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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
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Stock Options and unemployment benefits from CA EDD

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I am receiving unemployment benefits from CA EDD. I sold some qualified ISO stock options in Feb and did not realize this was considered income by EDD and did not report it. They want two weeks of my benefits plus 30% back now. Do I have a chance if I appeal or should I just pay up?

Hello and thank you for entrusting me to answer your question. I am very sorry to hear about this trouble with the EDD.

Did you earn these stock options performing work after you lost your job, or were these options acquired while working for your previous employer? Has the EDD cited a particular statutory provision which they claim supports these stock options being treated as income "earned" while you were collecting benefits?

I very much look forward to helping you on this matter.
Customer: replied 3 years ago.

The stock options were earned during employment with my previous employer and were awarded in 2003.


 


The notice cites 1253A (claims filed must follow regulations) ; 1252 not eligible to receive benefits due to not providing enough information; and 1257A, not eligible to receive benefits for saying I was out of work when I received pay from an employer.


 


Thanks for your help.

Dan,

Thank you very much for your reply and clarification. I have to say I am rather surprised that the EDD would disqualify you from benefits and seek repayment on the basis that you describe.

Only wages actually "earned" while you are collecting benefits must be reported and, thus, can result in disqualification of your claim. Specifically, Unemployment Insurance Code 1252 states in relevant part: "An individual is 'unemployed' in any week in which he or she meets any of the following conditions: (1) Any week during which he or she performs no services and with respect to which no wages are payable to him or her."

If you received money from selling stock options that were earned and acquired while you were employed, the money from their eventual sale does not constitute a wage earned while you are collecting unemployment benefits--you are simply cashing out a wage that you earned months prior.

Courts have consistently applied this same princple to severance benefits. Specifically, courts have reasoned that severance is a benefit "earned" while you are employed, and thus, even though it may be received while unemployed, it will not be counted against your unemployment. (See Powell and Byrd vs. California Unemployment Insurance Appeals Board (1965) 63 Cal. 2d 103, 1965.)

Since the money you received when you cashed out your options did not constitute a "wage," you cannot be disqualified on the grounds that you concealed information from the EDD or made a willful false statement, since you never failed to report a wage "earned" while unemployed.

So, to answer your question directly, I think that an individual in your circumstance would have a good chance of successfully appealing this determination. You will need to show that the stock options were acquired during your employment. You will also want to reference section 1252, which clearly defines an individual as being unemployed during any week in which they perform no services for wages. Since the "wage" the EDD is claiming resulted in your disqualification is really something you earned when you received the option, your basis for contesting disqualification would seem strong.

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes to you and thank you so much for coming to Just Answer.
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