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“Accessing government services shouldn’t be a chore, and here in New Jersey we’re working hard to make government services simpler, faster, and more reliable. But not the federal government. It is cutting off mid-stream important funding for unemployment system improvements,” said Attorney General Davenport. “The people of New Jersey deserve services that work when they are needed most, not pointless disruption by the federal government.”

The lawsuit, filed in the U.S. Court of Federal Claims, challenges the DOL’s unlawful decision in May 2025 to terminate more than $45 million in plaintiff states’ remaining grant funding that was intended to assist states in modernizing unemployment insurance system technology and implementing measures to prevent fraud.

Congress created six different interrelated grant programs as part of the American Rescue Plan Act (ARPA) of 2021, amid the pandemic-related surge in unemployment claims. The goal of the program is to improve the technology used to administer states’ unemployment insurance programs to better detect and prevent fraud, promote equitable access, and pay benefits in a timely fashion.

In total, the DOL awarded more than $780 million to states to modernize their unemployment insurance systems.

DOL reviewed and approved project plans under these grant programs and set multi-year agreed-upon performance periods in which the projects were to be completed. Plaintiff states directed hundreds of millions of dollars in grant funding to projects that, once completed, would increase efficiency, help prevent and detect fraud and the improper use of federal unemployment insurance funds, improve resilience when the system experiences surges in claims, and improve the customer experience.

The NJ Department of Labor and Workforce Development (NJDOL) had three ARPA UI grants terminated in May 2025:

·    An ARPA Unemployment Insurance Integrity Grant for $2,609,000 beginning in Fiscal Year 2023

·    An ARPA IT Modernization Grant for $11,250,000 beginning in Fiscal Year 2023

·    An ARPA Unemployment Insurance Equity Grant for $6,840,000 beginning in Fiscal Year 2023

The ARPA grants were intended to improve the technical system used to make unemployment insurance claims, move it to a cloud-based system, and hire investigatory staff to identify fraud in the unemployment insurance program. With the termination of these grants, NJDOL will be unable to make critical security updates, system improvements, and program expansions.

On May 22, 2025, the Trump Administration’s DOL sent letters to the affected states abruptly and unlawfully terminating each grant agreement. The termination letters stated the agreements “no longer effectuate …. priorities for its grant funding.” The grant terminations rescinded unexpended funds under the grant agreements, interrupting the unemployment insurance modernization work that the DOL had approved and agreed to fund.

Consequently, approved projects were halted in the middle of the performance periods. States have had to reallocate funding from other sources, scale back project scopes or cancel projects altogether. The terminations have wasted funds and squandered opportunities to increase efficiencies for unemployment insurance system workers, employers, and administrative staff.

In its lawsuit, the coalition argues that the DOL grant terminations breached the express terms of each of the plaintiffs’ grant agreements. The terms of the grant agreements do not allow the DOL to unilaterally terminate the grant projects prior to the end of the performance period simply because the administration has changed its priorities. The coalition also argues the DOL breached the implied duty of good faith and fair dealing by wrongfully imposing new terms and conditions, relying on an erroneous and bad faith interpretation of relevant regulations, relying on an erroneous and bad faith interpretation of authorizing statutes, and by failing to provide plaintiffs with formal notice and an opportunity to object to their grant terminations.

The states are seeking money damages as part of the lawsuit.

This lawsuit was co-led by Wisconsin Attorney General Josh Kaul and Maryland Attorney General Anthony Brown. In addition to Attorney General Davenport, the attorneys general of California, Colorado, Delaware, Illinois, Maine, Michigan, New Mexico, New York, and Oregon, as well as the governors of Kentucky and Pennsylvania, joined the lawsuit.