LANSING, Mich. (WOWO) — Michigan Attorney General Dana Nessel has joined a 14-state lawsuit challenging the U.S. Department of Labor’s decision to terminate federal grants for unemployment insurance system upgrades, fraud prevention and benefit delivery improvements.
The lawsuit, filed in the U.S. Court of Federal Claims, seeks monetary damages over the termination of more than $45 million in remaining funding for unemployment insurance modernization projects across the participating states.
Michigan had been awarded nearly $11.3 million through two federal grant programs. The state lost a combined $4.24 million when the funding was clawed back, according to information released by Nessel’s office.
WILX News 10 reports Michigan received $6.78 million in Equity grants, of which $2.83 million was reclaimed. The state was also awarded $4.47 million in Tiger Team grants, with $1.41 million clawed back.
“Our Unemployment Insurance Agency plays a vital role in supporting Michiganders when they need it most,” Nessel said. She argued that the federal decision cut funding intended to modernize technology, prevent fraud and protect the state’s unemployment insurance system.
The grant programs were established under the 2021 American Rescue Plan Act after the COVID-19 pandemic triggered a surge in unemployment claims. The U.S. Department of Labor awarded more than $780 million to states for projects aimed at improving unemployment systems, detecting and preventing fraud, expanding equitable access to benefits and ensuring payments were made on time.
According to the states’ lawsuit, the Department of Labor sent letters on May 22, 2025, terminating the grant agreements. The letters stated that the agreements “no longer effectuate [Department of Labor’s] priorities for its grant funding.”
The states argue the department improperly terminated projects that had already been approved and that the grant agreements did not authorize early cancellation simply because the administration’s priorities changed.
The coalition also alleges the department breached its obligation to act in good faith and failed to provide formal notice and an opportunity for the states to object before the agreements were terminated.
The states contend the funding cuts disrupted ongoing projects, forcing them to seek replacement funding, scale back planned improvements or cancel projects altogether.
The lawsuit seeks to recover money damages stemming from the federal government’s decision. The announcement provided by Nessel’s office did not include a response from the Department of Labor, and the states’ allegations have not been established as findings by the court.
