Wednesday, March 24, 2010

UC - self-employment - sideline activity

LaChance v. UCBR - Cmwlth. Court - December 15, 2009

The UC Law “was not designed to insure a weekly income to those engaged in business ventures who may not realize a profit therefrom during various weekly periods.” Urban v. UCBR, 151 A.2d 655, 656 (Pa. Super. 1959). The Law cannot be used to give benefits to people otherwise employed. See Kirk v. UCBR, 425 A.2d 1188, 1191 (Pa. Cmwlth. 1981) (stating that “[p]ersons who are not so unemployed should not receive benefits from the fund”).

To that end, Section 402(h) of the Law excludes the self-employed from receiving benefits, stating that “[a]n employee shall be ineligible for compensation for any week . . . (h) In which he is engaged in self-employment.” 43 P.S. §802(h). The Law does not expressly define the term “self-employment,” but, in determining whether a claimant is engaged in self-employment, our courts have looked at whether the claimant engaged in positive acts to establish an independent business venture. Leary v. Unemployment Compensation Board of Review, 322 A.2d 749, 750 (Pa. Cmwlth. 1974). In addition, claimants who engaged in business and the solicitation of clients have been viewed as self-employed, regardless of whether the claimants received any income from those efforts. Keslar v. Unemployment Compensation Board of Review, 195 A.2d 886 (Pa. Super. 1963). “Normally the employer has the burden of proving that a claimant is self-employed, but where the bureau acts on its own in suspending benefits because of self-employment, the bureau carries the burden.” Teets v. Unemployment Compensation Board of Review, 615 A.2d 987, 989 (Pa. Cmwlth. 1992).

The Law recognizes that there are industrious individuals who, while employed by another, engage in self-employment which is not their primary source of income. These individuals who become unemployed through no fault of their own may, nonetheless, receive benefits under Section 402(h), which grants an exemption to the general self-employment exclusion. This is known as the sideline activity exception and provides that: [A]n employe who is able and available for full-time work shall be deemed not engaged in self-employment by reason of continued participation without substantial change during a period of unemployment in any activity including farming operations undertaken while customarily employed by an employer in full-time work whether or not such work is in “employment” as defined in this act and continued subsequent to separation from such work when such activity is not engaged in as a primary source of livelihood. 43 P.S. § 802(h).

Our Courts have interpreted this statutory language and held that the sideline activity exception is applicable when the following conditions are met: “(1) that the self-employment activity precedes valid separation from full-time work; (2) that it continues without substantial change after separation; (3) that the claimant remains available for full-time work after separation; and (4) that the selfemployment activity is not the primary source of the claimant’s livelihood.” Moshos v. Unemployment Compensation Board of Review, 466 A.2d 258, 259 (Pa. Cmwlth. 1983). A claimant who wishes to fall within the exception bears the burden of showing that all of these requirements are met. See id. n.2.

The parties concede that Claimant meets the first, third, and fourth conditions of the sideline activity exception. The central dispute is whether Claimant meets the second condition of the sideline activity exception. That is, whether Claimant’s increased activity in Quintessence, from zero hours per week to twenty hours per week, absent evidence of income, constitutes a substantial change after separation in which case Claimant would not meet the exception.

In support of his argument, Claimant relies on this Court’s decisions in Dausch v. UCBR, 725 A.2d 230 (Pa. Cmwlth. 1999), and LaSalle v. UCBR, 522 A.2d 1160 (Pa. Cmwlth. 1987). In Dausch, this Court examined the second condition of the sideline activity exception and concluded that “mere preparations undertaken to expand a sideline business . . . do not constitute a substantial change in the sideline business.” Id. at 232 (emphasis added).

In discussing whether a substantial change has occurred in a sideline business pursuant to the second condition, this Court cited to Quinn v. UCBR, 446 A.2d 714, 715 (Pa. Cmwlth. 1982), and Higgins v. UCBR, 405 A.2d 1024, 1025 (Pa. Cmwlth. 1979), as examples of how this Court has “focused primarily on whether a claimant is working in the activity for significantly more hours than he did prior to separation.” Dausch, 725 A.2d at 232 n.7 (emphasis added). In Quinn, 446 A.2d at 715, and Higgins, 405 A.2d at 1025, we held that an increase in hours from thirty to sixty per week and from ten to forty-five per week, respectively, constituted a substantial change in activity in the claimants’ sideline businesses. The Dausch court expanded its focus and did not only look at the hours worked prior to and after separation, but also examined the claimant’s actions to determine whether they were preparatory in nature or whether services were actually performed. Dausch, 725 A.2d at 232. This Court held that because there was no evidence that the claimant worked from the leased office prior to his benefits being terminated, solicited business or advertised for business prior to his termination, or performed services for clients prior to the time that his benefits were terminated, “the claimant’s sideline business activity did not substantially change after his separation from [employer].” Id.

Here, we must disagree with Claimant’s contention that his conduct was merely preparatory in nature and therefore his increase in hours is analogous to that in Dausch. First, just like in Quinn and Higgins, Claimant significantly increased the number of hours he worked (from zero to 20 hours per week) at his sideline business after his termination. Second, Claimant’s conduct of networking for twenty hours per week cannot be classified as merely preparatory and similar to the conduct of the claimant in Dausch. When Claimant, in this case, engaged in soliciting clients and discussing the professional services he could offer to them, he was performing activities that he would perform as part of his independent business venture. This type of activity was specifically found lacking in Dausch. Therefore, Claimant’s argument that Dausch requires Claimant to be found eligible for benefits because his activity did not constitute a substantial change after separation is rejected.

Claimant also contends that, because he generated no income from his sideline activity, he has established that his self-employment activity continues without substantial change pursuant to LaSalle. However, first, we acknowledge this Court’s rule of law that claimants who engage in business and the solicitation of clients have been viewed as self-employed, regardless of whether the claimants received any income from those efforts. Keslar, 195 A.2d at 886.

Second, we note that, although this Court in LaSalle stated that during the claim weeks at issue the claimant in that case did not generate any income from the sideline business, our Court also held that there was “no record evidence to indicate that Claimant’s real estate activity ha[d] increased since her work separation.” LaSalle, 522 A.2d at 1162. Unlike the facts in LaSalle, there is clear evidence here that Claimant significantly increased the amount of work he did for Quintessence following his separation from Employer, which was more than preparatory in nature. Accordingly, we conclude that Claimant’s conduct here constitutes a substantial change in sideline activity.

While we certainly sympathize with Claimant in these financially difficult times, we are constrained by rules of law. The Board did not commit an error of law and, therefore, the Board’s order is affirmed.