Employers can contest unemployment claims, but the state’s unemployment agency makes the decision to approve or deny the claim. Employees can appeal denials, and employers may need to appear at appeal hearings. Employers can also appeal an unemployment decision within a specified timeframe. In order to avoid risks, employers must have proper documentation and proceed with caution and honesty when contesting an unemployment claim.
How Does Unemployment Insurance Work?
Unemployment insurance (UI) is a joint federal-state program that provides unemployed workers with a portion of their earnings for a short period while they are job hunting. Employees should apply for UI as soon as possible after losing their jobs to avoid delays. In some states, employees receiving severance may need to wait until it ends to apply. States make weekly cash payments to approved recipients for 12 to 26 weeks. UI payments are considered taxable income at the federal level and in most states.
Businesses pay Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) taxes to fund unemployment programs. FUTA taxes are a set amount regardless of your location. SUTA taxes vary based on several factors, including location, company size, experience as an employer, industry, and how many former employees have collected UI. Employees do not pay unemployment insurance taxes, except in the following three states where a SUTA tax is withheld from paychecks: Alaska, New Jersey, and Pennsylvania.
Using broad federal requirements, states administer unemployment insurance and set the specifics of the program. Eligibility, amount, and duration of unemployment vary significantly among states. Many states require recipients to prove that they are ready to work and job hunting while receiving unemployment compensation.
Eligibility for Unemployment Insurance
Unemployment insurance is for employees who are not at fault for the loss of their jobs and who have met requirements set by the state for earnings and work history during a base period. This includes workers who have been laid off, downsized, or furloughed (in some cases). Employees who were wrongfully terminated, quit their job for good reasons that can be proved, or who were fired for minor reasons not related to misconduct may be eligible.
Depending on the reason they were terminated, employees who were fired may be eligible for unemployment. Terminated employees may still be eligible if they were fired for non-misconduct reasons, including unintentional mistakes, poor performance, conflicts, or lack of skills.
Contractors, self-employed workers, and freelancers are usually not eligible for unemployment unless they were misclassified as contractors when they are actually employees.
When employees are fired for willful misconduct, they are not eligible for unemployment insurance. Misconduct includes the following actions: theft, insubordination, failing a drug test, safety violations, excessive unexcused absences, or causing harm to others.
The U.S. Department of Labor states that common denial reasons include quitting your job without good cause, misconduct related to work, making false statements, refusing to accept a suitable offer for new work, or not being able and available to work. They define misconduct as “an intentional or controllable act or failure to take action, which shows a deliberate disregard of the employer’s interests.” They reiterate that only state unemployment agencies can make decisions on eligibility and appeals, as federal laws only set the broad requirements for states to implement.
Definition of an Unemployment Claim
When employees apply for UI, their application is called an unemployment claim. They file the claim with the state where they worked. The claim requires employees to provide many personal and work details, addresses, dates, earnings history, and severance information. This includes details about their work history and the situation surrounding separation from their last job. Former federal employees may also need to provide a Standard Form 8 (SF-8) and Standard Form 50 (SF-50). Veterans need to provide their DD214.
Can an Employer Contest an Unemployment Claim?
Yes, an employer can contest an unemployment claim, especially when the claim is based on firings or inaccurate information. Employers should proceed with caution and ensure they have appropriate documentation and evidence before contesting a claim. Employers must ensure they understand the eligibility reasons for unemployment and that they are not using illegal reasons to fire employees, which could result in lawsuits and penalties.
Employers will receive written notification of a claim, which will outline the details of the employee’s claim for them to review. Employers have the responsibility to accept or contest the claim. They will need to respond quickly, often in 10-14 days, depending on the state requirements.
After the state reviews the information and documentation submitted by both the employee and employers, the state will issue a Notice of Determination, either approving or denying the UI claim. If denied unemployment insurance, employees can appeal the decision, and a hearing may be held. Employers will need to attend appeal hearings. Employers can also appeal the decision.
Common Reasons Why Employers Lose Unemployment Claims
S3 Management Group explains the three common reasons why employers lose unemployment claims: lack of documentation, not attending a hearing, and encouraging employees to quit instead of being fired. Quit in lieu of termination is a forced resignation instead of being fired, where the employer is actually the moving party in the separation. In unemployment cases, the employer would have the responsibility to prove with documentation and first-hand testimony the reasons for misconduct if they forced an employee to quit.
It is best practice for employers to thoroughly document employee infractions and always provide separation notices. In termination meetings, employers should be respectful and honest about the real reason for termination and utilize a departing employee checklist.
Why Would an Employer Contest an Unemployment Claim?
An employer would contest an unemployment claim if the application contains inaccurate information or if the employee was fired for willful misconduct. Employees who were fired for minor infractions may still be eligible for unemployment, so you may not have grounds to contest the claim. Employers may also attempt to avoid tax increases by contesting the claim.
“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.” – U.S. Chamber of Commerce
Penalties for Unemployment Insurance Fraud
The U.S. Department of Labor describes the types of unemployment insurance fraud that could be committed by claimants or employers and lists hotlines in each state for reporting fraud. Penalties may include fines, criminal prosecution, incarceration, forfeiting future income tax refunds, repayment, rate increases, and a permanent loss of eligibility. Intentionally providing false information can result in penalties.
Pros of Employers Contesting Unemployment Claims
Employers may be able to prevent their SUTA tax from increasing if the claim is denied or they win an appeal. They can ensure that former employees are being truthful in their claims and not receiving UI when they were fired for willful misconduct. It is also an opportunity to gather information about an employee’s perspective on what happened and to document the employer’s version, which can serve as evidence if a future lawsuit is filed.
Cons of Employers Contesting Unemployment Claims
Contesting an unemployment claim requires time and resources that can become costly, especially if done repeatedly. The investigator will likely contact you for more information. It is also risky, as former employees can file UI appeals that will result in hearings. It may also trigger them to file wrongful termination lawsuits. All of these can damage your reputation and company morale.
Employers should proceed cautiously when deciding if they will contest an unemployment claim. By considering all factors, keeping proper documentation, following laws, and providing honest information, employers can make an informed decision on whether to contest an unemployment claim.
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