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Tuesday, September 7, 2010

Independent Contractor Rule Under Pennsylvania Unemployment Law

Unemployment Attorney Representing Only Employees With Offices in Paoli, King of Prussia, Plymouth Meeting, Exton, Radnor and Philadelphia

This Blog is based upon my experience in litigating independent contractor cases before many Unemployment Hearing Referees, and also upon knowledge I have accumulated over the years in briefing independent contractor issues to the Unemployment Compensation Board of Review.

NOTE:  If you have received a Questionnaire from the Service Center, you may, after you have read this Post, want to Click Here to jump to our Post on how to complete such a Questionnaire.  Tricky business, indeed.

Can I Get Unemployment If I Am an Independent Contractor in Pennsylvania?

One cannot get unemployment in Pennsylvania if one is an "independent contractor." This may be important in either of the following contexts: 1) you lose your “independent contractor” job and file for unemployment benefits (if you are found to be a true independent contractor you will be denied benefits); or, 2) you are presently getting unemployment benefits and earn money on a “part-time” basis as an “independent contractor” (in which case you will be disqualified from getting benefits due to your “self-employed” status).

NOTE:  The below analysis in general does not apply to people employed by temporary employment agencies on a 1099 basis.  Click Here for analysis of such situations.

I Signed a Contract Saying I am an Independent Contractor - Is That the End of the Story?

Many people who have contracts that say they are "independent contractors " are not independent contractors (labels do not control - if I call a donkey a racehorse, it is still a donkey).  Rather, there is a fact-based test that is applied to determine your employment status.

The mere fact that you have signed an agreement saying you are an independent contractor, or are paid wages via a 1099, does not automatically mean you are an independent contractor (i.e. self-employed). Rather, you will be deemed to be truly self-employed only if you are free from direction and control while performing your work AND if you in fact are regularly engaged in an independently established trade, occupation or business.

Click Here to read our extensive analysis of the distinction between independent contractors and employees, and what you can do if you have been "misclassified."

What Is the Fact-Based Test for Determining if I am an Independent Contractor Under PA Unemployment Law?

Pursuant to Section 4(l)(2)(B) of the unemployment law, you are an independent contractor if:

1. You are free from control or direction over the performance of the services involved.  That means that by and large your work is completely unsupervised.  No one tells you what to do, how to do it, when to do it, etc.  If you do your work from home, that is a strong indicator that you are an independent contractor (but it is not dispositive), and;

2. You are customarily engaged in an independently established trade, occupation, profession or business.    The things to look for?  Do you advertise?  Do you rent office space?  Have you incorporated?  Do you subcontract some of the work you get?  Do you work for more than one employer? 

So, even if you work free from direction and control (i.e. work at home without regular supervision) and are thus a "true" independent contractor, you may still be entitled to unemployment benefits if you do not operate an established business.

Who Decides if I am an Independent Contractor

The above 2 prong legal test is heavily fact-driven, and there are many nuances. The issue is initially decided by the Unemployment Service Center via a Notice of Determination.  If there is an appeal from an NOD, the issue is then decided by a Pennsylvania Unemployment Referee at an Unemployment Hearing

Unemployment Lawyer Serving Individuals in Locations Such as Springfield, Malvern, Reading, Norristown, Media, West Chester, Doylestown, Ambler, Phoenixville, Downingtown, Lansdale and Surrounding Areas

If you have an upcoming hearing before an Unemployment Referee in Reading, Springfield, Malvern, Norristown, Bristol or Philadelphia, you will want to seriously consider hiring counsel to assist you. There is a lot at stake, and the evidentiary and legal issues associated with an independent contractor case are often complex, indeed.

MORE QUESTIONS?

Want more information about unemployment law in Pennsylvania?

Click Here to review our answers to the most common FAQs concerning Pennsylvania Unemployment, check out our Website or call us at 610-647-5027.  We also have some YouTube Videos that explain some unemployment law issues as well (just click the YouTube Badge at the top of this page).

Best of luck, John A. Gallagher, Esquire.

16 comments:

Raymond said...

Great stuff, I am very clear on how the unemployment system works after reading through all of this.

Here is part of my situation; last October I lost my primary FT job, which was W-2. Since I was deemed financially ineligible twice now, I had to find ways to support myself. Therefore, I am currently tutoring students online. I am a 1099 employee. In response to all of your questions, I can truly say no to each question accept for the work from home one. However, my earnings are not a lot by and large, in fact based on the wage I can get once I reapply in which I WOULD be eligible financially I barely would hit the 40% mark each week. Would I be disqualified to receive my weekly benefits due to the fact that I am employed as a 1099?

Employment Lawyers said...
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Davannaj said...

My issue is that my employer gave me the choice and I asked to be w-2, but my supervisor didn't want to do the paperwork and I ended up being 1099. I have asked the company to fix this several times, but alas everytime I get my check it's not fixed. How do I prove to unemployment that I am not an independent contractor? I have set hours that I have to work, must be on location, with frequent supervisor check ups, and must request and be approved for time off.

Anonymous said...

Great information on this site!

My situation is that I was an FT outside sales rep W-2 employee for about two years at a corporation, and left for another outside sales position that seemed more promising.

