May 26, 2020 Secretary Julie Su California Labor & Workforce Development Agency 800 Capitol Mall, Suite 5000 (MIC-55) Sacramento, CA 95814 RE: Unemployment Insurance for Misclassified Workers Dear Secretary Su: Thank you for your commitment to protecting workers in the midst of an unprecedented pandemic and recession. This crisis has laid bare the harm workers suffer when companies misclassify them as independent contractors, denying them access to critical workplace protections and benefits like paid sick days, workers compensation, and unemployment insurance. It has also exposed the costs to our economy and our general fund when some companies profit from workers’ labor but refuse to pay their fair share and expect the state to foot the bill. The purpose of this letter is to again request that the Employment Development Department (EDD) move swiftly and decisively to modify its policies and practices for processing claims for unemployment insurance benefits (UI) filed by misclassified workers. We know that misclassification is a problem in virtually every industry, but we highlight the practices of Transportation Network Companies (e.g. Uber Technologies, Inc., Lyft, Inc.) who continue to misclassify drivers as independent contractors despite the passage of AB5. Rather than comply with the law voluntarily, and pay their fair share, the TNCs have elected to wait until they are compelled to do so. Similarly, misclassification remains pervasive in the port trucking industry, despite overwhelming findings of employee status of port truck drivers across all levels of courts and government agencies, including the EDD. We know the State is committed to enforcing AB5 and bringing companies into compliance. Yet, the various government agencies have not been consistent in how they hold these companies accountable under the law. On one hand, the California Attorney General Xavier Becerra and the City Attorneys of San Francisco, Los Angeles, and San Diego recently filed suit to enjoin Uber and Lyft from continuing to misclassify drivers and force their compliance with all applicable employment laws, including those administered by EDD. Likewise, both the California Attorney General and Los Angeles City Attorney are pursuing several similar lawsuits against market-leading port trucking companies. Meanwhile, TNC drivers and other misclassified workers, including port drivers, have faced an uphill battle to secure UI benefits through EDD because of inconsistent and conflicting practices at the agency in processing claims of misclassified drivers. Below, we highlight experiences of the TNC drivers which are representative of the TNC drivers as a whole and which also mirror the experiences of port truck drivers. While a small number of these drivers have been awarded UI benefits after much effort and delays, others still are waiting weeks and/or months for EDD to take action, while still others are diverted into the Pandemic Unemployment Assistance (PUA) program where they don’t belong. These workers need immediate access to this social safety net program to put food on their table, keep a roof over their heads, pay for medications and meet their child support obligations. Many drivers have reached a point of desperation and are running out of time and resources. It is critical that EDD take immediate steps to develop and implement a simplified set of streamlined procedures for processing of UI claims filed by misclassified independent contractors, including Uber and Lyft drivers. Outlined below are four proposals to address systemic failures that plague clients and advocates as they try to secure UI benefits during this unprecedented economic crisis: 1. Train all EDD staff on how to properly assess misclassification cases 2. Eliminate individual assessments for repeat employers/certain industries 3. Simplify the wage auditing process for individuals 4. Reassess workers receiving PUA on a quarterly basis We believe that implementation of these recommendations will fulfill EDD’s legal obligations to give effect to AB5, while also conserving department resources, ensure timely payment of proper benefits to misclassified workers, including TNC drivers, and give proper effect to DOL’s regulations for PUA. Without these or similar reforms, the EDD process will continue to be an instrument for the unequal administration of justice. 