Unemployment Benefits: Contesting an Employee's Claim

By Lisa Guerin, J.D. | Small Business

Not everyone who's out of work is entitled to unemployment benefits. There are a couple of factors that dictate whether a former employee will receive unemployment benefits: the circumstances of the employee's departure and whether the employer contests the employee's claim. This means your company has a lot of power over whether a worker will receive unemployment benefits. If a former employee files a claim, your company will need to decide whether or not to contest it.

Is the Employee Eligible for Unemployment Benefits?

Employees are eligible for unemployment benefits only if they are out of work through no fault of their own. This rule works differently depending on whether the employee quit, was laid off, or was fired.

If an Employee Was Laid Off

An employee who loses a job through a layoff or reduction in workforce is always eligible for unemployment benefits.

If an Employee Was Fired

Fired employees can claim unemployment benefits if they were terminated because of financial cutbacks or because they were not a good fit for the job for which they were hired. They can also receive unemployment benefits if the employer had a good reason to fire the employee, such as being late for work several times, but the infractions were relatively minor, unintentional, or isolated.

On the other hand, in most states an employee who is fired for misconduct will not receive unemployment benefits. Although you might think that any action that leads to termination should constitute misconduct, the unemployment laws don't look at it that way. Not all actions that result in termination are serious enough to qualify as misconduct and justify denying benefits to a terminated worker.

What qualifies as misconduct that will disqualify an employee from receiving unemployment benefits? Generally speaking, an employee engages in misconduct by willfully doing something that substantially injures the company's interests. For example, revealing trade secrets or sexually harassing coworkers is typically the type of misconduct that renders the employee ineligible to collect unemployment benefits. Other common types of disqualifying misconduct include chronic tardiness, numerous unexcused absences, extreme insubordination, intoxication on the job, and dishonesty.

Common actions that often result in firing -- but do not constitute misconduct -- include poor performance because of lack of skills, good faith errors in judgment, inefficient work habits, an unpleasant personality, poor relations with coworkers, or off-work conduct that does not have an impact on the employer's interests. An employee fired for any of these reasons will usually be allowed to collect unemployment benefits.

It is important to remember that what qualifies as misconduct is a matter of interpretation and degree. Annoying one coworker might not be considered misconduct that will disqualify an employee from receiving unemployment benefits, but intentionally engaging in actions that anger an entire department, even after repeated warnings, might be considered disqualifying misconduct.

If an Employee Quits

An employee who quits or resigns from a job will be eligible for benefits only if the employee resigned for "good cause." A good reason for quitting a job, such as job dissatisfaction, is not necessarily good cause. The law requires the employee's reason for leaving to be "compelling" -- that is, the worker would have suffered some sort of harm or injury by staying. Put another way, the reason the employee left must be the sort that would have made any reasonable person leave.

If an employee leaves a job because of intolerable working conditions (such as being sexually harassed) or because of being offered the opportunity to quit in lieu of being fired, most states would allow the worker to collect unemployment benefits. Similarly, leaving a job because it poses a serious threat to the worker's health or safety is usually good cause. On the other hand, most states would not accept leaving a job because it doesn't offer opportunities for career advancement as a good cause, and it won't make a worker eligible for unemployment benefits.

Should Your Company Contest the Claim?

Your state's unemployment office -- not your company -- will ultimately decide whether a former employee can receive unemployment benefits. You do, however, have the option of contesting an employee's application for unemployment benefits, and that option gives your company a great deal of power. In California, for example, the unemployment board presumes that a terminated employee did not engage in misconduct that would disqualify the employee from getting unemployment benefits unless the employer contests the unemployment claim. Thus, in California, terminated employees who claim unemployment benefits receive them unless the former employer contests the claim.

Remember, there is no reason -- and there are no grounds -- to contest an unemployment claim if the employee was laid off. There are also no grounds to contest the claim if the employee did not engage in misconduct but was fired for lesser reasons -- for instance, for sloppy work, carelessness, poor judgment, or the inability to learn new skills.

Even if an employee engages in misconduct, your company might want to give up its right to contest an unemployment insurance claim as part of a severance package, especially if the fired employee seems likely to sue. In other words, your company would agree not to contest unemployment benefits and the employee would agree not to sue your company.

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. Employers typically fight unemployment claims for one of two reasons:

  • The employer is concerned that their unemployment insurance rates may increase. After all, the employer (not the employee) pays for unemployment insurance. The amount the employer pays toward unemployment insurance is based in part on the number of claims made against the employer by former employees.
  • The employer is concerned that the employee plans to file a wrongful termination action. The unemployment application process can be valuable in discovering the employee's side of the story, and it can also provide an excellent opportunity for gathering evidence -- both from the employee and from witnesses.

If your company plans to contest an unemployment compensation claim, proceed with caution. These battles not only cost time and money, but they also ensure that the former employee will become an enemy. The employee might even file a wrongful termination lawsuit that otherwise could have been avoided. And if the fired worker has friends who remain on the job, they too may doubt and distrust your company's tactics.

Before making any decisions, you might want to do some research by contacting your state's unemployment office for specific information about the law in your state. This office can tell you what effect a successful unemployment benefit claim will have on your company's rates. If it's relatively small, backing off might be a good idea.

For more information about unemployment benefits, and other human resources issues, see The Manager's Legal Handbook, by Amy DelPo and Lisa Guerin (Nolo).


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