LaChance v. Unemployment Compensation Bd., No. 438 C.D. 2009.

• Decision Date: 15 December 2009
• Docket Number: No. 438 C.D. 2009.
• Citation: 987 A.2d 167
• Parties: Peter A. LaCHANCE, Petitioner v. UNEMPLOYMENT COMPENSATION BOARD OF REVIEW, Respondent.
• Court: Pennsylvania Commonwealth Court

987 A.2d 167

Peter A. LaCHANCE, Petitioner v. UNEMPLOYMENT COMPENSATION BOARD OF REVIEW, Respondent.

No. 438 C.D. 2009.

Commonwealth Court of Pennsylvania.

Submitted on Briefs September 11, 2009.

Decided December 15, 2009.

Scott I. Fegley, Yardley, for petitioner.

Jonathan D. Koltash, Asst. Counsel and Gerard M. Mackarevich, Deputy Chief Counsel, Harrisburg, for respondent.

BEFORE: COHN JUBELIRER, Judge, and BUTLER, Judge, and FRIEDMAN, Senior Judge.

OPINION BY Judge COHN JUBELIRER.

Peter A. LaChance (Claimant) petitions for review of an order of the Unemployment Compensation Board of Review (Board) affirming an Unemployment Compensation Referee's (Referee) decision denying Claimant benefits under Section 402(h) of the Unemployment Compensation Law (Law).¹ Claimant contends that the Board erred in denying him unemployment benefits because he falls within the sideline activity exception to the general self-employment exclusion. Finding no error in the Board's decision, we affirm.

Following his separation from employment with St. Mary's Medical Center (Employer), under conditions which were not disqualifying, Claimant filed an application for unemployment benefits. On November 6, 2008, the Unemployment Compensation Service Center (Service Center) issued a determination finding Claimant ineligible for benefits under Section 402(h), which precludes a claimant from receiving benefits for any week in which he engages in self-employment. Claimant appealed the Service Center's decision, and an evidentiary hearing was held before the Referee on December 8, 2008. Claimant, appearing pro se, testified on his own behalf. Following the hearing, the Referee issued a decision, making the following findings of fact:

1. The claimant worked as a vice president of human resources for St. Mary's Hospital beginning August 15, 2007 and last worked on October 15, 2008.

2. In 2000, the claimant began a business called The Quintessence Corporation focused on leadership development, and had his primary income from this source.

3. When the claimant began employment with St. Mary's he ceased actively putting time into Quintessence Corporation, but did continue to file taxes and report expenses or losses.

4. The claimant's employment with St. Mary's was his primary source of his income during his employment.

5. The claimant owns 100% of Quintessence Corporation, which he has since transferred to his wife's ownership.

6. The claimant has a financial stake in Quintessence Corporation, and networks, advertises and prospects for it.

7. When the claimant ceased working for St. Mary's, the claimant increased the time he spends on Quintessence Corporation.

(Referee's Decision/Order, Findings of Fact (FOF) ¶¶ 1-7.) Based on these findings of fact, the Referee concluded that Claimant was self-employed and, thus, ineligible to receive benefits under Section 402(h).

Claimant, represented by counsel, appealed to the Board and: (1) requested a remand hearing to further develop the record; and (2) challenged the Referee's determination on the merits. The Board denied Claimant's remand request and affirmed the Referee's determination, adopting the Referee's findings of fact and conclusions of law. The Board explained:

The claimant admitted that he did not do any work for Quintessence prior to being separated from Saint Mary's Medical Center. Although at one time Quintessence was his primary source of income, the claimant allowed his business to become dormant while he worked fulltime for Saint Mary's. After his separation, the claimant increased his work for Quintessence approximately twenty hours per week. The claimant contends that the work he did with Quintessence was merely preparations to expand his sideline business. However, the Board does not find this assertion credible. The claimant testified that he was "calling, writing, [and] networking people" in an effort to secure work for his company. Based on his admission, the claimant has failed to meet his burden.

