C.A. Smith v. UCBR ( 2018 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Carrie A. Smith, :
Petitioner :
:
v. :
:
Unemployment Compensation :
Board of Review, : No. 850 C.D. 2017
Respondent : Submitted: December 29, 2017
BEFORE: HONORABLE ROBERT SIMPSON, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: March 21, 2018
Carrie A. Smith (Claimant) petitions this Court for review of the
Unemployment Compensation (UC) Board of Review’s (UCBR) May 4, 2017 order
affirming the Referee’s decision finding Claimant eligible for UC benefits under
Section 402(h) of the UC Law (Law),1 but prorating a $37.00 weekly deductible for
her sideline business. Essentially, the issue before this Court is whether the UCBR
properly calculated Claimant’s deductible.2 After review, we vacate and remand.
On or about January 1, 2017, Claimant separated from her employment
with Dutch Run Coal (Employer). During the course of her employment with
Employer, Claimant also owned and operated a dog-breeding business. After
1
Act of December 5, 1936, Second Ex.Sess., P.L. (1937) 2897, as amended, 43 P.S. § 802(h)
(ineligibility for self-employment).
2
Claimant’s Statement of Questions Involved lists ten questions. However, all but two
questions pertain to the UCBR’s use of Claimant’s 2015 federal tax return in calculating her
deductible and the calculation of her deduction. These questions are subsumed in the stated issue and
are discussed herein. The other two questions make inquiries not properly raised on appeal. See
Claimant Br. at 4.
Claimant’s separation from Employer, Claimant did not substantially change the
amount of time and effort she devoted to her dog-breeding business. Claimant has
remained available for full-time employment since her separation from Employer.
Claimant’s dog-breeding business is not the primary source of her livelihood, as her
business operated at a net loss for 2015, according to Claimant’s Internal Revenue
Service (IRS) Form Schedule C (Schedule C).
On January 1, 2017, Claimant applied for UC benefits. On January 19,
2017, the Indiana UC Service Center found Claimant eligible for UC benefits under
Section 402(h) of the Law, but deducted $37.00 for Claimant’s sideline business.
Claimant appealed and a Referee hearing was held. On February 24, 2017, the Referee
affirmed the UC Service Center’s determination. Claimant appealed to the UCBR. On
May 4, 2017, the UCBR affirmed the Referee’s decision. Claimant appealed to this
Court.3
Initially, Section 402(h) of the Law provides that an employee shall be
ineligible for UC benefits for any week
[i]n which he is engaged in self-employment: Provided,
however, That an 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 [the Law] and
continued subsequent to separation from such work when
such activity is not engaged in as a primary source of
3
“Our scope of review is limited to determining whether constitutional rights were violated,
whether an error of law was committed, or whether the findings of fact were unsupported by
substantial evidence. Section 704 of the Administrative Agency Law, 2 Pa.C.S. § 704.” Turgeon v.
Unemployment Comp. Bd. of Review, 64 A.3d 729, 731 n.3 (Pa. Cmwlth. 2013).
By July 14, 2017 order, this Court directed the parties to address in their principal briefs the
possible untimeliness of Claimant’s appeal. On August 11, 2017, the UCBR filed a motion to quash
Claimant’s appeal (Motion). On August 17, 2017, Claimant filed an answer thereto. By August 25,
2017 order, this Court denied the UCBR’s Motion and vacated its July 14, 2017 order.
2
livelihood. Net earnings received by the employe with
respect to such activity shall be deemed remuneration
paid or payable with respect to such period as shall be
determined by rules and regulations of the [D]epartment
[of Labor and Industry (Department)].
43 P.S. § 802(h) (emphasis added). The computation of weekly net earnings is
calculated in accordance with Section 65.121(a) of the Department’s Regulations,
which states:
Since an accurate determination of weekly net earnings for a
particular week or month will usually be impossible because
of the time lapse between the performance of services and
the receipt of resulting income[,] [w]eekly net earnings for
a current calendar year shall be based on net earnings in
a previous calendar year or on anticipated earnings in the
current calendar year, if operations were not conducted in a
previous calendar year, in accordance with the following:
....
(2) For a claimant engaged in a business other than farming,
‘gross income’ from sales and services shall be reduced
by subtraction of the cost, if any, of goods sold. Cost of
goods sold shall include the total cost of merchandise, cost
of labor and cost of material and supplies.
(3) The remainder shall be divided by the number of
weeks during which the . . . business operated or will
operate during a year. The quotient shall represent the
weekly net earnings to be used for the purpose of
computing benefits payable.
34 Pa. Code § 65.121(a) (emphasis added).
Claimant argues that the UCBR miscalculated her deduction because it
should have used her 2016 Schedule C rather than her 2015 Schedule C to make its
determination. However, Claimant did not submit her 2016 federal tax return into the
record. Claimant submitted a copy of her Schedule C Profit or Loss from Business,
which she filed for her dog-breeding business in conjunction with her 2015 IRS Form
1040. See Certified Record (C.R.) Item 2 Profit or Loss Statement (Profit or Loss)
3
(wherein Claimant expressly qualifies: “You asked for my schedule C for 2016[,] I will
not have this [sic] for 3-5 months yet [sic].”). “A claimant who wishes to fall within
the [sideline] exception bears the burden of showing that all of the[] requirements are
met.” LaChance v. Unemployment Comp. Bd. of Review, 987 A.2d 167, 171 (Pa.
