Thursday, March 26, 2020

COVID-19 Unemployment Assistance for Independent Contractors

Updated on April 6, 2020

Congress has now enacted the CARES Act that, among other things, substantially extends unemployment insurance benefits (UI) because of COVID-19. (For an overview, see NELP 2020; CRS 2020; DOL 2020). Here's a look at how Title II(A) of the CARES Act, or the "Relief for Workers Affected by Coronavirus Act" will likely affect professional drivers, family child-care providers, and other workers who, before COVID-19 hit, were treated (accurately or not) as "independent contractors," not "employees". (For background on prior legislation, as well as moves by States to relax UI eligibility, see here.)


Typically, State UI laws exclude unemployed claimants who were classified as "independent contractors", not "employees". Indeed, some firms misclassify their labor-contract counter-parties as "independent contractors" in order to avoid UI payroll taxes imposed on an employer "with respect to . . . individuals in his employ," 26 U.S.C. § 3301.

In contrast, federal disaster unemployment assistance does not turn on "employee" status. Rather, it covers not only an unemployed worker, but also "an unemployed self-employed individual," 20 C.F.R. § 625.4(c). To date, twelve States have been declared COVID-19 major disaster areas, but the President has not authorized unemployment assistance for any of them.

Title II(A) of the CARES Act provides. among other things, two kinds of new Federal UI benefits: (1) pandemic emergency unemployment compensation (CARES Act § 2107) and (2) Pandemic Unemployment Assistance (CARES Act § 2102). Bottom line: Individuals who've been classified as independent contractors can qualify for Pandemic Unemployment Assistance, if otherwise eligible. But they are unlikely to qualify for pandemic emergency unemployment compensation if they are indeed independent-contractors under State UI law.

Pandemic Emergency Unemployment Compensation

Here, any State and the US Department of Labor (DOL) can enter into an agreement under which the State pays "pandemic emergency unemployment compensation" to individuals who are "able to work, available to work, and actively seeking work"; have "exhausted all rights to regular compensation" under State or federal law; aren't getting UI from Canada; and have "no rights to regular compensation with respect to a week under such law or any other" State UI law "to compensation under any other Federal law." CARES Act § 2107(a)(2). If eligible, the claimant can get, in a particular week, an amount equal to what that individual would have otherwise been able to get under State UI law plus the amount they can get under Pandemic Unemployment Assistance.

The problem: Someone can't exhaust their rights to "regular" UI compensation if they never had those rights in the first place because of their independent-contractor status. Notably, this is not a problem for workers who are or should be classified as "employees" under the applicable State law, including but not limited to workers in the so-called gig economy. See, e.g., Vega v. Postmates, Inc., No. 13 (N.Y. 2020). Accordingly, for workers misclassified as independent contractors, the burden is on them to prove that misclassification to access pandemic emergency unemployment compensation.

Pandemic Unemployment Assistance

If someone can't get UI under State or federal law (and isn't eligible for pandemic emergency unemployment compensation), that individual may be able to get Federal Pandemic Unemployment Assistance under CARES Act § 2102 (except if they "telework with pay" or are receiving "paid sick leave or other paid leave benefits," CARES Act § 2102(3)(B).

Here, claimant individuals must self-certify that they are "otherwise able to work and available for work" under State UI law, but they are "unemployed, partially unemployed, or unable or unavailable to work," CARES Act § 2102(a)(3)(A)(ii)(I), because of one of several qualifying conditions.

Such qualifying conditions include that the individual is caring for a family or household member diagnosed with COVID-19, or primarily cares for a child who can't attend school because of COVID-19 and such school is required for the individual to work. See CARES Act § 2102(a)(3)(A)(ii)(I)(aa)-(hh)

Other qualifying conditions include:

(ii) the individual has to quit his or her job as a direct result of COVID-19;

(jj) the individual's place of employment is closed as a direct result of the COVID-19 public health emergency; or

(kk) the individual meets any additional criteria established by the Secretary for unemployment assistance under this section.

Id. § 2102(a)(3)(A)(ii)(I)

Now, the key provision: If one of these qualifying conditions exist, and the individual is otherwise eligible, that individual is still covered even if that individual

is self-employed, . . . or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation.

CARES Act § 2102(a)(3)(A)(ii)(II).

This clause seems to cover anyone who couldn't get regular State and federal UI law, as well as pandemic emergency unemployment compensation, because they'd be treated as an independent contractor. It's drafted as a catch-all inclusion, as indicated by the phrase "otherwise would not qualify"; thus, it would still cover independent contractors even absent the phrase "self-employed".

Still, of workers who are independent contractors, some may find it unclear whether they meet a qualifying condition. For example, suppose a driver who is the (nominal) owner-operator of the vehicle she drives and who, because of COVID-19, can't derive any income from driving, either because passengers are staying home to avoid COVID-19 exposure or because the driver, fearing COVID-19 exposure, stops driving. Another example: A family child-care provider (someone who runs a child care in their home) feels that she has to close the child care, because she fears the COVID-19 exposure to herself and her family arising from caring for other people's children in her home. In either case, which qualifying condition applies? Would we say that, in each case, the individual's "place of employment" (the vehicle or residence, respectively) "is closed" because of COVID-19? Or that the individual "has to quit" because of COVID-19?

These and other edge cases will turn on how (and how fast) the DOL moves, not only to issue "operating instructions or other guidance" documents, CARES Act § 2116(b), but also to use its authority to identify other qualifying conditions ("additional criteria" under § 2102(a)(3)(A)(ii)(I)(kk)) to cover such cases.

On April 5, 2020, DOL issued a guidance in which it partly addressed this issue by identifying an additional qualifying condition:

[A]n individual who works as an independent contractor with reportable income may also qualify for PUA benefits if he or she is unemployed, partially employed, or unable or unavailable to work because the COVID-19 public health emergency has severely limited his or her ability to continue performing his or her customary work activities, and has thereby forced the individual to suspend such activities. For example, a driver for a ridesharing service who receives an IRS Form 1099 from the ride sharing service may not be eligible for PUA benefits under the other criteria outlined above, because such an individual does not have a “place of employment,” and thus cannot claim that he or she is unable to work because his or her place of employment has closed. However, under the additional eligibility criterion established by the Secretary here, the driver may still qualify for PUA benefits if he or she has been forced to suspend operations as a direct result of the COVID19 public health emergency, such as if an emergency state or municipal order restricting movement makes continued operations unsustainable.

DOL (2020, p. I-6).

--- Sachin Pandya

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I own a small business deemed non essential in Ohio and was forced to close. I am retired and receive a pension does that income disqualify me for PUA assistance. I have read the above and feel that through no fault of my own I have suffered great loss and should be eligible since I still have bills and insurance to pay even though I am closed

Posted by: Mark Moreland | May 19, 2020 11:30:52 AM

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