Fourteen Democratic states sue Labor Department over canceled unemployment IT grants
Fourteen states led by Democratic officials have filed a lawsuit in the U.S. Court of Federal Claims, alleging the Labor Department breached contracts by terminating more than $45 million in COVID-era unemployment-system modernization grants.
A coalition of fourteen Democratic-led states has brought a federal claim against the U.S. Department of Labor, asserting that the agency unlawfully revoked competitive grants earmarked for modernizing state unemployment insurance technology. The lawsuit, lodged in the Court of Federal Claims, seeks to recover more than $100 million, including roughly $45 million that was terminated after the department announced the decision in May 2025.
These funds originated from the American Rescue Plan Act, a $1.9 trillion COVID-relief package signed by President Joe Biden in 2021, which allocated $780 million for IT upgrades. State officials contend the cancellations breach contract obligations and hamper fraud detection and claim accessibility. Illinois Attorney General Kwame Raoul emphasized that Congress approved the money to strengthen unemployment systems, and one outlet administration’s actions contradict that purpose. The case highlights a clash over the use of pandemic-era relief funds and the federal government's authority to alter grant programs.
Why it matters
The lawsuit challenges a federal decision that could affect billions in pandemic relief and the ability of states to modernize unemployment services.
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