Most Californians assume that if they lose their job or suffer wage theft, they will obtain unemployment benefits and other assistance from the State. After all, the Employment Development Department (“EDD”) and Labor Commissioner’s Office were established to provide a safety net and protect California workers. That assumption is wrong. Due to dysfunction, backlogs, fraud, and staffing shortages within these agencies, workers are often left in the lurch. As a result, California employment lawyers must use extra care to manage clients’ expectations and access to these safety nets, especially during this time of widespread economic hardship, layoffs, and a lingering pandemic.
Examples from our practice are illustrative. In January 2022, a Bay Area company terminated an employee of many years who blew the whistle on deceptive business practices. The company had also committed a host of wage and hour violations, including failure to pay him overtime for nearly 20 years. In April 2022, the employee filed a wage claim with the Department of Industrial Relations (“DIR”), the agency in charge of enforcing California labor standards and overseeing the Labor Commissioner’s Office. The claimant alleged overtime, pay stub, meal period, record keeping, and business expense violations pursuant to Labor Code sections 201, 203, 204.3, 226, 510, 1102.5, 1194, 1198, 2802, 2870, and Industrial Welfare Commission (“IWC”) Wage Order 1-2001. But in the more than six months since filing his claim, whenever the claimant contacts the DIR he receives the following automated response:
We are experiencing significant delays due to a staffing shortage and heavy caseload. Your case will be docketed within 250 days. Notices to the parties will be mailed within 300 days. Not all cases are scheduled for conference. If a conference is set, it will take place within 2 years from filing. If a case does not resolve by settlement and is the type of case we handle, it will be referred to a hearing. The hearing will take place within an estimated 4 to 5 years from filing.
(Emphasis added.) How will a hearing 4 to 5 years from now be of any use to a currently unemployed, chronically underpaid Californian? Tens of thousands of workers who have suffered wage theft are similarly out of luck. As of May 2022, the DIR had a backlog of over 36,000 claims. A recent KQED investigation found that close to half of those cases have taken longer than a year to resolve, while 4,000 others have remained unresolved for three or more years.[1]
The EDD also regularly denies and delays employees’ claims without justification. Despite the Unemployment Insurance Code’s presumption that employees have been discharged for reasons other than misconduct, see Unem. Ins. Code § 1256, the EDD excessively scrutinizes claims that should be routinely granted. According to an August 2022 report from the Legislative Analyst Office (LAO), more than half of EDD denials are overturned on appeal.[2] During the pandemic, the Department improperly denied payments to 1 million workers, and severely delayed payments to 5 million others.
But the EDD’s stated reasons for excessive scrutiny—to prevent fraud—are not working. During the pandemic, fraudsters exploited flaws in EDD’s system to claim an estimated $20 billion in fraudulent payouts.[3] Other prominent scandals show how workers have been deprioritized. In March 2019, the California State Auditor found that the former head of the DIR, Christine Baker, engaged in “gross misconduct” over seven years when she “repeatedly violated merit-based employment principles and engaged in nepotism, bad faith hires, improper promotions and transfers, attempted retaliation, and other misconduct.”[4] These scandals have resulted in embarrassing headlines but no true reform.
In the case of the twenty-year Bay Area employee profiled above, after the employee’s bosses made false accusations in contesting his unemployment claim, the employee tried to explain what really happened to an EDD representative. After this brief telephone call, without any explanation, the EDD sided with the employer and denied the employee benefits. The employee appealed the denial in early April 2022 to the California Unemployment Insurance Appeals Board (CUIAB). After months passed with no response, he reached out to the CUIAB to ask about the status; he was informed that due to an enormous backlog and understaffing, his hearing will likely not occur until 2023 at the earliest.
The CUIAB is not the only entity experiencing delays. The EDD’s phone lines are also regularly overrun, making inquiries and follow-ups virtually impossible. Plus, if a discrepancy exists between the claimant’s and employer’s stated reasons for the employee’s separation, the EDD will deny the claim, presumably because it lacks sufficient resources to conduct an investigation.
