From the October 2000 issue of Entrepreneur

Unemployment compensation is an insurance program designed to provide income to people who are out of work. Sounds fair, but to a business owner, it means paying into a fund that disperses the money-and how much you're required to pay depends in large part on how many of your former employees collect benefits. That's why it's in your company's best interest to challenge claims made by former employees who may not be legitimately entitled to benefits. Though unemployment laws vary by state, in most cases, claims are denied when employees resign without good cause attributable to their employers or are terminated for gross misconduct.

Of course, you may have a legitimate reason for firing someone, and that employee might still qualify for unemployment compensation, says Frank A. Gumina, an attorney with Wessels & Pautsch P.C. in Milwaukee, Wisconsin. "Almost across the board, state statutes say their purpose is to be liberally construed in providing benefits to dislocated workers," he explains.

If gross misconduct is involved, Gumina says, you need to create and maintain thorough documentation regarding the behavior and all actions up to and including the termination. If an employee voluntarily resigns, be sure to get it in writing so they can't later claim they were fired.

Typically, when a former employee files for unemployment compensation, you have a certain amount of time to respond to the claim. Then an initial determination regarding benefits is made, and if you or the employee disagrees with that determination, either of you may appeal for a hearing. At the hearing, you'll have the opportunity to present your evidence and any witness testimony. If you have any ob-jections as to what occurs at the hearing, be sure they're stated on the record during the procedure in case you file an appeal.

Thankfully, most unemployment cases can be handled without an attorney, but Gumina says there may be times when you'll want to retain counsel. For example, if you suspect that other claims related to the termination might be made, or if you anticipate further litigation for any reason, it's a good idea to get an attorney involved immediately.

It's worthwhile to fight any unjust unemployment claims, because the fewer claims you have, the lower your tax rate will be. Gumina says, "If you prepare your exhibits and your witnesses, and know the standards for denying unemployment compensation, you'll enjoy your share of success."