Positive Steps Alone Do Not Establish Self-Employment Under Pennsylvania Unemployment Compensation Law

Introduction

In Precht, P., Aplt. v. UCBR, the Supreme Court of Pennsylvania addressed whether a claimant who begins preparing to launch a stand-alone business may be denied unemployment compensation benefits as “self-employed” merely because he took “positive steps” toward creating that business.

The appellant, Peter A. Precht, separated from employment with Walman Optical and then began developing an optical consultation business. He created a website, registered a business entity, obtained an employer identification number, and spent money on advertising and other startup expenses. However, he had not yet performed services for clients or received earnings from the business.

The key legal issue was whether the judicially created “positive steps” test remained valid after the Court’s prior decision in Lowman v. Unemployment Compensation Board of Review, and whether startup activity alone can amount to self-employment under Section 4(l)(2)(B) of the Unemployment Compensation Law.

Summary of the Opinion

The Supreme Court reversed the Commonwealth Court. It held that Section 4(l)(2)(B) of the Unemployment Compensation Law provides the governing test for determining whether a claimant is self-employed, including in the context of a stand-alone business enterprise.

The Court concluded that the “positive steps” test is invalid to the extent it disqualifies claimants who have merely taken preparatory steps toward establishing a business but have not yet performed services for wages. The Court emphasized that self-employment under the statute requires actual performance of services, not merely an intention to perform services in the future.

Because Precht had not yet performed services or received wages through his proposed optical consulting business, his startup efforts could not render him ineligible for unemployment compensation benefits.

Analysis

Precedents Cited

Richards v. Unemployment Comp. Bd. of Rev.

The Court cited this case for the foundational purpose of Pennsylvania’s Unemployment Compensation Law: to assist individuals who become unemployed through no fault of their own. This principle framed the Court’s statutory interpretation and reinforced the remedial nature of the Law.

Penn Hills Sch. Dist. v. Unemployment Comp. Bd. of Rev.

This precedent established that unemployment compensation provisions should be interpreted liberally and broadly in favor of unemployed workers. It also supplied the important rule that claimants may be denied benefits only by explicit statutory language that clearly excludes them.

Bliley Elec. Co. v. Unemployment Comp. Bd. of Rev.

Cited through Penn Hills Sch. Dist. v. Unemployment Comp. Bd. of Rev., this case supported the principle that exclusions from unemployment benefits must be clear and plainly stated in the statute.

Leary v. Unemployment Comp. Bd. of Rev.

This Commonwealth Court decision laid the foundation for the “positive steps” test. Under that test, a claimant could be found self-employed after taking a positive act toward creating an independent business, such as incorporating, advertising, or otherwise preparing to operate. The Supreme Court’s opinion in Precht substantially limits that doctrine.

Lowman v. Unemployment Compensation Board of Review

Lowman was the central precedent. There, the Court held that Section 4(l)(2)(B) provides the test for determining self-employment where a claimant performs services within a work relationship with a third party, such as Uber. The Court in Precht extended that statutory analysis to stand-alone business enterprises, holding that actual services for wages are required before a self-employment inquiry can proceed.

Maloney v. Valley Med. Facilities, Inc.

This case was cited for the interpretive principle that judicial decisions must be read against their facts. The Court used this principle to explain that Lowman had not previously resolved the stand-alone business issue presented in Precht.

Precht v. Unemployment Comp. Bd. of Rev.

The Commonwealth Court’s en banc decision in the same case applied the positive steps test and affirmed denial of benefits. The Supreme Court rejected that approach, adopting reasoning closer to President Judge Cohn Jubelirer’s dissent below.

Collins v. Unemployment Comp. Bd. of Rev.

The Commonwealth Court relied on this case to conclude that the positive steps test survived Lowman in the stand-alone business context. The Supreme Court disagreed, holding that the statutory text governs and cannot be overridden by a judicially created test.

Buchanan v. Unemployment Comp. Bd. of Rev.

The Commonwealth Court relied heavily on Buchanan for the idea that unemployment compensation is not insurance for failed business ventures. The Supreme Court did not reject that policy concern entirely, but it held that policy cannot overcome the plain language of Section 4(l)(2)(B), which requires actual services for wages.

