Total and Partial Unemployment TPU 105

Contract Obligation

This category deals with that limited group of claimants who work under special types of contracts. Usually these contracts call for specific duties on the part of the employee and specific obligations on the part of the employer.

Certain professional claimants normally work on a contract basis. While the contract is in effect, the claimant is fully employed up to the amount of time specified in the contract. If the contract calls for full-time work, or the exclusive services of the claimant, the claimant is fully employed. If the contract calls for a specific amount of service, the claimant may be unemployed once that amount of service is performed. If the contract calls for part-time work each week and the wages payable are not XE, the claimant is part-totally employed.

It is necessary to know the terms of the contract before it can be decided whether the claimant is employed or not. If the contract calls for the exclusive service of the claimant, he/she is fully employed and ineligible for benefits. If the contract requires no service even of a standby nature, and no wages are payable, the claimant is unemployed even though the contract is in effect.

  1. Teachers

    During the summer months, the employment status of a teacher who does not come within the special criteria of Section 1253.3 is dependent upon whether he/she is under contract and the specific terms of the contract. If the contract specifies any services to be performed during the summer months, or gives the employer the right to call on the teacher if necessary, or prohibits him/her from accepting other employment, then the teacher is fully employed under Section 1252.

    If the terms of the contract require no services during the summer months and do not prohibit the teacher from accepting other employment, then he/she is unemployed. Since he/she is available for only work of limited duration, there is an ability issue which must be resolved. See AA 105.

  2. Consultants

    Claimants are sometimes hired as consultants by a firm and while under such contracts are employees. This is true even if the consultant is never called upon to perform any "service." The Board considered such a case in Benefit Decision 5510. A contract was negotiated by and between the employer and the claimant. The contract provided that the claimant upon request of the employer would render up to 50 hours of service in each month. The claimant was to and did receive $200 for each month. The contract provides that the services were to be rendered by the claimant as an "independent contractor" in the capacity of "consultant on wage and salary analysis and control.'' During the life of the contract, the claimant's services were not once called upon by the employer. The claimant contended that though the $600 so earned by him/her were wages, benefits could be denied him/her only in those weeks in which s/he either performed services for the employer or received $200 payment due him/her since in all other weeks she/he was totally unemployed. The Board said:

    "The decisions of the United States Supreme Court established that a worker who, by virtue of his relationship to an employer, holds himself in readiness to render services to that employer and receives compensation therefor is in employment in a 'stand-by' status and receives compensation or personal services.

    . . . Since the claimant herein was required by the contract . . . to hold himself in readiness to perform his obligation . . . he performed services during each of the weeks covered by the contract, and by the same token, the payments he received were amounts payable as compensation for personal services rendered during each such week. Therefore, he was neither partially nor totally unemployed during any week in the period . . . "

    It was only because the claimant was constantly holding himself in readiness to perform a service that he was employed during each week of the month. If the claimant had once performed the fifty hours of service called for in the contract, he would have fulfilled his obligations for that month and would no longer be employed since he would no longer be holding himself in readiness to perform a service.

    This same basic problem was considered by the Board in Tax Decision 514. The claimant entered into a contract with the employer as a consultant. The contract carried the provisions that the claimant would not enter into any other employment or render any consultation or advice to any other person, firm, partnership, or corporation of like business. The claimant during the life of the contract rendered no substantial service to the employer. In holding this claimant was an employee the Board said:

    "The fact that Dr. Harrower did not perform substantial services for the petitioner during the period involved is not controlling. The petitioner at all times had the right to call on Dr. Harrower for such services as it required to the exclusion of all other concerns . . .

    The fact that Dr. Harrower in the instant case could be called upon to perform services whenever required by the petitioner continued the employment relation and established the basis upon which the remuneration for his services was paid . . . "

    This case differs from the case cited above. This contract called for the exclusive services of the claimant and did not specify any maximum amount of service to be performed each month the claimant in this case was holding himself in readiness at all times during the life of the contract and thus was employed at all times.

  3. Writers

    Script writers are one such group that works on a contract basis. Writers are employed on what is known as a "flat deal contract". This type of employment involves the assignment of a writer to do a story for a flat fee. All writers accepting employment under a flat deal contract are employed from the date the assignment is accepted. The employment terminates when the producer no longer has any right under the contract to request any further revision. During such periods of time, writers are ineligible for unemployment insurance as not unemployed.

    The Board, in Benefit Decision 663O, considered the case of free-lance television writers. Under the terms of the contract between the writers and the television producers, work in connection with the writing of teleplays consisted of three phases namely the writing of a story, the preparation of a first draft teleplay based upon the story, and the preparation of the final draft teleplay.

    The Board held that the claimants involved herein were in an employment status because they had not completed their contracts as to all three phases of the writing.

    The Board said:

    "We conclude that . . . notwithstanding the fact that they had submitted to their employers . . . a first draft teleplay, under the terms of each employment agreement they were still 'employed' in a stand-by capacity to perform revisions or 'polishes' which might be requested."

