What President Trump’s Executive Order Means for Unemployment Compensation Benefits

One of the major sticking points for the most recent round of stimulus negotiations was what to do about the expansion of unemployment compensation benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. After White House negotiators and congressional Democratic leaders could not reach an agreement, the Administration issued several Presidential Memoranda and an executive order over the weekend relating to payroll taxes, student loan deferral, housing assistance, and disaster benefit assistance/unemployment compensation.

This Alert discusses the Presidential Memorandum[1] issued on disaster assistance, which we refer to as the Disaster Relief Memorandum or the Memorandum.  The Disaster Relief Memorandum primarily directs FEMA to provide benefits from the Department of Homeland Security’s Disaster Relief Fund and directs States to use their Coronavirus Relief Fund allocation to provide financial relief to unemployed Americans affected by COVID-19, principally through an up to a $400-per-week supplemental unemployment compensation benefit. This benefit is between a Democratic proposal, which wanted to extend the $600 Federal Pandemic Unemployment Compensation (FPUC) benefit created by CARES, and a Republican proposal, which proposed a $200-per-week benefit for several weeks while States worked to implement a percentage-based supplement to state unemployment compensation benefits.

The Memorandum makes two significant changes in eligibility compared to the $600 supplemental benefit under CARES, and also is funded differently because States must agree to pay 25 percent of the supplemental benefit.  This Alert provides a summary of what we know and don’t know about the benefits under the Disaster Relief Memorandum.

What Does the Disaster Assistance Memorandum Do?

Essentially, the Disaster Relief Memorandum relies on redirecting previously appropriated funds from general disaster relief to provide lost wage assistance to individuals in the form of an up to $400-per-week unemployment compensation supplement, to be provided for so long as the Disaster Relief Fund contains at least $25 billion in funds or until December 6, 2020, whichever occurs first. Based on current estimates of unemployment-related expenditures from the Committee for a Responsible Federal Budget, this action is expected to result in approximately five weeks of benefits before exhausting available funding in the Disaster Relief Fund. Hypothetically, this relief could be extended by further appropriations to the Disaster Relief Fund.

The Memorandum defines “eligible claimants” to be anyone who receives at least $100 per week in unemployment compensation benefits or one of the expanded unemployment compensation options under CARES, and who provides a self-certification that the claimant is partially or wholly unemployed due to disruptions caused by COVID-19. It is unclear whether the federal government will define what it means to be “partially unemployed” or “unemployed,” or if those terms will be incorporated from the applicable State’s unemployment compensation rules.

There are two key differences between these eligibility requirements and the eligibility criteria in CARES. First, the Memorandum increases the required minimum weekly assistance requirement from $1 of unemployment compensation assistance to at least $100. This is a significant change that likely blocks many partially employed individuals or individuals with limited work histories from receiving unemployment compensation, especially in states with lower unemployment compensation benefit formulas.

Second, the Memorandum also requires the individual to certify that his or her lost wages are attributable to disruptions caused by COVID-19. Under the CARES Act, the $600 FPUC benefit was available to all individuals receiving unemployment compensation, not only those who received unemployment benefits because of a COVID-19-related disruption.

The other major change from the $600 FPUC benefit is the funding.  The FPUC benefit was funded 100% by the federal government.  With this new benefit, which is subject to an agreement between the federal government and each state, the  federal government will directly pay for 75% of the costs associated with this program, and state governments will be responsible for the remaining 25%. So, at $400 per week per claimant, the federal government provides $300, and the State provides $100. However, on Tuesday, August 11, the White House suggested that a State could instead elect to receive $300 per week in federal disaster assistance without making the $100 contribution, but this will be subject to further clarification.

When Will This Benefit Be Available?

Administration officials expect that it will take several weeks for States and the federal government to implement the action in this order and disburse the payments. In practice, we expect implementation and disbursement will take substantially longer. Initially, state unemployment offices are weeks and, in some states, months behind in processing employment claims and struggling with implementing the new unemployment programs created by CARES.

