Employers Compete with CARES Act for Workers

by James W. Ward, J.D.; Employment Law Subject Matter Expert/Legal Writer and Editor, CalChamber

When the Coronavirus Aid, Relief and Economic Security Act (CARES Act) went into effect, it included unemployment benefits to laid off workers in addition to what California’s unemployment system provides — to the tune of a flat $600 payment per week through July 31, 2020, regardless of their regular weekly benefit. That means individuals who qualify may receive 100 percent of their working wages — or more.

As the bill was being drafted, several lawmakers noted that the CARES Act unemployment provisions (known as the Federal Pandemic Unemployment Compensation program or FPUC) didn’t cap the payments at what individuals earned while working, meaning some would actually get more money on unemployment than if they were working. Some lawmakers argued that this would create an incentive for displaced workers to stay unemployed, which undercuts the other CARES Act provisions designed to keep individuals employed. Some lawmakers proposed an amendment to cap the unemployment payments at the individual’s normal pay, but it failed, and the act passed with the $600 flat payments.

While the extra federal unemployment payments will, no doubt, help many displaced workers through the COVID-19 pandemic, a negative side effect has emerged: They’re making it difficult for some employers to rehire their workers.

Unemployment ‘Windfall’ Affects Employers

Business Insider recently reported that some individuals collecting these flat unemployment payments are conflicted about the prospect of returning to work because they’re receiving more than their normal wages without working at all. And when individuals who still have a job see others get a pay bump after being laid off, they wonder if it’s better to be unemployed. Some employees are even asking to be laid off so they can collect unemployment, and others are refusing to come back to work as businesses try to get back on their feet.

This issue undermines other provisions of the CARES Act designed to keep people employed, such as the Paycheck Protection Program (PPP), which creates a direct incentive for small businesses to keep their workers on the payroll. Specifically, PPP loans will be forgiven if they’re used for payroll costs (at least 75 percent) and other expenses such as mortgages, rent and utilities. But the PPP loans are “first come, first served” and have been difficult for many small businesses to obtain.

One small business owner felt she won the lottery when she secured PPP loans for her two salons that closed due to COVID-19. But when she conveyed to her employees the good news that their paychecks would be resuming, as CNBC reported, she got an unexpected reaction — a “firestorm of hatred about the situation” — because the employees knew they would get less money when their regular paychecks resumed.

Unfortunately, stories like this will likely continue over the next few months. But if employees refuse to return as employers are planning to reopen their businesses — whether it’s because the unemployment payments are so high or they’re generally afraid of contracting COVID-19 — does that affect their eligibility for unemployment benefits?

Unemployment Eligibility Breakdown

Though the California Employment Development Department (EDD) determines an individual’s eligibility for unemployment, it’s important that employers have an understanding of the process to not only ensure best practices on their part, but also determine when it might be appropriate to contest a claim for unemployment insurance (UI).

To be eligible for standard unemployment benefits, the displaced worker ordinarily must be:

  • Totally or partially unemployed.
  • Unemployed through no fault of their own.
  • Physically able to work.
  • Available for work.
  • Ready and willing to accept work immediately.
  • Actively looking for work each week benefits are claimed.

Due to the COVID-19 pandemic and resulting stay-at-home orders, however, the EDD has temporarily eliminated two major eligibility requirements:

  • Individuals aren’t required to actively look for work during the COVID-19 pandemic; and
  • For claims beginning on January 19, 2020, or later, the seven-day waiting period required to receive UI benefits is waived.

The Unemployment Insurance Code states individuals are ineligible or disqualified from receiving unemployment benefits, when:

  • The employee voluntarily quits without good cause; or
  • The individual refuses to accept suitable employment offered to them without good cause.

It is likely that, in most cases, individuals who’ve been furloughed or laid off due to the pandemic and later refuse to come back to work or otherwise turn down suitable employment when it is offered will be disqualified from receiving standard unemployment benefits under one of these two criteria.

