'From State Shakedowns to Federal Syndicate’, California’s Extortion Racket Goes National

On Tuesday, the Senate held a confirmation hearing of Julie Su, Secretary of California’s Labor and Workforce Development Agency (LDWA), whom Joe Biden has nominated as Deputy Secretary at the Department of Labor (DOL). The arguments against this appointment reference her role in the mishandling of pandemic-related unemployment claims at the State of California Employment Development Department (EDD). These criticisms are valid and the media took note:

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Clearly, there’s a huge problem at the EDD. Yet, to simply point out their mishandling of pandemic claims does not tell the whole story nor does it speak to the larger motives behind Ms. Su’s appointment to the DOL in the first place.

California’s AB5 law has much to do with the operational issues at the EDD and probably Ms. Su’s nomination, too. The law contains an ABC test that reclassified many California workers from independent contractors to employees. AB5, which is mirrored in the PRO Act that is currently headed to the Senate. California’s unemployment office, EDD, under Ms. Su’s supervision was weaponized as both investigators and enforcers of the new law. California Governor Gavin Newsom allocated $20 million in the state budget for the enforcement of AB5.

Watching Workers Break Their Necks & Hiding the Help

In talking points supporting AB5 and now the PRO Act, workplace protections are used as merits of the legislation. California’s EDD has an opt-in program for independent contractors to provide elective Disability (DEIC) including Paid Family Leave. There was an active silencing of the availability of these programs to independent contractors by the California agencies Ms. Su oversaw and by AB5 lawmakers themselves.

Stories of independent contractors seriously injured on the job were used to prop up the legislation while its proponents were negligent in pointing the public to the programs. Frankly, it didn’t support the AB5 narrative that these protections were available. These proponents of AB5 would prefer that Californians remain without coverage and grandstand on their near-death misfortunes rather than execute their duties as public servants.


 

The Expedient Perversion of Pandemic Relief

Amid the pandemic and the skyrocketing claims for Unemployment Insurance (UI) and Pandemic Unemployment Assistance (PUA), a federal program for independent contractors, the EDD prioritized AB5 enforcement. As described here, not only did the EDD fail to offer independent contractors the ability to file for PUA as contractors, they actively instructed them to fill out UI forms and list their contracted hiring entities as employers.

Ms. Su and the EDD used identical messaging to the public, never noting that contractors do not qualify for UI. This exclusion is exactly why the separate PUA program was created amid the economic shutdowns of the pandemic.

Once the contractors submitted information about those they had contracted with, the department flagged the hiring entity for audit, producing a fine between $5,000 and $25,000 per violation. These fines are applied retroactively to the date of misclassification, up to four years.

After exhaustive audit, if applicants were found to be properly classified as a contractor, they were awarded zero dollars in UI benefits since contractors do not qualify for UI and therefore, should not need to apply.

For mixed income earners, their self-employment income was nixed from the equation. Here, a mixed-income earner could have qualified for $450/ week, but was instead offered only $45/ week, leaving her homeless.

As for California’s struggling businesses, for some, the audits and excessive fines were the final nail in their coffins.

For contractors, they were often unknowingly put in the position to initiate the audit and resulting fines, against the entities (and sometimes their own friends) that had provided them their livelihoods, before the perfect storm of AB5 and the pandemic took it from them.

California Assemblyman Kevin Kiley called upon the EDD to stop the audits on vulnerable businesses, but the agency continued to prioritize AB 5 enforcement while using the bait and switch techniques on the public.

For the EDD, the pandemic was expedient. Without the contractors filing for emergency aid, EDD would only be able to enforce this law if there was an actual complaint or wage claim. That is, when a contractor agreed they were mistreated.

Instead, the PUA program was perverted from its original intent and used as a linchpin for AB5 enforcement. Those audits concluded in one of two ways, by sending businesses fines, or by a zero dollar UI award letter and only then could contractors apply for PUA.

The PUA program is allocated from federal monies and likely should be operated upon federal employment standards. Instead, California’s executive branch, including Ms. Su, acted in a concerted effort to extort fines for state coffers while denying Californians adequate and accessible aid.

In stymying the program for their own purposes, the EDD created additional work for themselves. The good news was: they were hiring!

AB5 Enforcers are Above the Law

In response to their workload, exasperated by their AB5 enforcement operations, the EDD signed an $11 million contract with a staffing agency, Deloitte.

Over the years, Deloitte has received at least $259 million to work on the EDD’s IT systems, including at least two no-bid contracts during the pandemic.

In signing this contract, the argument has been made that the EDD violated AB5, the same law they were overextending themselves to enforce.

Another contract awardee, Tyme Global Supervisors, referenced their assignment as the “California Department of Labor Project” in an email to the independent contractors hired to answer phone calls for the EDD. When one independent contractor reached out with their concerns that the arrangement violated AB5, Thyme CEO responded that they were also concerned and that they were in contact with the Department of Labor about it, Ms. Su’s Department of Labor, that is.

The EDD didn’t audit and fine themselves for these violations during the pandemic, just struggling businesses while sandbagging aid for independent contractors. From their ivory towers, far above the law, the EDD and California’s Labor Department headed by Ms. Su, monopolized a public health emergency as an opportunity to enforce a new law retroactively, on unsuspecting contractors and devastated businesses.

The opposition argument to Ms. Su’s appointment is correct in pointing out the recent failures of the EDD, but it falls short. Ms. Su oversaw the obstruction of two separate benefit programs for contractors, as a means to support partisan policy and state revenue models.

As the “misclassification” criteria from California’s AB5 is poised to impact the nation through the PRO Act, its weaponizers follow suit: from state shakedowns to federal syndicate. This kind of institutionalized opportunism, prioritized over helping people, is exactly why Americans should be spared from this racket by voting down both Ms. Su’s appointment and the PRO Act in the Senate.

Brittany Sheehan is the Executive Director of Independent Labor Alliance, a nonprofit organization dedicated to advancing rights and prosperity for independent contractors.