PA Supreme Court Narrows The Test For Independent Contractor In A Special Touch V. Department Of Labor And Industry, 2020 WL 1932622 (PA. 2020)

Employers are generally obligated to pay unemployment compensation taxes for all employees.  Significantly, independent contractors are not included as employees, therefore, the unemployment tax for a company with independent contractors is lower. Yet, the Supreme Court of Pennsylvania in the recent Decision of a Special Touch v. Dept. of Labor Industry, has narrowed the test for an independent contractor, which can increase liability for an employer.

Under the Pennsylvania Unemployment Compensation Act, services performed by an individual for wages constitute employment unless the individual is free from control or direction in their performance. 43 P.S. § 753(I)(2)(B).  Traditionally, when the worker performs the job that they are customarily engaged in as an independently established trade, occupation, profession, or business then they will be considered an independent contractor for the purposes of unemployment compensation.   The Pennsylvania Supreme Court narrowed this approach in A Special Touch v. Department of Labor and Industry, 2020 WL 1932622 (Pa. 2020).  Under this new precedent for an employer to show that an individual is an independent contractor rather than an employee, the employer must demonstrate that the individual is actually involved in an independently established trade, occupation, profession, or business.  The employer can demonstrate this “actual involvement” by showing that the independent contractor provides the same or significantly similar services for others, as they do for the employer.  The Court was very clear that this would be a case-by-case or fact-intensive decision, but it will most likely lead to requirements for an employer to provide unemployment compensation, unless they can clearly establish an independent contractor’s status. 

Employers can protect themselves from this new ruling in the following ways: (1 ) ensure that independent contractors have business cards or advertising to convey that they are independently established; and (2) otherwise verify through written contracts specifying duties that the independent contractor is truly independent. Jones, Gregg, Creehan & Gerace has decades worth of experience in employment matters, so please call or email John Corcoran at (412) 261-6400 or to discuss how to best orient your businesses in accordance with this precedent.