Labor & Employment Law Daily Laid-off worker who became Uber driver was not self-employed, was not barred from receiving unemployment benefits
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Monday, August 3, 2020

Laid-off worker who became Uber driver was not self-employed, was not barred from receiving unemployment benefits

By Kathleen Kapusta, J.D.

The state high court found the claimant was not free from Uber’s direction or control and his activities did not constitute an “independently established” business.

Asked to decide in a case of first impression the appropriate test to determine whether a claimant who is otherwise entitled to receive unemployment compensation benefits due to a separation from employment becomes ineligible for those benefits as a result of being self-employed pursuant to the Unemployment Compensation Law’s self-employment exclusion, the Pennsylvania Supreme Court held that Section 753(l)(2)(B) of the Act contains the appropriate test for determining whether or not an individual is in self-employment and “If an individual is not in ‘self-employment,’ then he remains eligible for benefits.” Applying that test to a terminated worker who became an Uber driver after his discharge, the court, affirming the ruling of the court below, found the claimant was not self-employed and thus was not barred from receiving unemployment benefits by virtue of the income he earned as an Uber driver (Lowman v. Unemployment Compensation Board of Review, July 24, 2020, Donohue, C.).

The claimant lost his job as a behavioral health specialist for a nonprofit human service agency, and he started driving for Uber while awaiting a determination on his eligibility for jobless benefits. The agency denied his application for benefits, concluding he was ineligible because his work as an Uber driver constituted self-employment. A referee affirmed; so did the agency’s board of review, finding he was self-employed and “not just trying to earn some extra money on the side.”

Prior proceedings. On appeal, the claimant emphasized that he had been employed in the behavioral health field and insisted he was not an “independently established commercial driver,” nor was there evidence he was holding himself out as one or looking to launch such a business. The commonwealth court, emphasizing that a claimant who is entitled to benefits from his separating employer may lose his compensation if he takes a “positive step” toward establishing an independent business, found the agency failed to establish that the claimant intended to enter into an independent business venture by becoming an Uber driver and consequently, he remained eligible for benefits as a matter of law.

Self-employment. On appeal, the state high court first noted that pursuant to Section 753(1)(2)(B) of the Act, “Services performed by an individual for wages shall be deemed to be employment subject to this act, unless and until it is shown to the satisfaction of the department that—(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.” Given the lack of a definition of self-employment in the Act, the commonwealth court has found that these control and independence factors in Section 752(1)(2)(B) giving rise to an exclusion from “employment,” and thus an exclusion from benefits, have become the default definition of “self-employment,” the court observed.

Thus the question before it, said the court, was whether it was the intention of the General Assembly to equate one who is engaged in “self-employment,” as that term is used in Section 802(h)—which provides that an employee shall be ineligible for compensation for any week in which he is engaged in self-employment—with one who is not in “employment,” as that term is used in Section 753(l)(2)(B).

In sync. Looking to the rules of statutory interpretation, the court first noted that the purpose of the Act is remedial and requires the term “employment” to be broadly construed. Further, it treats “services performed by an individual for wages” as employment until it is proven that the individual is not subject to control and is customarily engaged in an independently established trade, occupation, profession or business. Moreover, said the court, the “General Assembly’s use of the term ‘self-employment’ in Section 802(h) as a benefits ineligibility criteria is in sync with Section 753(l)(2)(B) because if an individual is not found to be in ‘employment,’ he is not an ‘employe’ covered by the Act.”

Test. Thus, the court found that “the General Assembly intended that Section 753(l)(2)(B) provides the test for determining whether an individual is ‘engaged in self-employment’ as that term is used in Section 802(h). Whether an individual is self-employed, as the term is used in 43 P.S. § 802(h), is to be determined through application of the control and independence factors in Section 753(l)(2)(B).” This interpretation, the court explained, “promotes a comprehensive understanding of a claimant’s personal services.”

