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In many cases, it isn't worth the time and trouble -- not to mention the ill will the former employee will feel toward your company, which is often a strong incentive to consider a lawsuit. Even employees who were fired for cause are often eligible for unemployment. In many states, an out-of-work employee who is fired for reasons other than misconduct is still entitled to unemployment benefits. For more information on your legal grounds for contesting an unemployment claim (and tips on when it might make sense to do so), see Nolo's article Unemployment Benefits: Contesting an Employee's Claim.