The Implications of Lowman v. U.C.B.R. on the Gig-Economy

08.07.20

It is becoming more common for people to work for gig-economy enterprises such as Uber, Postmates, or other emerging market participants that provide opportunities to earn supplemental or primary income, whether one is employed or otherwise. That was precisely what Mr. Lowman did. After Lowman lost his job, he applied for unemployment benefits and also began working as an Uber driver. However, the Unemployment Compensation Board found Lowman was not eligible for unemployment because his driving for Uber made him “self-employed” and, therefore, ineligible under section 402(h) of the Unemployment Compensation Law (the Act). The Board found that Lowman was not “just trying to earn some extra money on the side” or seeking “part-time income as he search[ed] for re-employment in his career field,” but rather, his Uber driving was “frequent and prolonged,” earning him $350 per week. He appealed, claiming his work for Uber did not make him ineligible, and on July 24, 2020, the Pennsylvania Supreme Court agreed.

In doing so, in the case of first impressions, the Court determined that some gig-economy laborers are not self-employed. The Court, examining the definition of “employment,” as set forth in the Act, applied a two-part test consisting of “control” and “independence” components. Incidentally, while the statue says those that are “self-employed” are ineligible for benefits, it does not define the term “self-employment,” inviting the Court to apply its newly conceived control and independence test.

The Court first applied the control component. A determination of whether a laborer is free from control or direction over the performance of his or her services requires an analysis of the circumstances underlying the laborer-enterprise relationship. Under Section 753(I)(2)(B), freedom from control or direction must be explicit under his or her contract of service and, in fact, independent of any controls constraining the means by which a contract of service is accomplished. Generally, the most weighty and dispositive factors evidencing indicia of control include: (1) the required application process; (2) the inability to use a substitute to provide services; (3) the monitoring, review and supervision of a laborer’s performance; (4) pay structure; and (5) provision of tools and equipment.

The Court, applying these factors to Lowman’s relationship with Uber, discerned that Uber controlled and directed Lowman’s performance of drive-for-hire services, vetted, monitored and supervised his on-job conduct, and solicited passengers by way of its transportation network mobile application. Giving weight to that evidence, the Court concluded that Uber “controlled and directed the performance of Lowman’s services as a driver-for-hire.”  

The Court next turned to the independence factor. The independence factor demands that a laborer be “customarily engaged” in an “independently established, trade, occupation or business.”  Customary means, “commonly practiced, used or observed,” whereas engaged means, “to employ or involve oneself.” Likewise, the Court has previously defined independently as “not subject to control by others … not affiliated with or integrated into a large controlling unit (as a business unit) … not requiring or relying on something else.”

The Court found that evidence sufficiently supported that Lowman was customarily engaged in working as an Uber driver; he regularly drove for frequent and prolonged periods and earned approximately $350 per week doing so. Thus, the Court turned its focus to the independent variable. In doing so, the Court cited Uber’s predetermined pay-structure, Pennsylvania’s mandate that a driver must display Uber branding on his or her vehicle, and a passenger’s inability to solicit a driver’s services directly (i.e., bypass the algorithmically assigned driver in favor of a preferred service provider), and the driver’s inability to use subcontractors. Moreover, the Court noted that Uber retained a right to terminate a driver if his or her passenger rating failed to meet set standards or if a driver is determined to have caused harm to Uber through his or her acts or omissions.

Countervailing factors considered by the Court included a driver’s ability to decline passenger assignments and a driver’s autonomy to determine when to activate the Uber mobile application. Despite “some arguable indicia to the contrary,” the Court ultimately concluded that Lowman was not engaged in an independently established business.

The Court’s conclusions that Uber controlled Lowman’s work-conduct and that he was not engaged in an independently established business amounted to a finding that he was not, in fact, self-employed. Accordingly, the Court determined Lowman was eligible to receive unemployment benefits.

In his dissent, Justice Saylor criticized the Majority for failing to give sufficient weight to the facts that Lowman could choose his work hours, was free to work for other services, such as Lyft, and received compensation as a 1099 contractor. Significantly, the dissent commented that the Majority’s reasoning could lead to inconsistent findings, deeming some Uber drivers to be employed and others not employed, depending on how much they drove and not the nature of the relationship.

Comment: It is important to note that the issue in Lowman v. U.C.B.R. was not whether Lowman was an employee or an independent contractor of Uber. Instead, the issue was whether Lowman was engaged in self-employment. In other words, Lowman had not sought unemployment benefits as a result of his work with Uber. In its decision, the Court removes an obstacle that many who are unemployed and work in the gig economy between jobs face, allowing them to obtain unemployment benefits despite their work. While the issue before the Court was not whether the worker should be considered an employee, the Court’s analysis raises the same issues that have been used in employee misclassification cases in the past and are likely to provide new ammunition to those that argue gig workers should be treated as employees. 

For more information, please contact Julie Kinkopf at jkinkopf@wglaw.com or 215.972.7914 or Bryant T. Eng at beng@wglaw.com or 215.825.7217.

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