Court Opinion

ID: 4416222
Source: CourtListenerOpinion
Date Created: 2019-07-12 13:46:38.255263+00
Date Added: 2024-06-11T12:45:35.057043
License: Public Domain

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 from a
decision and order of the Department of Labor and Industry, Office of
Unemployment Compensation Tax Services (Department) 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. After 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. Insurers do
not contract directly with individual psychologists or counseling practices. Instead,
Pathways contracts with the counselors and provides them with referrals from the
insurers. The counselors are then compensated through Pathways with funds paid
by the insurers for the counseling 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 limited
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
their 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 on 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 counselor 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.
       Counselors are free to, and do, accept counseling clients from sources other
than Pathways. Counselors 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.

                                              2
       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 referrals from
Pathways at their discretion without adverse consequences, although Pathways
acknowledged its business model would not work if the counselors 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 amounts, presumably subject to limits on insurance
coverage amounts if applicable. A counselor may also freely choose to provide
service to a client at a reduced fee, or no fee.
       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 Pathways

                                            3
prohibits them for a period of six months2 from recruiting other counselors to leave
Pathways and join a competing practice.
                                  B. Department Assessment
       In November 2016, the Department issued a notice against Pathways,
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
conference 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 they 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 legal 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 months.

       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. Dep’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).

                                                  4
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 has 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, occupation, profession or business.

43 P.S. § 752(l)(2)(B).
                         A. Freedom 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 remuneration; 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 [Pathways] had the right to monitor the [counselor’s]
      work and review performance; and whether [Pathways] held regular
      meetings that [the counselor] was expected to attend.
Reproduced Record at a6945 (citations omitted). See, e.g., Pasour v. Unemployment
Comp. Bd. of Review, 54 A.3d 134 (Pa. Cmwlth. 2012).
      The Department correctly observes that no single factor is controlling. See
Pasour. Here, 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. (1937) 2897, as amended, 43 P.S.
§§ 751 – 919.10.

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

                                               5
in any event, Pathways provides none. Pathways provides no training. Counselors,
not Pathways, set work schedules. To the extent counselors 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 that 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.
      Similarly, 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 springs 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, that fact bears no logical
relation to the question of whether the referring company controls the performance
of those who accept its referrals.

                                          6
       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 seeking 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 contracting attorney was free to
accept or reject assignments, 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 an IRS Form 1099 regarding
compensation paid to the contracting attorney. 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 service), cited with approval in Danielle
Viktor.
       White-Butler v. Unemployment Compensation Board of Review (Pa. Cmwlth.,
No. 622 C.D. 2010, filed September 29, 2010), 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 providers to whom it referred clients. Service providers
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 UC 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.

                                                 7
competing referral services, although the petitioner did not do so. They were free to
market their services by other means as well. Clients determined the hours needed
and rates they were willing to pay. The referral service provided no training; service
providers determined the means, manner, and method by which to perform services
for clients. This Court found the service providers were not subject 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 “was 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 contracting with referral services to obtain clients, and
who hold themselves out as providing 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 to

                                          8
only a single employer,” and thus satisfies the second prong 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 professional 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 contracting 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 them the necessary prerequisites 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 services for which clients or insurers fail to pay, the counselors bear some

                                          9
risk of financial loss in connection with providing their services. We find these
factors demonstrate that the counselors are customarily engaged in an independently
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, Judge

                                         10
         IN 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        :

                                 ORDER

     AND NOW, this 12th day of July, 2019, the order of the Department of Labor
and Industry, Office of Unemployment Compensation Tax Services, is REVERSED.

                                   __________________________________
                                   ELLEN CEISLER, Judge