By Matthew Green and Tyler Dunphy

Law360 (August 12, 2020, 2:38 PM EDT) --

Matthew Green

Tyler Dunphy

On July 24, the Pennsylvania Supreme Court ruled 5-2 in a split majority in Lowman v. Unemployment Compensation Board of Review[1] that a man who had lost his job, and started driving for Uber Technologies Inc. to support himself, was still eligible for state unemployment benefits even after he began driving.

The Supreme Court's decision effectively affirmed and upheld the Pennsylvania Commonwealth Court's decision that a side job was exactly that — a side job — which would not disqualify laid-off workers from the ability to obtain benefits. The effects of this decision for independent contractors and gig workers across Pennsylvania and beyond could be considerable in the months to come.

In its decision in Lowman, the court ultimately distinguished the plaintiff's position from a typical independent contractor arrangement, finding that he was not engaged in an independently established business by driving for Uber. Thus, Lowman would still be eligible for benefits despite the fact that he was performing work in some capacity even while already receiving benefits — an otherwise disqualifying reality.  

The court conducted a thorough analysis evaluating numerous factors which tended to suggest that Uber had significant control over how their drivers performed work, including the facts that drivers were entirely dependent on the Uber phone application to receive any work; that drivers themselves could not maintain their own customer base of people whom they served through Uber; and that there was no opportunity for an Uber driver to subcontract out their Uber account to another driver, like a typical independent contractor may be able to do in an independently established business arrangement.

Other indicia that persuaded the court that the drivers were not independently established businesses were Uber's power to review its drivers' performance, Uber's regulation of drivers' pay structure, and Uber's provision of even some minimal tools and equipment.

Uber attempted to rebut these arguments unsuccessfully, claiming that their drivers were styled as independent contractors, referred to them as such, and highlighted that these individuals bought and brought their own cars and cellphones to the relationships. The justices, however, were unconvinced that that was enough to hold that the drivers were independently established businesses.

Fundamentally, the principle of looking through to what the individual actually does to determine their status, instead of merely stopping the analysis at the title "independent contractor," won the day. The justices insisted on looking more at Uber's relationship with its drivers, and less on whether Lowman had taken steps himself toward engaging in self-employment in deciding whether he was eligible for unemployment benefits.

The two-part test the majority used that evaluated the degree of control and the nature of the business is similar to other factors tests used across the country. Therefore, the Lowman decision could prove instructive for states that will surely contend with similar issues as unemployment rates skyrocket nationwide during the pandemic.

Furthermore, states like California, New Jersey and others are making it exceedingly more difficult to classify workers as independent contractors, via the use of things such as the ABC test, which raise the threshold for classifying individuals as independent contractors. The ABC test is accompanied by stiff misclassification penalties if companies treat individuals as independent contractors when thy should be classified as employees.  

The court stressed that its decision in Lowman did not determine Lowman's employment status definitively, meaning it didn't declare that he was either an independent contractor or an employee, but merely ruled on his eligibility for benefits. Despite this, the test the court used could inform future cases concerning gig workers, specifically when it pertains to aspects of tort law and workers' compensation, because the court used effectively the same test that is used to determine if a person is either an independent contractor or an employee.

If the court and other courts tend to move in this direction, questions could arise about whether gig workers might even be able to unionize down the road. The fundamental shift the court brought to the table was that these determinations are no longer being made in Pennsylvania on a worker-by-worker basis, but rather, by and app-by-app basis — a framework that generally favors protection of the individual.

Without any more from the Pennsylvania Legislature or the court, the Lowman decision is limited in scope. However, it does set a road map for potential future claims under similar theories.

At present, gig companies are still not required to pay into unemployment for their independent contractors, but the Legislature could look to this decision as an impetus to change that if more gig workers start to take advantage of benefits available to them.

This determination comes amid a potential recent trend of finding gig workers and other independent contractors as eligible for unemployment benefits, as evidenced additionally by their inclusion for eligibility under the Coronavirus Aid, Relief and Economic Security Act. One of the sticking points for comprising with congressional Republicans for Democrats was the independent contractors' inclusion for eligibility for the Pandemic Unemployment Assistance program.

The payments reflected up to an extra $600 per week of federal unemployment benefits, which recently expired on July 31. Even though gig workers and independent contractors have not been traditionally eligible for unemployment compensation until Lowman, they have been successfully able to receive Pandemic Unemployment Assistance funds, and may be able to do so again, should Congress renew and extend the benefits, as they are anticipated to do in some capacity.    

Since March 15, at the beginning of the pandemic, through the end of July, Pennsylvania has paid out more than $32 billion in unemployment benefits to residents of the commonwealth, with 8% of that funding going to Pandemic Unemployment Assistance claims. In a world where massive numbers of people are out of work and states seem ever more willing to provide more sets of atypical or nontraditional workers with the traditional protections granted to employees, stay tuned to see how state governments grapple with providing a safety net to gig workers as they expand eligibility for social services well beyond what it has previously been.   

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Matthew Green is a partner and Tyler Dunphy is an associate at Obermayer Rebmann Maxwell & Hippel LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.pacourts.us/assets/opinions/Supreme/out/J-73-2019mo%20-%20104494903106653561.pdf?cb=1.

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