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Important New PA Supreme Court Decision defines when a worker becomes self-employed barring unemployment compensation benefits

by | Jul 28, 2020 | Unemployment Compensation

Image by Clker-Free-Vector-Images from Pixabay

The Pennsylvania Supreme Court recently provided guidance concerning an issue that has troubled workers seeking or receiving Pennsylvania unemployment compensation (UC) benefits. When is a worker pursuing self-employment that disqualifies them from receiving UC benefits?

Section 402(h) of the Unemployment Compensation Law has always disqualified workers who engage in self employment from receiving UC benefits. The purpose of the provision is to prevent workers from using UC benefits to help fund a business start-up.  In fact, any “substantial step” toward self-employment is enough to disqualify a worker, even when no money has been earned. This disqualification often catches unsuspecting workers unaware. They think that they are doing the right thing – taking efforts to get off benefits – but, instead they are generating an overpayment that may have to be repaid.

Despite the fact the Law was enacted in 1936, it has remained unclear when a worker is engaged in self-employment under the Law. Given the emergence of the new gig economy, the lack of a clear standard has become even more problematic.

In Lowman v. Unemployment Compensation Board of Review, Lowman started driving for Uber shortly after separating from his job. Although it is the subject of several lawsuits by state attorney generals, Uber classifies its drivers as self-employed independent contractors. Lowman reported his income to the Unemployment Compensation Bureau. If he had been classified as an employee, Lowman may have been entitled to full or partial benefits under the UC Law, depending on the amount of his earnings. The Bureau determined that Lowman was ineligible to receive benefits because he was self-employed. Lowman appealed and the case progressed to the Pennsylvania Supreme Court.

The Supreme Court concluded that section 753(I)(2)(B) of the Law applied the test for whether Lowman was self-employed (an independent contractor) or employed (an employee). It noted the section starts with a legal presumption of employment intended to “insure the broadest possible benefits” to unemployed workers. This presumption controls until it is proven that: 1) the worker is not subject to control, and 2) the worker is customarily engaged in an independently established trade, occupation, profession, or business. The Court emphasized both parts of the test must be established to overcome the presumption.

Turning to the control factor, the Court reviewed the various indications of control previously recognized by the courts and emphasized that “no one factor resolves” the analysis and that “the determination must be made based on the unique circumstances of each case. Turning to the independence factor, the Court noted that “the fact an unemployed person agrees to accept…an occasional offer of work is simply not enough to demonstrate the individual is engaged in an independently established trade, occupation, profession or business.”

The Court concluded that Uber exercised control over Lowman’s work, noting that he was required to apply for access to Uber’s app, undergo a background check, prove he was licensed and insured, and provide a vehicle and cell phone that met Uber’s criteria. Uber exercised “total control” over the provision of the service because it generated the leads, unilaterally determined the passenger fares and driver’s percentage, collected the fares, retained its service fees, and paid Lowman. Only Lowman could fulfill he assignment, he was not free to hire a substitute driver. GPS tracking was used to adjust the fare if Lowman used an inefficient route. He was required to maintain a minimum passenger rating established by Uber. Uber could deactivate the app if Lowman failed to maintain that rating. Lowman was sent periodic emails advising how to maximize earnings and deliver a positive rider experience.

Turning to the independence factor, the Court noted that Lowman could not subcontract his work. Pennsylvania law prohibits providing commercial driving services in a personal unlicensed vehicle. Therefore, without his relationship with Uber, Lowman could not legally provide the service. He was also contractually prohibited from contacting customers other than through the Uber app. Likewise, a customer could not request Lowman through the app. Although Lowman had the right to refuse any assignment, the Court did not conclude that factor, alone, established independence. Rather, the Court concluded that Lowman was not independent.

Either one of the conclusions was sufficient to find that Lowman was employed, rather than self-employed. The fact that the Court ruled in favor of Lowman on both parts of the new test is a welcome result for unemployed workers, particularly considering the current economic circumstances.

Do you have a question or concern about your rights as a worker that we can help you with? Contact us at the number above or using the form below.

Terence Sean McGraw
Attorney at Law
Certified Workers’ Compensation Specialist*
Sustaining Member National Organization of Social Security Representatives
Long Term Disability Lawyer (ERISA & Individual Policies)
[email protected]
Warren McGraw & Knowles LLC
920 Lenmar Drive
Blue Bell PA 19422-2000
610-584-9400 w
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