Harrisburg, PA – The Shapiro Administration today announced that the Pennsylvania Department of Labor & Industry (L&I) has joined a multi-state lawsuit challenging the U.S. Department of Labor’s termination of federal funding awarded to states to strengthen unemployment compensation systems, prevent fraud, improve access to benefits, and ensure eligible workers receive benefits in a timely manner.
The lawsuit, filed in the U.S. Court of Federal Claims, challenges the federal Department of Labor’s decision to terminate unemployment insurance modernization grants created through the American Rescue Plan Act (ARPA). The complaint alleges that the federal government unlawfully ended grant agreements before the approved performance periods expired, interrupting work already underway in Pennsylvania and other states.
“Pennsylvanians deserve an unemployment compensation system that is secure, accessible, and responsive when they need it most,” said L&I Secretary Nancy A. Walker. “The Shapiro Administration is taking action to protect Pennsylvania’s ability to keep improving this essential system for workers, employers, and taxpayers.”
Congress created the unemployment insurance modernization grants through ARPA following the COVID-19 pandemic, when states across the country experienced historic demand for unemployment compensation and long-standing technology challenges became more urgent. The funding was intended to help states detect and prevent fraud, improve access, and ensure timely payment of benefits to eligible workers.
Pennsylvania was awarded federal funding to support work focused on program integrity, expert-backed system improvements, and improved access to unemployment compensation. Those grants supported L&I’s ongoing work to strengthen the security, reliability, and accessibility of Pennsylvania’s UC system, including efforts to prevent improper payments, improve identity verification, enhance system performance, and better serve workers and employers.
The federal Department of Labor reviewed and approved state project plans before awarding the grants and setting multi-year performance periods for states to complete the work. On May 22, 2025, the federal Department of Labor issued termination letters stating that the grants no longer aligned with the Department’s priorities for grant funding.
The complaint alleges that the terminations disrupted approved projects, left states with unspent balances under the original grant awards, and prevented states from completing modernization work designed to improve efficiency, strengthen fraud prevention, and enhance service for workers, employers, and unemployment compensation staff.
The lawsuit further alleges that the federal Department of Labor breached the terms of the grant agreements by terminating them before the agreed-upon performance periods ended. It also alleges that USDOL violated its duty of good faith and fair dealing by imposing new conditions after the agreements had been executed, relying on erroneous interpretations of federal law and regulations, and failing to provide states with formal notice and an opportunity to object before terminating the grants.
The coalition is seeking monetary damages and other relief available under law.
The lawsuit was co-led by Maryland Attorney General Anthony Brown and Wisconsin Attorney General Josh Kaul. The Pennsylvania Department of Labor & Industry joined the lawsuit alongside California, Colorado, Delaware, Illinois, Kentucky, Maine, Maryland, Michigan, New Jersey, New Mexico, New York, Oregon, and Wisconsin.
For more information on the Pennsylvania Department of Labor & Industry, please visit the website or follow L&I on Instagram, Facebook, X, and LinkedIn.
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