1) Train all EDD staff on how to properly assess misclassification cases It is imperative that proper training be provided to all EDD staff – from the call-center up – for recognizing who is a misclassified worker and how to handle their UI claims to ensure benefit determinations for these workers are consistent and timely. Since the COVID19 crisis began, EDD has provided misclassified TNC workers conflicting and confusing information about their eligibility for unemployment benefits. The EDD’s website contains flatly contradictory messages (e.g. the website tells so-called “gig” economy workers that they should – and they shouldn’t - list the “gig” employer as their last employer” 1). EDD line staff frequently provides misclassified workers wrong information about their eligibility. Many drivers have been told they are ineligible for UI, even after they request a wage audit, simply because they have 1099 earnings. Numerous workers have reported being discouraged from appealing unemployment denials or told their appeals will not be processed because their “UI claims are not valid.” Drivers have also been pressured by EDD staff to apply for PUA, including many who have asserted they were misclassified and whose claims should therefore have been moved through the wage audit process. One driver was told that while the claims specialist agreed he was an employee, it would “take months to process his case” so he should just apply for PUA. Advocates have heard from numerous drivers that they ended up applying for PUA because they were confused and frustrated by EDD’s responses to their efforts to pursue claims for UI benefits. While we share the desire to get workers benefits as quickly as possible, PUA is not a proper or adequate substitute for traditional state unemployment benefits for these workers. The PUA program was conceived of as a benefit of last resort for self-employed, bona fide independent contractors and others who are ineligible for traditional state UI. The practice of pushing misclassified workers into PUA without a proper assessment of their eligibility for UI violates the CARES Act, which provides that only individuals who are ineligible for state UI can receive PUA. Coronavirus Aid, Relief, and Economic Security Act, H.R.748, 116th Cong. § 2102(3)(A)(i) (2020). Moreover, reliance on PUA as a substitute social safety net for misclassified employees who are eligible for traditional UI benefits – even if well intentioned – effectively validates and rewards the TNCs’ blatant business strategy to conduct business outside the law with a government subsidy and shortchanges the workers without whom these companies would have no business at all. We strongly believe that having a separate unit or specific sector-focused teams dedicated to assessing misclassification claims would be the best way to streamline the processing misclassification claims, and to provide more efficient and equal administration of justice within the agency. But even without a separate unit, EDD can and should implement agency-wide protocols to streamline and speed-up the processing of misclassification claims and to eliminate any perceived need to put these workers into the PUA program. Our recommendations include the following: a) Develop a script for front-line staff to provide consistent information when a worker does not have traditional W2 earnings; 1 Compare https://edd.ca.gov/about_edd/coronavirus-2019/faqs.htm with https://unemployment.edd.ca.gov/guide/benefits b) Create a checklist for front line staff to properly screen if a worker has been misclassified, including a list of documents needed by EDD to begin the wage audit; c) Assign claims to a wage auditor within 3 days of a claim identified as raising misclassification issue; d) Implement policies to require wage auditors to issue a determination on a worker’s classification within three weeks, and pay benefits within a week of that determination; and e) post a flowchart and/or explanation of the process and timeline for misclassified workers on the EDD website so that workers understand the process they need to navigate. EDD has committed to making sure that all workers receive their benefits within 3 weeks of applying. There is no reason that misclassified workers should not be treated the same as every other California unemployed individual and be forced to bear the brunt of their employer’s lack of compliance with the law. 2) Eliminate individual assessments for repeat employers/certain industries If a worker’s claim is moved forward to determine misclassification, they face unacceptably long delays. It can take weeks or months from initial application for these interviews to happen, and misclassified workers are sometimes interviewed more than once to determine their employment status. One driver applied for food stamps and has had to borrow money from her daughter, a full-time student, “just to survive.” She is one of many drivers who, two months after applying for benefits, are still waiting to receive information from the EDD about their claim. AB5 has significantly simplified the test to determine if a worker is an employee or independent contractor. But even under the prior standard, which applies for work performed before 2020, no individual assessment needs to be undertaken in the vast majority of these cases. The work TNC drivers perform does not vary in any way that is material to the test set forth in Tieberg v. Unemployment Insurance Appeals Board, 2 Cal. 3d 943 (1970). “The principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Id. at 946. Yet, EDD uses a lengthy list of questions to assess employer status for