Additionally, as noted above, the relief offered in the Memorandum appears to be contingent on an agreement between each state and federal government and the recipient state paying 25% of the benefit to the individual. This condition has led several governors to describe accepting the funds as fiscally impossible. The White House’s original response to these protests has been to claim that States may use funds provided to States under CARES to pay for their portion, though many state officials are expressing reluctance to do so barring guidance from the Department of Labor. Some states also have stated that these funds already have been allocated to other purposes and programs. 

However, on Tuesday, August 11, the White House suggested that States may be able to elect to receive a $300 federal benefit without contributing a corresponding $100. Ohio indicated that it would elect to receive the $300 benefit, though the basis for this option is not apparent from the Memorandum or the authority cited in the Memorandum.

Finally, it’s unclear for what work weeks this supplemental unemployment benefit will be available. Although the Memorandum speaks contains a reference to the week of unemployment ending August 1, 2020 (which is the week after the CARES Act benefit ended), there is a lack of clarity whether the supplement benefit could begin that week or from some future date specified in later regulations.

Will This Memorandum Be Challenged in Court?

Yes, it will almost certainly face multiple serious legal challenges, although we are not aware of any court challenges being filed at this time. While many are describing this Memorandum as “unemployment assistance” or “extending supplemental unemployment benefits,” the Memorandum is actually an authorization of disaster relief funds in a format that is intended to mimic supplemental unemployment benefits passed—but not renewed by Congress—in the CARES Act.

Because this executive action is an attempt to work around congressional inaction, it faces several significant legal problems. First, various constitutional law experts believe the disaster assistance order presents serious separation-of-power issues by responding to Congress’s failure to pass legislation and appropriate funds with executive action. A similar suit about relating to redirecting military funds to building a border wall between the United States and Mexico, Trump v. Sierra Club, is pending before the Supreme Court. .In that case, the lower court enjoined the Trump Administration from redirecting those funds, and it’s certainly feasible to see disputes over this action following a similar path.[2]

Second, in addition to the potential constitutional issues, the disaster assistance Memorandum has several problems fitting within the authority cited by the Trump Administration. The cited authority for the Memorandum is a provision in the Stafford Act, a piece of disaster relief legislation that allows for the President to authorize payments for “personal property, transportation, and other necessary expenses or serious needs” resulting from a disaster. 42 U.S.C. 5174(e)(2).

It is difficult to describe lost wages or supplemental unemployment benefits as qualifying under the language of the Stafford Act.   This provision seems much more squarely directed at providing reimbursement for certain categories of expenses, not for providing supplemental wage assistance. Indeed, the Memorandum appears to supplant these eligibility criteria with new, different criteria: receiving at least $100 in some form of unemployment assistance. The Memorandum also does not explain whether and how the government will require individuals to substantiate that the supplemental payments were used to purchase qualifying necessary expenses or what qualifies as a necessary expense or expense incurred as a result of serious need.

Moreover, other sections of the Stafford Act appear to cut against an argument that the President has the authority to provide unemployment relief under these circumstances. A separate section of the Stafford Act, 42 U.S.C. § 5177, provides that the President has the authority to provide benefit assistance, but only for weeks where the individual is not entitled to any other form of unemployment compensation. This section suggests that the President may not have the authority to enact supplemental unemployment benefits if the individual is eligible for other forms of unemployment assistance.

Conclusion

While the issuance of this Presidential Memorandum made headlines, it is unlikely that any Americans will be receiving this $400 supplemental payment anytime soon, and there remains a fair amount of ambiguity and uncertainty regarding the order’s implementation and ability to survive legal challenges. Please do not hesitate to contact us if you or your business have questions regarding how the latest executive actions impact you or your business’s operations.

 

[1] In reporting, most news sources have referred to these as executive orders. Technically, only one—the housing assistance and foreclosure moratorium—is an Executive Order. The other three directives are Presidential Memoranda. There are technical  differences between the two but none that are germane to the discussion here.

[2] Notably, the Supreme Court recently lifted the injunction issued by the lower court, so a legal challenge to this action on separation-of-powers grounds may run into mootness problems if the court system allows the funds to be disbursed while appellate litigation is pending.