Whether a particular situation is considered a voluntary quit or a refusal to accept suitable work depends on the circumstances of the furlough/layoff, many variations of which are outlined in the unemployment regulations and the EDD’s Benefit Determination Guide. For example, if an employee is temporarily furloughed for a “reasonably definite” period, the employment relationship likely remains intact. If that employee refuses to come back to work at the designated time and knows that this refusal would likely compel the employer to discharge them, that is likely a voluntary quit or a “constructive quit” under the EDD’s regulations, which, if done without good cause, would make the individual ineligible for benefits. This is the most likely scenario facing employers who had to shut down due to the current circumstances.

If an employee was laid off for an indefinite period and there’s no understanding that employment will resume in the future, that may end the employment relationship involuntarily; however the individual may later be disqualified from receiving benefits if they refuse suitable work (e.g., their old job).

The common denominator for the disqualifying circumstances above is “good cause.” An individual must show they left work or later refused work for good cause, otherwise they’ll be ineligible/disqualified. “Good cause” for voluntarily quitting employment must be a real, substantial and compelling reason that would cause a reasonable person who wants to remain employed to leave work under the same circumstances. The EDD determines whether there was good cause based on each case’s unique circumstances. Leaving work for good cause might include the following reasons:

  • Going to school.
  • Change in travel time or distance.
  • Moving beyond reasonable commuting distance with a spouse or registered domestic partner.
  • Being required to care for a seriously ill child.
  • Leaving an employer who doesn’t address serious harassment or safety issues.
  • Choosing to be laid off in place of an employee with less seniority, if a collective bargaining agreement allows this practice.
  • Protecting one’s self or family from domestic violence.

The following examples don’t generally constitute good cause:

  • Increased childcare costs.
  • Moving beyond reasonable commuting distance with a significant other who isn’t one’s spouse or registered domestic partner.
  • Looking for another job.
  • Change in job duties or demotion.

It’s also clear that there’s no good cause where an individual quits solely to obtain the new unemployment benefits. The U.S. Department of Labor issued guidance to the states on the CARES Act unemployment programs and stated unequivocally that quitting work without good cause to obtain additional benefits may be considered fraud. The guidance states that if an individual obtains benefits through fraudulent measures, the employee or individual will be:

  • Ineligible to receive any future unemployment compensation benefit payments;
  • Responsible to pay back the benefits obtained because of the fraud; and
  • Subject to criminal sanction and prosecution.

Many reasons the EDD has traditionally acknowledged as good cause for leaving a job may not apply to the current pandemic; however, limited circumstances related to health and safety may constitute good cause for individuals to refuse to return to work.

Unemployment regulations state that an individual can voluntarily quit with good cause if it’s determined that a reasonable person in their position who genuinely wants to stay employed would have left work due to an “undue risk of injury or illness” caused by health reasons, physical impairment, unsanitary conditions or other working conditions, and the individual took reasonable steps to preserve the employment relationship, such as seeking sick leave or a transfer to other available work they could perform.

An undue risk of injury or illness means “reasonably foreseeable and substantial probability of incurring any injury or illness which would require hospitalization or the services of a physician for proper medical care.” The claimant must demonstrate that the particular job is more hazardous than normal, or more hazardous to them than other workers, or they otherwise have a reasonable basis for their belief that they’re at an undue risk.

Importantly, mere concern with one’s health or safety is not sufficient to justify good cause for leaving work. The work must cause an undue risk of injury or illness to the individual. A claimant may be able to establish a reasonable basis for their belief that an undue risk of injury or illness exists based on their physician’s advice or prior medical conditions or history.

Based on what medical professionals continue to learn about the coronavirus and potential complicating risk factors for severe COVID-19 illness, it’s possible some workers may have good cause to quit their employment based on their particular medical history and/or advice from their doctor in connection to COVID-19. In such instances, it would be highly dependent on the individual’s specific circumstances, and it’s unclear at this point how the EDD will analyze such claims under these unprecedented circumstances. However, individuals who quit working based only on a general fear of contracting COVID-19, absent advice from their physician or some underlying medical condition or history that provides a reasonable basis to believe they’re at an undue risk, likely don’t have good cause to quit and may not be eligible for standard UI benefits if they do.

