IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Pathways Counseling Services, LLC, :

Petitioner :

: v. : No. 1332 C.D. 2018
: ARGUED: April 10, 2019 Commonwealth of Pennsylvania, : Department of Labor and Industry, :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE ROBERT SIMPSON, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge HONORABLE CHRISTINE FIZZANO CANNON , Judge HONORABLE ELLEN CEISLER, Judge

OPINION BY JUDGE CEISLER FILED: July 12, 2019

Pathways Counseling Services, LLC (Pathways) petitions for review f rom a decision and order of the Department of Labor and Industry, Office of Unemployment Compensation Tax Services (Depa rtment) denying Pathways’ petition for reassessment. Pathways argues it is not the employer of the professional counselors who provide services in its building and to whom it provides client
referrals. Accordingly, Pathways contends the Department erred in assessing unemployment compensation (UC) taxes related to those counselors. Aft er thorough review, we reverse. I. Background

A. Counselors’ Contracts with Pathways Pathways has contracts with a number of insurance companies to provide
referrals for counseling, the costs of which are covered by insurance. I nsurers do2

not contract directly with individual psychologists or counseling practices. Instead , Pathways contracts with the counselors and provides them with referrals from the
insurers. The cou nselors are then compensated through Pathways with funds paid by the insurers for the counsel ing services provided to their insureds. Pathways also has clients who are referred for counseling by other agencies or providers. Pathways in turn refers those clients to the counselors. Payment is made through Pathways by the clients for those services as well

. Pathways provides office space to each counselor with whom it contracts. Pathways provides each office with telephone and fax service, as well as limi ted furniture. However, counselors supply most of their own office furnishings. Pathways also provides billing service. Although counselors are not required to use that service, they generally do take advantage of it. Counselors are responsible for
the ir own professional licensing and fees , as well as professional liability insurance. Pathways does not provide any employment benefits. In return for its referrals, office space, and other services, Pathways retains a percentage of the fees it receives o n behalf of each contracting counselor. The percentage retained varies individually between 30% and 40%. If for any reason an insurer or client does not pay for service, the counselor who provided that service is not paid by Pathways. Thus, each counsel or bears the primary risk of any nonpayment for services by or on behalf of a client, although Pathways also risks losing its 30

- 40% fee for unpaid services.
C ounselors are free to , and do, accept counseling clients from sources other
than Pathways. Coun selors are likewise free to , and do, enter into services contracts with entities other than Pathways , providing services at various institutions

. 1

1 For example, one counselor sees clients two days each week at his office in Pathways’ building but also provides in

- house counseling at a private residential facility.3

Counselors choose their own business card designs, as well as the information
to be included on the business cards. They are not required to identify any affiliation with Pathways on their business cards. Pathways features its counselors on its website, but individual counselors may market their practices separately as well.
Counselors decide which referrals to accept from Pathways , as well as what other clients and contracts to accept. Counselors may decline referral s from Pathways at their discretion without adverse consequences , although Pathways acknowledged its business model would not work if the counse lors did not accept any of its referrals

. Counselors set their own hours and control their own schedules. They have their own keys to the building and are free to schedule appointments outside normal business hours if they wish. Further, Pathways does not set the amounts of clients’ fees; counselors and
clients determine the fee amount s, presumably subject to limits on insurance

coverage amoun ts if applicable. A counselor may also freely choose to provide service to a client at a reduced fee, or no fe e. Pathways requires counselors to be professionally licensed, but does not provide any training or hold any meetings

. Pathways does not evaluate or otherwise monitor counselors’ performance. Other than a general contractual agreement to use
their best efforts, counselors are not subject to any control or direction from Pathways regarding the performance of their professional services. Counselors are free to compete directly with Pathways for clients. However, if they leave Pathways, a non

- solicitation provision in their contracts with Pathways4

prohibit s them for a period of six months 2 from recruiting other counselors to leave Pathways and join a competing practice. B. Department Assessment In November 2016, the Department issued a notice against Pathway s , assessing UC contributions and interest against Pathways for calendar years 2012 through 2015 and the first quarter of 2016. Pathways filed a reassessment petition with the Department challenging the assessment

. Following a fact

- finding
confere nce and briefing by the parties, the Department rejected Pathways’ reassessment petition. Pathways then filed a timely petition for review in this Court

. II. Issues On appeal, 3 Pathways lists seven issues , but actually th ey are all sub

- parts of a single overarching legal issue. Pathways argues the counselors are independent contractors, not employees, for purposes of determining Pathways’ obligations to pay UC tax on the compensation paid to the counselors. Pathways contends the Department committed leg al error and the record lacked substantial evidence to support the Department’s factual findings.
III. Discussion The existence of an employer

- employee relationship is a question of law, based on the specific facts of each case. Danielle Viktor, Ltd. v. Dep’t of Labor &
Indus. , 892 A.2d 781 (Pa. 2006); Clark v. Unemployment Comp. Bd. of Review , 129

2 Prior to 2013, the non

- solicitation agreement was for three years rather than six mon ths.

