<i>Don't</i> Tell It To The Judge It's good to fire bad employees. It's not so good to yap about how bad they were at unemployment hearings.

Like a bad dream, that no-good employee just keeps reappearing.Fed up with all the absences and sloppy work, you fired the bum andthought you'd seen the last of him. But then he had theaudacity to file for unemployment compensation. And as soon as youget the paperwork for that off your desk and trudge downtown for ahearing, you find out he's sued your company for wrongfultermination. Then, in the midst of that quagmire, you learn theworst: that the comments you made at the unemployment compensationhearing when you wanted to get him out of your life are nowevidence in the lawsuit.

It can happen. Routine hearings over unemployment compensationsometimes lay the groundwork for an employment lawsuit by the sameemployee. In some states, issues decided by the unemploymentcompensation commission may not be opened again in a court of law.In others, where state law specifically bars that doctrine, offhandcomments made in the informal hearing may show up later as damagingevidence in the lawsuit. Be careful how you handle unemploymentclaims and consider how your response could be used against you incourt.

Steven C. Bahls, dean of Capital University Law School inColumbus, Ohio, teaches entrepreneurship law. Freelance writer JaneEaster Bahls specializes in business and legal topics.

Know The System

The good news is, with unemployment still ebbing, unemploymentinsurance (UI) rates per employee have dropped for the UnitedStates as a whole, from $210 in 1997 to $207 in 1998 to $182 in1999. The bad news is, the trend may not apply in your state. Ratesincreased last year in 14 states and stayed the same in 12.Wherever you live, though, when one of your former employees drawsunemployment benefits, chances are your company's UI rates willgo up. Small businesses are especially hard-hit by this, becausethe formula used to figure rates involves dividing the amount ofmoney being collected by the number of employees on the taxablepayroll. With a small payroll, it doesn't take long to reachthe state's maximum rate. That means it's normally worthyour while to contest claims if you don't believe the formeremployee in question is entitled to benefits.

So who is entitled to benefits? The system uses two teststo determine who's eligible. First, the person must have beenemployed (not necessarily at the same job) during the previous fourquarters and must be actively looking for work. The system isdesigned to help those who are out of work through no fault oftheir own stay afloat until they find another job. It wasn'tmeant to serve as a welfare system for people who aren't evenlooking for work.

Second, the examiners consider why the person was separated fromthe most recent employer. In most states, while people who werelaid off are probably eligible for benefits, people who were firedfor misconduct are ineligible for a given number of weeks. Thosewho quit because of sexual harassment or intolerable changes in theworkplace are eligible in most cases. Those who quit to look forother work are probably not eligible, but they may be if they quitto take a job that doesn't pan out. In these cases, though,many states don't charge the most recent employer.

Here's how it works: When a former employee files forbenefits, the state unemployment compensation office will send youa request for information about the reason the person isn'tworking for you now and about any separation or vacation pay thatmight be deducted from benefits. You have a certain number of daysto respond, and should do so as soon as possible. Then, if youdisagree with the initial decision about benefits, you have acertain period of time to ask that it be reconsidered and senddocuments showing why. For instance, you might send a record ofprogressive discipline leading to the discharge. After reviewingthe documents, the benefits officer makes a decision. If you'restill not satisfied, you can appeal through various review boardsand ultimately to the courts.

While all this can be pretty routine, watch your step if youthink the employee is likely to sue you. Angry over getting fired,ex-employees often check with the EEOC or a plaintiff's lawyerto see if they have a claim such as discrimination, sexualharassment or wrongful termination. These days, the lawyer islikely to advise filing for unemployment compensation-in part todiscover the employer's side of the story.

What you say along the way can get you in legal trouble for tworeasons. One is the legal doctrine called "collateralestoppel," in which issues by one court aren't open forfurther argument in another court. Suppose you appeal anunemployment benefits decision to a court, which rules that theemployee was not fired for misconduct and should receive benefits.Later, the employee sues the company, claiming he was fired inretaliation for filing a grievance. You argue that it was actuallymisconduct, but the court refuses to hear your argument because theearlier court already ruled that out. In some states, evendecisions made by the unemployment compensation commission arebinding if they weren't appealed. However, 31 states havepassed laws stating that collateral estoppel doesn't apply tothe rulings of unemployment compensation officers and boards ofappeal.

A greater danger is that the informal nature of unemploymentcompensation hearings may catch you off guard. It's easy to goto a hearing without being prepared and make offhand comments aboutyour relationship with the employee, not realizing that you'recreating a record under oath that may be used against you later incourt.

Watch Your Step

Here are some steps to take to avoid problems:

• Choose one person to receive and deal with unemploymentcompensation paperwork, and ask the state UI office to sendeverything to that person. That way, you're less likely to missdeadlines.
• Provide adequate documentation. State what rule the employeeviolated and whether the employee was aware of it, or when and howthe employee was warned about performance.
• For each claim, decide whether it's advisable to contestit-especially if it's a close call. In some cases, fighting theUI claim just makes the employee mad enough to sue over somethingelse.
• If you decide to contest a claim, prepare your case in time topresent it at the first hearing, which may be your only opportunityto submit documents and call witnesses.
• Get your attorney involved right away if you're going tocontest a claim, so you can plan strategy and be prepared.