Cmwlth. 2009). As Claimant had the burden to prove her sideline business, it was her
obligation to submit the documentation to be used in making said
determination. Moreover, Section 65.121(a) of the Department’s Regulation expressly
allows the calculation of the weekly net earnings for a current calendar year to be
“based on net earnings in a previous calendar year.” 34 Pa. Code § 65.121(a). Thus,
the UCBR properly used the 2015 Schedule C that Claimant submitted in calculating
its deduction.
Claimant also argues that the UCBR should not be able to “pick and
choose” which items on her 2015 Schedule C were her operating expenses. Claimant
Br. at 8. Specifically, she contends that the numbers the Department chose to use in
determining her deduction do not reflect an accurate calculation of her net earnings.
In making its calculation, the UCBR adhered to Section 65.121(a) of the
Department’s Regulations. According to Claimant’s 2015 Schedule C, Claimant’s
“[g]ross receipts or sales” were “[$]11, 375.[00.]” Profit or Loss at 1. Claimant’s costs
of goods sold, i.e., supplies were “[$]9,474.[00.]” Id. Thus, Claimant’s gross receipts,
less the costs of goods sold, totaled $1,901.00. However, Claimant’s business expenses
consisted of more than just the $9,474.00 she spent on supplies. They also included:
repair and maintenance expenses ($1,206.00), travel expenses ($905.00), business
meals and entertainment ($1,503.00), utilities ($5,048.00) and miscellaneous expenses,
including but not limited to, insurance ($1,917.00). See Profit or Loss at 1. Had the
UCBR included these figures in its calculation, it would have determined that Claimant
operated at a loss, and no deduction would have been applied to her UC benefits.
Although Claimant testified at the Referee hearing that her business was seasonal, the
4
UCBR discredited this testimony and credited the Sideline Business Supplemental
Information Claimant furnished to the Department, wherein she confirmed that her
sideline business operated the entire year.4 See C.R. Item 2 at 1. Accordingly, the
UCBR divided the total ($1,901.00) by 52 weeks and calculated a weekly deduction of
$37.00.5
This Court recently held that “the Department lacked legal authority to re-
promulgate [Section 65.121 of the Department’s Regulations] after an appellate court
found it was unauthorized.[6] Moreover, [this Court ruled that Section 65.121 of the
4
[T]he [UCBR] is the ultimate fact-finder in [UC] matters and is
empowered to resolve all conflicts in evidence, witness credibility, and
weight accorded the evidence. It is irrelevant whether the record
contains evidence to support findings other than those made by the fact-
finder; the critical inquiry is whether there is evidence to support the
findings actually made. Where substantial evidence supports the
[UCBR’s] findings, they are conclusive on appeal.
Ductmate Indus., Inc. v. Unemployment Comp. Bd. of Review, 949 A.2d 338, 342 (Pa. Cmwlth. 2008)
(citations omitted).
5
Claimant also argues that the UCBR’s calculation is improper due to comments in the
Referee’s decision. However, “[w]e review the [UCBR’s] findings because it is the ultimate fact-
finder in [UC] matters.” Dep’t of Corr. v. Unemployment Comp. Bd. of Review, 943 A.2d 1011, 1014
n.2 (Pa. Cmwlth. 2008). Thus, the Referee’s comments are irrelevant.
6
This Court in Lerch v. Unemployment Comp. Bd. of Review, ___A.3d ___ (Pa. Cmwlth. No.
748 C.D. 2017, filed March 12, 2018), explained that the Pennsylvania Superior Court in Department
of Labor & Industry v. Unemployment Compensation Board of Review (Springer), 199 A.2d 481 (Pa.
Super. 1964), and Department of Labor & Industry v. Unemployment Compensation Board of Review
(Vitolins), 199 A.2d 474 (Pa. Super. 1964), ruled that former Section 120 of the Department’s
Regulations, which is virtually identical to Section 65.121 of the Department’s Regulations, was
“absurd” and thus invalid. Lerch, slip op. at 12 (quoting Vitolins, 199 A.2d at 478). The Lerch Court
stated:
In Vitolins and Springer, the Superior Court concluded that Section
402(h) [of the Law] does not authorize the Department to define ‘net
earnings’ by regulation. Further, the Superior Court determined the
ordinary meaning of ‘net earnings’ required consideration of all
business deductions; to do otherwise would frustrate the intent of
Section 402(h) [of the Law].
Lerch, ___ A.3d at ___ , slip op. at 9.
5
Department’s Regulations] is not reasonable.” Lerch v. Unemployment Comp. Bd. of
Review, ___A.3d ___, ___ (Pa. Cmwlth. No. 748 C.D. 2017, filed March 12, 2018) slip
op. at 15. Thus, because the Department calculated Claimant’s deductible using an
unauthorized, unreasonable regulation, this Court remands the matter to the UCBR to
recalculate Claimant’s deductible in accordance with Lerch.
For all of the above reasons, the UCBR’s order is vacated and the matter
is remanded to the UCBR to recalculate Claimant’s deduction.
___________________________
ANNE E. COVEY, Judge
6
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Carrie A. Smith, :
Petitioner :
:
v. :
:
Unemployment Compensation :
Board of Review, : No. 850 C.D. 2017
Respondent :
ORDER
AND NOW, this 21st day of March, 2018, the Unemployment
Compensation Board of Review’s (UCBR) May 4, 2017 order is vacated and the matter
is remanded to the UCBR in accordance with this opinion.
Jurisdiction relinquished.
___________________________
ANNE E. COVEY, Judge