Uber and Lyft Officially Owe California Unemployment Money. Will The State Get It Back?

After nearly two months of applications and appeals, some Uber and Lyft drivers are getting unemployment insurance. But Lyft and Uber have not paid a cent into the state's unemployment fund because the gig companies have continued to classify their drivers as contractors. That means California is going to pay the bill.

Lyft and Uber have claimed to have over 500,000 drivers in California. Depending on how long the pandemic lasts, covering the tab on their unemployment could cost the state hundreds of millions or even more than a billion dollars.

Over the last few weeks, Uber and Lyft drivers have been getting conflicting advice about whether to apply for pandemic unemployment assistance (PUA) for independent contractors, or unemployment insurance (UI) for employees.

PUA is funded by the federal government, while UI is a state program that employers pay into. Since there is no legal question over classification, getting PUA is less complicated, but UI offers almost certainly more money and potentially more long-term security.

Aside from the monetary implications, there's a looming legal question. In January, California Assembly Bill 5 became law, which makes it harder for companies to classify workers as contractors and avoid paying for things like workers' compensation or unemployment insurance. But even with AB 5, Lyft and Uber have continued to classify their workers as contractors and avoid paying into the state's unemployment fund.

Labor advocates worry that if drivers opt for PUA, which is a more straightforward process than getting UI, it will lend credence to the argument Uber and Lyft are making that their workers are indeed contractors, not employees.

Drivers are stuck in the middle of it all. It has been two months already with little to no work — and there's no prospect of that changing anytime soon.

Caught in the Middle

Maia Wagle, a Los Angeles-based Lyft driver, has been trying to get unemployment insurance since early March.

She has filled out numerous online forms, sent in documents and called the agency multiple times a day. Late last week, she finally got a hold of someone at California’s Employment Development Department (EDD).

Wagle said the woman on the phone, after looking at her application, said, “Oh well you should just do PUA, it will be faster.”

Wagle disagreed. “I said, ‘No, like, I really do qualify for unemployment insurance under AB 5,' " she said.

Wagle went back and forth with the woman on the phone. “Then finally she says, ‘Listen, you want my advice, just apply for the PUA. It’s going to take time. What are you going to do? Are you going to get a lawyer, try to like fight your case for you?’ ”

There are numerous reasons drivers like Wagle want state unemployment insurance instead of PUA.

First, it’s almost certainly more money. UI is awarded based on gross income, how much total income you bring in before expenses. PUA is calculated on net earnings, what you earn after all expenses are deducted. In both case, higher earnings equal more benefits. Drivers have tons of expenses — gas, wear and tear on their car, phone bills — meaning their gross is much higher than their net earnings,  which means they would earn more money through UI instead of PUA.

Second, there’s concern over how long the PUA funding will last compared to UI benefits. Both are set at 39 weeks right now, but it would be up to the federal government to extend PUA and up to California to extend UI. Drivers worry that if the pandemic continues, the federal government will be less likely than California to extend the assistance.

There's also a question of who pays for the benefits. UI is covered in part by employers, and PUA money is coming from the federal government. Wagel considers herself a Lyft employee, so she says it is only fair that her employer pays some of the cost instead of federal tax payers. Since Lyft and Uber haven't paid into the unemployment fund yet, the state would cover the costs, but it would be known that the companies owe California that money.

For these reasons, Wagel has been resisting the temptation of applying for PUA and fighting to get UI. But it's been a hard fight.

Wagle desperately needs the money. She’s been without work for almost two months. And after all this time fighting to get UI, she’s worn down. The phone call with the woman at the EDD was the last straw.

“I just caved,” Wagle said. “As soon as I got off the phone with her I was like, aw fuck it. I am just going to go apply for this PUA. What am I going to do? I have to pay rent. I have to pay bills. I am just swimming here. So I am just going to take the bone that I am thrown. It’s still not right. It’s not right.”

Persistence and Luck

While Wagle finally settled for PUA, other drivers have actually gotten through and received UI. It has taken a lot of persistence, and what some drivers say feels like luck.

To get UI, a driver has to apply, get told they qualify for zero dollars because their employer did not report earnings or contribute to the fund, then appeal that finding, and finally go through an audit where they have to prove to a representative of the EDD how much they earned and that they should be classified as an employee, not a contractor.

Numerous drivers have posted on social media about getting UI. KQED spoke with one driver in Daly City who had gone through this whole process and who doesn’t want to use his name for fear of Uber kicking him off the app. He says his trick was not waiting for any kind of confirmation from the EDD, but instead filling out the online form and then sending a package with all of his documentation by certified mail.

He sent that package a month ago and then he says he just waited and prayed. Then, last week, he got a call from an EDD auditor. She asked him a few questions, and then said he was approved. He was watching online as fellow drivers were filling out online forms, being put on hold for hours when they called and getting nowhere. He said it seemed like a miracle that his claim went through.

