Self-Employment: Does it Impact Your Unemployment Compensation Benefits?

 

Beth A. Slagle, Esquire
bas@muslaw.com

So you've been laid off from your job and want to make a little extra side money selling jewelry or mowing lawns. Can you do it without jeopardizing your unemployment compensation benefits? What if you only make $100 a week or work only a few hours doing the side activity? While those side jobs may seem innocuous to you since they pay only a few bills, they may very well put your benefits in jeopardy.

Under Pennsylvania law, when an individual is receiving unemployment compensation benefits, they are permitted to become employed by a company, and subject to the eligibility requirements and income generated, the amounts made in that employment will be used to offset amounts received in benefits. In that scenario, "employment" is the key word. When it comes to starting your own business or accepting an independent contractor job, however, the law treats that situation very differently.

In fact, attempts to obtain alternative side-income through self-employment or independent contractor status while receiving unemployment compensation have generally been met with a critical eye by the Pennsylvania Department of Labor and Industry. Section 402(h) of the Pennsylvania unemployment compensation law mandates that individuals who are self-employed are not eligible for unemployment compensation, and when initially enacted, decisions rendered by referees universally rejected unemployment compensation claims for individuals engaged in any type of self-employment, regardless of whether any money was made.

Apparently recognizing some inequity in that position, a recent line of Pennsylvania appellate cases suggests that some side jobs undertaken, while the claimant is engaged in seeking full-time employment, will not automatically render the claimant ineligible for benefits.

The confusion comes from the fact that "self-employment" is not a defined term in Pennsylvania unemployment compensation law, so courts have to look elsewhere to determine what the phrase means. Universally, they look to the unemployment compensation law definition of "employment" which describes a person as being employed unless: (1) the individual is free from control or direction of an employer, and (2) the individual is providing services and they are "customarily engaged in an independently established trade, occupation, profession or business."

The recent court decisions have placed emphasis on the second prong -- whether the individual is "customarily engaged" in a business. Basically, the common theme through the cases is that if the job and/or income is sporadic or temporary, such as a few hours a week or on nights or weekends, courts are more inclined to rule that the individual is not customarily engaged in business, so that they can continue receiving benefits. This is especially true when the self-employment was undertaken while the individual was actively engaged in searching for full time employment. If, however, the individual is trying to make a living with the recently started business, instead of simply using it as a side activity, then the courts take a much harsher view, regardless of whether the individual has generated any income or no income at all. In this scenario, benefits will likely be denied.

The bottom line is that individuals receiving unemployment compensation should first determine whether the random side job or self-employment activity will render them ineligible for benefits before undertaking that activity. Seeking the assistance of counsel is a wise move before accepting any job that may jeopardize your valuable unemployment compensation benefits.