A part-time job. That is how my client described his driving for UberX, the Uber service that allows individual drivers, using their personal vehicles, to give rides to clients.
My client, D.L., had recently lost his full-time position in the behavioral health field when, seeking representation, he came to Philadelphia Legal Assistance. He had applied for unemployment compensation when he lost his behavioral health job, and the Pennsylvania Department of Labor and Industry approved him for benefits. Then he decided to apply to drive for Uber after a cousin recommended doing so to bring in more money to help his family—a wife and two children. D.L. had all the makings of a great Uber driver: he is friendly, responsible, and the ultimate professional. After a few days of waiting for Uber to respond to his application and approve him, D.L. was on the road. He hoped that driving would help keep his family financially stable while he continued to search for full-time employment. He had no idea it could pull the safety net right out from under them.
“Self-Employment” Under Pennsylvania Law
Unemployment compensation in Pennsylvania, commonly referred to as “unemployment insurance” elsewhere in the country, is intended to be “[s]ecurity against unemployment and the spread of indigency” by “the systematic setting aside of financial reserves to be used as compensation for loss of wages by employes [sic] during periods when they become unemployed through no fault of their own.” For individuals such as D.L. who lost their jobs through no fault of their own, the unemployment compensation system may pay up to 26 weeks of wage replacement. The law requires that individuals claiming unemployment compensation benefits report any work done and wages earned during the weeks at issue when they file their biweekly claims. Those wages, depending on the amount, are then offset from a claimant’s weekly benefit rate. Claimants can earn up to a certain amount, called their “partial benefit credit,” and still collect their full weekly benefit. When income exceeds the partial benefit credit, then the agency makes a calculated reduction depending on the amount earned in excess.
For decades, the Pennsylvania Department of Labor and Industry has struggled with a provision in the Pennsylvania Unemployment Compensation Law on “self-employment.” The term “self-employment” is not defined in the law, but the intent of the provision is to ensure that benefits are for the unemployed worker rather than the unemployed business person. As Pennsylvania courts have stated, “the Law was not enacted to compensate individuals who fail in their business ventures and become unemployed businessmen.” Individuals who are self-employed will be disqualified entirely from benefits even if they previously qualified after losing a job.
Our clients were experiencing the consequences of a growing new market for work, the 'gig economy,' that classified those providing services as 'independent contractors.'
According to the definition of “employment” under the Pennsylvania Unemployment Compensation Law, workers benefit from a presumption that an individual who receives wages for work is an employee for unemployment compensation purposes. However, that presumption can be overcome if the Department of Labor and Industry establishes 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.
That is how D.L. came to be sitting across from me in my office in September 2015. When filing his biweekly claim, he had correctly reported his wages from Uber to the Department of Labor and Industry and had subsequently received a notice of determination disqualifying him from unemployment compensation due to “self-employment.” At Philadelphia Legal Assistance, we had seen a trend of workers who were engaged in “gig economy” work—such as driving for Uber or Lyft—and receiving notices of determination finding them ineligible based on self-employment. Like D.L., those clients did not believe they were “self-employed” and had no idea that their attempt to reenter the job market would result in the loss of the safety net they had earned through previous employment.
Our clients were experiencing the consequences of a growing new market for work, the “gig economy,” that classified those providing services as “independent contractors.” We were not alone in seeing the explosion of this type of work among low-wage workers. What became clear is that, for many of these workers, “gigs” were not their main form of work, but the status quo in the Pennsylvania unemployment compensation system quickly became “gig economy work = self-employment.”
Challenging the Status Quo
For D.L., this disqualification was debilitating. When I first met him, he had recently been in a car accident and the damage to his car prevented him from driving for Uber. Because the Department of Labor and Industry had cut off his unemployment benefits, he had no form of income to support his family. He did not understand why the government considered him “self-employed”; as he explained to me, he had no control over how much money he made when he drove for Uber. He wanted to challenge the department’s decision.
We knew from the beginning this case would be an uphill battle. It would require an administrative law judge, known as a “referee” in Pennsylvania unemployment compensation proceedings, to go out on a limb and buck the status quo. I warned D.L. that this may not be a quick process, as I did not expect a referee to rule in our favor. I was even doubtful that the agency’s appellate board, the Unemployment Compensation Board of Review, would reverse the trend on its own. Therefore, from the beginning, we built this case not for the agency but for the courts.
Parties in unemployment compensation cases have an automatic right of appeal to the Commonwealth Court, the Pennsylvania intermediate appellate court that handles all government-related matters. Our plan was to create a substantial record that could be argued clearly on appeal. A ruling from the court would set a precedent for how the self-employment test was applied to workers such as D.L.