Expanded Unemployment Benefits

Adding an extra wrinkle to employers’ difficulty in trying to rehire their workers is that the CARES Act also created the Pandemic Unemployment Assistance (PUA) program, which provides special unemployment benefits for COVID-19-related reasons to those who do not qualify under normal unemployment insurance (UI) benefits, such as those who are self-employed, independent contractors, and those who’ve exhausted their standard UI benefits. The PUA program might not provide as much compensation as standard UI benefits, but it may provide some workers extra latitude to refuse work.

PUA eligibility criteria and benefits are different from the standard UI. Under PUA, workers are eligible for benefits if:

  • They’ve been diagnosed with COVID-19 or are experiencing symptoms of COVID-19 and are seeking a medical diagnosis.
  • They’re unable to work because a health care provider advised them to self-quarantine due to concerns related to COVID-19.
  • A member of their household has been diagnosed with COVID-19.
  • They’re providing care for a family member or a member of their household who’s been diagnosed with COVID-19.
  • A child or other person in the household for whom they have primary caregiving responsibility is unable to attend school or another facility that’s closed as a direct result of COVID-19 and the school or facility care is required for them to work.
  • They become the major support for a household because the head of the household has died as a direct result of COVID-19.
  • They must quit their job as a direct result of COVID-19.
  • Their place of employment is closed as a direct result of COVID-19.
  • They were scheduled to start a job that is now unavailable as a direct result of the COVID-19 public health emergency.
  • They’re unable to reach the place of employment as a direct result of the COVID-19 public health emergency.
  • If they work as an independent contractor with reportable income, they may also qualify for PUA benefits if they are unemployed, partially employed, or unable or unavailable to work because the COVID-19 public health emergency has severely limited their ability to continue performing their customary work activities, and has thereby forced them to stop working.

The PUA program attempts to take into account the pandemic’s unique circumstances by extending benefits to those who usually don’t receive them. While this will undoubtedly help many displaced workers, it also compounds employers’ problem of trying to rehire their workers as the economy reopens. Some workers who simply don’t want to return to work out of a general fear of getting sick may try to rely on the PUA program. However, the U.S. Department of Labor has issued guidance on the program stating that, unless one of the above criteria are met, “voluntarily deciding to quit your job out of a general concern about exposure to COVID-19 does not make you eligible for PUA.”

Final Thoughts for Employers

Determining whether an individual voluntarily quits or was discharged and whether they had good cause to quit or refuse suitable work offered to them later, are all made by the EDD based on each case’s specific facts. As such, employers shouldn’t advise their employees on eligibility.

Instead, employers should consider helping their employees who have reduced hours or are furloughed or laid off due to the pandemic by offering information on how to apply for UI benefits. Employers should be very clear with employees on reasons for the action and the timeline for returning, if possible, which will help ensure that the information given to the EDD is consistent between employee and employer. If employers are fortunate enough to obtain a PPP loan or are otherwise able to resume business as the state reopens, returning employees likely will appreciate the assistance. Though some employees may feel conflicted about coming back to work, many will return because they enjoy working and/or they appreciate the value of having a job over the short-term unemployment benefits. For those that insist on staying unemployed, they will likely run into eligibility problems upon refusing work.

It’s important for employers to always respond promptly and accurately to requests for information from the EDD, including any Notices of Unemployment Insurance Claim Filed, and subsequent Notices of Determination. Failure to respond to the initial notice of claim filed in a timely manner (within 10 days) waives your right to appeal any determination as to eligibility. This is especially important if you believe the claimant is ineligible due to a disqualifying event, such as quitting without good cause or refusing suitable work.

Employers can read more about the unemployment process, including the new federal unemployment programs under the CARES Act, on the EDD’s website or in its employer’s guide.