If you receive a settlement after leaving your employment, will that payment affect your ability to receive unemployment benefits in California?
The answer is maybe. According to the California Employment Development Department (EDD), payments received from a former employer for damages or other payments are not considered to be “wages” and, as such, do not have a negative impact on the ability to receive unemployment benefits. The Total and Partial Unemployment (TPU) Division of the Benefit Determination Guide (BDG) of the EDD (http://www.edd.ca.gov/uibdg/) defines wages as compensation for personal services. Section TPU 460.3 explains that damage payments and other types of awards that are not paid in exchange for personal services do not fall with the definition of wages for unemployment purposes. “Only if the damage payments received are for personal services are they wages within the meaning of Section 1252 of the Code.” Wages are considered earned during the time which the claimant performed the services.
This means that the settlement payment is not considered wages when it is paid if you did not perform services after leaving their employ.
Also, liquidated damages are not “wages” because they are not paid as remuneration for personal services. “Therefore, they would not render the claimants ineligible for unemployment insurance benefits. Those payments, in effect, are merely indemnification for losses.” For a detailed discussion, see: http://www.edd.ca.gov/uibdg/Total_and_Partial_Unemployment_TPU_4603.htm.
However, the EDD could take the position that a severance payment given to a former employee has a wage component and, for that reason, may partially or totally considered to be wages.