Many Oregon gig workers got regular unemployment benefits. Here’s why it matters

Christopher Harley was shocked when he got regular unemployment benefits.

After all, he was a gig worker when the pandemic hit Oregon in early 2020, and no company had considered him their employee for many years. He drove passengers for Uber and Lyft, delivered meals for DoorDash and Grubhub, and dropped off groceries for Instacart and Amazon Flex. He bounced between those apps, cycling through numerous travelers, restaurants, grocery stores and apartment buildings each day.

“My doctor immediately said you shouldn’t be doing this type of work,” said Harley, 53. He had suffered through pneumonia before and was scared of bringing the coronavirus home to his family in Portland.

So as the economy shut down in March, Harley was relieved to hear help was on the way.

The kind of help he got, however, raises fundamental questions about how businesses operating in Oregon are taxed — and whether gig economy companies should be required to pay into the state’s employment safety net.

The federal CARES Act created a new class of unemployment benefits for gig workers. Pandemic Unemployment Assistance, or PUA, covered workers who usually don’t qualify for jobless benefits because they’re considered independent contractors, not employees.

“It pointed directly to the work that I was doing,” Harley said. “It was me.”

The Oregon Employment Department disagreed.

In June, the agency began paying Harley — not the federal PUA he expected, but regular state benefits instead.

In doing so, it paid him from a state trust fund that about 145,000 employers in Oregon contribute to through payroll taxes. The fund pays for benefits when employees get laid off. But gig companies such as Uber and Lyft don’t pay unemployment taxes for drivers and delivery people, who they consider independent contractors.

“To this day, it’s still not clear to me why that decision was made,” Harley said, “but it protected myself and my family the last nine months.”

Harley is not alone.

Court documents and interviews show the Oregon Employment Department paid many gig workers traditional benefits from the state’s unemployment insurance trust fund. People who drove enough hours for Uber and Lyft received benefits normally reserved for laid-off employees, as did many drivers with income from Grubhub, Instacart and DoorDash. Some gig drivers ferrying groceries and packages for Amazon Flex got regular benefits too.

The benefits went out, but payroll taxes hadn’t gone in.

Uber is a large company, flirting with a stock-market value of $100 billion. Meanwhile, many small businesses struggling to survive the pandemic, including restaurants and gyms, have seen their unemployment taxes jump.

‘All the claimants are deemed employees’

Shortly after Christopher Harley received his first payment in June, a memo went out at the Oregon Employment Department.

A manager had an update from the agency’s tax unit. Tax unit employees had the laborious task of determining which claimants were independent contractors eligible for PUA and which were employees who could get regular benefits. So the tax unit was contacting gig employers one claim at a time — a painfully slow process that contributed to an immense payment backlog.

The unit was swamped. Leaders decided to streamline.

“Tax has made a decision to stop conducting interviews with the following companies,” manager Kristine Wardlow wrote to adjudicators on June 26, 2020, “all the claimants are deemed employees and you just need to obtain POE [proof of earnings] and process the claim.”

Then in bold, capital letters, she listed the biggest names in the gig economy:

“UBER

LYFT

INSTACART

GRUBHUB

DOORDASH

AMAZON FLEX and or AMAZON.COM”

The June 26 email later became public in court documents filed in a class action lawsuit against the Employment Department and its acting director.

The documents included excerpts of a deposition recorded the following October with Lindsi Leahy, the head of the department’s unemployment insurance division. She confirmed that, prior to June, the tax unit had tried to contact Uber or Lyft every single time a driver filed for PUA.

In the lawsuit, petitioners represented by the Oregon Law Center focused on payment delays. They criticized the Employment Department for conducting time-consuming, individual interviews with companies such as Uber and Lyft when unemployment had skyrocketed.

“OED did not issue a global decision about how to treat these employers’ payments to gig workers until June 26, three and a half months after the COVID-19 emergency began,” the lawyers wrote in one motion.

