensation may benefit from this ruling, according to the Chronicle report. Many laid-off Enron employees had signed a severance pay plan that stipulated:“Severance benefits payments cease upon reemployment or upon your application for state unemployment benefits,” keeping some from filing for state unemployment assistance.