A Special Touch v. Commonwealth (2020)

Summary:

The Pennsylvania Supreme Court’s majority—Justices Baer, Donohue, Dougherty, and Wecht—adopted a test for distinguishing employees from independent contractors that requires an independent contractor to have an independently established trade or business, effectively compelling them to have multiple clients or actively seek additional clients. Thus, an individual’s choice to work as an independent contractor for one client may nevertheless render them an “employee” requiring the business to make unemployment compensation payments.

The Verdict:

In A Special Touch, the Pennsylvania Supreme Court adopted a confusing standard for distinguishing employees from independent contractors that ignores the complexities of independent contracting as well as the freedom of individuals engaged in independent contracting to practice their profession. In effect, the standard requires even independent contractors with agreements in place to actively search for additional clients, even when they are unable or unwilling to take them on. In addition, a putative employer would have no knowledge or control over an independent contractor’s efforts to secure other clients, yet the same employer would be on the hook for missing unemployment compensation payments if those individuals are later deemed employees.

Background:

This is a workers’ compensation case involving the classification of workers as either independent contractors or employees. The Department of Labor and Industry audited a nail salon that treated nail technicians and cleaning personnel as independent contractors, eventually concluding that these individuals should have been classified as “employees,” requiring the salon to make unemployment compensation payments.

The relevant unemployment compensation law treats individuals as independent contractors if they are “customarily engaged in an independently established trade, occupation, profession, or business.” Pennsylvania Supreme Court precedent had already established a test to determine whether individuals meet this definition; to qualify, individuals must be able to work for more than one entity, cannot depend on the existence of the putative employer for ongoing work, and must be hired on a job-to-job basis with the ability to refuse an assignment, among other considerations.

However, the majority insisted that, to remain an independent contractor, the ability to work elsewhere could not be merely theoretical. Instead, independent contractors must be, for example, actively engaged with other clients or making intentional efforts to find additional work. To interpret it differently, Justice Baer reasoned, creates a risk that businesses would be able to avoid paying unemployment compensation.

Opinions:

Majority Opinion (Hon. Max Baer, joined by the Hon. Christine Donohue, Hon. Kevin M. Dougherty, and Hon. David N. Wecht)

Concurring Opinion (Chief Justice Thomas G. Saylor, joined by the Hon. Debra Todd and Hon. Sallie Updyke Mundy)