The Oregon Employment Department would not confirm to OPB whether it considers gig workers such as Uber and Lyft drivers to be employees rather than independent contractors. It declined to elaborate on the court filings themselves, citing pending litigation. It also denied a public records request from OPB, citing a law that protects employer privacy.

But there is further evidence in the court documents themselves.

In a November declaration, David Gerstenfeld, the acting head of the Employment Department, confirmed that the agency had made a global decision on how to treat payments to gig workers from companies including Uber and Lyft.

The petitioners’ motion, Gerstenfeld wrote, “correctly narrates how OED innovated to streamline its process for certain ‘gig workers.’”

Some ride-hailing drivers who started getting paid PUA were later surprised when the Employment Department switched them to regular benefits.

And some drivers received regular unemployment benefits even before that memo went out last June.

Employee or independent contractor? It matters

Emilie Wyqued was working full-time for Uber and Lyft when the pandemic hit. She counts herself lucky. By the end of April, the state began paying her regular unemployment benefits, even though she hadn’t worked a W-2 job in years. Wyqued said she spoke with a worker in the Employment Department’s tax unit.

“She actually called me and said they’re trying to process as many drivers as possible as employees,” Wyqued said. “And put them on regular unemployment.”

The Oregon Employment Department relies on a definition in state law to determine whether a worker is an independent contractor or an employee. The law outlines several tests for independent contractors. It asks whether they truly control how their work is performed and whether they have an independently established business.

By treating many gig workers as employees, the Employment Department is in line with states around the country who have confronted Uber and Lyft with a growing number of fines, laws and lawsuits.

New Jersey, for example, sought to charge Uber $649 million in 2019 for years of unpaid employment taxes.

When California enacted a law that effectively classified ride-hailing drivers as employees, Uber and Lyft fought back — and won.

The two companies spent $100 million to pass an initiative allowing them to continue treating workers as independent contractors. DoorDash, Instacart and Postmates kicked in tens of millions more. At more than $200 million, Proposition 22 was the most expensive ballot fight in California’s history.

Employees come with costs gig companies do not want to bear. Among them: required contributions to state unemployment insurance funds.

‘An enforcement issue’

Researchers with the U.C. Berkeley Labor Center estimated Uber and Lyft would have paid California more than $400 million in unemployment payroll taxes over five years if the companies treated drivers as employees.

In Oregon, these gig companies would owe far less in unemployment taxes. The state has a small fraction of the ride-hailing drivers that California does.

Still, some Oregon drivers wonder whether the state is preparing to crack down on Uber and Lyft.

Corinna Spencer-Scheurich, director of the Northwest Workers’ Justice Project, doesn’t know the answer. But she doesn’t discount the possibility.

“As soon as they pay out regular unemployment benefits out to misclassified workers, that starts the ball rolling,” she said. “Then it becomes an enforcement issue.”

The Employment Department can audit and bill companies believed to be misclassifying employees. It can charge penalties and interest if those companies don’t pay.

Oregon has paid out more than $2 billion in regular benefits during the pandemic, leaving about $3.8 billion in its trust fund at the start of this year. Employment Department officials say Oregon is in far better shape than many other states, some of whom have had to borrow money to prop up their trust funds.

However, more than 85% of employers who pay unemployment taxes in Oregon will see their rates increase in 2021. Because of the formula used to replenish the fund, businesses that suffered the greatest layoffs, such as restaurants and gyms, bear some of the biggest tax increases.

Harley, the gig worker who worried about bringing the pandemic home, has now joined the ranks of the long-term unemployed. He exhausted his regular unemployment benefits and the first round of a federal extension program. He’s been looking for other work for the last nine months, with no luck.

Wyqued also exhausted her regular unemployment benefits and moved onto an extension program. Driving passengers during the pandemic still feels too dangerous.

As 2020 came to a close, Congress and President Donald Trump agreed to extend federal benefit programs into March. But Pandemic Unemployment Assistance was designed to be temporary. The question is whether the Oregon Employment Department’s decision to treat many gig workers as employees is permanent — and what that means for the future of gig companies, the unemployment insurance trust fund and the many Oregonians who rely on government aid when they lose their jobs.