Opinion
No. 2347 C.D. 2011
06-10-2013
Robert G. Kotanchik, Petitioner v. Unemployment Compensation Board of Review, Respondent
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge OPINION NOT REPORTED MEMPORANDUM OPINION BY JUDGE McCULLOUGH
The matter was reassigned to the author on October 10, 2012.
Robert G. Kotanchik (Claimant) petitions for review of the November 18, 2011 order of the Unemployment Compensation Board of Review (Board) that reversed a referee's determination and held that Claimant is self-employed and thus ineligible for benefits under section 402(h) of the Unemployment Compensation Law (Law). Because the Board made no findings as to whether Claimant was customarily engaged in an independent trade or business, and such findings are essential to determining whether a claimant is self-employed, we vacate and remand.
Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. §802(h). In relevant part, section 402(h) provides that "an employe shall be ineligible for compensation for any week in which he is engaged in self-employment . . . ." 43 P.S. §802(h).
Prior to his employment with Solutions for Progress (SFP), Claimant did periodic consulting work for Ben Franklin Technology Partners (BFTP) pursuant to a July 25, 2005 agreement in which both parties agreed that Claimant was an independent contractor. (Findings of Fact Nos. 3, 5.) An average consulting assignment would take Claimant 40 to 60 hours over a four to five week period to complete. (Findings of Fact Nos. 19, 23.) The agreement was for continuing work and was to continue unless either party ended the relationship. (Findings of Fact Nos. 8-9.)
Claimant became employed in a full-time position with SFP beginning in February 2008, and he did not perform any work for BFTP during that year. Claimant subsequently was laid off by SFP; he last worked on July 31, 2009, and he was paid through August 31, 2009. After his last day of work, Claimant contacted BFTP and performed a project for it during August 2009. He completed that project, submitted an invoice to BFTP, and was paid $2,500 on September 15, 2009. (Reproduced Record (R.R.) at 15a, 38a-39a, 41a, 69a.)
On September 21, 2009, Claimant filed an application for unemployment benefits, and he was deemed eligible for unemployment compensation based on his separation from employment with SFP.
Claimant subsequently contacted the local service center, said he would be starting a project for BFTP, and asked how he should report the income he expected to receive. (R.R. at 149a.) Claimant started the second assignment for BFTP in November 2009. He submitted an invoice to BFTP on December 2, 2009, and was paid $2,500 on December 9, 2009. (Findings of Fact Nos. 25, 27, 28.)
According to Claimant's testimony, he reported that income over a period of weeks, as instructed by the local service center. (R.R. at 17a.) Thereafter, the Office of Unemployment Compensation Service Centers (Bureau) alleged that Claimant was self-employed and ineligible for benefits under section 402(h) of the Law. (R.R. at 5a.) Claimant was directed to contact an office in Erie and he complied. Thereafter, on January 11, 2010, the department issued a notice which identified BFTP as Claimant's employer and determined that Claimant was not disqualified from receiving benefits under section 402(h) of the Law. (R.R. at 5a.)
Claimant testified that the woman he spoke with indicated that the state is "going after" companies that avoid hiring people by having them perform short-term projects. (R.R. at 17a-18a.)
BFTP appealed, and a referee held a hearing on March 2, 2010. Richard Wells, BFTP's director of human relations and operations, appeared before the referee, and Claimant participated by telephone. Claimant testified that he had worked as Director of Product Programs for SFP, an information technology company, from February 2008 through August 2009 and was responsible for software products the company produced. (R.R. at 12a, 23a.) He stated that, in July 2009, upon learning he would be laid off, he contacted BFTP to see if there were any consulting projects available. (R.R. at 13a.) Claimant explained that the consulting projects involve due diligence evaluations of companies that apply to BFTP for investments. Claimant testified that he performed one project for BFTP in August, while he was still employed with SFP, and then performed another project in November. (R.R. at 15a-16a.)
Wells testified that under the terms of the 2005 consulting agreement BFTP would pay Claimant a set fee of $2,500 for a one-time due diligence project, and he explained that if "[BFTP] feel[s] the need later on in the year to contact [Claimant] we have an agreement on file and we can contact [him] again...." (R.R. at 19a.) Wells and Claimant agreed that Claimant was not an employee of BFTP, (R.R. at 20a); Wells said that he spoke to Claimant to find out why Claimant was trying to file for unemployment with BFTP. (R.R. at 21a.) Wells confirmed that Claimant had performed only two evaluations for BFTP in 2009. (R.R. at 22a.)
At the conclusion of the hearing, Claimant said he understood that while he was collecting benefits he should seek any sort of employment opportunity that came along and that he performed the work for BFTP after the local job center confirmed his understanding. (R.R. at 23a.) Claimant emphasized that he had called the local service center and was told that "it was okay to take on this work." (R.R. at 25a.)
By decision and order dated March 5, 2010, the referee affirmed the local service center's determination. The referee found that after Claimant was laid off from his position with SFP, Claimant was available for and seeking full-time employment. The referee noted that Claimant performed work for BFTP intermittently since 2005 and that it was not and never had been the primary source of his livelihood. Thus, the referee concluded that the services Claimant performed for BFTP were a sideline business activity and not disqualifying under section 402(h) of the Law.
