Thursday, September 3, 2015

Employee or Independent Contractor? Unemployment Compensation Edition

Yesterday, we reviewed the Third Circuit's classification test for employees under the FLSA. Next up: Pennsylvania's test for purposes of Unemployment Compensation.

When does this come into play? Well, claimants are generally not entitled to UC benefits if they get fired from an independent contractor position. Also, claimants who are already receiving UC benefits may be disqualified for "self-employed" or "independent contractor" work (whereas part-time employment may only reduce the amount of UC they receive). On the employer side, employers must pay UC taxes on employees but not independent contractors.

Let's get to the test! The Pennsylvania UC Law defines employment to exclude situations in which::
(a) such individual has been and will continue to be free from control or direction over the performance of such services both under his contract of service and in fact; and 
(b) as to such services such individual is customarily engaged in an independently established trade, occupation, profession or business.
43 Pa. Stat. Ann. § 753 (2011 West). The claimant is considered an independent contractor for UC purposes, “where the claimant's services are performed free of the employer's control and the claimant's services are the type performed in an independent trade or business.” C E Credits OnLine v. UCBR, 946 A.2d 1162, 1167 (Pa. Commw. Ct. 2008). The employer bears the burden of proving that the claimant is an independent contractor and therefore ineligible.

In making the determination of whether a claimant is an independent contractor, courts have utilized several factors, including “whether tools were supplied by the workman, whether the workman received on-the-job training, whether there was a fixed rate of remuneration, whether there were regular meetings that had to be attended, and other factors.” Pavalonis v. UCBR, 426 A.2d 215, 217 (Pa. Commw. Ct. 1981)(the “Pavalonis factors”). No one factor is determinative, and courts often grapple with situations in which the factors cut both ways.

The seminal case analyzing prong (b) of the UC law is Danielle Viktor, Ltd. v. Dep't of Labor & Indus., Bureau of Employer Tax Operations, 892 A.2d 781, 795 (Pa. 2006). Again, the analysis of this issue is complex. The Pennsylvania Supreme Court focused on a number of factors:
[The claimants] provide their services . . . on a job-to-job basis with no continuing relationship beyond each assignment, and each assignment is taken or rejected strictly at the [claimant’s] prerogative. Given the fluidity of these arrangements, we would be hard-pressed to determine how [the claimants] could ever become “unemployed,” when they work at their own volition for many companies and only at those times when they choose to do so.
The claimant’s ownership of the assets of the enterprise also tends to support a finding of independent contractor status. The Court also noted:
It is difficult to fathom a situation where someone other than an individual engaged in his or her own business would possess the unmitigated prerogative to accept or reject assignments at will, to work only when he or she chose to, to substitute other workers of his or her choice when he or she chose not to complete an assignment, and to perform the services however he or she saw fit to do so.
Phew! That's a lot of factors!