Oregon Attorney General Dan Rayfield filed a federal lawsuit Friday, Oct. 9, to recover $12.3 million in canceled unemployment grants. The money had funded fraud prevention, language translation and worker access programs statewide.
The breach-of-contract complaint, filed in the U.S. Court of Federal Claims, names the United States and U.S. Department of Labor (DOL) Secretary Keith Sonderling as defendants. Thirteen other states joined Oregon in the suit, which challenges more than $45 million in terminated grant funding nationwide.
The canceled grants had paid for programs that served unemployed workers across Oregon, including in Salem and Marion County. The Oregon Employment Department (OED) used the funds to partner with community organizations that helped people navigate the benefits process, improve language translation and identity verification, and create an Equitable Access to Unemployment Insurance unit offering one-on-one help to people facing barriers.
OED had been awarded $12,282,800 across four grant programs: Integrity, Navigator, Tiger Team and Equity. Congress created the grants through the American Rescue Plan Act (ARPA) of 2021 after the COVID-19 pandemic overwhelmed state unemployment systems. The DOL awarded more than $780 million to states nationwide for the work.
On May 22, 2025, the DOL sent letters canceling the grants. The letters stated the funding no longer matched the agency's priorities. Unspent money was clawed back and projects stopped.
The fallout hit Oregon quickly. OED shut down the Equitable Access unit and ended its community partnerships. The agency shelved some service-improvement projects and kept others going only by pulling money from elsewhere.
"We're not going to let the Trump Administration get in the way of strengthening a program that Oregon workers rely on," Rayfield said in an Oct. 9 statement from his office.
The complaint argues the DOL broke the terms of its grant agreements. Those agreements do not allow the agency to walk away mid-project because its priorities shifted. The suit also alleges the department acted in bad faith by imposing new conditions, misapplying grant regulations and failing to give states formal notice or a chance to object.
Oregon is seeking monetary damages.
DOL Secretary Sonderling defended the terminations in a July 2026 letter to Wisconsin's governor, saying the cuts were part of efforts to "root out fraud, waste, abuse, and corruption to protect taxpayer dollars," the Milwaukee Journal Sentinel reported.
Attorneys general from California, Colorado, Delaware, Illinois, Maine, Maryland, Michigan, New Jersey, New Mexico, New York and Wisconsin joined the suit, along with the governors of Kentucky and Pennsylvania. No court hearing date has been scheduled.
