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DOL Botched Advice on Gig-Worker Jobless Aid, Watchdog Says (2)

May 27, 2020, 5:00 PMUpdated: May 27, 2020, 9:54 PM

Labor Department guidance that encouraged states to pay jobless benefits to gig-economy workers without requiring earnings documentation has made a crucial new virus-relief program “highly vulnerable” to fraud, the agency’s internal watchdog said.

The DOL’s Office of Inspector General said in a memo Wednesday that it disagrees with the agency’s interpretation of the Pandemic Unemployment Assistance program, which was launched under the $2.2 trillion CARES Act and already has extended unemployment insurance benefits to millions of self-employed workers and others who aren’t traditionally eligible.

At issue is the department’s April guidance that informed states they could start paying PUA claims to workers who self-certify that they qualify for the program, without mandating that proof be supplied. Instead, the agency’s watchdog said states should be requiring workers to submit paperwork, such as pay stubs or tax returns, to verify their eligibility and help officials determine an appropriate weekly benefit amount.

Absent more rigorous protocols, “the PUA program presents substantial risks of the likelihood of loss of millions of taxpayer dollars,” wrote Elliot P. Lewis, the department’s assistant inspector general for audit. The memo said DOL should “seek additional guidance or clarification from Congress” because the department’s Office of the Solicitor and its Employment and Training Administration, which oversee the program, both “disagree” with the watchdog’s assessment.

The memo revealed a clash within the department over the rollout of a critical new safety-net extension, which has proved complicated for states to set up. Technology upgrades and other challenges in establishing the program on the state level have caused self-employed workers, such as Uber Technologies Inc. and Lyft Inc. drivers, to wait for weeks for their first benefits check.

The policy disagreement also clouds the flexibility DOL’s guidance provided for states to not require wage-related paperwork from workers who apply for PUA benefits, leeway that could prove essential as they process more than 2 million initial claims filed in the week ending May 16, according to DOL data.

A DOL spokeswoman said in response that the department has reviewed the memo and plans to respond “by June 2 as requested by the OIG.”

“While we share the concerns expressed about program integrity and potential fraud, we continue to support the Office of the Solicitor’s legal interpretation of the CARES Act over that of the OIG,” the statement added.

Dispute Over Authority

The PUA program provides up to 39 weeks of benefits for independent contractors, including ride-share drivers who are forced off the road because they contracted Covid-19 or because their business has suffered. Also eligible for coverage are individuals who quit their jobs as a direct result of Covid-19; those who became their household’s primary breadwinner due to a death caused by the virus; or those who were scheduled to start a new job but had the offer rescinded because of the pandemic, among other qualifying reasons.

DOL’s position has been that it lacks authority under the stimulus law to add additional criteria for states to determine payment of PUA benefits, according to the memo. The agency watchdog disagreed with that interpretation. The memo cited a law governing the earlier Disaster Unemployment Assistance program, which provided lawmakers with a model when they crafted the PUA system to respond to the rapid growth of gig-economy jobs that don’t qualify for regular unemployment insurance.

Congress gave DOL’s independent watchdog $26 million to provide oversight over the department’s response to the pandemic, and numerous audits have been launched, including reviews of how states are administering jobless aid.

Neither the Republican nor Democratic offices of the Senate Finance Committee, which has jurisdiction over the unemployment insurance provisions of the CARES Act, immediately commented about how they would advise DOL to proceed in light of the memo.

Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality, urged the department not to stray from its past guidance.

“As it is, the agency has focused intensely on improper payments, though the far bigger risk is that a large share of eligible workers without jobs fail to access the maximum benefits to which they are entitled,” Dutta-Gupta said, via email. “The law does not require DOL to insist on impractical state administration that would gut the Pandemic Unemployment Assistance program.”

Speeding Up Payments

DOL’s advice that states can start distributing unemployment checks without waiting for wage records has helped some of them meet the historic demand for jobless compensation.

When Indiana began paying PUA benefits earlier this month, the state’s unemployment insurance software instantly started paying out the majority of applications, said Josh Richardson, chief of staff of Indiana’s Department of Workforce Development. That wouldn’t have been possible had the state needed to assign staff to verify workers’ eligibility.

A requirement to verify documentation “would’ve absolutely slowed down the processing of those payments,” Richardson said in an interview before the release of the OIG report.

DOL still encourages PUA applicants to submit earnings records but has exercised leniency, in a move welcomed by the self-employed workers who don’t have immediate access to the paperwork.

The agency told states in April that prior to receiving PUA documentation, they should start paying claims at a minimum weekly amount, which is calculated as half of the state’s average weekly payment under regular unemployment compensation. The minimum total—averaging $175 nationally—is then bolstered by a $600 weekly benefits supplement for coronavirus relief that expires at the end of July.

(Updated with DOL response.)

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com