I spent hours with D.L. combing through all the documentation he had from Uber. D.L. had an account on the Uber platform with access to the contract Uber requires drivers to sign upon starting work and the policy addenda it attached. The platform also gave us access to his driving records and income statements. Uber was in constant communication with D.L. and was sending him several emails and text messages a week about driving. We printed out 17 emails and texts that demonstrated Uber’s attempts at controlling D.L.'s driving activities. Overall we proffered 23 exhibits to the referee office in advance of our hearing. For example:
- Uber emails drivers a weekly summary that charts the previous week’s busiest hours and shows which of the busiest hours the driver was active on the application. Uber encourages drivers to be available on the Uber application during the week’s “busiest hours.” For instance, in one email to D.L., Uber informed him that in the previous week he drove “5 of 12 busiest hours” and that this coming week he should “drive all busiest hours.”
- The weekly email also informed D.L. of (1) the number of trips he took in the previous week and the week prior and (2) the number of hours he was on the Uber application in the previous week and the week prior. The email then compared those to the trips and hours of the “Top Drivers.”
- Uber sends emails urging drivers to be on the road at certain times; one such email to D.L. is about driving on weekday mornings between 6:00 a.m. and 10:00 a.m. to earn more. The email also includes a map with areas of high concentration of ride requests.
- Uber emails drivers about locations that will have large concentrations of riders. D.L. testified that he received an email from Uber every day, sometimes twice a day, before the Pope’s visit to Philadelphia in 2015. Uber also sent text messages about the Pope’s visit. Uber asked drivers in a text message to fill out a form if they were planning to drive during the Pope’s visit.
- Uber sends similar emails and text messages about concerts, sporting events, and cultural events.
Uber Getting Serious
We arrived at the referee office for a morning hearing that was scheduled to have my client and me testify in person while an attorney from Uber testified by phone from California. However, after initial introductions and background testimony, Uber’s counsel realized we had submitted 23 exhibits for the record. Unprepared to handle that magnitude of exhibits, Uber’s counsel immediately requested a continuance of the hearing. The referee granted the continuance request.
Two weeks later we were back at the referee office for our rescheduled hearing. However, this time Uber sent counsel from a prominent management-side labor and employment firm and a manager from Uber’s Philadelphia office to testify as a witness. They were taking us seriously.
Nearly two hours later we walked out of the hearing room feeling confident we had created a record that showed D.L. was not free from Uber’s control and direction and that he was not engaged in an independent business venture. But our expectations were set low—we were in it for the long haul.
The Long Road Ahead
As expected, the referee ruled against us and found that D.L. was self-employed. We then appealed to the Unemployment Compensation Board of Review. Before we received a briefing schedule, I decided to reach out to experts on this issue in the private plaintiff’s bar, including, in Boston, Shannon Liss-Riordan, who was litigating a major class action case against Uber for misclassification of its drivers. Liss-Riordan and other attorneys looking at this issue in the wage-and-hour context were kind enough to share briefs they had submitted and pointed me to relevant court and administrative agency decisions that could affect my case. The growth of the gig economy has spurred numerous lawsuits on potential misclassification of workers as independent contractors.
After reviewing the 44-page transcript and exhibits, I submitted a legal brief arguing for reversal. Several months later we received a decision from the Board of Review affirming the referee’s decision but issuing its own findings of fact and conclusions of law. Taking issue with the Board of Review’s reasoning, I filed a request for reconsideration. Because a request for reconsideration does not toll the 30-day deadline for filing an appeal in the Commonwealth Court, I also prepared the petition for review to be filed in court. The day our petition was due I received a phone call from the board letting me know that it was granting reconsideration. As I had never seen the board grant reconsideration only to affirm its original decision, I was ecstatic. I could not believe that we could actually win this at the agency level.
My disbelief turned out to be well founded. A month later I received a new decision from the board, shifting its reasoning but still denying benefits.
I filed the petition for review in the Commonwealth Court. Although the case was technically D.L. versus the Board of Review, Uber immediately intervened to protect its interests in the case.
Winnable in Court?
The Commonwealth Court consists of nine active judges, all elected to 10-year terms. When our case was filed in 2016, the court reviewed more than 500 unemployment compensation cases, which constituted 15 percent of its docket. As a repeat player in the Commonwealth Court, I had seen the keen interest the judges took in the experiences of unemployment-compensation claimants and the need for fairness in the system.