(Board's Order, March 4, 2009.) Claimant now petitions this Court for review of the Board's order.²

It is well-established that the "Law is a remedial statute, and excepting the sections imposing taxes, its provisions must be liberally and broadly construed so that its objectives (insuring that employees who become unemployed through no fault of their own are provided with some semblance of economic security) may be completely achieved." Wedner v. Unemployment Compensation Board of Review, 449 Pa. 460, 467, 296 A.2d 792, 796 (1972) (quoting Jones v. Unemployment Compensation Board of Review, 163 Pa.Super. 271, 60 A.2d 568, 571 (1948)). However, the Law "was not designed to insure a weekly income to those engaged in business ventures who may not realize a profit therefrom during various weekly periods." Urban v. Unemployment Compensation Board of Review, 189 Pa.Super. 503, 151 A.2d 655, 656 (1959). The Law cannot be used to give benefits to people otherwise employed. See Kirk v. Unemployment Compensation Board of Review, 57 Pa. Cmwlth. 92, 425 A.2d 1188, 1191 (1981) (stating that "[p]ersons who are not so unemployed should not receive benefits from the fund").

To that end, Section 402(h) of the Law excludes the self-employed from receiving benefits, stating that "[a]n employee shall be ineligible for compensation for any week ... (h) In which he is engaged in self-employment." 43 P.S. § 802(h). The Law does not expressly define the term "self-employment," but, in determining whether a claimant is engaged in self-employment, our courts have looked at whether the claimant engaged in positive acts to establish an independent business venture. Leary v. Unemployment Compensation Board of Review, 14 Pa.Cmwlth. 409, 322 A.2d 749, 750 (1974). In addition, claimants who engaged in business and the solicitation of clients have been viewed as self-employed, regardless of whether the claimants received any income from those efforts. Keslar v. Unemployment Compensation Board of Review, 202 Pa.Super. 434, 195 A.2d 886 (1963). "Normally the employer has the burden of proving that a claimant is self-employed, but where the bureau acts on its own in suspending benefits because of self-employment, the bureau carries the burden." Teets v. Unemployment Compensation Board of Review, 150 Pa.Cmwlth. 419, 615 A.2d 987, 989 (1992).

The Law recognizes that there are industrious individuals who, while employed by another, engage in self-employment which is not their primary source of income. These individuals who become unemployed through no fault of their own may, nonetheless, receive benefits under Section 402(h), which grants an exemption to the general self-employment exclusion. This is known as the sideline activity exception and provides that:

[A]n employe who is able and available for full-time work shall be deemed not engaged in self-employment by reason of continued participation without substantial change during a period of unemployment in any activity including farming operations undertaken while customarily employed by an employer in full-time work whether or not such work is in "employment" as defined in this act and continued subsequent to separation from such work when such activity is not engaged in as a primary source of livelihood.

43 P.S. § 802(h). Our Courts have interpreted this statutory language and held that the sideline activity exception is applicable when the following conditions are met: "(1) that the self-employment activity precedes valid separation from full-time work; (2) that it continues without substantial change after separation; (3) that the claimant remains available for full-time work after separation; and (4) that the self-employment activity is not the primary source of the claimant's livelihood." Moshos v. Unemployment Compensation Board of Review, 77 Pa.Cmwlth. 493, 466 A.2d 258, 259 (1983). A claimant who wishes to fall within the exception bears the burden of showing that all of these requirements are met. See id. n. 2.

Before this Court, Claimant argues that the Board erred in concluding that he was self-employed under Section 402(h). Claimant first contends that, as a matter of law, his post-employment actions, together with the fact that he generated no income from the Quintessence Corporation (Quintessence), did not constitute a substantial change and, therefore, that he satisfies the requirements of the sideline activity exception, rendering him eligible for unemployment compensation benefits. Claimant also argues that, because he received no income from Quintessence, he did not have to report any information about his activity with Quintessence, and his candor should not disqualify him from receiving benefits. Finally, Claimant contends that the Board erred in piercing the corporate veil and finding that he was self-employed. Claimant asserts that, at most, he is an uncompensated, part-time employee of Quintessence and, thus, not ineligible for benefits pursuant to Section 402(h).

The following facts are undisputed. In 2000, Claimant started Quintessence and maintained the corporation during his employment with Employer. (FOF ¶¶ 1-2.) During this time, Claimant did little in furtherance of Quintessence. (FOF ¶ 3.) After his separation from Employer, Claimant began "calling, writing, [and] networking [with] people" in an attempt to garner business for Quintessence. (Hr'g Tr. at 4; FOF ¶ 6.) These interactions "oftentimes happen[ed], coincidentally, when looking to see if [Claimant] can work full-time for the organizations." (Hr'g Tr. at 4.) The parties concede that Claimant meets the first, third, and fourth conditions of the sideline activity exception.³ The central dispute is whether Claimant meets the second condition of the sideline activity exception. That is, whether Claimant's increased activity in Quintessence, from zero hours per week to twenty hours per week, absent evidence of income, constitutes a substantial change after separation...