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Can Gig Work Nix Jobless Pay? Pennsylvania Justices to Decide

April 10, 2020, 5:33 PM

The Pennsylvania Supreme Court is poised to decide whether driving for Uber disqualified an out-of-work behavioral therapist for unemployment insurance, which could have major ramifications for workers turning to the gig economy after coronavirus-driven job losses.

The Unemployment Compensation Board of Review challenged a state court ruling that Donald Lowman remained eligible for jobless benefits despite his subsequent work for Uber Technologies Inc., thus allowing him to receive compensation minus what he earned driving for the ride-hailing company. The review board says Lowman’s driving for Uber was “self employment” under state law, foreclosing any unemployment payments.

The state high court heard oral argument in September and could rule any day.

The court’s ruling takes on additional importance amid a Covid-19 pandemic that’s sparked an unprecedented surge in unemployment insurance claims, with 16.8 million workers applying for payments between March 15 and April 4 nationwide. Pennsylvania has seen nearly 1.1 million new claims during that period, the second most in the nation behind California, according to government statistics analyzed by the Economic Policy Institute.

That enormous spike in claims will likely mean people who qualify for unemployment benefits will have to wait more than two or three weeks before they start collecting checks, said attorney Julia Simon-Mishel, who represents Lowman. People will look for money where they can, including the gig economy, she told Bloomberg Law.

“That’s going to lead to individuals getting cut off from benefits even before they get them,” said Simon-Mishel, who heads the unemployment compensation division of Philadelphia Legal Assistance. “That means we’re punishing folks for doing what we want them to do, to find a way to keep working.”

But giving workers like Lowman unemployment benefits after they begin driving for Uber, the unemployment review board argued, would require deviating from the long-established test for deciding whether a worker remains eligible for compensation. Drawn from the state unemployment insurance law’s definition of employment, that test considers whether a worker’s services are performed free of an employer’s control and performed in an independent trade or business.

Straying from that standard would damage the state’s ability to quickly, consistently, and effectively administer the unemployment insurance program, the review board said in its brief to the court.

Uber intervened in the case on the side of the review board, arguing that the lower court’s decision to give Lowman benefits seemed to be driven by an improper policy judgment that gig economy work shouldn’t disqualify somebody for UI compensation.

The review board, Uber, and Uber’s attorney didn’t respond to requests for comment.

Gig Economy Unemployment

Unemployment insurance for gig economy workers—who many worker advocates allege are misclassified as independent contractors that don’t get jobless compensation—has emerged as a crucial issue as the coronavirus drives business closures and layoffs across the country.

Congress created a program for getting benefits to independent contractors called Pandemic Unemployment Assistance as part of the $2.2 trillion stimulus bill. Drivers for ride-hailing services like Uber and Lyft Inc. qualify for that assistance, according to recent Labor Department guidance. But questions remain about how states will implement the program and what extent they’ll follow federal guidance.

Meanwhile, gig economy workers seeking traditional unemployment benefits have seen gains in state courts. New York’s highest court, for instance, ruled last month that Postmates food delivery drivers can receive unemployment payments.

The Pennsylvania Supreme Court’s consideration of Lowman’s case doesn’t deal directly with the legal test for determining initial eligibility for jobless pay. Instead, it focuses on whether a worker can lose eligibility by working for a gig economy company after they’ve put in for benefits.

Still, the ruling in Lowman’s case would add to the growing, interconnected mosaic of state court decisions across the country related to the gig economy and unemployment insurance eligibility, said Rebecca Smith, the director of work structures at the National Employment Law Project, a worker advocacy group. NELP filed a brief in support of Lowman.

“Any determination by a court of appeal in the country that weighs factors that are present in other cases can be looked at by a sister state,” Smith said. “In that way, it’s useful to have this series of cases.”

No Positive Steps Toward Own Business

In 2018, a full panel of the Commonwealth Court, one of Pennsylvania’s intermediate appellate courts, reversed the Unemployment Compensation Board of Review’s determination that Lowman lost his eligibility due to his work for Uber.

The review board used the wrong test to decide whether Lowman’s Uber driving qualified as self employment for purposes of unemployment insurance, Judge Mary Hannah Leavitt wrote for the court.

Rather than focusing on whether Lowman was subordinate to or dependent on Uber, the correct approach is to consider the positive steps he took toward establishing his own business, she said.

There’s no evidence that Lowman took any actions to set up a business, just that he drove for Uber, so he’s eligible for unemployment payments, Leavitt said.

Driving for Uber Like Mowing a Lawn?

During oral argument at the Pennsylvania high court, Justice Max Baer said he agreed with the Commonwealth Court’s interpretation of Lowman’s eligibility under state law. Lowman wasn’t an employee of Uber, nor was he running his own business, Baer said, likening him to somebody who mows lawns as a side gig to earn a little extra money.

“The statute doesn’t make sense, respectfully, if you’re going to interpret it that cutting grass is self employment,” Baer said. “Or shining shoes. Or driving for Uber.”

For Lowman’s Uber driving to be considered a sideline employment activity rather than self employment, he would have had to started before he lost his primary job, said review board attorney Janet Tarczy.

“The first tenant of statutory construction is you can’t have an absurd result,” Baer said. “The legislature does not intend an absurd result.”

‘Not a Referendum’

Uber also appeared at oral argument in a bid to limit the state high court’s consideration to just the question of the proper test to apply to determine self employment under the unemployment insurance law.

“This question before the court is not a referendum on the gig economy and it is not about Mr. Lowman’s status vis-à-vis his use of the Uber app,” said Paul Lantis of Littler Mendelson, who represented the ride-hailing app company.

The review board used the right standard to find that Lowman was self-employed, particularly by determining that he wasn’t dependent on Uber, Lantis said.

Justice Christine Donohue asked Lantis to respond to the view that Lowman lacked the licensing to drive passengers, so he “could not do what he does for Uber, but for Uber.”

That position is wrong, Lantis responded, because he could have driven for Lyft, delivered for DoorDash or Postmates, or gotten a limousine license. Lowman can’t get out of being deemed as self-employed based on his choices not to do more, Lantis said.

Actual Businesses vs. Side Jobs

But under Uber’s argument, any worker could instantly become an entrepreneur with the “flip of a switch,” said Simon-Mishel, Lowman’s attorney. But in reality, Lowman was legally prohibited from driving passengers unless he did so through Uber’s license, she said.

Even if he also had driven for Lyft, that still wouldn’t be owning and operating his own business, she said.

Pennsylvania disqualifies the self-employed from receiving payments because the unemployment insurance system wasn’t intended to provide insurance to protect business people when their ventures fail, Simon-Mishel said.

While urging the high court to affirm the lower court’s holding, Simon-Mishel argued that it should adopt the test from its 1972 ruling in Starinieri Unemployment Compensation Case, which only disqualifies people who truly run and control their own business. That test meshes with broad protections in the state’s unemployment insurance law, she said.

“When someone is found to be not self-employed, in essence they’re found to be partially unemployed,” she said. “We have partial benefits in this state. People are able to apply for benefits while reporting wages.”

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Karl Hardy at khardy@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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