California State Contract Violates New Gig Worker Law, Lawyer Says

July 24, 2020 Updated: July 27, 2020

California’s Employment Development Department (EDD) has hired outside independent contractors to help process unemployment claims, a lawyer says—thus breaking the state’s own AB 5 law requiring them to be classified as employees.

Los Angeles-based attorney Michael Alfera told The Epoch Times that the contractors are being funneled through consulting company Deloitte, then subcontracted to Tyme Global Technology, to hire contractors for the EDD.

The AB 5 law, which went into effect Jan. 1, prohibits contract work unless it meets certain benchmarks, commonly known as “the ABC test.” Contractors must be free from the control and direction of their employers, performing work outside the usual course of the company’s normal business, and customarily working in an independently established trade similar to the company’s business in order to pass the test.

Tyme Global’s independent contractor agreement violates the ABC test, Alfera said. The contract—a copy of which was obtained by The Epoch Times—specifies times the contractors must work, the number of hours they must work each week, the number of breaks they must take, and specific work orders that must be met.

“EDD has a contract with Deloitte, not Tyme Global. Deloitte proposed Tyme Global as a subcontractor. When EDD learned that Tyme Global would be using independent contractors instead of employees, EDD declined to approve Tyme Global as a subcontractor,” an EDD Media Services spokesperson told The Epoch Times via email.

“Under the contract terms with EDD, Deloitte is prohibited from utilizing Tyme Global in carrying out services for the State of California.”

The Epoch Times reached out to Tyme Global Technologies for comment, but did not receive a response by press deadline.

Alfera said the EDD is hiring contractors to weather the upswing of demand due to COVID-19 to avoid keeping a larger workforce on hand full time.

“Ultimately, that just becomes cost prohibitive for any business. You can’t keep more employees on staff than you need in normal times—and the EDD knows that as well,” Alfera said.

The EDD has processed nearly nine million claims since mid-March between the regular Unemployment Insurance program, extensions, and the separate Pandemic Unemployment Assistance program, according to a July 23 news release—more than the entire highest year of the Great Recession, 2010.

Alfera called the EDD utilizing contractors for call centers while simultaneously flagging businesses for hiring gig workers “hypocrisy.”

“We have the state of California that’s coming forth with this law and saying everybody’s got to be an employee, because employers need to treat their employees better and it’s wrong. And then, at the same time, during a pandemic when the Employment Development Department needs to hire extra workers to deal with the upsurge in unemployment claims, it goes ahead and does the same thing,” he said.

EDD is hiring independent contractors to audit companies hiring other independent entities, Alfera said, calling the practice “fighting fire with fire in the worst possible way.”

“The EDD is required to comply with AB 5, and it is incumbent on EDD to ensure that those entities it contracts with also comply with AB 5. Any contract found to be in violation of AB 5 is subject to termination unless they agree to adhere to AB 5’s requirements,” the EDD Media Services spokesperson stated.

Over two million Californians had filed claims for Pandemic Unemployment Assistance by July 4, according to the Department of Labor. Alfera believes the EDD is having trouble processing and filing the claims due to the AB 5 law.

“I really do believe that this independent contractor issue with AB 5—the very law that the EDD is supposed to enforce—is one of the major reasons why we’re seeing delays in fulfillment of unemployment claims,” said Alfera.

Many independent contractors are unsure about the law’s exemptions; whether they apply to the EDD could be challenged in court, Alfera said. Though there is a general legal principle that governmental agencies are not subject to general statutes unless expressly specified, a part of AB 5 “expanded the definition of employee to include all government workers,” Alfera said.

“I feel like I’m in a fun house with a bunch of mirrors. What if a contractor [who worked for the EDD as a call center representative] goes unemployed in six months, and needs to file for unemployment [with] the EDD, and reports to the EDD that the EDD was its employer, and needs the EDD to tell EDD to give that person unemployment insurance?”

Said Alfera, “That’s what AB 5 creates.”

The AB 5 law requires companies to hire workers as employees, with corresponding benefits and tax payments, rather than classifying them as freelance contractors. Opponents say the law has destroyed the livelihoods of thousands of independent gig workers since its inception.

Alfera said the law is especially unfair to the thousands of gig workers needed in online tech and medical industries who are losing business to out-of-state contractors.

The EDD “could be giving contract work to potentially thousands of Californians who are stuck at home in front of the computers, with time skills and an internet connection on their hands. But our own state created a law that forces it to hire contractors out of state,” he said.

The EDD has used independent contractors from Deloitte previously, according to Alfera. He told The Epoch Times in June that the EDD had hired freelancers through Deloitte to work in their call center as part of an $11 million deal. The earlier contract ended on June 20.

Calls to suspend the AB 5 law have been introduced on the state Assembly floor, but none have passed.