When a former employee files for unemployment benefits, the employer often receives notice and has the opportunity to challenge the claim. Unemployment insurance (UI) programs are a joint federal and state system designed to provide a temporary financial safety net for workers who lose their jobs through no fault of their own. The system is primarily funded by taxes paid by employers. When an employer chooses to “fight” a claim, they are challenging the legal determination of eligibility based on the circumstances of the separation. This challenge seeks to prove that the claimant is disqualified under state law. Understanding why an employer engages in this process requires looking beyond the individual claim to the broader financial and administrative structures of the unemployment system.
Primary Motivation: Protecting the Unemployment Insurance Tax Rate
The primary driver for contesting an unemployment claim is financial, stemming from the State Unemployment Tax Act (SUTA) and the concept of “experience rating.” State governments use this rating system to determine the tax rate an employer pays into the UI trust fund. The employer’s history of successful claims directly influences their future tax burden.
When a former employee collects UI benefits, the state “charges” those benefits back to the employer’s account, increasing the negative claims history. A higher claims history leads to a higher experience rating, which translates into a significantly higher SUTA tax rate applied to the employer’s taxable payroll. This rate increase can persist for several years, meaning a single successful claim can cost a company far more in increased taxes than the actual benefits paid to the former employee.
Employers with low experience ratings pay a lower tax rate, sometimes as low as zero percent in some states, while those with the highest ratings can face tax rates exceeding 10% on the taxable wage base. Contesting an invalid claim is a form of risk management, protecting the company from a compounding financial liability over time. This proactive management of the UI account minimizes operational costs.
Contesting Eligibility: Voluntary Quits and Misconduct
Employers primarily contest claims by arguing the separation falls into one of two categories: a voluntary quit without good cause attributable to the employer, or termination for misconduct connected with the work. Benefits are reserved for those unemployed through no fault of their own, making the circumstances of the separation the deciding factor.
The definition of “misconduct” is a high legal standard, often requiring proof of a willful and substantial disregard of the employer’s interests or a deliberate violation of a known company policy. Simple incompetence, inability to perform the job, or ordinary carelessness do not meet this standard and are classified as poor performance. Poor performance does not disqualify a claimant from receiving benefits. The distinction between “couldn’t do the job” (poor performance) and “wouldn’t do the job” (misconduct) is central to the employer’s argument.
When an employee voluntarily quits, they are ineligible unless they prove they had “good cause” for leaving that was directly related to the work, such as a substantial change in working conditions. The employer’s challenge focuses on demonstrating that the employee’s reason for leaving was personal or did not justify resignation under the legal standard of good cause. Successfully proving misconduct or a voluntary quit without good cause prevents the claim from being charged against the employer’s experience rating.
Preventing Specific Financial Charges (Reimbursing Employers)
A specific subset of organizations, known as “reimbursing employers,” faces an immediate, dollar-for-dollar financial charge for every successful claim. This group often includes non-profit organizations, governmental entities, and Indian tribes. Under federal law, these entities have the option to repay the state unemployment fund for the full amount of benefits paid to their former employees, rather than paying quarterly payroll taxes.
For reimbursing employers, contesting a claim is a direct effort to avoid an immediate financial outflow. If a claim is successful, the employer receives a bill for the exact amount of benefits paid out to the claimant. The motivation is the avoidance of a concrete, current expenditure tied to that individual claim, rather than a fluctuating future tax rate.
Contesting the claim is the only way for the employer to eliminate the direct charge associated with that specific separation event. Some states may require these employers to make advance payments or deposits into the fund to safeguard against future liabilities.
Maintaining Internal Consistency and Deterring Future Claims
Employers contest claims to maintain the integrity of their internal disciplinary structure and uphold policy consistency. If an employer terminates an employee for a serious violation, such as theft or harassment, failing to challenge the subsequent UI claim sends a confusing message to the remaining workforce. Allowing the claim to proceed unchallenged undermines the seriousness of the policy violation and the termination decision itself.
Contesting a claim reinforces the employer’s disciplinary policies and helps deter future unwarranted claims. Employees are less likely to file a claim if they know the employer will rigorously defend the termination decision with documentation and testimony. This administrative defense demonstrates that policy violations have consequences extending to benefit eligibility.
Consistency in policy enforcement is reviewed during the unemployment hearing process, where an employer’s failure to follow its own progressive disciplinary steps may weaken its case. By fighting a claim, the employer validates its internal process and demonstrates that the separation was for cause, rather than a layoff or reduction in force. This strategic approach protects the organizational culture and the credibility of management.
What the Employer Must Prove to Win the Claim
To successfully challenge an unemployment claim, the employer bears the burden of proof, requiring specific, documented evidence to support their position. Simply alleging misconduct or a voluntary quit is insufficient; the employer must provide concrete evidence to the state agency or hearing officer. The documentation must clearly establish that the claimant’s actions met the state’s legal standard for disqualification.
Required Documentation
Documentation often includes:
Written company policies.
Signed employee acknowledgments of those policies.
Detailed warning notices.
Performance improvement plans.
In misconduct cases, the employer must present evidence of the final incident that precipitated the discharge and prove the employee knew the action could lead to termination. For voluntary quits, the employer must provide a resignation letter or testimony to counter any claim of constructive discharge.
The strength of the employer’s case rests heavily on firsthand testimony from supervisors or witnesses who have direct knowledge of the events leading to the separation. This rigorous requirement for documentation and testimony underscores that contesting a claim is viewed as a necessary defense of the company’s financial and administrative interests. The employer’s ability to win depends entirely on the quality and completeness of this evidence.