NBI SEMINAR MATERIALS: General Rules on Who is Entitled to Unemployment Compensation
I had the great opportunity to lead (perhaps “teach”) a continuing legal education seminar hosted by the National Business Institute. The subject was “Human Resource Law From A to Z” and I had opportunity to speak on Unemployment Compensation. I was joined by other capable attorneys who each had their own topics to present.
Although NBI published the materials, I retain the ownership of the portions I wrote, which I will post here in this blog.
Copied below are the materials I wrote for the section entitled “General Rules on Who is Entitled to Unemployment Compensation.”
General Rules on Who is Entitled to Unemployment Compensation
- Three Aspects of Eligibility
Eligibility for Unemployment Compensation is fairly straight forward. The key element to keep in mind is that Unemployment Compensation benefits are designed to provide a source of income while someone is between jobs. To that end, first, as directly implied by the name, one must be recently unemployed. This is the most basic element of eligibility. Upon being unemployed, there are three basis factors of eligibility.
First, one must have sufficient income during one’s base year. A base year is the period of time that comprises the four quarters immediately prior to the quarter that precedes the quarter in which an application for benefits was submitted. For example: if one’s application is submitted sometime in the months of July, August, and/or September of 2018, then one’s base year begins in April 2017 and ends in March 2018. One must have sufficient qualifying income during the base year to ensure eligibility; this is calculated as follows: the amount of income required for eligibility is determined by using the base year quarter with the highest income (the so-called “High Quarter”) as a guideline. In other words, one cannot have earned all of one’s income in a single quarter in the base year to be eligible for benefits. At least thirty-seven percent (37%) of one’s income must be earned in one or more quarters other than the High Quarter. For example, if one’s High Quarter was $63,000 then one must have at least $100,000 in total qualifying wages in the base year. If not, then one would not be eligible for benefits.
Second, one must be available, able, and willing to work. Being “able” to work in this context is rather literal. It addresses whether one is physically and/or mentally capable of working. If one is separated from his employment due to a physical or mental disability or injury and is rendered unable to work at all, one cannot receive Unemployment Compensation benefits as he is unable to work. As long as the Claimant can work some job, even if it is not the job he left, he can still be eligible for benefits. To that end, one must be actively engaged in searching for a job. Relatedly, if one refuses suitable work when it becomes available, then one is rendered ineligible for benefits.
Third, and perhaps counter intuitively, how to determine eligibility is, perhaps, best explained by elucidating what makes one ineligible for benefits.
The most common causes of ineligibility are: (1) voluntary termination; (2) willful misconduct; and, (3) being an independent contractor (and/or self-employed).
- Voluntary Termination
Voluntary termination of one’s employment refers to someone quitting his job. One cannot voluntarily quit his employment and collect benefits. Put conversely, one has to be terminated from employment involuntarily. Customarily, an involuntary termination is due to things like a furlough or lay off, downsizing, and/or an employment relationship that simply did not work out. By contrast, a voluntary quit typically refers to things like quitting to take a new job, to go to school, to retire, and/or to move to a new locale, among other things. If someone voluntarily terminates his own employment, then he is ineligible for benefits.
Three general exceptions to “voluntary termination” as described above are a hostile work environment, a change in working conditions, and a disability of some sort (as described above).
For example, if someone is a target of sexual harassment, discrimination, or even general mistreatment, and feels compelled to quit to escape the hostile work environment, then such termination would be considered constructively involuntary. In other words, even though on its face it appears the employee quit his job voluntarily (as he was not fired or laid off, etc), if the working environment is so bad that a reasonable person could no work in it, the quit is considered involuntary as no one should be expected to work in such conditions.
Second, a change in working conditions includes things like a significant change in location, hours, or compensation. For example, if the location of one’s job moves fifty (50) miles away, then that would be a substantial change in location to render continued employment extremely difficult if not impossible. Quitting one’s job due to such a relocation is not considered voluntary. An important caveat to this general rule applies when someone, despite the relocation, elects to try and tough it out for a time. If someone continues to work for an extended time despite the relocation, his eventual quit could be considered voluntary (and render the employee ineligible for benefits) as the relocation did not make it immediately impossible to work. Similarly, being laid off due to the work being seasonal, or due to a work lock out, constitutes involuntary termination rendering the claimant eligible for benefits. Relatedly, if someone quits his job to accept another, better, job (or part-time to full-time) and that new job unexpectedly falls through, then that would not constitute a voluntary quit.
It is important to keep in mind that quitting one’s job to go to school, accept a retirement buy out, look for other work, start a business, and/or participate in a union strike, constitutes voluntary termination to render one ineligible for benefits.
Finally, as briefly mentioned above, there are times when a physical or mental disability or injury causes one to be unable to perform his job. If that disability/injury renders one unable to work any job, then one is ineligible for benefits; however, if that disability/injury renders one unable to work one’s current job, but still able to work others, then one could be eligible. For example, if someone is a construction worker, and hurts his foot and cannot stand for long periods of time, he may have to leave his construction job, but could work another job where he could sit (e.g.: a desk job). In this case, his quitting the construction job would be considered involuntary (as he would still work there but for the injury), but as he is still able to work, he is eligible for benefits.
