Can I File an Unemployment Claim While on Unpaid Leave?

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Unemployment insurance benefits assist employees who are temporarily out of work through no fault of their own. The benefits provide limited financial support until the employee is able to find another job. Each state has its own unemployment insurance laws and administers its own programs. That means that questions about eligibility, like whether a person on unpaid leave qualifies for UI benefits, must be addressed on a state-by-state basis.

Many states do not permit individuals on unpaid leave to receive unemployment benefits, but other do allow it in some circumstances. Workers can file a claim, but they may not be eligible for compensation.

TL;DR (Too Long; Didn't Read)

A worker on unpaid leave is free to file a claim for unemployment insurance benefits. However, whether they are eligible depends on the rules of their state and the circumstances of the unpaid leave.

Unemployment Compensation

Every state has an unemployment insurance program, with the rules written by state lawmakers, and the UI program administered by a state agency. The intent of these programs is to offer financial assistance to employees who are temporarily out of work. Generally, states require that, to be eligible, workers must have worked and earned a stated minimum amount in the one-year-plus before the claim was filed. The specifics of the conditions for eligibility vary from state to state.

Congress generally leaves administration of the UI programs to the states but, under some circumstances, will step in to modify and supplement state programs. In 2020, after COVID-19 was declared a pandemic, Congress passed legislation that expanded eligibility for benefits, lengthened the duration of benefits and added supplemental pandemic benefits.

Out of Work or Employed?

To receive unemployment compensation, workers must be unemployed, that is to say, without a job through no fault of their own. Those fired for misconduct will not qualify. Typically, those who are fired for poor performance or those laid off due to lack of work can qualify for benefits. Workers who quit generally won't be eligible for UI benefits, although they may if they had good cause for quitting. The definition of good cause differs from state to state, with some accepting only work-related cause.

For those on leave, a question can be raised as to whether they are out of work at all. Many enterprises use the term paid leave to refer to time away from work while continuing to receive a salary. On the other hand, unpaid leave refers to a leave of absence without pay. Workers may take unpaid leave to care for family situations, personal emergencies or medical conditions.

During leave, employees do not receive wages, but they may be eligible to continue receiving employer-provided health benefits. Most companies allow employees to return to work after their leave is up, and some agree to hold their job for them. All of these situations factor into whether someone on unpaid leave can qualify for UI benefits.

States Have Different Approaches

In Massachusetts, UI claimants who are on leave of absence granted at their request are considered to be "not in unemployment.” That means that they are not eligible for UI benefits during the period of their leave.

Some state laws distinguish between formal leaves of absence and informal leaves of absence. This is the rule in California, where a formal leave of absence does not sever the employer-employee relationship, but an informal leave does. That means that someone on an informal leave is eligible for UI benefits, while a worker on a formal leave of absence is not.

To be formal, the claimant and employer must have formalized the leave by agreeing that the claimant is expected to return to work at the end of the leave, and the employer is expected to return the claimant to work. The employment relationship is temporarily suspended, but not terminated. If the employer says that they will take the worker back if jobs are available, it is an informal leave, not a formal one, and the employee is considered to be out of work.

Family and Medical Leave Act

Workers who are seriously ill or caring for a family member who is seriously ill are entitled to take an unpaid leave of absence under the federal Family and Medical Leave Act (FMLA). Though they perform no work and earn no wages, they are still employees of their companies and often continue to qualify for the company's health plan.

Can they qualify for unemployment benefits? Some states reason that because employees that take unpaid leave under FMLA are not actually without employment, they are not eligible for unemployment benefits. Only employees are eligible for FMLA leave, which means that anyone taking leave is still employed by the company.

However, other states focus on the fact that an employee on FMLA leave does no work and earns no wages. If the statutory definition of unemployment is doing no work and earning little or no wage, those on FMLA leave may be eligible. In these states, a severance of the working relationship is not required. A worker who is not performing services for wages meets the definition of unemployed, and will not be disqualified from receiving benefits solely because they were on FMLA leave.

Pandemic Unemployment Assistance

Generally, states are in charge of unemployment insurance laws within their borders, but in some circumstances the federal government supplements the state's program. It did this in 2020 after the COVID-19 pandemic resulted in a national lockdown. Many businesses were required to close, causing nonessential workers to become unemployed.

To assist those workers, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act intended to provide extra assistance to workers who lost their jobs or income due to the coronavirus pandemic. This new law expanded eligibility for UI benefits to independent contractors and also provided expanded supplemental unemployment benefits. Among other provisions, it expanded eligibility to those who are furloughed, that is, on temporary layoff. Though they retain their status as employees, under the CARES Act, they are eligible for unemployment insurance benefits.

Likewise, a worker is considered unemployed and can collect benefits if they are on leave of absence because they are sick with, or were exposed to, COVID-19; because they are in isolation or self-quarantine due to elevated risk or exposure to COVID-19; because they are caring for someone diagnosed with COVID-19; or because the worker is caring for children whose schools or child care providers were closed as a result of COVID-19.