Written By: Robert L. Buzzendore, Esquire
Sometimes a person will work “odd jobs” for a company to receive income. The company may consider the person to be an independent contractor instead of an employee because an independent contractor is not eligible for unemployment compensation. Although a person may understand he or she was not an employee, the person may have thought he or she would be eligible for unemployment compensation. It is important for a claimant and employer to understand that a person may be eligible depending on the facts of the case.
The distinction between an employee and an independent contractor is a significant issue for a claimant and an employer. On June 23, 2020, the Commonwealth Court issued a decision regarding this important distinction. This case explained the legal requirements to decide whether certain wages may, or may not, be used to determine eligibility for benefits.
The case began in 2018 when claimant filed for unemployment compensation. She worked for numerous companies as a contractor. The unemployment office denied benefits by holding she was financially ineligible. The unemployment office did not count her wages from five companies because it determined she was an independent contractor which meant her wages were not covered employment as defined by the law. The exclusion of these wages prevented her from meeting the minimum base-year period to qualify for benefits. Claimant’s wages were $26 short of meeting the eligibility requirement.
Claimant requested a hearing before the referee who granted her benefits. The companies filed an appeal and the Unemployment Compensation Board of Review (“UCBR”) denied her benefits. The Commonwealth Court reversed the UCBR and granted her benefits by holding that she was not an independent contractor, and her income from the excluded companies should have been included in the calculations to determine her financial eligibility.
The law presumes a person is an employee based on the law’s definitions of certain terms. “Employment” is defined as “all personal service performed for remuneration by an individual under any contract of hire.” All wages are included except income from self-employment as an independent contractor. To determine if a person is an independent contractor, the law requires one to consider two factors: (a) was the person free from control or direction over the performance of services both under his contract of service and in fact; and (b) as to the services the person provided, was the person customarily engaged in an independently established trade, occupation, profession or business?
The companies proved the first factor that claimant was free from their control. They did not tell claimant how she could perform her work, they did not withhold taxes from her pay, and they issued her a tax form for an independent contractor.
The problem for the companies was that claimant was not engaged in an independently established business. Claimant accepted work from numerous companies, but she did not hold herself out as a separate business or advertise to the public. Claimant did not have business cards and she did not own or engage in her own business. It is for these reasons the Court held she was not an independent contractor and her income from these companies had to be included in the determination of whether she had sufficient wages to be eligible for benefits. The inclusion of these wages enabled her to receive unemployment compensation.
Whether you are an employee or an employer, you should understand the legal distinction between an employee and an independent contractor. An employer and a claimant should not assume a person is ineligible for benefits as an independent contractor merely because the person is not subject to its control. The second factor, regarding an independently established business, must also be proven.
These types of cases are fact specific. We are available to assist you to determine whether you or your “employee” is eligible for unemployment compensation benefits.