For example, another current claimant separated from her job in Marin County and filed for unemployment insurance benefits in September 2021. She truthfully stated on her application that she was laid off after her position was eliminated due to the pandemic. The employer falsely reported to the EDD that the claimant was fired due to misconduct. The claimant attempted to coordinate with her former employer and inform the EDD of the mistake, but the agency never responded. Instead, months later, in July 2022, the EDD issued a determination that the claimant had provided false information and disqualified her from receiving benefits. In August 2022, the claimant filed an appeal and attached a letter from her former employer that she had been truthful and did not engage in misconduct. But as of November 2022, no hearing was scheduled. Upon contacting the CUIAB to explain that a hearing was not necessary, the CUIAB—despite having the letter from the employer in its file—inexplicably stated that it required formal notice from the EDD to verify that there was no longer a dispute. Each time the claimant contacts EDD, she is placed on hold for extended periods before an automated message states: “Thank you for calling. We are currently receiving more calls than we can handle and are unable to assist you at this time. Please try again later.” The line then goes dead.
California’s unemployment insurance fund is financed by employer taxes, though the State can borrow from the federal government to fill gaps.[5] The specific tax rate for each employer depends in part on the amount of unemployment benefits paid to former employees. Thus, employers whose former employees make fewer successful claims can earn a lower tax rate.[6] The fundamental design of the system incentivizes employers to contest unemployment. Yet there are insufficient staff to investigate the employers’ claims or adjudicate the disputed payments. The DIR is similarly understaffed.
Employers aware of these agencies’ dysfunction can use it as leverage by subjecting workers to unlawful working conditions, refusing to pay overtime or contesting unemployment. Due to the limited oversight that the EDD and DIR face, and their lack of resources, employers wishing to exploit those limitations are met with little deterrence. This leaves workers without recourse in their time of need, with devastating consequences. Out-of-work Californians miss rent payments, cannot afford childcare or car repairs, and quickly run out of savings.
Despite California’s unemployment rate currently being at a historic low (3.9%),[7] many employees who are now back to work are still reeling from state safety net dysfunction. In the case of the twenty-year Bay Area employee profiled above, despite finding new work, he is still struggling due to not receiving any benefits between the time of his unlawful termination and finding a new position. He may never recover from the months spent dipping into savings. Other employees who have lost their jobs and are denied unemployment face eviction now that those moratoria are mostly lifted.
California announced a staggering budget surplus at the start of the 2022-23 fiscal year. Yet our state safety nets are broken. Recent legislation has focused on fraud prevention, rather than limiting improper claim denials.[8] In August 2020, Governor Newsom announced an EDD Strike Team to reimagine the agency’s technology and communications systems. More than two years later, claimants still are not feeling the promised improvements. It is past time for lawmakers to take action to eliminate backlogs and ensure eligible workers are protected. Legislation should be passed to increase staffing, oversight and accountability at DIR and EDD. Lawmakers should also enhance the existing statutory presumption, and better train EDD investigators, so that claims will be granted, absent a showing of fraud or gross misconduct. As the economic downturn continues and the effects of the pandemic reverberate, it is critical that we fix these systems now.
Until improvements occur, California employment lawyers should carefully advise their clients on how to apply for benefits and prepare for intake interviews, as well as monitor employers’ involvement to ensure they provide consistent and accurate information. Severance agreements should go beyond the typical agreement not to contest a truthful claim for unemployment and instead require an employer’s active participation in obtaining unemployment benefits. Neither employment lawyers nor their clients should assume that unemployment benefits will provide a safety net. Without legislative action, California’s public policy of protecting the unemployed will remain a broken promise with devastating consequences.
[1] https://www.kqed.org/news/11913910/despite-record-budget-surplus-california-unlikely-to-fix-massive-wage-theft-claim-delays-anytime-soon
[2] https://lao.ca.gov/reports/2022/4615/Improving-CA-UI-Program-080822.pdf
[3] https://www.capradio.org/articles/2021/10/26/california-unemployment-agency-fraud-during-pandemic-now-estimated-at-20-billion/
[4] https://www.auditor.ca.gov/pdfs/reports/I2019-1.pdf; https://www.sfchronicle.com/business/networth/article/Major-California-labor-official-accused-of-13728257.php.
[5] https://calmatters.org/explainers/california-edd-unemployment-crisis-explained/
[6] https://edd.ca.gov/pdf_pub_ctr/de8714b.pdf
[7] https://www.gov.ca.gov/2022/08/19/californias-unemployment-rate-falls-to-record-low-level/.
[8] https://www.gov.ca.gov/2021/10/05/governor-newsom-signs-legislation-to-strengthen-state-unemployment-insurance-delivery-system/; https://www.gov.ca.gov/2022/06/21/edd-recovers-1-1-billion-in-unemployment-insurance-funds-with-more-investigations-and-recoveries-to-come/.