- Willful Misconduct
As mentioned above, being involuntarily terminated is an element of being eligible for benefits, and forms of involuntary termination include furlough or lay off, downsizing, and/or an employment relationship that simply did not work out. By contrast, however, another form of involuntary termination, which does not lead to eligibility, is termination due to willful misconduct. To put it in more common parlance, one is not eligible for benefits if he is fired for cause. Willful misconduct is rather self-explanatory: it is to willfully break a work rule and get fired as a result. If this occurs, the employee who is terminated due to willful misconduct is ineligible for benefits. There are a couple of narrow exceptions to ineligibility due to willful misconduct. First, if the misconduct is not particularly egregious, and only happened once, then it is possible to be eligible for benefits despite the termination for the misconduct. Second, if the misconduct was the result of mistake or error, then it would not be considered “willful” and, therefore, the terminated employee could be eligible. Third, if the work rule that was broken is inconsistently applied or enforced, then it is possible a termination based on that rule would not be considered willful misconduct as a result. Finally, if violating the work rule was for a good or justifiable reason, it would not be considered willful misconduct. For example, a delivery company may have a rule prohibiting its trucks from being used for personal reasons. If a driver of one of those trucks had a medical emergency, or, say, learned that his child was having a medical emergency, and diverted from his route due to that emergency, one could argue that the breaking of the rule was not “willful,” but rather due to a reasonable response to an emergent situation.
- Employee or Contractor?
In order to be eligible for benefits, one must have been someone else’s employee. If someone is self-employed, or is an independent contractor, then one is not, or has not, been someone else’s employee and, therefore would not be eligible for benefits if the work being done by that person is somehow terminated or concluded.
The obvious question is how one can determine if someone is an employee or a contractor (or self-employed). Some (alleged) employers do not maintain a payroll (but pay their workers through standard checks instead), and some do not pay for supplies, while still others provide little oversight. What is the status of those who work for these alleged employers?
In order to determine whether someone is an employee or a contractor, the Pennsylvania Courts use the following two-part test to determine whether an individual is self-employed (i.e.: independently contracting): (1) is the claimant free from control and direction in the performance of the work? and, (2) is the business one that is customarily engaged in as an independent trade or business?
To determine whether an individual is free from the control and direction of an employer in the performance of work, the Unemployment Compensation referees and Pennsylvania Courts frequently look to eight (8) factors. No one factor is determinative as to whether an individual is an employee or independent contractor, and the Court generally considers and weighs all eight (8) factors in the employment relationship.
The eight (8) factors that are considered are as follows: first, how was the job was performed? Specifically, it is more likely that an individual is an independent contractor if he sets his own hours, creates his own work/task agenda, and/or decides how many other workers are needed for a particular task. Second, is there was a fixed rate of remuneration? Who decides the cost of the services being provided? Who decides when/if raises are granted? A worker who establishes his own pay rate and decides when his own pay rate increases or decreases is functioning more like an independent contractor than employee. Third, are taxes deducted from the claimant’s remuneration? It is more likely that a worker is an independent contractor if the worker receives a 1099 form and is able to deduct expenses and be responsible for paying his own taxes. Fourth, does the alleged employer supply the tools necessary to carry out the services being provided? If the worker must provide and use his own tools to carry out his tasks, it is more likely to rule that the worker is an independent contractor. Fifth, does the alleged employer offer on-the-job training? If an alleged employer provides on-the-job training, it is more likely to rule that there is an employment relationship. Sixth, are there regular meetings with the alleged employer? Regular meetings generally will signify an employment relationship. Seventh, will the claimant suffer risk of loss when claimant’s expenses exceed income? In other words, if the business fails, will the alleged employee merely lose his job, or will the alleged employee have the responsibility to satisfy the business’ potential creditors. If the alleged employee merely loses his job, and has no responsibility to address the business’ creditors, then it is likely that he is an employee rather than an independent contractor. Eighth, is the claimant compelled to look only to the employer for further employment? If a worker regularly sought and/or acquired the same or similar work from other sources, while already engaged with an alleged employer, then it is likely that the worker had independent contracting relationships with his employers.
The explanation typically given for why a self-employed person would not be eligible for benefits is the risk of benefits fraud through the hiring and firing of oneself in order to collect benefits.
One minor exception to the above is the so-called “sideline activity.” It is not uncommon for someone to work a full time job as an employee but, in his spare time, earn a few extra dollars doing a sideline activity. For example, someone could work a typical 9am to 5pm, Monday through Friday, job, but on the weekends work a few hours doing landscaping or wedding photography or the like as a sideline activity. If this person lost his day job involuntarily, his sideline activity would not cause him to be ineligible due to self-employment. Relatedly, losing the sideline activity would not constitute being unemployed sufficient to be eligible for benefits. The main pitfall regarding a sideline activity is if the hours spent at that activity expands beyond being merely a “sideline,” and into one’s primary source of income. The typical situation where this would occur is if one loses a day job and, in order to cover one’s bills and expenses, expands out the sideline activity to more hours. Suddenly, a sideline activity – which would have no effect on eligibility – would convert someone into being self-employed and, therefore, ineligible for benefits.
It is worth noting that, by statute, someone who works for a religious institution (e.g.: a clergyman), someone who works some agricultural jobs, and someone who works for family, among a handful of other categories, are not eligible for benefits regardless of how or why they are terminated from employment.
Finally, unemployment compensation follows strict deadlines. If one misses an appeal deadline – even by one day – it will render the claimant ineligible for benefits for the benefit weeks for which the benefits are applied.