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Chas Alamo

Budget and Policy Post
October 5, 2020

The 2020-21 Spending Plan:

Labor and Employment Issues

The 2020‑21 Budget Act includes several new initiatives and policy changes related to labor and employment programs. This post provides a high-level overview of the state’s major labor and employment programs and highlights the major labor issues in the budget package, including provisions related to the coronavirus disease 2019 (COVID-19) pandemic.


California’s major labor and employment programs provide work-related services and benefits to its residents, enforce its employment laws, oversee its workers’ compensation system, and regulate its workplace safety and health. Many of the work-related services and benefits are funded or required by the federal government, including unemployment insurance benefits and federal workforce training programs. The labor and employment programs are administered at the state level by the Employment Development Department (EDD), the Department of Industrial Relations (DIR), the California Workforce Development Board, and the Agricultural Labor Relations Board (ALRB). The state’s Labor and Workforce Development Agency (LWDA) oversees these entities and works to set policy and coordinate programs.

Major Labor and Employment Issues

One-Time Transfer of Labor Law Penalties to General Fund. The 2020‑21 budget plan transfers $107 million one time from the Labor and Workforce Development Fund (LWDF) to the General Fund. Funds in the LWDF are set aside for labor law enforcement and education. These funds come primarily from Private Attorneys General Act (PAGA) lawsuit settlement proceeds. Under state law, PAGA allows employees to sue their employers to collect a share of penalties associated with labor law violations. Penalties and settlement awards from PAGA lawsuits are distributed 75 percent to the LWDF and 25 percent to the plaintiffs. In recent years, PAGA proceeds flowing into the LWDF have exceeded expenditures from the fund. As a result, prior to the fund transfer, the 2020‑21 LWDF balance was projected to be $117 million.

One-Time Funding for Worker Outreach. The 2020‑21 budget includes $20 million from the LWDF for labor law enforcement and additional worker outreach and education. Funding would be distributed to DIR ($12.6 million) for education and outreach programs, LWDA ($6.7 million) to develop and oversee the outreach program, and the ALRB ($500,000) for outreach in the agricultural sector. (The 2020‑21 Governor’s Budget proposed ongoing funding for these purposes, but the administration withdrew funding for later years due to the budget problem resulting from the COVID-19 pandemic.)

Funding for New Workload Related to Employee Classification. The 2020‑21 budget package includes two labor items related to Chapter 296 of 2019 (AB 5, Gonzalez), a new law that limits what types of work businesses can hire independent contractors to perform. Independent contractors who are reclassified as employees under the new law will be covered by the state’s existing labor laws. According to the administration, these new employees will increase the need for various DIR services, including managing more workers’ compensation claims, investigating labor law violations, and conducting workplace health and safety inspections. The budget provides DIR with 103.5 positions and $17.5 million special funds annually for three years to support this additional workload related to the new law. These positions are funded with an increased assessment on employers’ workers’ compensation insurance premiums.

In addition, the budget package includes $3.4 million General Fund and 24 positons at EDD to implement AB 5. The department requested resources for AB 5 because its payroll tax auditors must determine if a worker is an independent contractor or an employee. Funds will be used to train auditors to apply the new test and hire auditors to prepare audits for additional employer appeals that are expected as a result of the law. The budget plan also sets aside $3.2 million General Fund in 2021‑22 and $2 million General Fund in 2022‑23 for these purposes.

Increased Funding for Wage Claim Hearings. The budget plan includes 15 positions and $2.3 million special funds, increasing to 63 positions and $8.8 million special funds by 2023‑24, to add staff at the Labor Commissioner’s Office to reduce delays for workers seeking unpaid wages. Filing a claim for unpaid wages with the Labor Commissioner’s Office is one option workers have to recover unpaid wages their employer owes them. Under state law, wage claims are to be adjudicated within 120 days. In recent years, however, the average claim has taken more than 300 days to adjudicate. According to the administration, this delay is due to new laws that expanded the Labor Commissioner’s authority to collect wages, which makes some cases more complex and therefore time consuming. For example, one recent state law assigns wage claim liability to contracting businesses for violations committed by their subcontractors or temporary employment agencies. Wage claims under this new law can involve multiple businesses instead of one business, resulting in more time-consuming adjudication.

Job-Protected Leave Mediation Program for Small Businesses. The 2020‑21 budget plan establishes a mediation pilot program at the Department of Fair Employment and Housing. The pilot program would be available to small employers (5 to 19 employees) prior to an employee filing a lawsuit that alleges the business did not follow the state’s job-protected leave laws. If mediation fails, lawsuits would proceed as usual. The mediation pilot program was established alongside a new state law that expands existing job-protected leave requirements to small businesses with 5 to 19 employees. These laws previously applied to businesses with 20 or more employees.

One-Time Funding for COVID-19 Education and Enforcement at Labor Agency. The 2020‑21 Budget Act provides $32.5 million General Fund one time to the LWDA to provide outreach about COVID-19 work requirements and to enforce those requirements. Common COVID-19 employment issues include, among others: whether workers receive pay for reporting to work and being sent home due to COVID-19, how to submit remote claims for labor law violations, what paid and unpaid leave options are available to workers affected by COVID-19, and how to implement COVID-19 workplace safety requirements. Of the $32.5 million, $6 million is provided to DIR to enforce the state’s anti-retaliation laws and workplace health and safety requirements. Additionally, $5 million will fund worker and employer training related to COVID-19.

Temporary Paid Sick Leave for Employees Affected by COVID-19. The 2020‑21 Budget Act establishes a supplemental two week paid sick leave program for food industry employees and a supplemental two week paid sick leave program for employees who are not eligible for federal emergency paid sick leave under the Families First Coronavirus Relief Act (FFCRA). Food sector employees would be eligible if they are ordered to quarantine or self-isolate or cannot work because the business is closed due to COVID-19 transmission. (Drivers who deliver food for app-based delivery services are eligible.) Other employees would be eligible for the state supplemental two week paid sick leave program if they are: (1) healthcare workers, (2) emergency responders and public safety personnel, and (3) employees of businesses with more than 500 employees nationwide. These three groups are not eligible for the federal emergency paid sick leave under the FFCRA. Both new paid sick leave programs expire at the end of 2020.