When an employee is fired or let go, they may wonder if they can collect unemployment benefits. The answer is that it depends, since eligibility often hinges on why the employee was terminated.
In general, unemployment benefit programs provide temporary income to people who are out of work due to no fault of their own. If someone was fired due to misconduct or violation of company policy, they might be ineligible to collect unemployment. However, it’s not always cut and dry. Below, we outline how unemployment works for businesses, factors that impact eligibility for benefits and the rights of fired employees.
How does unemployment work?
Unemployment insurance is a joint federal-state program providing short-term cash benefits to jobless workers while they seek new employment. State law decides who can receive benefits, how much and for how long, determined by looking at earnings and hours worked during a “base period.”
Eligible workers in most states will receive cash payments for up to 26 weeks while they look for work. However, nine states provide fewer than 26 weeks and two states provide more. Extended benefits (EB) programs also exist in four states.
Businesses fund unemployment programs by paying taxes known as FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax Act) taxes. Unemployment claims have the potential to trigger increased unemployment insurance tax rates for business owners, so it’s important to understand how the system works in order to avoid costly mistakes.
[Read more: 3 Things You Need to Know About Employee Benefits]
Who is eligible for unemployment benefits?
Not everyone who is unemployed is eligible for unemployment benefits. Unsurprisingly, there are a lot of rules surrounding who can claim it, but in general, qualifying for unemployment is based on why the employee was let go.
To be eligible, an individual must be out of work for reasons beyond their control. Examples include layoffs, downsizing, lack of available work or furlough, such as due to COVID-19. They must also meet work and wage requirements, plus any additional requirements mandated by their state.
If an employee quits a job by their own choice, they typically won’t receive unemployment benefits. However, if employees can prove “good cause” to quit, such as unsafe working conditions or harassment, they may still be eligible. March 2020’s CARES Act expanded “good cause” possibilities to include pandemic-related reasons, like the need to care for a family member who tested positive for COVID-19. Those expanded benefits expired on September 6, 2021, yet there is always the possibility for more changes.
Terminated employees have certain rights, one of which is the right to receive unemployment compensation, if they qualify.
There are also several forms of misconduct that would exclude a fired employee from collecting unemployment benefits:
- Theft.
- Excessive unexcused absences.
- Failing a drug test or reporting to work intoxicated.
- Safety violations.
- Sexual harassment.
- Causing abuse or harm to other employees.
In some cases, intentional violation of company policy may also render an employee ineligible for benefits, but check with your state for specific rules.
Rights of fired employees
Private employment is “at will” in most cases, meaning that employers can terminate their employees at any time, and for any reason—as long as it’s not illegal, discriminatory or in violation of a contract.
However, terminated employees have certain rights, one of which is the right to receive unemployment compensation, if they qualify. Other rights of fired employees include:
- Receipt of their final paycheck.
- Paid severance, if the contract stipulates it.
- Continued health insurance coverage after separation from their employer via COBRA.
- Advance notification before closing of a facility or a mass layoff.
[Read more: Are Small Businesses Required to Offer Health Insurance?]
Can an employer contest an unemployment claim?
As an employer, you have the right to contest an unemployment claim that you think is invalid or misleading. When a former employee makes a claim, you’ll receive a notice from the state or federal unemployment agency along with details surrounding the termination.
At this point, you can determine whether to accept or contest the claim. Keep in mind, an employee also has the right to fight the denial of an unemployment claim. If you're going to contest an employee’s claim for unemployment, be sure that you have clear and proper documentation to back up your case (letter of termination, pay stubs, documented warnings, etc.) in order to avoid an expensive employment lawsuit.
[Read more: How Do I Know It’s Time to Fire Someone?]
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