Report 2014-101 Summary - August 2014

Employment Development Department: It Should Improve Its Efforts to Minimize Avoidable Appeals of Its Eligibility Determinations for Unemployment Insurance Benefits


Our audit of appeals of the Employment Development Department's (EDD) unemployment insurance benefits eligibility determinations revealed the following:


To obtain unemployment benefits in California, individuals (claimants) file an unemployment claim through the Employment Development Department (EDD), which determines whether the claimant is eligible to receive benefits. EDD provides unemployment insurance benefits to individuals in California who are totally or partially unemployed through no fault of their own and who meet other state requirements. Employers finance the unemployment insurance program (unemployment program) through their payment of state and federal unemployment taxes. A claimant or employer contesting EDD's eligibility determination may appeal the decision to the California Unemployment Insurance Appeals Board (appeals board). The appeals board's field operations branch functions as the first level of appeal for claimants and employers, and its administrative law judges (ALJs) hold in-person and telephone hearings across the State. The second level of appeal consists of appeals board members, who consider the decisions the ALJs made at the first level.

Appeals of EDD's benefit determinations for the unemployment program are frequently successful. Our review found that for first-level appeals, the appeals board frequently decides in favor of claimants. Of the more than 390,000 decisions the appeals board made in each of the last three full fiscal years and of the nearly 230,000 decisions made between July 1, 2013 and April 23, 2014 at the first level, 91 percent were from appeals filed by claimants, and the appeals board decided in favor of claimants between 45 percent and 51 percent of the time. Consequently, those claimants may have waited unnecessarily to receive their unemployment benefits. The appeals board decided in favor of employers somewhat less frequently—between 32 percent and 34 percent of the time when they appealed at the first level. The appeals board's total costs declined from $97.7 million in fiscal year 2010-11 to $83.4 million in fiscal year 2013-14. Minimizing avoidable appeals could reduce these costs. At the second level, however, the appeals board frequently upholds the decisions that its ALJs made at the first level.

Each appeal of an EDD decision may involve multiple legal issues that must be decided separately. As a result, there is not a one-to-one relationship between the number of individuals who appeal and the number of decisions the appeals board makes and reports. For example, each year from fiscal years 2010-11 through 2013-14, the number of decisions was nearly double the number of appeals at the first level.

We reviewed 90 successful appeals, which included 348 separate legal issues that the appeals board decided at the first level.1 More than half of all the appeals board's decisions we reviewed related to EDD's determinations regarding false statements, overpayments, and penalties. We found that the appeals board frequently overturns (that is, reverses, modifies, or remands) EDD's determinations that claimants made false statements in order to receive benefits. The appeals board reversed 119 of these determinations, modified or remanded 46, and affirmed only 20. When overturning EDD's determinations regarding false statements, the appeals board repeatedly cited two of its precedent benefit decisions—decisions containing the appeals board's definitive expression of unemployment law—in which it found that EDD had not adequately established that claimants' statements were willful. Although EDD's training materials and benefit determination guide are consistent with these precedents, EDD staff do not always apply these principles when making determinations regarding false statements. If EDD were to adequately establish that false statements were made willfully before making a disqualifying decision that requires repayment and a penalty, it could significantly reduce the number of its determinations that the appeals board overturns.

Because EDD initially grants or denies unemployment benefits based in part on the reasons claimants leave their last job, the more information EDD staff gathers about those reasons, the more likely it is that its determinations will be accurate and will withstand a challenge on appeal. However, EDD does not always successfully contact claimants and employers before making its benefits eligibility determinations. EDD contended that because it is obligated by federal and state laws to provide claimants with timely determinations, after making what it considers to be reasonable attempts to contact claimants and employers, it has to make eligibility determinations based on the best information available at the time of the decision.

Additionally, attendance at the appeal hearing by the claimant, employer, or EDD can significantly affect the outcome of the appeal. Direct evidence provided at the hearing is generally given greater weight than hearsay evidence—that is, evidence in the form of a statement made other than by a witness testifying at a hearing. The hearing also provides the ALJs an opportunity to assess the credibility of the testimony the claimants and employers provide. We found that EDD rarely attends hearings. By not attending the hearings, EDD does not provide any active counter-argument to appellants' testimonies, which may make the appeals process more favorable toward appellants than it otherwise would be.

As confirmation of our findings, we obtained a 2012 internal review by EDD's audit and evaluation division that also cited these problems. Specifically, the review found that EDD staff did not always establish the necessary elements of a false statement under the law and often did not perform sufficient fact-finding when making eligibility determinations. Although the review contained several recommendations for improving EDD's processes, EDD has not implemented any of them.

Because EDD and the appeals board each have a responsibility to provide eligible claimants with unemployment benefits in a timely manner, we believe both entities should cooperate to the extent possible to identify and correct any policies, procedures, or practices that may be leading to avoidable appeals and delays in providing benefits. The fact that so many claimants successfully appeal EDD's eligibility determinations strongly suggests that there are problems with the process that need to be addressed. However, EDD and the appeals board do not systematically identify trends in the reasons that EDD's benefit determinations are overturned on appeal. EDD contends that it is limited by its single client database, which cannot capture this information. Further, EDD does not regularly review appeals board decisions in issue areas with high rates of overturned decisions to determine why those types of appeals are frequently successful. Since the appeals board already tracks in its database whether appeals were favorable or unfavorable for all legal issue areas, we believe it should begin periodically aggregating and making these data available to EDD. EDD could then use these data to identify the appeal issue areas where its determinations are most frequently overturned, and it could use that information to strengthen its training program and explore opportunities to correct any weaknesses in its process that may be leading to avoidable appeals.


To reduce the number of its determinations that are overturned on appeal, EDD should do the following:

To identify and correct any policies, procedures, or practices that may be contributing to avoidable appeals filed by claimants and employers and thereby provide eligible claimants with unemployment benefits in a timelier manner, the appeals board and EDD should do the following:


EDD generally agreed with our recommendations. However, EDD disagreed with our finding that it does not always follow precedent benefit decisions and does not always gather necessary information before denying benefits. The appeals board agreed to implement our recommendation.

1 We considered an appeal to be successful if the appeals board decided one or more of the legal issues in favor of the appellant (that is, the claimant, the employer, or EDD).