Harmon v. Unemployment Comp. Bd. of Rev.

This precedent supported the dissent below and the Supreme Court’s ultimate approach: disqualification provisions in unemployment compensation law must be narrowly construed, and claimants cannot be denied benefits unless plainly excluded by statutory language.

Miller v. Cnty. of Centre

The Court cited this case for the rule that the plain language of a statute is the best indication of legislative intent.

Fletcher v. Pa. Prop. & Cas. Ins. Guar. Ass'n

This case reinforced the principle that courts may not disregard clear statutory text under the pretext of pursuing the statute’s broader spirit.

A Special Touch v. Dep't of Lab. & Indus.

The Court relied on this decision for the meaning of “customarily engaged.” The phrase requires actual involvement in an independently established trade, occupation, profession, or business—not merely the ability or intention to become involved.

Danielle Viktor, Ltd. v. Dep't of Lab. & Indus.

This case supplied examples of factors relevant to determining whether a business is independently established, such as business cards, licenses, advertising, clients, leases, and ownership interests. The Court clarified that such factors may matter only after actual services for wages have been shown.

Silver v. Unemployment Comp. Bd. of Rev.

The Court cited this case for the proposition that occasional performance of services is not enough to show that a claimant is “customarily engaged” in an independently established business.

Legal Reasoning

The Court focused on the text of Section 4(l)(2)(B), which states that “services performed by an individual for wages” are deemed employment unless two conditions are proven: freedom from control and engagement in an independently established trade, occupation, profession, or business.

The Court identified three components of the statutory analysis:

• the threshold requirement that services be performed for wages;
• the control factor, asking whether the individual is free from control or direction over those services; and
• the independence factor, asking whether, as to those services, the individual is customarily engaged in an independently established business.

The decisive point was that both statutory factors depend on the existence of “such services.” If no services have been performed, there is no basis to apply the self-employment test.

The Court rejected the Commonwealth Court’s concern that claimants could use unemployment benefits as insurance while launching businesses. While acknowledging the policy concern, the Court held that courts cannot replace statutory language with a judicially created doctrine. The Legislature required actual services for wages, and the judiciary cannot disqualify claimants based only on preparatory business activity.

Impact

This decision significantly limits the positive steps test in Pennsylvania unemployment compensation law. Claimants who explore entrepreneurial opportunities, register businesses, build websites, advertise, or incur startup expenses are not automatically self-employed for unemployment compensation purposes.

Future cases must focus on what the claimant has actually done, not merely what the claimant intends to do. Startup activity may still be relevant, but only after there is proof that the claimant performed services for wages. Once services are shown, courts and agencies may consider business formalities and other “traditional trappings” of an independent business.

The opinion also reinforces the remedial purpose of unemployment compensation law and the rule that exclusions from benefits must be based on clear statutory language.

Complex Concepts Simplified

“Self-employment”

In this context, self-employment means more than planning or preparing to start a business. It requires actual work or services performed for wages in a way that satisfies the statutory test.

“Positive steps” test

This was a judge-made rule under which actions like incorporating a business, advertising, or creating a website could show self-employment. The Supreme Court held that such steps alone are insufficient if no services have been performed for wages.

“Control factor”

This asks whether the worker is free from another party’s control in performing services. In a stand-alone business, this factor may be less central because there may be no third-party employer controlling the work.

“Independence factor”

This asks whether the claimant is actually and customarily engaged in an independent business. Merely intending to operate a business later is not enough.

“Customarily engaged”

This means the claimant is actually involved in the business in a real and ongoing way. It does not mean the claimant has only prepared to begin operating.

Conclusion

The Supreme Court of Pennsylvania held that a claimant is not self-employed merely because he takes positive steps to create a stand-alone business. Under Section 4(l)(2)(B), actual performance of services for wages is required before a claimant may be disqualified as self-employed.

The decision protects unemployed individuals who explore entrepreneurship while remaining unemployed and available for work. It also reaffirms that unemployment compensation disqualifications must come from the statute’s plain language, not from judicial policy concerns.