You would only have to pay into unemployment IF your alleged "1099 employees"--the proper term, by the way, is "independent contractors"--are in fact "regular" employees who should be paid on W2s. The law looks to the reality of how the person works, how they are supervised, and how much control the employer has over the person to determine if they are an independent contractor or an employee; that is, what the employer calls the person or the document (e.g. 1099 vs. W2) issued them is NOT controlling or dispositive. So if a company is being sued by the government for unemployment contributions, the government believes that at least some of the alleged independent contractors are in fact employees for whom unemployment contributions should have been made. To avoid having to pay (to successfully defend the suit), the company will have to show that the workers are sufficiently independent as to be independent contractors.Note that if the company sets the hours or place of employment (i.e. when or where the work must be done) or can manage/direct the workers how to do the work, they are most likely employees, not independent contractors. You can find a good discussion of the difference between employees and indepedent contractors on the IRS's website.