I thought that our case would catch the court’s interest based on the public attention the gig economy receives, but I also knew that convincing the court that my client—with a flexible work schedule, independent contractor agreement, and lack of a formal review process—was not self-employed would again be an uphill battle. I had to show the judges that the same factors of control from the court’s self-employment precedent existed in this case—they just looked different.
We argued that, while driving, D.L. received constant feedback about his performance rating, ride-acceptance rating, and ways to improve his driving services and reach more riders. Uber’s mobile application, offered as a download to his phone and through which all scheduling and payment was conducted, tracked D.L.'s movements and progress through GPS (global positioning system). We impressed upon the court that while Uber did not require him to attend meetings or work in a physical office space, its continuous electronic communication and monitoring created a virtual office that controlled the manner in which D.L. provided driving services.
We also argued that, for D.L., driving for Uber was a job, not a business. He was completely reliant on Uber for riders, did not have the ability to build relationships with riders on his own, and was forbidden from contacting riders for non-Uber business. The terms of Uber’s contract gave him no practical control over the fare charged to the rider and prohibited him from subcontracting his work. D.L. had never done commercial driving prior to Uber, was not separately licensed for it, and did not work for any competitor ride-hailing companies.
After we submitted our brief, Uber filed an intervenor’s brief. Then, surprisingly, the Board of Review chose not to file its own brief and instead rested on Uber’s brief. Several months later, the case was scheduled for oral argument in front of a seven-judge en banc panel of the Commonwealth Court. Prior to the oral argument, we also learned that the Board of Review would not be participating. Just D.L. versus Uber.
Commonwealth Court Ruling for Workers
In January 2018 the Commonwealth Court unanimously found that D.L. was not self-employed and therefore not disqualified from benefits. The court issued two opinions, a majority opinion with six of the judges and a concurring opinion by the remaining judge.
The majority found that D.L. was not self-employed because the evidence did not establish that he intended to start his own independent business. In its decision the court shifted the focus of the analysis from the relationship between the worker (D.L.) and the putative employer (Uber) to the intent of the claimant. The court held that “[s]hort-term work, including self-employment, in which a claimant engages after losing his job, does not render the claimant ineligible for unemployment compensation benefits under Section 402(h) of the Law.”
The court focused on whether the claimant took a “‘positive step’ toward establishment of an independent business,” and the court found that the claimant “did not have business cards or advertise his driving services independent of Uber.” The court held that the claimant was not self-employed as his actions “did not reflect ‘an entrepreneurial spirit’ or ‘intentions of starting a new business or trade.’” Despite a four-month relationship that the board had found to be “frequent and prolonged, rather than occasional and limited,” the court did not find that the department, which held the burden in the case, established that the claimant was customarily engaged in an independent business.
The majority found that D.L. was not self-employed because the evidence did not establish that he intended to start his own independent business.
The court also directed the Board of Review on remand to consider D.L.'s expenses while driving for Uber to determine how much he “earned” and therefore how much should be deducted from his weekly benefit rate.
The decision immediately affects tens of thousands of workers in Pennsylvania. Continued eligibility for benefits now depends on the intent of the worker in the gig economy, rather than the relationship with a particular employer. Workers should no longer have the burden in administrative hearings of contesting their employment status, an issue currently litigated in courts across the country. Most important, under this decision workers should no longer be punished because they sought, and found, short-term employment.
D.L. and I pursued this case because we wanted a decision that would benefit all drivers and clarify that their relationship with Uber was not one of self-employment. A decision based on that relationship, like the approach of the Commonwealth Court’s concurring opinion, would have had such an effect. While the decision of the court did not address self-employment in the way we expected, the judges clearly struggled to find a fair outcome, and a test, that matched the unique nature of gig-economy employment. As with all litigation, the outcome may not be quite what we expected—but, in our case, D.L., and other low-wage workers, still came away with a vital win that will reverberate throughout the unemployment compensation system.
Not Over Yet
We expect the decision to change the status quo—the presumption that this work is “self-employment”—at the Department of Labor and Industry. We hope that presumption will be reviewed and claimants will no longer be automatically disqualified when they report wages from the gig economy.
However, the case is not over yet. Following the Commonwealth Court’s decision, the Board of Review filed a petition for allowance of appeal with the Pennsylvania Supreme Court. The Board of Review, which did not argue for a particular outcome on D.L.'s benefits in its petition, took issue with the court’s rejection of the two-prong self-employment test. The board cited years of precedent and argued that the new test would be difficult to administer.
Allowance of appeal by the Pennsylvania Supreme Court is discretionary, and the court has yet to rule on the petition. A litigator’s work is never done!