BILL ANALYSIS Ó Senate Committee on Labor and Industrial Relations William W. Monning, Chair Date of Hearing: June 12, 2013 2013-2014 Regular Session Consultant: Alma Perez Fiscal:Yes Urgency: No Bill No: AB 1392 Author: Assembly Committee on Insurance As Introduced/Amended: May 29, 2013 SUBJECT Unemployment insurance: work sharing plans KEY ISSUE Should provisions regulating the Work Sharing - Unemployment Insurance Program be updated to conform to new federal requirements? ANALYSIS Existing law establishes the Unemployment Insurance (UI) program, administered by the Employment Development Department (EDD). The UI program is a federal-state program that provides weekly unemployment insurance payments to eligible workers who lose their jobs through no fault of their own. The UI program is financed by employers who pay unemployment taxes on the first $7,000 in wages paid to each employee in a calendar year. The benefits range from $40 to $450 per week depending upon earnings during a 12-month base period. Existing law permits the payment of a reduced amount of UI benefits to individuals whose employer participates in the Work Sharing Unemployment Insurance program. A person is eligible for shared work unemployment compensation benefits under the following circumstances: a) The person works less than his or her normal weekly hours of work for his or her regular employer during a particular week; b) The EDD Director finds that the regular employer has reduced or restricted the person's normal hours of work or has rehired a person previously laid off and reduced that person's normal hours of work from those previously worked; c) The employer has a plan to, in lieu of layoff, reduce employment and stabilize the work force by a program of sharing the work remaining after a reduction of total hours of work and a corresponding reduction in wages of at least 10 percent; and d) The employer reduces the hours worked of at least two employees and at least 10 percent of the employer's regular permanent work force. Existing law provides that a person who is eligible for a shared work unemployment benefit during any week of partial unemployment shall be paid a benefit equal to the percentage of reduction of the person's wages resulting from the approved plan and multiplied by the person's weekly benefit amount. Existing law requires employers to apply with EDD for the program and specifies that a plan for shared work unemployment benefits expires in six months. EDD is authorized to terminate a plan for good cause if the plan is not being carried out according to its terms and intent. This Bill would revise and recast the provisions covering the Work Sharing Unemployment Insurance Program to conform to new federal requirements. The current provisions covering the program would be repealed on a specified date, after which the new provisions (below) would apply. Specifically, this bill would: 1)Require that the employer identify, in the application for participation in the program, the usual weekly hours of work for employees in the affected unit and the specific percentage by which their hours will be reduced. Hearing Date: June 12, 2013 AB 1392 Consultant: Alma Perez Page 2 Senate Committee on Labor and Industrial Relations 2)Provide that the percentage of reduction of hours for which a work sharing plan may be approved shall not be less than 10 percent (current law) or more than 60 percent. 3)Require participating employers providing health or retirement benefits to continue those benefits for the duration of the program as if the affected employees were working normal hours. 4)Requires applications for work sharing programs to include: a) A description of how the employer will notify employees of the work sharing plan. b) An estimate of the layoffs averted by implementing a work sharing program. c) A certification by the employer that their participation in a work sharing program is consistent with the employer's obligations under state and federal law. 5)Allow employees in a work sharing program to participate in training approved by the Employment Development Department (EDD) including employer required training or training funded through the Workforce Investment Act. 6)Permit EDD to defer implementation of the bill until July 1, 2014 if implementation by January 1, 2014 is not feasible. COMMENTS 1. Background on the Work Sharing Program: The Work Sharing Program was established by the Legislature in 1978 - the first of its kind in the nation. The program allows employers to participate in the work sharing unemployment compensation benefits program which makes employees eligible to receive a reduced amount of unemployment compensation benefits if their work hours are reduced by more than ten percent. For example, a company with 100 employees may need Hearing Date: June 12, 2013 AB 1392 Consultant: Alma Perez Page 3 Senate Committee on Labor and Industrial Relations to lay off 20 percent of its workforce as business slows. When it chooses to participate in a shared work program, the company keeps its full workforce but moves to a four-day work week. That allows the employer to achieve the same 20 percent savings in payroll costs but without layoffs. Employees not only keep their jobs but they also receive unemployment insurance benefits to make up for part of their reduced wages. The Work Sharing Program benefits both employers and employees. If employees are retained during a temporary slowdown, employers can quickly gear up when business conditions improve. Employers are spared the expense of recruiting, hiring, and training new employees and employees are spared the hardship of total unemployment. Participation in the work sharing program has increased dramatically during the recession. Initial shared work compensation claims rose from 45,276 in 2007 to a peak of 219,580 in 2009. Claims have declined to 111,347 in 2011. 2. Need for this bill? On February 22, 2012, the President signed the Middle Class Tax Relief and Job Creation Act of 2012 (the Act) into law. The Act contains many provisions concerning the unemployment insurance programs, and the U.S. Department of Labor (USDOL) has provided guidance to states about the minimum conformity requirements related to work sharing programs. That guidance includes conforming state work sharing statutes with a revised model developed by the USDOL, in consultation with stakeholder groups. The Act also provides funding for states that bring their work sharing programs into compliance with the new requirements. California is slated to receive over $250 million to help pay for work sharing benefits and will be eligible for approximately $11 million in grant funding for program administration after enactment of the model law. This bill addresses federal conformity requirements that are necessary for California's continued operation of the work sharing program. According to the author, EDD provided the Hearing Date: June 12, 2013 AB 1392 Consultant: Alma Perez Page 4 Senate Committee on Labor and Industrial Relations language to the Committee based on its review of model language provided by the U.S. Department of Labor (USDOL). EDD recognizes that this bill is necessary to retain the work sharing program in California, and it also allows California to qualify for an additional six months of reimbursement by the federal government for work sharing benefits. 3. Proponent Arguments : According to the author, this bill addresses federal conformity requirements that are necessary for the continued operation of California's work sharing program, and it allows California to qualify for an additional six months of reimbursement by the federal government for work sharing benefits. 4. Opponent Arguments : None received 5. Prior Legislation : SB 1472 (Leno) of 2010:Vetoed by the Governor SB 1472 would have required the EDD to develop and implement an outreach plan designed to inform employers in California about the Shared Work program. In his veto message, Governor Schwarzenegger stated that, "This program has already experienced a significant increase in participation by California employers as a means to retain an experienced workforce during this severe recession. Therefore, this bill is unnecessary at this time." SUPPORT Employment Development Department OPPOSITION Hearing Date: June 12, 2013 AB 1392 Consultant: Alma Perez Page 5 Senate Committee on Labor and Industrial Relations None received Hearing Date: June 12, 2013 AB 1392 Consultant: Alma Perez Page 6 Senate Committee on Labor and Industrial Relations