In a column appearing in these pages in January of 2016, we discussed the potential for a new category of worker, falling somewhere in between an employee and an independent contractor – a category sometimes referred to as a “dependent contractor.” The term “dependent contractor”, a label still without legal standing in most states, is increasingly used to apply to delivery drivers, Uber drivers, Handy tradespeople and other similarly situated workers dependent upon a particular company’s business, and completely vulnerable to any collapse in that business or any change in that company’s business model.
More recently, in a published opinion handed down on January 24, 2018 in the case of Lowman v. Unemployment Compensation Board of Review, 2018 WL 521866, the Pennsylvania Commonwealth Court addressed a different, though related question: whether a worker who was discharged from a full-time job and is otherwise eligible for unemployment compensation benefits loses eligibility for those benefits by providing transportation to customers who request rides through Uber’s mobile phone application.
In the Lowman case, the question was whether the unemployment compensation claimant, Donald Lowman, intended to enter into an independent business venture by becoming an Uber driver. The relevant background was that when Mr. Lowman lost his job as a behavioral health specialist, he filed a claim for unemployment compensation benefits. While awaiting a determination on his claim, he entered into a software license and online service agreement with Raiser, LLC, a wholly-owned subsidiary of Uber Technologies, Inc. Per that agreement, Mr. Lowman provided transportation to customers who requested rides through Uber’s mobile phone application.
Both the unemployment compensation judge and the Unemployment Compensation Board of Review concluded that Mr. Lowman’s work through Uber constituted self-employment, disqualifying him from receiving unemployment compensation benefits on account of the loss of his earlier employment as a behavioral health specialist. The Unemployment Compensation Board of Review cited a provision of the Unemployment Compensation law providing that a claimant is considered to be self-employed if (1) that claimant is free from control or direction in the performance of his or her services, and (2) he or she is customarily engaged in independently established trade, occupation or business. 43 P.S. §753 (l)(2)(B).
The Board concluded that Mr. Lowman was indeed self-employed through Uber because he used his own mobile phone and vehicle, he paid for vehicle maintenance and fuel himself, and he was required to carry insurance, a driver’s license and vehicle registration, and also because he set his own hours. More specifically, Mr. Lowman was able to accept or refuse assignments from Uber, and was also allowed to drive for other transportation services, such as Lyft. The Board also found that Mr. Lowman worked most days during his relationship with Uber, and was paid approximately $350.00 per week, which showed that his driving history with Uber was “frequent and prolonged, rather than occasional and limited.” As a result, the Board concluded that Mr. Lowman was “self-employed and not just trying to earn some extra money on the side.”
Mr. Lowman appealed the Unemployment Compensation Board of Review’s decision to the Pennsylvania Commonwealth Court. The Commonwealth Court noted that the Unemployment Compensation law was enacted to provide a safety net for persons who become unemployed “through no fault of their own.” While noting that the Unemployment Compensation law does not define “self-employment,” the Commonwealth Court fleshed out the meaning of the term by stating that a claimant who is entitled to unemployment compensation from his separating employer may lose his compensation if he takes a positive step towards establishing an independent business. The Commonwealth Court cited with approval a decision in the earlier case of Buchanan v. Unemployment Compensation Board of Review, 581 A.2d 1005, 1008 (Pa. Cmwlth. 1990), where the court explained:
If one undertakes an activity in an entrepreneurial spirit with all intentions of starting a new business, trade, profession or occupation, he becomes a self-employed businessman. If subsequently his business fails or proves to be unprofitable he does not have the option of falling back upon unemployment compensation benefits because the law was not enacted to compensate individuals who fail in their business ventures and become unemployed businessmen…. The law is clearly not insurance for individual business undertakings.
Consistent with this rationale, the Commonwealth Court had previously decided that a claimant who, after separation from employment, established an elevator servicing business by providing capital for office equipment, advertising and insurance, was self-employed. Balmer v. Unemployment Compensation Board of Review, 368 A.2d 1349 (Pa. Cmwlth. 1977). The Commonwealth Court had also previously found that a claimant who participated in the sales program of the skincare company after being terminated from her full-time job as an account executive did not become ineligible for compensation by virtue of the sales position because although she did sign a distributor agreement, she invested only $250.00 in a sales kit while making efforts to enlist others in the sales program. In that case, the court concluded that the worker’s actions constituted only a “sideline activity because there had been no evidence of the time and effort she put into the project, and thus there was no evidence that she had intended to start a new business.” Teets v. Unemployment Compensation Board of Review, 615 A.2d 987 Pa. Cmwlth. 1992).
With this precedent as background, in the Lowman case the Commonwealth Court ultimately ruled that a by occasionally accepting offers of work such as that afforded by Uber, an individual does not make a “positive step” toward establishing an independent business. The court noted that Mr. Lowman did not have business cards, and did not advertise his driving services independently of Uber. Simply put, his actions did not reflect either “an entrepreneurial spirit” or “intentions of starting a new business or trade” (citing Buchanan).
The Lowman decision is not without controversy even on the Commonwealth Court. One of the seven judges deciding the case submitted a partially dissenting opinion. The dissent noted that the majority opinion of the court looked at “how many single ‘positive steps’” the claimant undertook, noting that while the “positive step” test is useful in cases where the claimant embarks to start his own business and is not working for another entity, the test is not the most suitable test in a case such as this, where the claimant has completed the minimal steps necessary to work for Uber.
Although the dissent ultimately agreed with the majority opinion in most particulars, it did then offer the contrary opinion that Mr. Lowman was not conducting a business independent of Uber. Indeed, because Mr. Lowman was regularly earning approximately $350.00 dollars per week during prolonged service to Uber, he was ultimately dependent upon Uber for the continuance of his employment, and thus was not engaged in a “independently established” business. The fact that Mr. Lowman could have, but did not, work elsewhere, such as for Lyft, does not establish that he was engaged in an independent business. Further, there was an issue as to whether Mr. Lowman’s work schedule provided him with any meaningful opportunity to offer his services elsewhere.
And this takes us back to the start of this column where we discussed the increasingly apparent reality that one who works for Uber or Lyft or Handy is not an independent contractor in any meaningful sense of the word, but is instead a dependent contractor. Stay tuned while the law continues to catch up to the new reality on the ground.
Bruce L. Baldwin, Esquire is a partner in the law firm of Wolf, Baldwin and Associates, P.C., with offices in Pottstown, West Chester, and Reading, and has represented employers and employees in business matters and litigation for over 30 years. He may be reached by calling 610.323.7436, or by e-mail at BBaldwin@wolfbaldwin.com.