Why Your Boss Can Block Your Unemployment Benefits

And what it means for worker wellbeing and access to the safety net

When you lose your job, applying for unemployment insurance should be straightforward: you file a claim, the state verifies you’re eligible, and you start receiving benefits to keep you afloat while you search for new work. But there’s a player in this process most people don’t know about until it’s often too late: your former employer, who has both the right and a powerful financial incentive to fight your claim.

The two of us met in Michigan and were both volunteering for an unemployment insurance (UI) clinic intended to help jobless workers access benefits, where we saw how vigorously employers can fight potential benefit claims. Since that experience, we both have sought to surface in our academic research the distinctive role that employers play in the American UI system.

In a recent journal article, published in the Social Service Review, we use a new nationally representative survey of unemployed workers to estimate the frequency of employer contestations in the UI system and what contestations mean for workers’ wellbeing.

Our results show that the employer role in the UI system is more complicated than previously appreciated and that researchers and policymakers need to consider the potential perverse financial incentives employers face to fight workers’ access to benefits to lower their taxes.

Follow the Money

The U.S. unemployment insurance system has an unusual method of funding benefits that exists virtually nowhere else among other rich democracies: “experience rating.” Under experience rating, employers generally pay payroll taxes that fund UI benefits, and those tax rates rise when their former workers successfully claim benefits. (Only one state–Alaska–uses a different system in which employer taxes rise in proportion to their layoffs, rather than benefit claims.) It’s like car insurance: more claims mean higher premiums for employers.

The original theory behind this system was elegant: employers would avoid unnecessary layoffs if doing so raised their tax bill. In addition, employers would help “police” the system to ensure that only eligible workers receive benefits.

But experience rating creates another incentive too—one the program’s designers perhaps didn’t fully anticipate. Employers can also lower their tax burden by contesting their workers’ legitimate and illegitimate claims, making it harder for laid-off employees to receive benefits in the first place.

Indeed, the experience rating system has spawned a growing industry of “claims management” consultants who market their services by promising to reduce employers’ UI tax bills through more aggressive contestation. As one journalist put it, these firms have turned fighting unemployment claims into a “boom industry.”

Equifax, one of the largest claims managers, puts its formula for reducing companies’ unemployment insurance taxes in the simple flow chart: “Increased protested claims -> reduced benefits charges -> reduced tax rates -> reduced tax costs.” (See below.) In its promotional materials, the company has summed up their pitch to employers as follows: “at the heart of our approach is a simple fact: unemployment insurance tax is one of the only controllable payroll taxes.”

While worker advocates have long noted the perverse incentives that experience rating creates for employers, we have lacked a good picture of how common contestations are for workers, especially given that contestations can include informal efforts to dissuade workers from filing claims and formal contestation with their state’s UI agency.

Important recent work on one state (Washington) shows that employers strongly influence worker access to UI benefits. The authors find that “if all employers [in Washington in their sample from 2005 to 2013] with below-median claim effects moved to the median, then the UI claim rate would increase by 6 percentage points.” The authors also find that employer effects help explain the income gradient in UI benefit access, with higher-earning workers more likely to receive benefits because their employers are less likely to contest their claims. But we do not have a national perspective.

A Quarter of Claims Face Employer Pushback

To tackle this absence of national evidence, we drew from an original nationally representative survey of workers who experienced unemployment between 2019 and 2024. In that survey, we asked unemployed workers who filed for UI benefits if their employer fought their claim. We find that about 26 percent of UI applicants reported having their claim contested by their employer. That’s far higher than the 4-8 percent suggested by earlier studies that focused on one state (Washington) where researchers can access detailed UI records.

Our estimate may be higher than these past studies for at least two reasons. First, Washington state is a very worker-friendly state in terms of UI administration. And second, our survey measure likely captures not just formal contestations but the full range of employer pushback—including verbal discouragement and threats that lead workers to withdraw their applications so that the claim is abandoned. When your former boss tells you that you won’t qualify, or that they’ll fight your claim, many people simply give up.

The COVID Experiment

During the COVID-19 pandemic, states waived their experience rating of benefits; employers’ taxes wouldn’t go up based on their workers’ claims. If the incentives of experience rating were mitigated, we should expect a decline in employer contestations.

That’s exactly what we saw: contestation rates dropped compared to other years.

When experience rating resumed, contestations returned (see below). The pandemic experience thus provides suggestive evidence that employers do respond to financial incentives, though we stress we cannot observe the underlying eligibility of workers for benefits. As a result, it may also be the case that “true” eligibility for UI benefits increased during the pandemic so employers contested fewer claims. We need more research to disentagle this question.

Who Gets Contested?

In our survey, we found that not all workers face the same odds of having their claims challenged. Workers without a college degree are 31 percent more likely to report contestation than those with a degree. This pattern is troubling because we already know that less-educated workers are less likely to receive UI benefits even when eligible. Employer contestation may be one mechanism driving this inequality.

Does Contestation Work (for Employers)?

The survey suggests that contestation drives down access to benefits. Workers whose employers contested their claims were 51 percent less likely to ultimately receive benefits, even after controlling for workers’ demographic and job-related characteristics and the circumstances surrounding the worker’s job loss.

While we cannot know for sure whether all of these contestations were made in good faith and those workers should not have received benefits, the survey suggests that employers are contesting legitimate claims. 36 percent of workers who faced employer contestation still ended up receiving benefits. That means that more than a third of contested claims were—by the system’s own determination—legitimate.

The Impacts on Workers and their Families

Our study found that workers who faced contestation reported significantly higher rates of material hardship—difficulty paying for food, housing, and medical care—during their unemployment spell since they were less likely to receive benefits. These effects persist even after controlling for education, race, prior wages, and other factors.

There’s also a psychological burden. Workers who faced contestation reported significantly more stress and less respect during the application process—the kind of administrative burden that can compound the toll of job loss.

What Should Policymakers Do?

The original rationale for giving employers a role in UI administration was that they have valuable information about why workers left their jobs. That’s true. But the current system also gives employers a financial stake in potentially denying benefits to workers who legitimately lost their jobs through no fault of their own.

The study doesn’t tell us exactly how much contestation is legitimate or illegitimate; we’d need better data on workers’ actual eligibility to address that issue. But our study raises enough important questions about whether the trade-offs of the current system make sense that policymakers should be stepping in.

Should states limit employers’ ability to contest claims, or at least provide more support to workers navigating the appeals process? Should experience rating be modified so employers have less incentive to fight legitimate claims, perhaps moving to the Alaskan model of taxing employers on layoff, rather than on benefit claims? Should the federal government collect better data on contestations so we can actually track what’s happening?

At minimum, this research makes clear that the employer role in UI—so often treated as a neutral administrative feature—is anything but. It’s a policy choice with real consequences for whether unemployed workers can access the benefits meant to help them.

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