When an employee is laid off or fired, they can apply for unemployment insurance (UI) to help them get by while looking for another job. Whether or not that person receives benefits is up to the state’s labor office—and, in part, their former employer.
Read to learn how unemployment insurance claims work, who can claim, and the employer’s role in determining whether former employees qualify for unemployment insurance.
How does unemployment insurance work?
The U.S. unemployment insurance system has provided a safety net for recently out-of-work people since the 1930s. With oversight from the U.S. Department of Labor, the system is managed (and funded) at both national and state levels.
Businesses primarily fund unemployment insurance programs by paying Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes. No matter what state you are in, your business will pay a set amount in FUTA taxes (though these taxes are typically offset). State-level taxes can vary depending on how much UI previous employees collected, where you are based, how many employees you have, and other factors.
The majority of states offer up to 26 weeks of unemployment benefits, with the benefit amount calculated based on the claimant’s average earnings during a recent base period, typically the first four of the last five completed calendar quarters before the claim is filed. States cut weekly checks or make direct deposits to eligible workers using the unemployment insurance tax money they collect from employers.
Who can claim unemployment?
Workers who are laid off, are furloughed, quit with good cause, or have lost seasonal work can claim unemployment benefits in the form of weekly cash payments—if they meet certain conditions. In some cases, employees whose hours have been cut may also be eligible for UI.
To be eligible for unemployment benefits, a person needs to meet the state's requirements for wages earned or time worked during an established base period. Unemployed individuals must also prove they are actively looking for work in order to keep receiving payments.
Generally speaking, workers can’t collect unemployment if they’ve been fired with proper cause, such as misconduct or violation of company policy. Retirement is also not a valid reason to collect unemployment. Rules surrounding eligibility vary widely between states. Check with your state’s labor office for complete information.
[Read more: Can Fired Employees Collect Unemployment?]
What is an unemployment claim?
An unemployment claim is essentially an official request for cash benefits by a worker after becoming unemployed. Individuals will submit unemployment claims to the labor office in the state where they live. They must provide information about the claim, including their contact information, Social Security number, and details about the former employment.
Can an employer contest an unemployment claim?
Yes, an employer can contest an unemployment claim. If a former employee files for unemployment, you’ll be notified via post. The notice will outline details such as why the employee left (i.e., if they were laid off, quit, or were fired), whether they refused employment, and if they are still receiving severance pay or other compensation.
At this point, you have a responsibility to either accept or contest the claim. If the worker’s claim is valid, you’ll want to accept it. On the flip side, if the notice contains inaccurate information or the employee was fired with cause, you’ll likely want to contest the claim.
Your company should contest a claim only if it has grounds to do so—meaning that the employee engaged in serious misconduct or quit without a compelling reason.Lisa Guerin, J.D., Nolo
Notably, employees fired for minor infractions (such as tardiness or not performing up to expected standards) have a right to receive benefits in most states. Therefore, you may not have grounds to contest this type of claim.
Also important: Contesting a claim does not automatically mean the former employee’s unemployment benefits will be denied. When contesting a claim, you’ll need to provide evidence and documentation to back up your case. For example, to contest a claim because the employee was fired with cause, you’ll need to provide documents to show proof of misconduct, such as written warnings.
Once a claim has been officially evaluated, both the company and the claimant will receive a “Notice of Determination.” The notice announces whether the state accepts or denies the claim. Keep in mind that some states allow workers to appeal a denied claim.
[Read more: Everything You Need to Know When an Employee Files for Unemployment]
Should employers contest unemployment benefit claims from former employees?
Just because you can contest a claim doesn’t mean you necessarily should.
Often, the main reason an employer may want to contest a claim is to avoid a hike in unemployment insurance tax rates. The amount of taxes owed is based in part on the number of claims made against the company by former employees. Thus, employers are motivated to scrutinize every new claim.
On the other hand, contesting unemployment benefits claims is not without cost. The process requires time and energy from the HR team or business owner, although a business can hire a Third Party Administrator (TPA) to handle claims on its behalf. In addition, the process may become more complex if a former employee files a wrongful termination suit against your company or fights for the claim through a drawn-out appeals process.
Lastly, excessive or ongoing denial of claims may send a negative message to employees. Examine each case carefully to determine whether denying an unemployment claim is worth your company’s time.
What are some valid reasons to contest or deny unemployment benefits?
There are three main scenarios when it might make sense to contest an unemployment claim. Denial may be justified when:
- The employee has committed misconduct, including theft, negligence leading to damage (such as setting a fire that causes material damage), falsifying business records, violating your company’s drug and alcohol policy, or harassment or violence in the workplace.
- The employee quit voluntarily. If the employee quit without giving notice and without employer wrongdoing, or failed to return after leave (e.g., job abandonment), you will likely have a case for denying unemployment benefits.
- The employee is not available for work or refuses a suitable offer. Unemployment beneficiaries must be able, ready, and willing to accept a suitable job.
The U.S. Department of Labor’s Unemployment Insurance guidance lists the basic categories of disqualification that employers commonly contest. Consider consulting a legal expert about your specific situation.
How to successfully contest an unemployment claim
If you decide to contest an unemployment claim, make sure you have a strong case for ineligibility with plenty of documentation. Always check your state's labor department website for exact rules.
“Your company should contest a claim only if it has grounds to do so—meaning that the employee engaged in serious misconduct or quit without a compelling reason. And even then, your company should also have a good, practical reason to contest,” wrote Nolo.
The process to contest a claim, in general, starts when you receive a notice that an unemployment claim has been filed by a former employee. Verify the details of the claim and notify the unemployment agency as quickly as possible. Many state agencies have a tight time frame during which you can contest the claim.
Once you provide the evidence for your case, the agency will schedule an unemployment hearing. You (or your attorney) will have to make your case to a judge. Thereafter, there will be a written decision and an appeals process.
For many small business owners, this process is more expensive and time-consuming than simply paying out the claim. Make sure you do a cost-benefit analysis before pursuing a denial of unemployment claims.
Rebecca Rosenberg contributed to this article.
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