How to Avoid Paying Unemployment Benefits

It’s a question that comes up often in the CEDR Solution Center: If I fire someone for cause, how can I avoid paying their unemployment insurance benefits?

The short answer is that you can’t always prevent an employee from receiving unemployment insurance (UI) benefits, regardless of the reason for their separation from your business. 

However, with careful documentation and specific, compliant policies in place, you can position yourself to prevent employees from collecting benefits they are not entitled to, and that can help you avoid incurring higher costs for your business as a result of UI claims.

Here’s the breakdown:


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Unemployment After an Employee Is Terminated

Whether or not benefits are awarded to an employee usually comes down to four things:

  1. Why the employee was terminated and which policy they violated
  2. What documentation you have to support that reason
  3. State law, and
  4. The mood of the specific judge assigned to the claim. 

As you can see, some of the factors are under your control and others are not. What this means is that, while there are a variety of things you can do to reduce the chances of a former employee successfully claiming unemployment, there are no guarantees.  

Unemployment insurance is an employee benefit, and thus it is generally an employee friendly process. As a result, you should start the process assuming that if you fire or lay off an employee, that employee will very likely be eligible for unemployment. 

This doesn’t mean you shouldn’t try to dispute an unemployment claim. It just means that you should carefully calculate how much time and energy you want to put into it depending on the facts of the situation.  

We’ll explain in more detail in a moment. But first, it’s important that we provide a very brief overview of how UI benefits generally work.


Unemployment Is Not an Out-of-Pocket Cost

When a former employee files a successful UI claim for benefits, you won’t get a “bill” for those payments from the state. Rather, when someone is awarded UI, they are paid from what is known as the state “pool” of benefits. 

With each payroll you’ve processed over the years, a tiny percentage of each total payment was collected as a small fee by your state. That fee was then remitted to the state’s coffers to fund the UI pool for all employers in your state, and it is from this pool that your former employee will draw when they begin collecting benefits. 

The size of the percentage of payroll that your office pays into the UI pool is determined by something called your business’ “Experience Rating.” Your Experience Rating is a figure that goes up and down based on the number of successful claims that have been filed against your account in a given timeframe. 

Each year (or every few years), your state looks at the number of claims on your account and, depending on what they find, they move your percentage up or down. The more successful claims that have been filed by your former employees, the higher your percentage will be. 

So, as our members in the south say, you do have a dog in this hunt! And the larger your payroll, the more money that percentage will ultimately cost your practice.


When Employees Resign

Unemployment Insurance (UI) exists as an employer-funded state benefit to assist employees who cannot work through no fault of their own. Therefore, employees who voluntarily leave employment generally aren’t eligible for benefits. This includes employees who decide to leave the workforce, decide the job is not a good fit for them, and those that leave for another job. 

Still, to avoid finding yourself facing an increased Experience Rating should an employee decide to file after voluntarily resigning, it’s important that you document their decision to leave for your protection. If they don’t provide a written resignation letter, you can still provide them with a written confirmation that you have accepted their decision to resign. 

When an employee chooses to separate from employment with your business voluntarily, avoid any temptation to react emotionally. Don’t turn the tables and fire them when they submit their resignation or no-show as this might put you on the hook for paying UI after they leave. 
Sometimes the right thing to do is say goodbye. Click to download CEDR's free separation guide.
Please note, expanded unemployment benefits under the CARES Act have temporarily extended benefits to employees who cannot work due to a variety of reasons related to COVID-19. As a result, many employees who would not normally be eligible for UI because they resigned their position are eligible at this time. Fortunately, many states are not increasing employer’s Experience Ratings for UI claims under the CARES Act.


The Exception: Constructive Discharge 

There are times when an employee who resigns may still qualify for UI benefits. The state may view it as a “constructive discharge” if the employee felt they had no choice but to quit. Common examples include workplace harassment, being paid improperly, or an employer failing to provide legally mandated benefits. 

If an employee alleges they were forced to quit, that should trigger you to reach out to a qualified HR professional or attorney who has experience with that type of situation for help. 


Layoffs and Reductions in Hours

Employees are also typically eligible for unemployment if they were separated through a layoff. A true layoff occurs when you no longer have work for an employee, most often because a change in your business finances or structure essentially eliminates the need for the position. 

When a layoff occurs, the employee is unemployed through no fault of their own. That will make them eligible for unemployment benefits. Note that this could even include a temporary shut down of a couple weeks — if the employee isn’t being offered work, they may be able to collect benefits even if they still technically have a job to come back to. 

Similarly, if you need to reduce an employee’s hours due to a lack of work, they may be eligible for partial unemployment benefits. Your state may offer a work-share program that allows you to enter into an arrangement with the state for the employee to receive partial benefits while maintaining part-time employment with you. Or the state may allow the employee to apply for and collect a reduced unemployment benefit on their own. 


“Willful Misconduct” Terminations

The fact that an employee who was terminated “for cause” can still collect unemployment is a shock to many employers. But, in many cases, that is what happens. 

Each state has their own standards for who is and is not eligible for UI benefits. The overwhelming majority of states use a term like “willful misconduct” to describe the standard that would take the employee out of the running. And, of course, each state interprets that standard in their own way — as can the judge. 

An obvious example of willful misconduct would be theft, intentional harm to another person, or some other type of criminal or objectively risky behavior. Contrast that to some of the most common reasons for letting an employee go — poor attitude, not performing up to your standards, work being inconsistent, etc. 

