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Unemployment Cut-Off Suits Swipe at States’ Power to Abandon Aid

July 9, 2021, 9:31 AM

Lawsuits challenging the early end of federal enhanced unemployment benefits point to a possible limitation on state officials’ authority over their jobless aid programs—the states’ own decades-old statutes.

Cases filed in Indiana, Maryland, Ohio, and Texas challenge governors’ authority to end federal pandemic benefits early. Congress scheduled the federal assistance to sunset in September, but governors in at least 26 states have chosen to terminate them sooner. Plaintiffs have won temporary orders in Indiana and Maryland requiring the benefits to continue.

The lawyers bringing these suits interpret state law as requiring governors and/or state workforce agencies to cooperate with the U.S. government in distributing all available unemployment benefits.

Their arguments, if successful, would strike at authority states have used since the cooperative state-federal model of unemployment insurance was established in 1935. States hold the power to set rules around who qualifies, how much money they get, and for how many weeks, as long as they conform to certain federal requirements.

“These laws were passed at the height of the Depression when the federal unemployment law was enacted,” said Marc Dann, a former Ohio attorney general who filed litigation this week to challenge Gov. Mike DeWine’s (R) decision to cut off the federal aid. “State legislators were concerned that their successors would make sure that they would access all of the available federal benefits. This was kind of a legacy of the New Deal,” Dann, a Democrat, said.

Unemployment laws across the country authorize and direct state officials “to secure to this state and its citizens all advantages available” under the unemployment provisions of the federal Social Security Act, as Ohio’s unemployment statute puts it. Many statutes declare it a public policy to combat the economic insecurity caused by unemployment, which they deem “a serious menace to the health, morals, and welfare of the people of this state,” as in Mississippi’s statute.

A number of state laws require maximum cooperation with the U.S. Department of Labor in administering the benefits.

Like Ohio, similar language appears in the statutes of Arkansas, Louisiana, Oklahoma, South Carolina, and Tennessee, among others, all of whom have ended the federal aid earlier than the September expiration date set by Congress.

Feds Allowed Opt-Outs

So far, lawyers for unemployment claimants have managed to persuade judges in Indiana and Maryland to issue temporary orders instructing the states to continue paying the federal benefits.

In Indiana, Gov. Eric Holcomb (R) has appealed the judge’s decision, while a Maryland appeals court rejected Gov. Larry Hogan’s (R) appeal of the temporary order and directed the case to continue at the trial court. A similar request for a temporary restraining order to prevent benefits from ending prematurely was rejected in Texas.

For the claimants to win a broader ruling that can withstand an appeal seems less likely, said Ashley Cuttino, an attorney with Ogletree Deakins in Greenville, S.C., who has led the firm’s unemployment law practice during the pandemic.

That’s because the federal legislation that created the enhanced unemployment benefits during the pandemic—the CARES Act of March 2020—specifically gave states the option not to participate or to participate but then later opt out with 30 days’ notice to the U.S. Labor Department.

“The states are complying with the federal code that granted the benefits,” Cuttino said. “States never had to sign on for it in the first place. They chose to do so.”

Christopher O’Leary, a senior economist who studies unemployment at the W.E. Upjohn Institute for Employment Research, said the states’ authority under federal versus state law might conflict in this instance. But he questioned the wisdom of states opting out and said judges might be swayed by the practical impacts of those decisions to end benefits.

“You would think it would be natural to accept it. It’s additional spending power,” O’Leary said. “It’s kind of macro stimulus if you have this additional money flowing in, but the governors seem to think it is inhibiting the return to work.”

“All the research I’ve seen says these benefits have not affected people’s willingness to work,” he said.

Narrow Window of Time

The federal benefits being disputed are scheduled to expire nationwide in early September. That means these cases could be largely moot in two months, although claimants might keep fighting them in an effort to get back-pay for benefits that their state ended early.

“There’s only two months left, but we’re talking about $98 million” that Ohio unemployment claimants are losing, Dann said.

Even winning a judge’s order doesn’t necessarily mean benefits will start flowing again. In Indiana, the state’s workforce agency said it wasn’t sure if or how it could restart the benefits after it had terminated its agreement with the U.S. Labor Department, despite the judge’s order telling them to rejoin the federal program.

Scott Olson, a spokesman for Indiana’s Department of Workforce Development, didn’t immediately respond to a request for comment on why the state hasn’t resumed paying the benefits. As part of its appeal, the state is seeking a stay of the trial court’s order.

The narrow window also could be a factor in discouraging the filing of more lawsuits, as only four states have been sued out of the 26 that opted to end benefits.

A nonprofit legal aid group in Nebraska is focusing on other kinds of assistance to unemployment claimants, such as seeking waivers for mistaken overpayments and helping with appeals of benefit denials.

“While we’re aware of the litigation in Indiana, for example, in Nebraska we do not have any pending actions or plans to challenge the UI decision, as our state law and courts are not quite as helpful,” said Milo Mumgaard, executive director for Legal Aid of Nebraska.

—With assistance from Robert Iafolla

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Andrew Harris at aharris@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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