Sunday, November 01, 2015

UC - employee v. indpt. contractor - right to control

King’s Kountry Corner, LLC v. Dept. of Labor and Industry – October 14, 2015 – Cmwlth. Court – unreported memorandum opinion



The court affirmed the Department decision that “members” of a limited liability corp. who worked at its stores as salespersons and doing delivery work were “employees” of the LLC and should be subject to UC tax as employees, rejecting the LLC claim that they were independent contractors.   One person held a 93% interest in the LLC and the members each had a 1% interest.  KKC reported compensation paid to members who did sales and delivery work to the federal tax authorities.


Liberal construction

The provisions of the Law must be liberally and broadly construed to achieve its objectives of ensuring that employees who become unemployed through no fault of their own are provided with some semblance of economic security. Wedner Unemployment Compensation Case, 296 A.2d 792, 796 (Pa. 1972).



The term "employment" is broadly defined as "all personal service performed for remuneration by an individual under any contract of hire, express or implied, written or oral, including service in interstate commerce, and service as an officer of a corporation." Section 4(l)(1) of the Law, 43 P.S. § 753(l)(1). Once it has been shown that an individual has performed service for wages, he or she is presumed to be an employee. Section 4(l)(2)(B) of the Law; Cameron v. Dep't of Labor & Indus., Bureau of Emp'r Tax Operations, 699 A.2d 843, 846 (Pa. Cmwlth. 1997). The burden then shifts to the employer to establish an exemption from employment. Hoey v. Dep't of Labor & Indus., Bureau of Emp't Sec., 499 A.2d 1124, 1127 (Pa. Cmwlth. 1985).


Right to control

It is the right or authority to exercise control or to interfere with the work of another, not the actual control, that creates an employment relationship. Cameron, 699 A.2d at 846. In order to discern whether the employees were truly employees or independent contractors, it is necessary to look beyond the contract between the employer and the employees to the true facts of the employment. Hoey, 499 A.2d at 1127.  Kountry Korner's managing member had "the authority to … [m]onitor, supervise, manage and control the business activities of  the Company and its employees," as established by testimony and the LLC’s Operating Agreement


Because the members performed services for wages, the burden shifted to Kountry Korner to establish that they were not subject to its control or direction over their performance and that they were customarily engaged in an independently established trade, occupation, profession or business. Section 4(l)(2)(B) of the Law. As the Department correctly noted, Kountry Korner did not present any evidence to meet its burden.


An unreported case may not be cited “binding precedent” but can be cited “for its persuasive value. . . .”  See 210 Pa. Code § 69.414 (a) and Pa. R.A.P.  3716 [45 Pa.B. 3975; Saturday, July 25, 2015]

If the case is old, the link may have become stale and may not work, but you can use the case and date to find the opinion in another source (e.g., Westlaw, Lexis, Google Scholar)








UC - "employee" v. independent contractor

Formularo Catering, Inc.  v. Department of Labor and Industry



Reassessment of employer’s UC taxes upheld by court, which determined that employees which employer claimed were “casual laborers” were “employees” under the UC Law, and not independent contractors.


The court upheld the Department’s conclusion that the individuals were engaged in employment under section 4(l)(2)(B) of the Law, 43 P.S. §753(l)(2)(B), that it had satisfiend its burden of showing that the individuals performed services for wages. Specifically, and that it proved an employer-employee relationship between Famularo and the individuals.


In determining whether an individual is engaged in “employment” or in the work of an independent contractor under section 4(l)(2)(B) of the Law,  the Department bears the initial burden of showing that the individual provided services in exchange for wages.  Tobey-Karg Sales Agency, Inc. v. Pennsylvania Department of Labor and Industry, 34 A.3d 899, 903 (Pa. Cmwlth. 2011). “[A] person receiving remuneration for services rendered is presumed to be employed and therefore to have ‘employment’ within the meaning of the [Law] . . . .” Electrolux Corporation v. Department of Labor and Industry, Bureau of Employer Tax Operations, 705 A.2d 1357, 1359-60 (Pa. Cmwlth. 1998) (emphasis added).


Once the Department meets its burden, the burden shifts to the employer to show that the individual “‘(a) has been and will continue to be free from control or direction over the performance of his or her services [a]nd (b) is customarily engaged in an independent trade.’” Tobey-Karg, 34 A.3d at 903 (citation omitted). Unless the employer proves both elements, the presumption of employment stands. Beacon Flag Car Company (Doris Weyant) v. Unemployment Compensation Board of Review, 910 A.2d 103, 107 (Pa. Cmwlth. 2006).


Here, the Department credited testimony that Famularo issued IRS 1099 tax forms to certain individuals but did not report those individuals’ wages to the Department. Although Famularo’s owner disputed the status of these individuals, he acknowledged that Famularo hired them and paid them for their services. Contrary to Famularo’s argument, the Deparetment need only show that the individuals received remuneration in exchange for their services. Electrolux, 705 A.2d at 1359-60. Based on the testimony of  the Deparment witness and Famularo’s owner, the court agreed that the  e Department met its burden. Although the burden then shifted to Famularo, Famularo failed to argue that it met both elements under section 4(l)(2)(B) of the Law.  Therefore, the Department properly concluded that the individuals at issue were engaged in “employment” under section 4(l)(2)(B) of the Law.




If the case is old, the link may have become stale and may not work, but you can use the case and date to find the opinion in another source (e.g., Westlaw, Lexis, Google Scholar)