A claimant who is available for full-time work will not be disqualified based on self-employment under section 402(h) where: (1) the self-employment began prior to termination from full-time employment; (2) the self-employment has continued without substantial change after the full-time employment was terminated; and (3) the self-employment was not the primary source of the claimant's livelihood. Crocker v. Unemployment Compensation Board of Review, 63 A.3d 496 (Pa. Cmwlth. 2013).
BFTP appealed, stating that Claimant was an independent contractor "and is thus ineligible for compensation from [BFTP]." (R.R. at 50a.) The Board remanded the matter to the referee to take additional evidence on the Board's behalf. Specifically, the Board directed the referee to obtain information concerning Claimant's last day of work with SFP; whether BFTP exercised or could exercise control over the performance of Claimant's assignments; and whether Claimant was free to perform the services in question for other companies. (R.R. at 54a.)
At the remand hearing, a witness for BFTP testified that BFTP did not offer Claimant any training or provide him with any equipment, Claimant was generally free to decide how to pursue his projects, and Claimant could refuse any assignment without consequence. (R.R. at 66a-69a.) Claimant again stated that his application for benefits was based on his employment with SFP. He stated that BFTP became "involved in this situation" only because he reported the income he received from BFTP during the course of filing his biweekly reports. (R.R. at 70a.) During the August 3, 2010 hearing, Claimant testified that he had neither performed nor been approached to perform another project for BFTP since he completed his November 2009 assignment and that he had not worked at all since the March 2010 hearing. (R.R. at 72a.)
By order dated September 13, 2010, the Board reversed the referee and determined that Claimant was ineligible for benefits under section 402(h) of the Law, 43 P.S. §802(h). Claimant appealed, and on March 23, 2011, this Court granted the Board's request for remission of the record. In its subsequent decision of November 18, 2011, the Board again found Claimant ineligible for benefits under section 402(h) of the Law. The Board issued 30 Findings of Fact, and, based on those findings, the Board concluded that "[BFTP] has credibly established that it is not an employer of [Claimant] but rather that [Claimant] is a consultant and independent contractor." (R.R. at 88a.) The Board also reversed the referee's determination that Claimant's work for BFTP fell within the sideline business exception which would preclude a denial of benefits under section 402(h).
The Board's findings are as follows:
1. The claimant was employed as a full time director of product programs by 'Solutions for Progress' (SFP) from February 2008, and was laid off from that position last working July 13, 2009, and being paid through August 31, 2009.
2. On September 21, 2009, the claimant filed an initial internet claim for unemployment benefits.
3. Prior to his employment with SFP, the claimant did periodic consulting work for alleged employer Ben Franklin (BF).
4. The alleged employer BF attempts to invest in local companies with the intent of trying to establish more jobs in southeastern Pennsylvania.
5. The claimant signed a consulting agreement with alleged employer BF on July 25, 2005, wherein both parties agreed that the claimant was to be considered an independent contractor.
6. The claimant was to receive a 1099 form for any services performed under this contract.
7. The claimant agreed that he understood he was to provide his own personal business services to alleged employer BF under this contract.
8. The agreement was for consulting work, with the claimant receiving $1,500.00 for the first ten companies for which he performed a due diligence review and thereafter $1,750.00 per review, and should the claimant attend the investment advisory committee meeting, he would receive an additional $250.00.
9. The agreement was to continue unless either party ended such relationship.
10. The claimant admitted that he did no work with alleged employer BF in 2008.
11. The claimant admitted that the last time he did work for alleged employer BF was before he started working for SFP as an employee.
12. After the claimant's last day of work with SFP on July 13, 2009, he contacted alleged employer BF and admitted that he did a 'project for them in August 2009.
13. The alleged employer BF normally e-mails a number of consultants and waits for responses on who might be willing to provide services for the assignments.
14. The alleged employer BF provides a due date and sends the consultant the materials.
15. The claimant remains free to provide such services to anyone else during the time he provides such services to the alleged employer BF and is also free to do so at any other time.
16. The claimant is free to refuse any assignment from alleged employer BF.
17. Alleged employer BF provided the claimant no training, provided no supplies and did not required [sic] work on the premises.
18. The claimant was not required to report to the work premises of alleged employer BF on a regular basis.
19. The claimant agreed that it takes him 40-60 hours to complete an average consulting assignment spread over a four to five week period.
20. The claimant provided alleged employer BF with an invoice for this August work.
21. The claimant did a 'due diligence' on a company that had approached alleged employer BF about a possible investment.
22. The claimant does his due diligence based on the guidelines provided by alleged employer BF.
23. The claimant agreed that his projects with alleged employer BF typically take four to five weeks, after which he submits a written report and attends a meeting with alleged employer BF and the interested company.