3 Our review is limited to determining whether the Department committed an error of law, whether necessary findings of fact are supported by substantial evidence, or whether the petitioner’s constitutional rights were violated. A Special Touch v. De p’t of Labor & Indus. , 192 A.3d 1238 (Pa. Cmwlth. 2018) , appeal granted on other grounds , (Pa., No. 615 MAL 2018, filed Mar

. 13, 2019), 2019 Pa. LEXIS 1525 (unreported)

.5

A.3d 1272 ( Pa. Cmwlth. 2015). Whether an individual is an employee or an independent contractor is governed by the two

- part test set forth in Section 4( l )(2)(B) of the Unemployment Compensation Law (UC Law) 4 : Services performed by an individual for wages shall be deemed to be employment subject to this act, unless and until it is shown to the satisfaction of the [D]epartment that

- - (a) such individual ha s been and will continue to be free from control or direction over the performance of such services both under this contract of service and in fact; and (b) as to such services such individual is customarily engaged in an independently established trade, o ccupation, profession or business.
43 P.S. § 752( l )(2)(B).

A. Free dom from Control or Direction In its written decision, the Department acknowledged that analyzing the issue
of control includes factors such as:

whether there was a fixed rate of remunerat ion; whether taxes were withheld from the [counselor’s] pay; whether [Pathways] supplied the tools necessary to carry out the services; whether [Pathways ] provided
on

- the

- job training; whether [Pathways] set the time and location for work; whether [Pathway s] had the right to monitor the [counsel o r’s] work and review performance; and whether [Pathways] held regular meetings that [the counselor] was expected to attend. Reproduced Record at a694 5 (citations omitted). See
, e.g. , Pasour v. Unemployment Comp. Bd. of Review , 54 A.3d 134 (Pa. Cmwlth. 2012).
T he Department correctly observes that no single factor is controlling

. See
Pasour

. H ere , however, not one of the listed factors is present. Counselors set their own rates of compensation. Pathways withholds no taxes from its payments to counselors. The record does not indicate that “tools” are needed by counselors, but

4 Act of December 5, 1936, Second Ex. Sess., P.L. (19 3 7) 2897, as amended , 43 P.S. § § 75 1

– 919.10

.

5 For clarity, we follow the numbering format used by Pathways in the reproduced record.6

in any event, Pathways provides none. Pathways pro vides no training. Counselors, not Pathways, set work schedules

. T o the extent counsel ors are required to provide
services at Pathways’ offices, that requirement is imposed by the insurers , not by Pathways

. Pathways does not monitor counseling sessions or review counselors’ performance. Pathways holds no meetings with counselors. The Department, while purporting to consider the totality of the circumstances, see Pasour , actually relies on a few facts of limited relevance to justify its determination th at the counselors are Pathways’ employees. For example, the Department points to testimony by one counselor that he assumed, without asking, that he was permitted to receive outside mail at his Pathways address. The Department infers from that statement that Pathways had the ability to control
whether counselors received mail at its offices. That inference is unfounded. To the contrary, the fair inference of the testimony is that Pathways did not control what
mail the counselors received there.
Simil arly, although the unrefuted testimony of the counselors and Pathways’ principal was that counselors are free to accept or reject any referral, the Department
focuses instead on an acknowledgment by Pathways’ principal that the business probably could not continue if none of the counselors accepted any referrals. The Department spring s from that statement to a conclusion that the counselors were not free to reject any assignment. Such a conclusion is equally unfounded as the inference concerning mail delivery. Obviously a referral business cannot stay in business if no one accepts any of its referrals. However, t hat fact bears no logical relation to the question of whether the referring company controls the performance of those who accept i t s referra ls.7

This Court has held referral services are not employers under facts similar to those here. For example, in Pasour , 6 a licensed attorney signed an independent contractor agreement with Abelson, a referral service that matched attorneys with
clients se eking legal help on specific assignments. Payment was made through
Abelson . However, Abelson did not supervise the contracting attorney or require status reports. Abelson provided no training. The c ontracting attorney w as free to accept or reject assig nments, as well as to accept work from clients not referred by Abelson. Clients, not Abelson, set the attorney’ s hours and compensation rates. Abelson withheld no taxes, instead issuing a n IRS Form 1099 regarding compensation paid to the contracting atto rney. This Court concluded the contracting attorney was not subject to Abelson’s direction or control. Id. ; see also Krum v. Unemployment Comp. Bd. of Review , 689 A.2d 330 (Pa. Cmwlth. 1997) (attorney not subject to direction or control by referral servi ce) , cited with approval in Danielle
Viktor

. White

- Butler v. Unemployment Compensation Board of Review (Pa. Cmwlth. , No. 622 C .D. 2010, filed September 29, 20 10), 2010 Pa. Commw. Unpub. LEXIS 657 (unreported) is also analogous. 7 White

- Butler involved a referral service for various social services, including counseling services. The petitioner was a mental
health service provider . The referral service entered into independent contractor agreements with service provider s to whom it referred c lients. Service provider s could accept or reject referrals and were free to have other employment, even with

6 Pasour involved a claim by a putative employee for UC benefits , rather than a reassessment petition by a putative employer. However, as this Court observed in Pasour , the analysis of whether an individual is an employee or an independent contractor applies the same analytical framework of Section 4( l )(2)(B) of the U C Law , regardless of whether a UC claim or a reassessment petition is involved.