Further, unlike the commonwealth court’s “positive steps” test, which focuses on a claimant’s stand-alone activities, “Section 753(l)(2)(B) requires a structured two-factor analysis of a claimant’s personal services where they are performed within the context of a work relationship with a third party,” the court stated, and “In any situation, where the challenging party fails to meet its burden of proof as to both components of Section 753(l)(2)(B), the claimant remains eligible for benefits.”

Control and independence. Because the two factors in Section 753(l)(2)(B) are in the conjunctive, the party challenging a claimant’s employment status must establish both parts of the test to show a claimant’s services are self-employment, said the court, noting that under the control factor, the evidence must show the claimant is not subject to control or direction. Further, no one thing resolves the control factor; rather, the determination must be made based on the unique circumstances of each case. As for the independence factor of Section 753(l)(2)(B), it addresses whether the claimant is “customarily engaged in an independently established trade, occupation, profession or business,” and like the control factor, no one circumstance is dispositive, and each case must be addressed on its unique facts.

Control factor. Applying that test here, the court first found that as a matter of law, the claimant was not free from Uber’s direction or control. In order to become an Uber driver, the court observed, the claimant had to be able to access Uber’s passenger inventory. And in order to do that, he had to apply to use the Driver App. As part of the application process, he had to undergo a background check and verify to Uber that he had a valid driver’s license, automobile liability insurance, a properly registered vehicle, and workers’ compensation insurance.

Although he could use his own car and cellphone, Uber required that both meet its criteria regarding age and condition. Further, the “fundamental tool for the provision of the service,” Uber’s Driver App, was provided by Uber and without it, the claimant could provide no service. In addition, Uber generated the passenger leads, unilaterally determined passenger fares and the driver’s percentage, collected the fares, retained its service fee, and then paid the claimant. Uber also monitored and supervised his provision of driving services and his work and retained the right to deactivate his access to the network through the Driver App immediately and without notice if he did not qualify to provide driving services under applicable law or Uber’s standards and policies.

And while pursuant to the agreement between them, the claimant was identified as an independent contractor and received a 1099 tax form, those factors added little to the analysis, said the court, concluding that Uber controlled and directed the performance of the claimant’s services as a driver-for-hire.

Independence factor. As to the independence factor, because his activities met the “customarily engaged” aspect, the court focused on whether those activities constituted an independently established business. Here, the court pointed out that the claimant’s inability to share his access to the Uber App with anyone else prevented him from hiring someone else to provide services to a passenger made available to him by Uber. This was an indication of Uber’s control over the manner in which services are provided because the services must be personally performed by him. Further, this divested him of the ability to subcontract business, said the court, noting that the prohibition against subcontracting strongly militates against a finding that he is independently engaged in a business.

In addition, when providing a ride to a passenger, the claimant is required by statute to display the Uber decal, which, said the court, “is evidence of the more fundamental fact that [he] cannot provide driving services independent of Uber since Pennsylvania law prohibits individuals from providing commercial driving services in personal unlicensed vehicles.” Nor could he build his own client base under the auspices of his Uber relationship as his contract limited his communications with customers to the Uber App. Further, he could not set his compensation for providing a ride service or negotiate a higher rate with a passenger, which also weighed against a finding of an independently established business.

Not the usual workforce. He could decide whether and when to activate the Driver App and could refuse a passenger assignment, but the court did not find this to be conclusive. While this type of discretion by an individual in the traditional workforce is unusual, “the world in which Uber and [the claimant] operate is not the usual workforce,” said the court. “The fact that Uber’s business model does not require regularly scheduled work hours from its workforce does not translate into an automatic independent contractor relationship.”

Moreover, the fact that he could refuse assignments while logged in did not allow a conclusion as to the repercussions for such refusal, as the agreement also gives Uber the right to terminate his access to the Uber App if it decides that he caused harm to it through his acts or omissions.

Calculation of benefits. While the supreme court affirmed the finding that the claimant was not self-employed, it remanded for purposes of determining the calculation of his unemployment benefits.

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