Bill Text

SECTION 1.

 The Legislature finds and declares all of the following:

(a) Some employers regularly avoid obligations such as payment of payroll taxes and payment of premiums for workers’ compensation, social security, unemployment insurance, and disability insurance by misclassifying workers as independent contractors or by relying on other contingent work arrangements to unlawfully shift liability to their own misclassified employees or to corporate entities whose main purpose is to serve as a liability shield for the employer. This often takes the form of an employer directing an employee to enlist additional employees in performing the employer’s work, or a company contracting with another insolvent entity whose sole purpose is providing employees to the company in question.

(b) This subterfuge hurts the state by depriving it of the revenue that enables the state to administer and fund its various social safety net programs, and by making it difficult for the state to recover unpaid taxes and premiums from the bona fide employers who control the employees in question.

(c) To address this by correctly placing employer obligations on the responsible employer, existing state law prevents employers from shifting liability for one of their employees to a second employee even if the employer did not directly hire and does not directly pay the employee in question. Further, existing state law prevents employers from shifting liability to sham entities by establishing explicit requirements for what constitutes a “leasing employer” or “temporary services employer.”

(d) Despite this, when processing multiple claims for drayage drivers that applied for unemployment insurance compensation benefits during the coronavirus (COVID-19) pandemic, the Employment Development Department (EDD) failed to find an employment relationship between the company and the workers who provide services for that company under that company’s control. Instead, the EDD has erroneously placed the burden for failing to provide wage data or pay unemployment insurance taxes on other individuals employed by that company or on sham corporate entities that do not satisfy the requirements to be considered a leasing employer or a temporary services employer.

(e) At least two of these erroneous EDD determinations have been overturned by the California Unemployment Insurance Appeals Board, which has correctly interpreted the law to place responsibility on the company in question, upholding decisions by administrative law judges that have correctly applied the law. Yet, the EDD continues to maintain its anomalous determinations, requiring workers to pursue lengthy and burdensome appeals. This is in conflict with existing law, and the extended appeals divert resources from the agency, expose misclassified workers to unjustified liability, and allow companies that break the law to continue to evade justice.

(f) It is the intent of the Legislature to clarify that existing law prohibiting an employing entity from shifting liability to its own employees or to sham corporate entities that do not qualify as statutory employers also applies to the schemes employers in the drayage industry are utilizing to escape their statutory liability. This clarification is intended to ensure that the EDD makes the correct determinations with regard to employer liability rather than expending resources supporting an incorrect reading of the law.