The Employment Development Department (EDD) is targeting an H-2A employer with a move that could have wide-reaching implications for the agricultural industry in California. In a recent preliminary hearing before an administrative law judge at the California Unemployment Insurance Appeals Board, the EDD is seeking to apply unemployment taxes to meals and housing provided to H-2A workers. According to the Auditor’s Report, the EDD has assessed over $800,000 in unemployment taxes for a three-year period on the value of board and lodging, claiming these items constitute taxable wages under state law. 

The Impact on H-2A Employers 

If the EDD’s position is upheld, the ruling would not create a binding legal precedent. However, it would incentivize the EDD to audit other H-2A employers in the state to recover allegedly unpaid unemployment taxes on the same misguided theory. The provision of free housing and meals to H-2A workers has long been a requirement under federal law and regulations. Employers must either provide three meals a day or offer kitchen facilities so workers can purchase and prepare their own food. These provisions are considered necessary for the workers’ well-being and compliance with the H-2A program’s requirements—not as fringe benefits that could be subject to unemployment taxes. 

Western Growers, along with other agricultural organizations, is actively engaged in conjunction with the employer’s counsel, Jeanne Malitz, in challenging what they believe to be an erroneous interpretation by the EDD. The industry’s stance is that the EDD’s approach fundamentally misunderstands the nature of these federally mandated requirements. Unlike traditional fringe benefits, items like housing and meals are integral to the H-2A program and are provided to comply with federal law, much like personal protective equipment (PPE) or other required work-related items. 

The EDD’s argument overlooks the fact that the free housing and subsidized meals required for H-2A workers have never been classified as taxable wages by either the Department of Labor (DOL) or the EDD itself in previous assessments. By attempting to categorize these mandatory provisions as taxable income, the EDD is creating uncertainty and financial strain for employers who are merely complying with the law. 

Next Steps 

The employer involved in the case has a deadline to submit their brief on November 6, 2024. This filing will outline the legal arguments against the EDD’s assessment, emphasizing the inconsistency with federal regulations, state law and established practices. 

Given the potential consequences for the broader agricultural sector, this case is being closely watched by industry stakeholders. If left unaddressed, the result of this case could recur and lead to severe repercussions for agricultural employers across California.  

Western Growers will continue to engage on and monitor this case closely.