Uber and Lyft Aren’t Paying for Drivers’ Unemployment: You Are, Confirms Newsom

Gov. Gavin Newsom and the Employment Development Department are giving Uber, Lyft and other gig companies what they hoped for: unemployment coverage for drivers paid by federal taxpayers through the Coronavirus Aid, Relief and Economic Security (CARES) Act, instead of state unemployment funds.

Since the coronavirus hit, there has been mass confusion over how Lyft and Uber drivers, as well as other gig workers, might qualify for unemployment benefits — who should pay, and how they should file.

Julie Su, secretary of the California Labor and Workforce Development Agency, released a statement on April 14 saying that the department was creating a new website for independent contractors to apply for the federal Pandemic Unemployment Insurance (PUA). According to Su, the website is scheduled to open in two weeks and deliver PUA benefits in 24 to 48 hours.

In a press release on April 15, Newsom mentioned the new website for contractors and gig workers. He said, “Many Californians are one paycheck away from losing their homes or from being able to put food on their tables, and COVID-19 has only made these challenges worse. California is focused on getting relief dollars and unemployment assistance in the hands of those who need it as quickly as possible.”

The state's decision to turn to federal PUA for California's hundreds of thousands of gig workers means that these drivers will have assistance in the short-term as soon as the website is up. But it also means that the assistance will come from taxpayers instead of gig companies. And it could have implications for the future of gig workers in the Golden State and elsewhere.

Contractors vs Employees

Uber, Lyft and other gig companies have consistently, and controversially, classified their drivers as contractors. By doing so, companies have avoided paying into the state unemployment fund. If a company does not contribute to unemployment insurance, there is no money when an employee files a claim.

Assembly Bill 5 became law last January and made it much harder for gig companies to argue workers are contractors and not employees. Still, despite the new law, companies like Uber and Lyft have continued to classify workers as contractors, which has put them in a difficult spot during the pandemic.

As business has ground to a halt, drivers have turned to unemployment offices for help. But because their companies have not paid into the state unemployment insurance funds, drivers have been told they qualify for no money in unemployment.

Uber and other gig companies succeeded in getting the federal government to make its drivers eligible for PUA through the CARES Act. But, to get this money, the drivers have to be recognized as contractors, not employees.

That puts states like California, where there is a legal battle for drivers to be recognized as employees, in a difficult situation.

Since the beginning of the pandemic, the EDD, the department that disburses unemployment insurance, has encouraged anyone who believes they are misclassified as contractors to apply as employees.

But now, gig workers are being encouraged by the EDD and Newsom to go to a new website that will be up in two weeks to apply for aid as contractors. That means they are going to be receiving money from federal taxpayers instead of the state unemployment fund.

Labor advocates have said turning to federal taxpayers is the result of the state failing to hold companies accountable for years over the question of employee classification.

In a statement, the California Labor Federation said, “Gov. Newsom took action today to free up federal relief dollars for gig workers while asserting their rights as employees under California law, but it should never have come to this. All taxpayers are now on the hook as a result of these wealthy companies’ refusal to follow the law.”

Steve Smith, a representative for California Labor Federation, said he hopes the state can take legal action to recover the money Uber and Lyft should have been paying into unemployment funds.

“These companies are on the hook for unemployment insurance and paying back taxes. Nothing about that has changed,” Smith said. “We’re going to continue asking the state to aggressively pursue those back taxes.”

The Uber Lobby: Pressing for Contractor Status

Uber has been pressuring the EDD and the governor to stop telling gig workers to apply for unemployment as contractors.

Last week, Uber sent the governor’s office an email asking Newsom to alter how the state was considering drivers. It requested that the governor ask the EDD to change the language on their website.

KQED acquired a copy of that email. It says, in bold:

“Specifically, we ask that EDD remove the sentence ‘If you are a gig worker, you should list your gig employer as your last employer’ from its website. The EDD guidance that directs applicants to ‘list your gig employer as your last employer’ should be removed from the EDD website, and we ask that you work with EDD to do so immediately.”

Uber confirmed that it sent the email and plans to follow up with a formal letter. It also said, "Refusing to take advantage of the federally funded Pandemic Unemployment Assistance included in the Congressional Relief Package is not in the financial interest of drivers and delivery people, or the state of California."

The EDD has not altered its website. But with the announcement of the new website for gig workers to apply for federal aid as contractors, the battle appears to have already been won in favor of Uber and other gig companies.

Paying Back Unemployment in Other States

Last year, the state of New Jersey sent Uber a bill for $650 million in unpaid unemployment insurance for its drivers. Given the number of drivers in California, the amount to cover unemployment payments would likely be in the billions of dollars.

UC Hastings law professor Veena Dubal says not only may California not recover all the money that taxpayers are fronting right now to pay insurance, but this decision could influence how gig workers are treated in the future.

Dubal recently sent a letter to state unemployment insurance agencies across the country, warning that categorizing drivers as contractors to get the federal PUA money was a coup for gig companies as it established a dangerous example.

“I’m worried it sets a cultural practice for state agencies to start thinking of these workers as contractors and rejecting unemployment insurance claims in the future,” Dubal said, “when really these workers are employees who should always be entitled to unemployment.”

While individual drivers are scrambling to make ends meet, Uber's CEO, Dara Khosrowshahi, has said that the company has plenty of cash to make it through the coronavirus outbreak. In March, Khosrowshahi said the company had $10 billion in unrestricted cash to weather the pandemic.

Living Paycheck to Paycheck

While Uber may be able to ride out the pandemic, many drivers, like Kris John, won’t be able to make it very long without a source of income.

John has been without work for over a month. He filed for unemployment in early March. He says he was awarded zero dollars in unemployment. He says he feels like he’s called EDD offices over a thousand times, trying to get someone on the phone to help him sort this all out.

Legal Aid at Work, a non-profit legal services organization, suggests that drivers like John who have been denied unemployment or told they will get zero dollars, should appeal. They have posted instructions on how to do so online here. The organization has also created this form where drivers can request additional help.

John can’t understand why state agencies weren’t more prepared, especially because AB 5 has been law for months.

“I’m really baffled that no one in the state of California for one second thought drivers might lose their jobs and have to file for unemployment,” he said.

John said California has already taken far too long getting money to gig workers like him. While he needs the money, he doesn’t think it’s fair for it to come from taxpayers instead of companies that have billions of dollars in cash reserves.