Friday was the deadline for General Motors employees to decide whether to live on a rock or in a hard place.  In an attempt to shed its burdensome pension obligations and trim its hourly workforce, the auto giant offered its employees lump sum severance payments in exchange for their resignations.  Employees who declined the offer were able to stay with GM, where future employment security is unpredictable. The buyout package was offered out of business necessity and is actually quite generous in many ways (it certainly beats a mass layoff).  But GM’s workers nonetheless find themselves in an undesirable position.  Fortunately, there is at least one way to soften the hard place…

In many states, the law is unsettled as to whether employees who accept buyout packages are eligible for unemployment insurance benefits. I argue that, both as a matter of law and of policy, they should be. It is unclear whether Michigan courts would agree.

As with Social Security, employees and employers pay into an unemployment insurance fund through paycheck withholdings. Those monies are held in trust and become available to workers when they lose their jobs through no fault of their own. In Michigan, as in most states, the law provides that workers who voluntarily leave their jobs are not eligible for benefits. This makes sense, since the program is not designed to indemnify quits.

The question that will likely arise out of the GM buyout is whether employees who accept the severance package could (or should) be characterized as having quit, or, in the parlance of the statute, “voluntarily left their employment without good cause attributable to the employer.”

In 1993, the Michigan Court of Appeals heard a case involving a supermarket chain that offered its cashiers $16,000 to terminate their employment. If the employees stayed on the job, they were threatened with a reduction to part-time status. The State of Michigan, which administers the unemployment insurance program, rejected the claims of employees who took the offer, and the Court of Appeals upheld that decision, reasoning that “unemployment benefits are not designed to protect those who receive large cash settlements following voluntary separations, but to assist those who become unemployed through no fault of their own.” Under this 1993 case, a future court might likely reject the unemployment claims of GM workers who accept the buyout.

But in a case decided just a year earlier, in 1992, the Court of Appeals heard a similar case in which auto workers were offered buyout packages. There, the Court noted that it was “mindful of the current economic climate of this state and the resulting frequency of plant closings.” The Court reasoned that the choice between continued employment and the buyout was not a “choice between reasonable alternatives” and that the workers were actually “forced to choose between untenable options in the face of an indeterminate future.” There, the workers who accepted the buyout were able to collect unemployment.

The 1992 decision was correct and should govern any cases that arise out of the GM buyout. First, the employees in question have spent years contributing to their own insurance policy, and it would be unfair to deny them the returns on that investment now that the risk of unemployment has become realized. Second, as a policy matter, the provision of unemployment compensation will stabilize the Michigan economy by maintaining the purchasing power of these workers and giving them time to find productive employment or upgrade their skills. Finally, and most importantly, the law contemplates disqualification for truly voluntary separations from employment; GM’s workers surely did not choose to put themselves between a rock and a hard place.