7 We cite this unpublished opinion as persuasive pursuant to 210 Pa. Code § 69.414.8

competing referral services , although the petitioner did not do so . They were free to
market their services by other means as well. Clients dete rmined the hours needed and rates they were willing to pay. The referral service provided no training; service provider s determined the means, manner, and method by which to perform services
f o r clients. This Court found the service provider s were not su bject to the direction
or control of the referral service

. Id.
We find Pasour , Krum , and White

- Butler persuasive here. We conclude that the counselors with whom Pathways contracts are free from its direction or control , as provided in Section 4( l )(2)(B ) of the UC Law . Therefore, Pathways has satisfied the first prong of the independent contractor analysis.

B. Independently Established Profession In analyzing the second prong of Section 4( l )(2)(B) of the UC Law , this Court primarily considers whether the putative employee “wa s able to perform ‘the activities in question to anyone that wished to avail themselves of the services’ and ‘whether the nature of the business compelled the [putative employee] to look to only a single employer for the continuation of such services.’” Pasour , 54 A.3d at 138 (quoting Resource Staffing, Inc. v. Unemployment Comp. Bd. of Review , 995 A.2d 887, 890 n.6 (Pa. Cmwlth. 2010)) ; see also Krum

. Although no single factor is controlling, professionals contra cting with referral services to obtain clients, and
who hold themselves out as provid ing their professional services to those who want them, are generally viewed as customarily engaged in an independent trade or profession, within the meaning of Section 4( l )(2)(B). See
, e.g. , Pasour (citing
Krum ). Further, one who practices in a “free [

- ] standing” profession and whose arrangement with a referral service is “non

- exclusive” is “not compelled to look to9

only a single employer,” and thus satisfies the second p rong of Section 4( l )(2)(B).
Pasour , 54 A.3d at 139. In addition to the two primary considerations discussed above, other relevant
factors , even though not required under the UC Law , may also inform the analysis of the second prong of Section 4( l )(2)(B). For example, the ability to accept or reject assignments is relevant to both prongs of the analysis. See Danielle Viktor . Further, a professional who brings with him the “necessary perquisites” of providing his services (such as a professional license), and who bears some risk of financial loss in connection with providing his services, has indicia of independent contractor status for purposes of the second prong of Section 4( l )(2)(B). Danielle Viktor , 892
A.2d at 798, 802

. Notably, the contracting pro fessional need not be in business for
himself and need not own the assets of the business. Id. at 798, 800. Moreover, even where the professional performs most or all of his services for the contracting referral service, that does not preclude a finding that he is customarily engaged in an independently established profession for purposes of Section 4( l )(2)(B). Danielle
Viktor (citing Dep’t of Labor & Indus. v. Aluminum Cooking Utensil Co. , 82 A.2d
897 ( Pa. 1951))

. Here, the evidence showed counselors c ontracting with Pathways hold
themselves out as providing their professional services to those who want them. As professionally licensed counselors, they practice in a free

- standing profession

. Their arrangement with Pathways is non

- exclusive . They have the ability to accept or reject assignments. They bring with t h e m the necessary pr ere quisites of their practices, in that they obtain their own professional licenses and liability insurance

coverage. Because they do not receive payment through Pathways for any counseling service s for which clients or insurers fail to pay, the counselors bear some10

risk of financial loss in connection with providing their services

. We find these factors demonstrate that the counselors are customarily engaged in an indepe ndently established profession. Therefore, Pathways has satisfied its burden of meeting the second prong of the Section 4( l )(2)(B) analysis.
IV. Conclusion Based on the foregoing discussion, we conclude Pathways has satisfied both prongs required to demonstrate independent contractor status of the counselors under Section 4( l )(2)(B) of the UC Law. We find the Department committed legal error in determining otherwise. Accordingly, we reverse the Department’s assessment of UC taxes and related interest against Pathways in relation to the counselors

.

__________________________________ ELLEN CEISLER , J udgeIN THE COMMONWEALTH COURT OF PENNSYLVANIA

Pathways Counseling Services, LLC, :

Petitioner :

: v. : No. 1332 C.D. 2018
: Commonwealth of Pennsylvania, : Department of Labor and Industry, :

Respondent :

O R D E R

AND NOW, this 12 th day of July, 20 19, the order of the Department of Labor and Industry , Office of Unemployment C ompensation Tax Services, is REVERSED.

__________________________________ ELLEN CEISLER , J udge