the rideshare industry. See DE1870RS. Once the Department has reached the determination that Uber and Lyft have such right of control (a finding that EDD has repeatedly made in past cases based on the identical facts) there is no need to make this inquiry again. When an employer requests a determination from EDD on employee status, the agency recognizes that an assessment on an individual can be applied classwide. The form specifically states, “a written determination for any worker will apply to other workers of the same class if facts are the same as those of the worker whose status is the subject of the written determination.” See DE1870 at 1. There is no reason, then, that EDD cannot apply a class-wide approach for workers similarly situated who apply for UI. We ask that EDD make a determination on a batch of misclassification claims for repeat employers such as Uber and Lyft. Once that analysis has been established, each subsequent claim from that employer does not have to be individually assessed. EDD can simply apply its findings across the board for that employer. This would greatly streamline the process and provide workers access to the benefits they are entitled to faster. It also is more efficient for the agency, at a time that they are greatly overburdened with the sheer number of applicants. 3) Simplify the wage auditing process Another factor contributing to long delays is the companies’ unlawful failure to report wages needed to calculate the proper weekly benefit amount. A common scenario involves a worker timely requesting a wage audit after receiving notice that EDD has no record of earnings history and supplying the requested wage information; hearing nothing from EDD, the worker calls back repeatedly and then is often asked to resubmit his or her wage information a second or third time. It’s not uncommon for the worker to have to wait six to eight weeks for the audit to be complete to be awarded benefits. In many other cases, workers continue to wait to hear back from EDD. Out of a survey of thirty-six misclassified workers, forty-seven percent who applied for benefits in either March or April of 2020 continue to wait for wage audits to be completed. Every week that a worker goes without benefits is a week where they must struggle to put food on their table, worry about the rent and forgo basic necessities for their families. Drivers describe their economic situation in dire terms – “destitute” “desperate” and “dying.” Workers should not have to shoulder the burden due to companies’ failure to comply with the law. This delay causes many to abandon their meritorious claims and seek PUA instead. One worker explained why he finally applied for PUA after submitting his wage information, “I couldn’t continue to rely on donations and had to move forward to support my family.” Now he’s receiving far less in PUA than he would in UI. EDD can quickly resolve these cases and significantly shorten the wage audit process by applying UI Code Section 1093, which creates a conclusive presumption that a worker is entitled to the maximum benefit amount when an employer fails to provide wage information to EDD within a reasonable amount of time. EDD is mandated to apply this presumption when employers fail to provide requested data, and should apply it in cases where misclassified workers would otherwise have $0 awards based on employer refusal to report earnings. As an alternative, EDD could determine benefits based on worker-supplied earnings records such as screenshots of employer-generated earnings statements. On March 23, 2020 the Legislative Analyst’s Office (LAO) - a nonpartisan fiscal and policy advisor - set out recommendations for unemployed app-based workers which similarly included a proposal that EDD consider individuals presumptively eligible for UI if they provide documentation of earnings from app-based companies. See attached report. 2 The brief also recommended issuing benefits based on worker-reported earnings and verifying at a later date or providing a flat, standard weekly benefit amount. 2 While the LAO subsequently deleted the section on streamlining UI benefits for unemployed app-based workers from its policy brief, its recommendations are consistent with our proposals for EDD to streamline benefit determinations and should be followed here. These recommendations to streamline the wage auditing process will greatly reduce the delays that workers currently face. In all cases, EDD should complete wage audits within 3 weeks of a claim being filed. 