Should You Contest Unemployment Compensation Claims?

​In one of my first cases when I was a lawyer, an employer fired a woman who was recovering from breast cancer for nonperformance. She left the workplace quietly with no indication of a desire to sue.

She filed for unemployment benefits. The company vigorously contested her claim.

The matter went to hearing. In an effort to meet the state-law definition of "misconduct," company management and HR laid it on thick, citing justifications for termination beyond nonperformance.

The company lost the unemployment benefits claim. However, this loss turned out to be a fraction of what the company spent after the woman filed a wrongful termination lawsuit alleging discrimination based on gender and disability. The company's defense was greatly impaired by testimony in the hearing of reasons for discharge that were unsupported by the facts.

After two years of litigation and denial of a motion for summary judgment, the company settled the claim. Its total litigation costs, including settlement and legal fees, amounted to nearly $1 million—and in the 1980s, that was a lot of money.

Many employers routinely contest unemployment benefits claims in an effort to keep unemployment taxes down. However, there are some powerful arguments against doing so.

The Case Against Contesting Unemployment Benefits Claims

1. It misapplies HR time and energy. Contesting unemployment claims reinforces the image of HR as the employee's enemy. That time and energy would be better spent on more-constructive pursuits, such as coaching managers to be better communicators.
2. It furthers the image of the employer as cold and uncaring. Fired employees often have friends at work. Appearing to kick someone when he or she is down isn't good for morale.
3. It promotes the kind of disciplinary policy I decry. Harsh handbook language listing the bad acts that will get employees fired, combined with rigid, formal disciplinary procedures, sends an entirely negative message to employees. Instead of feeling treated as human beings, they feel treated as objects to be documented.
4. It's apt to promote litigation rather than deter it. Few HR professionals are trained litigators. The way they go about contesting claims can make things worse. In addition to the case described in this article, I defended other wrongful discharge cases that arose after contested unemployment benefits proceedings. I often felt there wouldn't have been a lawsuit had the employer chosen not to contest the unemployment claim.
5. Termination typically isn't only the employee's fault. The employer likely made mistakes, too, such as in employee selection, onboarding, communicating expectations, or not proactively and constructively confronting problematic behavior. There's almost always something the employer could have done better. Pinning all the blame on the terminated employee is unfair.

"Employers very often do more harm than good contesting unemployment benefits," said Paul Buchanan, a partner at law firm Buchanan Angeli Altschul & Sullivan in Portland, Ore. "I can understand it in cases where, say, the employee was fired for stealing. But absent serious misconduct that the employer can prove, fighting unemployment seems like a fool's errand."

Dana Sullivan, a partner at the same firm, explained, "The biggest reason not to contest unemployment benefits is that, if there is an appeal, the employee's counsel may end up getting a free deposition of the manager whose conduct is at issue."

She once represented terminated employees at unemployment hearings where key decision-makers testified. "In each case, I was able to delve deep into the circumstances surrounding my client's termination with managers who were very ill-prepared to discuss the issues at the heart of my future lawsuit."

Sullivan also noted that although the determination of the hearing officer is not admissible in a civil trial, "prior inconsistent statements of the decision-makers certainly are."