Attorney General Dan Rayfield is challenging the U.S. Department of Labor’s decision to cut off federal funds for improving Oregon’s unemployment insurance system and fraud detection.
“If an Oregonian loses their job, they need to be able to navigate the unemployment system, receive benefits on time, and trust that the system is protected from fraud,” said Attorney General Rayfield. “A strong unemployment system means a worker who was just laid off can still pay rent and buy groceries while looking for their next job. We’re not going to let the Trump Administration get in the way of strengthening a program that Oregon workers rely on.”
The lawsuit, filed in the U.S. Court of Federal Claims, challenges the U.S. Department of Labor’s decision in May 2025 to cancel more than $45 million in grant funding owed to Oregon and other states.
In the wake of the COVID pandemic, which sent unemployment claims soaring and revealed that most states’ technology was completely out-of-date, Congress created these grants through the American Rescue Plan Act. The goals were simple: help states catch fraud, make it easier for eligible workers to get benefits, and get payments out faster. Nationwide, the Department of Labor awarded more than $780 million for this work.
The money flowed through six grant programs:
- IT Modernization — building technology that can handle surges in claims and keep up with new fraud threats
- Integrity — strengthening identity verification
- Navigator — helping eligible workers understand and apply for benefits
- Tiger Team — putting expert recommendations on fraud, access, and payment timeliness into practice
- Equity — removing barriers to benefits and speeding up payments
- Fraud Prevention — reducing improper payments and recovering overpayments
The Department of Labor reviewed and approved each state’s plans and set multi-year timelines to finish the work.
The Oregon Employment Department was awarded a total of $12,282,800 in grants under the Integrity, Navigator, Tiger Team, and Equity programs. The agency used these funds to partner with community-based organizations to help unemployed individuals navigate the unemployment insurance process, improve language translation services and identity authentication, create the Equitable Access to UI unit to offer outreach and on-on-one services to assist customers experiencing barriers to accessing unemployment insurance benefits, and support collections activities.
On May 22, 2025, the federal administration sent letters abruptly canceling the grants, saying they no longer matched its priorities. Any money not yet spent was taken back, and projects were stopped in their tracks.
States have been left scrambling – pulling money from other sources, shrinking projects, or dropping them entirely. The Oregon Employment Department was forced to prematurely shutter the Equitable Access to UI unit and its partnerships with community-based organizations. The agency also shelved some of its service delivery improvement projects and continued others only by diverting funding from other projects.
AG Rayfield argues that the department broke the terms of its grant agreements, which don’t allow it to walk away mid-project just because the administration changed its priorities. The lawsuit also says the department acted in bad faith by imposing new conditions, misapplying the regulations and laws that govern the grants, and failing to give states formal notice and a chance to object.
Oregon is seeking monetary damages.
Alongside AG Rayfield in filing this lawsuit are the attorneys general of California, Colorado, Delaware, Illinois, Maine, Maryland, Michigan, New Jersey, New Mexico, New York, and Wisconsin, as well as the governors of Kentucky and Pennsylvania.