4) Reassess workers in PUA on a quarterly basis Due to the problems outlined above, many misclassified workers are receiving PUA when they are in fact eligible for unemployment. This typically results in misclassified workers receiving less than they are eligible for in UI benefits. Further, DOL guidance provides that states must reassess workers on a quarterly basis to confirm they remain ineligible for UI. Unemployment Insurance Program Letter No. 16-20 Change 1 at pg. I-13, available at https://wdr.doleta.gov/directives/attach/UIPL/UIPL_16-20_Change_1.pdf. As of April 2020, workers will have earnings from 2020 in their alternative base period; come June, workers will have earnings from 2020 in their regular base period. Thus, the Department will need to consider whether those earnings are wages under the simplified ABC standard codified by AB5. For drivers, the answer is clear. As Judge Chhabria recently explained, “drivers provide services that are squarely within the usual course of the company's business, and Lyft's argument to the contrary is frivolous. Rogers v. Lyft, Inc., --- F. Supp. ---, No. 20-CV01938-VC, 2020 WL 1684151, at *2 (N.D. Cal. Apr. 7, 2020). “[T]he legal question is easy.” Id. at *2 n.1; see also The People of the State of California v. Maplebear, Inc., Case No. 372019-00048731-CU-MC-CTL, p. 4 (Feb. 13, 2020) (granting a prohibitory injunction against Instacart in San Diego relying on the holding in Dynamex). EDD must implement a process to reevaluate workers’ eligibility for PUA on a quarterly basis and move workers to UI when necessary. Moreover, EDD should immediately reevaluate TNC drivers currently receiving PUA and move them into UI pending the results of a proper assessment of their cases. These workers should not be forced to accept a lower benefit amount because they were either unlawfully pushed to PUA or simply could no longer wait for their cases to be processed. ******** It is a tragedy that misclassified workers are unable to access insurance benefits, a fundamental safety net program, in a timely manner during this pandemic because their employers have refused to comply with the law. It is EDD’s duty and affirmative obligation to implement a process that streamlines misclassification assessments so that benefits can be awarded immediately. To not act with urgency and compassion devalues the labor of these workers. Sincerely, Women’s Employment Rights Clinic - Golden Gate University Legal Aid At Work Bet Tzedek Legal Services California Rural Legal Assistance Foundation, Inc. Center for Workers’ Rights Centro Legal de la Raza Employee Rights Center Gig Workers Rising Instituto Laboral de la Raza La Raza Centro Legal Legal Aid of Marin Los Angeles Alliance for a New Economy (LAANE) National Employment Law Project Partnership for Working Families Rideshare Drivers United Santa Clara County Wage Theft Coalition Service Employees International Union (SEIU) Teamsters Port Division Transport Workers Union UNITE HERE! United Food and Commercial Workers Union Worksafe Cc: Ann O’Leary, Governor’s Office, Chief of Staff Anthony Williams, Governor’s Office, Legislative Secretary Angie Wei, Governor’s Office, Special Advisor Anthony Rendon, Speaker of the Assembly Tem Toni Atkins, Senate President Pro Tempore Budget/Policy Analysis March 23, 2020 Unemployment Insurance For Workers Impacted By COVID-19 On Wednesday, March 18, the President signed H.R. 6201, the Families First Coronavirus Response Act, the federal relief act aimed at mitigating the economic and public health consequences of COVID-19. H.R. 6201 includes several actions related to unemployment insurance (UI). The law goes into effect April 3. In this post, we summarize the UI-related provisions of the law, discuss how these interact with current state programs, and highlight options the Legislature may want to pursue in responding to the ongoing crisis. We are accurate to the best of our ability given the urgent response needed and the rapidly changing situation. We will continuously monitor the situation and provide updates as necessary. State’s Existing Unemployment Insurance Program. Through the Employment Development Department (EDD), most employees are eligible to receive weekly UI benefits when they become unemployed through no fault of their own and intend to continue looking for new work. Benefits are available for up to 26 weeks. To fund the benefits, employers pay a payroll tax on the first $7,000 of employee wages. The payroll tax rate is based on the employers “experience rating,” in which the tax rate is higher for employers who have had many UI claims in the past and lower for employers with fewer claims. In 2019, the state collected $5.9 billion in UI taxes from employers and issued about $5.5 billion in total UI benefits. On average, in 2019, unemployed workers received about $330 per week for 17 weeks. During times of increased unemployment, state funds for unemployment benefits may run out. When this occurs, the state receives federal UI loans to continue paying out benefits. Once the economy recovers, the state and employers repay the federal UI loans. Key Provisions of Federal COVID-19 Relief Grants Flexibility to Temporarily Loosen State UI Policies. Changes in state laws governing the UI program must be approved by the U.S. Department of Labor. H.R. 6201 waives this requirement if the state pursues the following temporary changes: (1) eliminating the one-week waiting period before a worker is eligible for