Stember Cohn & Davidson-Welling (“SCD-W”) won a Pennsylvania Commonwealth Court case challenging an Unemployment Compensation (“UC”) rule that has unfairly kept many people from getting UC benefits.

Many who are out of work depend on UC benefits to get by while they look for a new job. However, self-employed workers are not eligible for unemployment benefits. These days, employees supplement their regular jobs with other income – for example, selling items on eBay or crafts on Etsy, freelancing, or driving Uber.

Recognizing that part-time business owners depend primarily on their regular employment and are not truly self-employed, the state legislature long ago passed a “sideline business” exception to the self-employment bar to UC benefits. This law let certain sideline business owners collect UC benefits, which are supposed to be reduced by the net earnings from the sideline business.

For a long time, Pennsylvania’s Department of Labor and Industry has used an outdated method to compute such net earnings. Rather than subtract all expenses from gross earnings, the Department calculated sideline net earnings as gross earnings minus the “costs of goods sold.” This formula was unfair because it stopped sideline business owners who sell services instead of physical goods from getting UC benefits, since they have no “costs of goods” to deduct.

Our client ran an event planning business that actually lost money after expenses. Nonetheless, the UC Board of Review ruled that she could not get unemployment benefits because the gross earnings from her business (before she paid vendors, rented venues, and bought advertisements) exceeded her maximum weekly UC benefits. The Board of Review relied on a regulation that was identical to one that the Pennsylvania Superior Court overturned more than 50 years ago. For almost half a century, no one challenged the new regulation until SCD-W appealed to Pennsylvania’s Commonwealth Court.

The appeals court agreed that that the rule creates unfair classifications among UC claimants. The court held that denying UC benefits to claimants with service businesses while granting them to sales business is unreasonable and contrary to the purpose of the UC Law, which is to help people who lose their jobs. Now, employees who lose their jobs and run sideline service businesses are more likely to get UC benefits.

SCD-W Attorney Daniel Berlin argued the case, V.S. Lerch v. UCBR - 748 C.D. 2017. An article about SCD-W's victory was published in The Legal Intelligencer on March 15, 2018. See it here: Court: UC Board's 'Net Income' Calculation Unfair to Some Claimants / PDF version.