CASE IN POINT

Who Should Receive Unemployment Benefits?

Courts are tending to side with faculty members who seek unemployment payments when their contracts are terminated through no fault of their own

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By NICOLAS M. MANICONE

A case that the Indiana Supreme Court recently ruled on dealt with the question of whether a professor whose fixed-term contract expires becomes unemployed on a voluntary or involuntary basis.

Indiana State University appointed William LaFief as an assistant professor of marketing for the 2004-5 calendar year. After reappointing him for 2005-6, the university subsequently advised LaFief that his contract would not be renewed again. The university offered no reason for its decision. LaFief subsequently filed for unemployment benefits, and the university challenged his eligibility, arguing that LaFief had agreed to a fixed term of employment and therefore was not "involuntarily unemployed" when his contract expired.

Indiana's unemployment-compensation law provides benefits to those who have paid into the system, are actively seeking new employment, and are involuntarily unemployed through no fault of their own. The university conceded that LaFief met the first two criteria but disagreed that he met the third. In proceedings before Indiana's administrative bodies and later the Indiana Supreme Court, LaFief argued that he departed involuntarily because the university unilaterally chose not to renew his contract, despite his desire to remain on the faculty. The institution responded that LaFief's unemployment was voluntary because he had agreed to a contract that he knew expired in 2006 and might not be renewed.

Status: In a 3-2 decision issued in June, the Indiana Supreme Court ruled in favor of LaFief, holding that he is eligible for unemployment benefits. No further appeal is available, so the case is now established law in Indiana.

In its decision, the court noted that the purpose of Indiana's Unemployment Compensation Act is to provide benefits for persons "unemployed through no fault of their own." There is no requirement, the court noted, that one be "discharged" to receive benefits; even employees who resign from work for good reason are eligible for benefits. LaFief admittedly "had warning that his employment could terminate upon the contract's expiration," but that was not determinative. In the court's analysis, the salient point was that LaFief's unemployment was at the initiative of his employer: "The termination of [LaFief's] employment was no more voluntary than the termination of employment of an employee at will, who is presumably on notice that his employment could terminate at any time." Thus, because LaFief did not wish to become unemployed, and was not at fault for his unemployment, he was eligible for unemployment benefits.

In closing, the court noted that it was not addressing what could be the next battlefront of unemployment insurance for higher-education faculty: whether faculty members on summer breaks are entitled to unemployment benefits. The court observed that its holding "does not alter the general rule that employees who contractually agree to mandatory vacation periods ... are not eligible for unemployment benefits so long as they have reasonable assurance that they will continue to be employed after the mandatory vacation period ... ends."

Implications for higher education: The Indiana Supreme Court joined a short but growing list of courts that have similarly found that the expiration of a contract or the end of a fixed term of employment does not render a former employee "voluntarily unemployed" and therefore ineligible for unemployment benefits. Most recently, in 2007, the Supreme Court of Ohio held in Lorain County Auditor v. Ohio Unemployment Compensation Review Commission that "an employee who accepts employment and agrees to a termination date does not waive her right to unemployment benefits." Both the Ohio and Indiana courts applied their states' unemployment acts expansively, in keeping with the general principle of interpreting unemployment statutes to provide for broader coverage. The legal trend now seems to be unmistakably in the direction of granting benefits to faculty members and others whose employment contracts are nonrenewed through no fault of their own.

Whether faculty members can receive benefits during a summer hiatus, when re-employment in the fall is expected but not guaranteed, is a far more controversial area that will be interesting to watch. Both the Indiana and Ohio courts noted that their decisions did not apply to faculty members on summer hiatus. But a California Court of Appeals in 1989 found in Cervisi v. California Unemployment Insurance Appeals Board that some adjunct faculty members on summer hiatus were eligible for such benefits, holding that an assignment "contingent on enrollment, funding, or program changes is not a 'reasonable assurance' of employment." Given that activist groups are organizing for wider recognition of the rights of faculty to such benefits — which higher-education institutions generally oppose — coming legal developments in this area, too, bear close tracking.

Nicolas M. Manicone is associate counsel at the American Association of University Professors. Prior to joining the AAUP's staff, he practiced labor and employment law in Washington.