UI, (2) loosening work search requirements, (3) loosening so-called “good cause” requirements that limit when workers may receive UI benefits if they leave their job voluntarily, and (4) changing how employers’ experience ratings are calculated for COVID-19-related unemployment. Provides New UI Administration Funding for EDD. H.R. 6201 makes available roughly $150 million in additional UI administration money to California. This funding would be made available to California in two parts. Half would be made available within 60 days to states that follow certain best practices in administering UI benefits. How the U.S. Department of Labor will enforce these administrative standards currently is unclear. We believe the state currently follows these basic administrative standards, though they are not necessarily spelled out in state law. There is a possibility the state will need to take some action to reaffirm these best practices via executive order or, time permitting, legislation. The remaining funds would be made available to states with increased UI claims. Specifically, funds would be available once quarterly UI claims exceed the number of claims in the same quarter of the previous year by 10 percent or more. Given the preliminary state claims data from early March, we expect that the state will qualify for these funds. Additionally, to receive the second round of funding, the state would need to take actions intended to expand access to UI benefits for workers affected by COVID-19, such as (1) temporarily waiving work search requirement, (2) temporarily waiving the 7-day waiting time, and (3) change its calculation for employer experience rating to exclude from the calculation UI claims related to COVID-19. (The Governor has already waived the 7-day waiting time requirement.) Similar to the criteria for the first half of funding, the state may need to make some additional action to demonstrate its intent to meet these federal requirements. The Governor has already issued an executive order to eliminate the 7-day waiting period. . Increased Federal Funding for Extended UI Benefits. Existing law establishes the federal Extended Benefits program (Fed-ED) which extends the amount of time a worker may claim UI benefits from 26 weeks to 39 weeks during periods of high unemployment. H.R. 6201 provides that the full cost of benefits paid during the 13 week extended period would be funded by the federal government instead of from UI payroll tax payments from California employers. This federal funding is available for extended benefits paid through the end of 2020. The state does not need to take any action to take advantage of these Fed-ED benefits. That being said, in order to be eligible for the Fed-ED benefits, the state’s unemployment rate must exceed a certain level before Fed-ED benefits become available. While unemployment in California almost certainly exceeds these thresholds at present, this high level of unemployment likely would need to be sustained for two to three months for the state to be eligible for Fed-ED. Suspends State Payments and Interest on Federal Loans to the UI Trust Fund. During downturns, the state’s UI Trust Fund typically becomes insolvent as benefit payments exceed payroll tax collections. When this occurs, the federal government provides a loan to the state to allow EDD to continue to issue benefits. In general, the state must pay interest on these loans. These interest payments must be made from the state General Fund. H.R. 6201 suspends the accrual of interest on federal loans through the end of 2020. Given the magnitude of initial unemployment claims received so far, the state UI Trust Fund likely will become insolvent in the coming months, meaning this provision of the federal relief act could reduce state General Fund costs, at least to some degree, related to repaying interest on federal UI loans. During the Great Recession, the state’s federal UI loan balance peaked at $10.3 billion at the end of 2012 and the state General Fund paid about $300 million annually in interest on these loans. Key Issues Related to Unemployment Insurance How Quickly Can the State Issue UI Checks? Under normal economic conditions, EDD typically issues about 80 percent of first benefit payments within 21 days of receiving a worker’s application. Given the extraordinary number of applications received recently, as well as the expectation that claims will continue to increase over the coming weeks, the Legislature should anticipate that first benefit payments will take much longer than 21 days. Similar delays occurred during the Great Recession. At that time, the administration directed EDD to immediately issue benefits based solely on information included in the claimants’ applications. (Normally, EDD claims staff take several intermediate steps before issuing benefits, including confirming employment by calling the worker’s former employer.) Based on our understanding, this directive significantly reduced benefit delays. At the same