The driver in Daly City says he is getting the max in state benefits: $450 a week. He is so happy to have finally gotten some income. He has a family of five to support. But he didn't want to give up and settle for PUA instead of UI because he didn’t want federal taxpayers to contribute to his unemployment when Uber and Lyft weren’t.

“With the AB 5, we’re entitled to get the normal UI with the corporations of Uber-Lyft helping," he said.

Conflicting Advice

A number of drivers KQED spoke with complained about getting conflicting information from the EDD, either by phone or on the website, about what to apply for and how. The EDD did not respond to a request for comment.

Carole Vigne is a senior staff attorney at Legal Aid at Work, a nonprofit that is helping drivers get UI. She says it is disappointing that a EDD representative would tell a driver to apply for PUA instead of UI.

“Under California law,” she said, “misclassified independent contractors or gig workers all should be on unemployment insurance.”

Vigne said while it is right for drivers to apply for UI, the state is losing money by covering Uber and Lyft's bills.

“Eventually when this calms down,” Vigne said, “we anticipate that the state will go after these companies who haven’t paid into the fund, who haven’t been reporting earnings on behalf of workers so that the fund could be paid back.”

Years of Legal Battle

When the pandemic hit, Uber and Lyft had already been battling for years to continue classifying their workers as contractors. The companies had used the arbitration clauses in their contracts to settle countless legal disputes with workers over classification individually and behind closed doors.

Then in 2018, the California Supreme Court issued a landmark ruling that made it much harder for companies to classify their workers as contractors. The state Legislature codified that ruling into law with AB 5. The bill’s author, Assemblywoman Lorena Gonzalez, D-San Diego, has repeatedly said gig companies classifying workers as contractors is exactly the kind of labor arrangements the law was designed to stop.

When AB 5 passed on Jan. 1, many drivers thought they would finally become employees and get protections like workers compensation, guaranteed minimum wage and unemployment insurance. But instead, Uber, Lyft and other gig companies continued doing business as usual.

Last fall, as soon as AB 5 garnered enough votes to pass, the city attorney in San Diego filed a lawsuit against Instacart, but that case is still snarled in the legal system.

The state’s attorney general, Xavier Becerra, has been far more reticent. He has not publicly stated intent to pursue the gig companies on AB 5, and there has been no indication from Newsom’s office if he backs such a move. Newsom’s office did not provide a comment by the time of publication.

When AB 5 became law, gig companies braced for enforcement. In early February, a source inside Lyft told KQED in a conversation on background information for another story that they were surprised the state had not already come after them over AB 5.

Meanwhile, the gig companies have been collaborating to nullify the new law and continue classifying their workers as contractors. Several companies, including Uber, Lyft and DoorDash, have poured $110 million into a ballot initiative that would exempt them from AB 5.

This was where everything stood in late February. Then the pandemic hit and brought on the scenario that labor advocates have been warning about for years: Business has plummeted. The hundreds of thousands of Uber and Lyft drivers in the state now have extremely limited or no work, and there's no money for them in the state unemployment fund.

An Appealing Case

Every Lyft and Uber driver I have interviewed since January has asked me the same thing: If AB 5 is law, then why I am not an employee? And then the follow-up question is: Why hasn't California started going after gig companies to sort this all out?

According to David Levine, a professor of law at UC Hastings, if you set aside issues about politics and power, there are two big legal reasons why the state may have been hesitant to go after Uber and Lyft. The first has to do with precedent and the second is legal resources.

Levine says there is a danger in the state attorney general or a local district attorney moving too fast and blowing the case. “If you are going to go up against companies this large, you have to do it the right way,” Levine said. “You don’t want a bad precedent because the litigation wasn’t handled correctly.”

That gets to the second point: power. Levine said these companies are so large that they could intimidate anyone who is trying to take them to court. Uber and Lyft have billions of dollars in cash reserves to pay for legal fees. The companies could “unleash their assault troops of lawyers” and bury a state or local agency in paper, Levine said.

But that should not be a reason to hold back, Levine said. “The state’s AG has resources to do this,” he said, adding that government entities are often underfunded when it comes to battles with large corporations. "There's nothing different here."

While the pandemic could make organizing a big case difficult, Levine said the fact that California is directly paying unemployment for Uber and Lyft is incentivizing the state to sort this out. It also, he said, gives the state “a very appealing way” to frame the case: Why is California shelling out money to pay for drivers who are out of work, while Lyft and Uber haven’t paid a dime into the unemployment fund?

If the state doesn’t go after Uber and Lyft, it could be on the hook for a lot of money — money it doesn't have, as California has already started borrowing money from the federal government to pay unemployment. It is approved to draw from the federal government as much as $10 billion by the end of July.