My current position is with a start up digital marketing company, and I was required to sign tax forms stating that I am a 1099 employee. I receive a weekly paycheck that is not taxed, am required to be in the office to make 100 calls on Monday, give weekly activity reports to my manager, and am required to have a specific number of set appointments per week.

The problem is, I was on a "probation" period, and they have determined that I will no longer receive my weekly salary because of lack of performance. I left a position that I was making 80 plus a year, with full benefits, 401 K, etc., to basically being screwed until I find another job!

It seems from what I have read here, that I am not technically a 1099 employee, so does this mean I am potentially eligible for unemployment compensation?

generationxmom said...

I am apprehensive about leaving a comment as I know you do not want to give advice however I feel that this is an important point regarding "independent contractor'. i am currently receiving unemployment compensation due to loss of a full time job....I can possibly pay to receive all of my clerances and work PART TIME as a behavioral therapist which is 1099'd through an agency (which allows 10-25hrs) however the MAXIMUM hours this position allows is 25...how can PA deny you if you CANNOT possibly work 40 and would rather earn SOMETHING while trying to obtain full time employment??

generationxmom said...

I am apprehensive about leaving a comment as I know you do not want to give advice however I feel that this is an important point regarding "independent contractor'. i am currently receiving unemployment compensation due to loss of a full time job....I can possibly pay to receive all of my clerances and work PART TIME as a behavioral therapist which is 1099'd through an agency (which allows 10-25hrs) however the MAXIMUM hours this position allows is 25...how can PA deny you if you CANNOT possibly work 40 and would rather earn SOMETHING while trying to obtain full time employment??

Employment Lawyers said...
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Employment Lawyers said...

GenX Mom: It is unfair and makes little sense, but you understand the law correctly. Remember, though, merely taking a 1099 job does not AUTOMATICALLY disqualify you from receiving benefits. You lose benefits only if 1) you are a true independendent contractor; and, 2) you are engaged in a business (i.e. self-employed). I have won many cases by proving either 1) that a person was not a true IC even though he/she was paid 1099 and signed a IC Agreement; or, 2) even though a person worked as an IC, it was an isolated job and he/she was not operating a business, i.e. not "self-employed.

Employment Lawyers said...

Raymond: I do not give specific advice on this Blog, but if you are tutoring students online, it is hard to see how the employer is controlling the manner and means of you work. Of all of the issues considered, where one does his/her work is the most important, and people that work from home have the hardest time proving they are in fact employees. Otherwise, it does not matter if you earn $.10 per hour, if they find you are "self-employed" you will not get benefits. However, the mere fact that someone gets paid 1099 wages does not mean he/she is "self-employed." Self-employed meand operating an established business. If you are doing 1099 work as an aside for one company, it will be hard for them to prove that you are operating an established business.

Carrie said...

I am confused about whether I am a contractor. I had 2 jobs: one FT job for 15 years, that I was recently laid off from; and a second job teaching fitness classes for the past 2 years. I still have that job and am worried that it is going to disqualify me from UC benefits. I work on-site at the gym and do have a boss. She does not watch every class I teach, but does solicit feedback from gym members and will provide direction for my classes, so I'm not sure if she is providing, "close supervision." Have you had any expenrience with part-time aerobics instructors in UC cases?

Thank you.

Anonymous said...

I was unemployed and received benefits and took a job which lasted only 3 days due to no work. Unemployment is now demanding that I pay $6,000 in benefits back because I went to work on that job. Do I owe them the money back?

Employment Lawyers said...

Anonymous:

I am not sure if you will have to pay the $6,000 back - it will depend on whether you are deemed to have been self-employed as an independent contractor - a very fact-intensive inquiry. If you are so deemed, then you may have to pay ther money back. You need to appeal this finding ASAP, and then prevail at the unemployment hearing before a referee.

John A. Gallagher

Yahyah said...

Hiya,

Just wanted to say you've given me clarity about my situation.

I applied for UC Benefits on October 5, 2012. I was just told that I may not qualify for unemployment because the amount I made in my highest quarter demanded that I make $118 more than I did over the course of my benefit year, which would be from July 1, 2011 through June 30 of this year. I was pretty much unemployed for the years before I started working in January of this year, so had two quarters that they were looking at, and worked through August 9. The rep I was talking to said that if I can think of any other wages I earned, I could use them to qualify, and as we were talking, I recalled, that for two months I earned money as an "independent contractor" on someone's campaign. I submitted invoices for the work, but certainly had oversight and, in all ways worked just like an employee, having to account for my hours and take direction daily from my boss at his office. I was worried that this would not qualify me but, having read your blog, am not excited because it seems that these wages will indeed change my financial eligibility.

I just wanted to let you know this to share that your blog has given me some peace of mind because, as you can imagine, I'm a bit stressed out about this. I need that UC income until I've found another job.

Thanks!

Eric Walz said...

I have appealed not make enough to collect unemployment and was denied. A friend told that my 1099 could be used to raise up my earning. How do I do that. From what I read I had to be at work at 730 am and was only done when all work was done. Has a supervise and only for for one company. Have one more appeal left. Is it possible to use that?

Eric Walz said...

Don't know if my last post went through. Was found to be about 1000 short of collecting can I use my 1099 earning to raise up my total?

Employment Lawyers said...

Eric:

You need to Appeal your Notice of Financial Determination, obtain a Hearing, and prove that you were actually an employee. It certainly can be done.