time, however, it created new administrative challenges for EDD and some confusion for employers. Despite these concerns, the Legislature may wish to consider directing the administration to similarly streamline benefit issuance. What Steps Can EDD Take to Streamline Processes? Another option to accelerate benefit payments could be to direct EDD to cease non-essential workload related to UI benefit administration. Staff who typically work these activities could instead be redirected to claims issuance. Although several potential options may exist and the department would need to take the lead in identify them, one example would be to temporarily cease debt collection from non-complaint employers whose workers receive UI benefits. (Normally, if an employer does not pay UI payroll taxes but nevertheless employed eligible workers who receive benefits, EDD staff undertake efforts to collect benefit payment amounts from the employer.) UI Benefit Levels Difficult to Adjust in the Short-Term. Due to the limitations of EDD’s current information technology systems, changing UI benefit levels—for instance, by increasing the maximum weekly benefit amount or setting a minimum weekly benefit floor—could take as long as a year to implement. For this reason, in our view, the Legislature probably has limited options to respond to the COVID-19 crisis by adjusting UI benefit levels. Delaying Upcoming Payroll Tax Payments Could Provide Business Relief. Businesses pay UI payroll taxes to EDD at the end of each calendar quarter. Because payroll taxes are paid only on the first $7,000 in each worker’s annual wages, EDD receives the majority of annual UI payroll taxes at the end of the first quarter. In light of this timing and given the magnitude of the economic impact of COVID-19, the state could consider providing businesses a UI payroll tax extension or delay for first quarter payments. This would have the effect of delaying about $3.3 billion in business payroll tax payments. Delaying first quarter payments likely would cause the state UI Trust Fund to become insolvent more quickly, yet federal UI loans would nevertheless be available for the state to continue issuing benefits. Moreover, as discussed above, H.R. 6201 waives the accrual of interest on these loans for calendar year 2020, meaning state costs related to this action would be somewhat smaller due to the federal relief package. Streamlining UI Benefits for Unemployed App-Based Workers. In recent years, individuals who work for app-based companies have been treated as independent contractors by their employers. Independent contractors are not eligible for UI benefits and therefore their employers do not need to pay UI payroll taxes. Under a new state law related to employee classification, however, many of these workers may be reclassified as employees and therefore eligible to receive UI benefits. EDD recently requested additional staff to administer this new state law when reviewing UI applications. In order to speed up the process of issuing benefits to app-based workers who may be eligible for UI, the state may wish to direct EDD to consider individuals presumptively eligible for UI if they provide documentation of earnings from app-based companies. Furthermore, the state may wish to consider standardizing earnings determinations for these individuals. (Typically, UI benefit amounts are based on payroll earnings confirmed by EDD. Workers for app-based companies are not treated as payroll employees so these records may be difficult to confirm.) One option to simplify earnings determinations could be to issue benefits immediately based on worker-reported earnings and verify those earnings later. Another option the Legislature may wish to consider is providing a flat, standard, weekly benefit amount for UI applicants who attest that their primary income source prior to the COVID-19 pandemic was from app-based work. In either case, EDD would seek to recoup these benefit costs from app-based companies later. Explore Disaster Unemployment Assistance Designation to Address SelfEmployed Workers. Disaster Unemployment Assistance (DUA) is a federal program to provides financial assistance to self-employed workers and small business owners when they become unemployed as a result of a major natural disaster. (Self-employed workers and business owners are generally not eligible for normal UI benefits.) DUA is available upon the declaration of a disaster by the President. On Sunday, March 22, Governor Newsom requested that the President issue a disaster declaration in California, including the activation of DUA. Shortly thereafter, the President issued a Disaster Declaration for California, Washington, and New York. However, as of the time of this writing, the current disaster declaration does not appear to activate DUA in California. The state may wish to continue pursuing DUA activation as it considers its options to respond to COVID-19. (Our office will update this post as more information becomes available.)