24. A separate investment advisor makes the recommendation to the investment advisory committee.
25. The claimant received his monies at the end of the project in the amount of $2,500.00.
26. The claimant agreed that the meeting for this work was done in September 2009.
27. The claimant agreed that as part of another project, he received the package of materials which contained a considerable amount of reading in late October 2009 or November 2009, and that this part of the work was done by the end of November 2009 with a December 2, 2009, meeting scheduled.
28. The alleged employer got the invoice for this additional work on December 2, 2009, and paid it in December 2009.
29. The claimant has not performed any additional assignments as of the August 3, 2010, remand hearing but indicated he desired to be offered continued consulting assignments.
30. The claimant is an independent contractor and not an employee of alleged employer BF.
On appeal to this Court, Claimant argues that: 1) the Board denied him due process by taking additional testimony without informing him that whether his work for BFTP was a sideline activity would be at issue; and 2) the Board erred in determining that the work he performed for BFTP was not a sideline activity and thus did not disqualify him for continuing benefits.
With regard to Claimant's first contention, we conclude that, because Claimant had notice that self-employment under section 402(h) would be at issue during the remand hearing, Claimant implicitly had notice that any exceptions provided under section 402(h) might be considered. With respect to Claimant's remaining argument, we conclude that the Board erroneously determined that the burden shifted to Claimant to establish a sideline activity exception and prematurely addressed this issue.
Initially we note that where, as here, the Bureau initiates proceedings that result in a suspension of benefits based on self-employment, the Bureau - not the putative employer - carries the burden of proof. Silver v. Unemployment Compensation Board of Review, 34 A.2d 893 (Pa. Cmwlth. 2011); Teets v. Unemployment Compensation Board of Review, 615 A.2d 987 (Pa. Cmwlth. 1992). We have repeatedly noted that in proceedings such as these, where the claimant is already receiving benefits, the question presented is not whether the work at issue would entitle the claimant to benefits, but, rather, whether it disqualifies the claimant from further receipt of benefits he is already receiving. Minelli v. Unemployment Compensation Board of Review, 39 A.3d 593 (Pa. Cmwlth. 2012).
Additionally, because the Law does not define the term "self-employment," courts look to the definition of "employment" provided by section 4(l)(2)(B) of the Law:
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.43 P.S. §753(l)(2)(B) (emphasis added). This Court has consistently held that both elements of section 4(l)(2)(B) must be satisfied before a claimant will be declared to be self-employed. Jia v. Unemployment Compensation Board of Review, 55 A.3d 545 (Pa. Cmwlth. 2012); Buchanan v. Unemployment Compensation Board of Review, 581 A.2d 1005 (Pa. Cmwlth. 1990).
Further, we also have consistently held that the acceptance of occasional assignments is not, in and of itself, the equivalent of being "customarily engaged" in an established trade, occupation, profession or business. Minelli; Silver; Teets; Buchanan. Indeed, in Minelli we held that "the Law requires [proof] that the claimant be customarily engaged in such trade or business in order to be considered self-employed." Minelli, 39 A.3d at 598 (emphasis in original). See also Kirk v. Unemployment Compensation Board of Review, 425 A.2d 1188, 1190 (Pa. Cmwlth. 1981) (a claimant embarks upon self-employment when he performs a positive act of establishing an independent business enterprise); Miller v. Unemployment Compensation Board of Review, 405 A.2d 1052 (Pa. Cmwlth. 1979) (a claimant is considered to be self-employed where he actively participates in the operation of a private enterprise). Thus, in a case such as this, the Board is required to determine more than the claimant's relationship with the putative employer in order to find that the claimant is self-employed.
We noted in Minelli that our holding did not represent a departure from the analysis typically employed to determine whether an individual is self-employed, such as in Danielle Viktor, Ltd. v. Department of Labor and Industry, Bureau of Employer Tax Operations, 586 Pa. 196, 892 A.2d 781 (2006), in which the claimant is clearly engaged in ongoing business activity. --------
The referee did not apply the two-prong analysis set forth in section 4(l)(2)(B) because he found that Claimant was engaged in a sideline business activity. From there, the proceedings addressed only the issues as framed by the referee and the Board, i.e., whether Claimant was an independent contractor with respect to BFTP and whether Claimant's work for BFTP constituted a sideline business activity. Thus, we are left without the necessary findings as to whether Claimant was customarily engaged in an independent trade or business.
Accordingly, we vacate the Board's decision and remand this matter to the Board for a new decision, based upon the existing record, as to whether the Bureau demonstrated that Claimant is ineligible for benefits under section 402(h) of the Law based on self-employment.
/s/_________
PATRICIA A. McCULLOUGH, Judge ORDER
AND NOW, this 10th day of June, 2013, the order of the Unemployment Compensation Board of Review (Board), dated November 18, 2011, is vacated, and the matter is remanded to the Board to issue additional findings of fact in accordance with the foregoing opinion.
Jurisdiction relinquished.
/s/_________
PATRICIA A. McCULLOUGH, Judge
(Board Op., November 18, 2011, Findings of Fact Nos. 1-30; R.R. at R85a-R87a.)