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In Diehl v. Unemployment Compensation Board of Review (ESAB Group, Inc.), 57 A.3d 1209 (Pa. 2012), the Pennsylvania Supreme Court overruled decades of decisions from the Unemployment Compensation Board of Review and the Commonwealth Court and granted unemployment compensation benefits to employees who had voluntarily accepted an early retirement incentive package even though their employment was not at risk.

In Diehl, the employer identified twenty (20) employees who would be laid-off in accordance with the reduction in force section of the applicable collective bargaining agreement. The employer also offered an early retirement incentive package to employees over sixty years old so as to offset the number of employees who would be involuntarily laid off. Diehl was not on the list of employees to be laid-off due to his seniority, but he still accepted the early incentive package, assuming that he would also be entitled to unemployment compensation benefits.

The Commonwealth Court denied Diehl's claim for benefits, ruling that he had to demonstrate that his departure was due to a "necessitous and compelling" reason, and that he had failed to do so since he could not show that his job was at risk. The court also held that Diehl could not show that his termination fell within what is known as the Voluntary Layoff Proviso ("VLO"), which authorized unemployment compensation benefits to those "accepting a layoff, from an available position, pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy," because the VLO applied only to temporary separations.

Nonetheless, the Supreme Court reversed the Commonwealth Court's decision. The Supreme Court held that, under the VLO, an employee who left pursuant to an employer-initiated, early retirement package offered pursuant to a reduction in force would not be disqualified from receiving unemployment compensation benefits, regardless of whether the employee’s job was at risk. The court also ruled that, because the statute had to be construed liberally in favor of employees, the VLO could not be confined to temporary layoffs.

Based upon Diehl, employees who voluntarily accept early retirement or other exit incentive packages as part of a reduction in force will be eligible for unemployment compensation benefits even if, based on their seniority or other facts, their particular job was never at risk. Nonetheless, the Diehl decision did not change the Pennsylvania rule that severance benefits in excess of $18,472 (40% of the average annual wage which, for 2013, is set at $46,181), including those resulting from a voluntary exit incentive package, will be offset against amount of allowable unemployment compensation benefits.