You may have a perfectly valid reason for letting someone go, but it very often is not going to be considered on the same level as “willful misconduct.” 

In order to show that an employee engaged in willful misconduct and (hopefully) prevent them  from collecting UI after they are terminated, you will want to have documentation on-hand to prove that:

  1. The employee knew about your company policies.
  2. They were knowingly in violation of those policies.
  3. The policies are reasonable, and the violation could result in serious harm to your business or to others.
  4. The employee was reminded of those policies after violating them.
  5. They were asked to adhere to the policies in question moving forward.
  6. They continued to violate those policies despite your warnings.
  7. There was no good cause for their policy violations.

Or, you will need documentation to show that the employee engaged in conduct that was so egregious that it was illegal or borderline illegal, e.g. fraud, theft, violence. In these more extreme cases, there is generally no need to give the employee a policy reminder or chance for improvement before moving to termination.  
Sometimes the right thing to do is say goodbye. Click to download CEDR's free separation guide.


An oversimplified example of “willful misconduct”  looks like this: 

You have a written Dress Code policy, which your employee acknowledged existed when they signed your employee handbook. That policy contains a notice of possible consequences if you break the rule, up to and including termination. 

Still, one particular employee continually shows up without their company issued shirt, saying the shirt is dirty and they don’t like to do laundry. So, after repeated warnings, you decide to terminate them.

Along with that original policy acknowledgement you received when the employee signed your handbook, if you could then show that, upon them breaking the rule, you reminded the employee of that policy in writing and the employee continued to make the choice to violate that policy before you terminated them, you would then be able to cite “willful misconduct” in your answer to the state’s query regarding the employee’s work history. 

Hopefully, if you have done a great job of documenting those corrections, you’d have all the components you need to answer the state’s query as to why the employee lost their job at your practice and is therefore not entitled to collect UI.


How Policies Protect Your Business

In addition to solid documentation of corrective action, it is important to have a clearly written employee handbook that contains policies with specific language that helps officials come to a resolution in your favor. Your employees also need to sign the handbook to acknowledge the policies inside. 

A big part of the unemployment decision can be how reasonable the judge found the employer’s policies, the employer’s actions, and, of course, the employee’s actions. 

UI benefits are there for the employee, so the scales are already tilted in the employee’s favor. Unfortunately, a lot of UI decisions are unpredictable as they come down to how the judge personally views the employee’s situation. 

Again, even in a seemingly straightforward case of willful misconduct, there are no guarantees that the employee will be disqualified from UI benefits. But, you will very much increase the chances of this happening if you follow the steps detailed above (This same process will also reduce the risk of an employee successfully claiming wrongful termination, so it’s generally a good idea anyway).


Importance of Documentation 

As you have likely noticed, successfully disputing an unemployment claim is highly dependent on your documentation of what happened before, during, and after the separation. 

While you can technically communicate policies and corrective action to your employees verbally, without documentation of the conversation you will have no proof that the separation from an employee actually happened the way you say it did.

Though employees are generally not entitled to UI benefits after they resign from a position, that does not mean that they will never apply for benefits after quitting a job. Any employee that wants to file for UI can do so, but that does not mean they will be awarded benefits. 

If an employee applies for benefits, however, it is not the employee’s responsibility to prove that they are eligible. The burden of proof that they are ineligible for benefits will fall to you, the employer.

We highly recommend you document any conversations you have with your employees that could one day impact your ability or willingness to keep them on the payroll. This includes conversations about leave requests, reasons they give you for refusing work, requests you make of them related to returning to work or responding to you by a certain date, verbal employee resignations, performance corrections, disciplinary actions, etc.

Using CEDR’s free HR Vault software makes it easy to store and share employee documents, collect digital signatures, and make confidential notes in employee files for documentation purposes. Sign up for your free HR Vault account here and keep it for the life of your business!
Sometimes the right thing to do is say goodbye. Click to download CEDR's free separation guide.



When separating from employees, whether or not that employee will be eligible for UI benefits depends on if the employee was the decision maker with respect to their departure (read: “they resigned or were terminated for willful misconduct ”) or if they found themselves unable to work through no fault of their own (read: “they were terminated for standard performance issues with little to no warning, laid off, or were forced out”).

When employees resign from a post, abandon their job, or simply refuse available work for reasons that are not protected by law, with the right protections in place for your practice, those situations typically mean that the employee will not be entitled to collect UI.

When employees are terminated, laid off, or are forced to resign, unless you can show the employee engaged in willful misconduct, that usually means that they will find themselves unable to work “through no fault of their own” and likely will qualify for UI benefits.

Whatever the reason for the separation, it is important that you document the separation process and hold onto that documentation for however long your state requires. 

For free Exit Interview and Voluntary Resignation Forms you can use to document a separation, download your free Exit Packet from CEDR HR Solutions.

Then, for easy reference and added protection for your practice, store those documents, share them with your employees, and collect digital signatures using your Free HR Vault software. 

Finally, after losing an employee, the next logical step is to begin looking for their replacement. And, you guessed it — we can help with that, too!
Sometimes the right thing to do is say goodbye. Click to download CEDR's free separation guide.

Aug 18, 2020

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance based on applicable local, state and/or federal U.S. employment law that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.

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