Unemployment compensation fundamentals

For private employers, unemployment benefits are provided under the state’s unemployment compensation system. Unemployment insurance (UI) is jointly financed through federal and state employer payroll taxes. An employer is required to pay state and federal unemployment taxes if:

• An employee makes $1,500 or more in any given quarter of a calendar year.
• They had one or more employees on any day of a week during 20 weeks of a calendar year. (The weeks do not have to be consecutive.)

The Department of Labor’s Employment and Training Administration (ETA) notes that state laws may differ from federal laws, so employers should consult their state workforce agency for specific requirements.

Under the Federal Unemployment Tax Act, employers also pay an annual federal employer tax through IRS Form 940, which is used to fund state workforce agencies that administer UI benefits.

UI tax rates are determined by state law, and businesses have a financial incentive to keep their tax rates low. The more employees file for UI compensation, the higher the business’s tax liability. So if the organization believes an employee isn’t eligible for UI compensation, that could be reason to fight the claim.

Why deny a claim for unemployment compensation

Here are some scenarios where the employer may stand a chance at fighting the claim:

• The employee voluntarily quit without good cause.
• The employee was fired for misconduct.
• The employee didn’t file a timely request for benefits.
• The employee made false statements about their eligibility for benefits.

Generally, if the separation from employment was the employee’s fault, there’s a good chance they won’t be eligible for UI compensation and contesting the claim may be the preferred course of action. Still, it’s best to consult with counsel as needed and research any applicable case law in your state to determine whether a denial of benefits is likely given the facts of the situation.

If the employee was terminated for gross misconduct, the egregiousness of their offense may determine whether it makes sense to contest a claim for unemployment compensation. But this can be a gray area.

For example, consider an employee who committed timekeeping fraud. According to Fisher Phillips’ Richard Meneghello, a state unemployment board could grant the employee a “pass” entitling them to unemployment compensation. For instance, if the employee’s act was isolated in nature and they can show they have never done anything like that before, the reviewing board may be inclined to accept their claim for benefits.

If an employer is set on contesting a claim, Meneghello has this advice: Prepare for the hearing. This means getting your story straight about what happened, gathering documentation and compiling a witness list to help make the case as to why the claim should be denied.

How COVID-19 has affected UI benefits

In January 2022, the Supreme Court struck down the Occupational Safety and Health Administration’s emergency temporary standard (ETS) requiring private employers with 100 or more employees to mandate vaccination for their workforces.

While the court’s decision was clear regarding the legality of the ETS, it did not answer the question of whether an employee who’s fired for not following their organization’s own COVID-19 vaccination policy is entitled to UI benefits.

The key issue is whether there was cause to terminate the employee, says Mariel Smith of Hall Booth Smith. Many states have laws specifying that terminations for policy violations — that is, “for cause” violations — will result in a denial of UI benefits.

Then there’s the issue of whether an employee who refuses to get vaccinated as a condition of their employment results in a voluntary termination or an involuntary one, says Carrie Hoffman of Foley & Lardner. This is a question that each state will need to grapple with as it arises.

Several states have already enacted legislation to ensure that employees who are terminated for not complying with vaccine mandates are eligible for jobless benefits.

For instance, Arkansas, Florida, Iowa, Kansas and Tennessee have all passed legislation protecting employees’ entitlement to UI benefits if they lose their jobs for not being vaccinated against COVID-19. Other states, like New York and Oregon, have taken a different position, saying these types of claims will be reviewed on a case-by-case basis.

Additionally, about one-third of the states have proposed vaccination status-based discrimination legislation, says Karla Grossenbacher of Seyfarth Shaw. This type of legislation ensures that individuals aren’t discriminated against for their personal health choices by being subjected to adverse employment actions. If this legislation passes, unvaccinated employees in these states could have a solid argument for being entitled to UI benefits.

A final word on contesting UI claims

You can have a valid, nondiscriminatory reason for terminating an employee and they can still be entitled to IU benefits. If you decide to contest a UI claim, don’t assume that the ultimate finding will act as a referendum on the legality of the employee’s discharge, says Meneghello.

The bottom line: It can be an uphill battle for an employer to contest a UI claim, so be well prepared if you set out to do so.

Useful links

The ETA publishes a list of links to state workforce agencies, where employers can learn about specific nuances concerning their state’s UI system. Visit https://oui.doleta.gov/unemploy/agencies.asp to learn more.