    Writer’s contracts generally call for the payment of reuse pay for subsequent use of their work. Reuse pay is wages and is deductible from UI benefits. (See TPU 80.05 and 460.6 for a complete discussion of reuse pay).

  4. Actors

    If the terms of the contract call for only part-time work, the claimant can be unemployed even though he/she is under contract to an employer.

    "Little Theater" actors work under a contract of this type. The Board considered this problem in Benefit Decision 6651. The claimant signed an Actors Equity Association Contract For Little Theaters to play Friday, Saturday, and Sunday nights. The claimant was to receive $10 for each performance, or $25 for three performances in a week. He was not required to attend rehearsal. The standard contract, which the claimant signed, provided that seven performances constituted a week's work. No compensation was to be paid for rehearsals. The rehearsals were to be held at the actor’s convenience so that they would not interfere with the actor's rendering services to other employers. The performances were to be given on Friday, Saturday, and Sunday nights only, and the actor was permitted to cancel the contract without notice should he be obligated in any manner by other employment. In holding that the claimant was unemployed, the Board said:

    "Under the provisions of the contracts of employment herein the claimants were engaged in a form of short-time work with respect to each of the weeks involved within the meaning of section 1252 of the code. They were therefore 'unemployed' and were eligible for reduced benefits under section 1279 of the code."

    Clearly the reason these claimants were held to be unemployed while other claimants under contract were held to be employed was because of the nature of the contract. This contract does not bind the claimant in anyway. The claimant is free at all times to take other employment and can terminate this contract at will.

  5. Athletes

    Professional athletes normally perform under contract. Depending upon the sport involved and the degree of control exercised by the organization for whom they perform, an athlete may participate as an employee or as an independent contractor.

    Generally speaking, athletes under contract to participate in team sports such as football or baseball are employees, while those who compete as individuals, such as golfers, are independent contractors. For further discussion of the employment status of athletes who are considered to be independent contractors, see TPU 415.4.

    The discussion in this category deals with the professional athlete’s status as an employee. It should be noted that professional athletes are also subject to the special eligibility provisions of Section 1253.4 whereby benefits are not payable if substantially all of the claimant’s services during the base period were as a professional athlete and the claimant performed such services in the prior season and is under contract to perform similar services in the succeeding season or has reasonable assurance of performing similar services in the following season.

    As the provisions of athletic contracts are not always uniform, even in the same sport, there is no general rule that can be followed when determining employment status. However, contracts are all alike in that they place an obligation on the athlete for his services.

    When investigating the employment status of a professional athlete, pertinent clauses of the contract must be reviewed in order to determine if he is employed during the life of his contract, or employed only during the playing season. The pertinent clauses are those covering the reimbursement of the individual for his services.

    If the claimant’s services are reimbursed for the "year" or for the "term of the contract", he must be considered as fully employed. This would be true even though the athlete may perform no services and receive no remuneration during part of the contract period. The fact that the athlete may be apparently free to engage in other employment (other than that specifically prohibited in the contract) during the off-season, does not alter the fact that the employer has the right to the claimant’s services and/or actions during the entire period of the contract.

    This was discussed in Benefit Decision 6818. Here, the Board considered the case of a professional baseball player. In its decision, the Board quoted an Oklahoma district court which had stated regarding a baseball player’s contract:

    ". . . as a matter of law, such contract is a contract of employment on an annual basis for an annual salary of $6,500, even though payable in five monthly installments and that said salary is compensation not only for his skilled services as a player during playing season and spring practice, but also for his obligations to be available and do things promised to do outside the playing season and for his agreement to refrain from certain activities. The fact that the club elects to permit him to perform no services during part of (or) all of the off-season, or does not object to his doing other work at such times, does not alter his status, for he must hold himself in readiness and is paid therefor."

    In finding the claimant in Benefit Decision 6818 fully employed, the Board stated:

    "We are forced to conclude . . . that the contractual provision making the salary proportional to the claimant’s employment during the playing season merely establishes the measure and method of compensation, but does not affect the period of required service. He is providing service who merely waits and holds himself ready. The method of payment, therefore, is not controlling in this case.

    The claimant was obligated to perform these ‘services’ through the year. It follows that there were no weeks in which he performed no services and no weeks of less than full-time work. Therefore, his situation does not satisfy either part of the definition of ‘unemployed’ in Section 1252 of the code."

    Since the contract requires certain acts and forbearances during the entire term of the contract and its provisions are not limited to the scheduled season, the period with respect to which wages are allocable is not limited to the period of scheduled games. The contract contemplates that an employer-employee relationship should continue throughout the entire period covered by the contract.

    If the claimant’s reimbursement ends with the "termination of the club’s playing season", the claimant would be considered as unemployed at the end of that season.

    This type of contract was reviewed by the Board in Precedent Benefit Decision 9. The claimant had signed a National Association of Professional Baseball Leagues Uniform Player Contract with a minor league team. The pertinent clauses in the contract were as follows:

    2. For the service aforesaid subsequent to the training season the Club will pay the Player at the rate of $650.00 (six hundred and fifty dollars) per month, as follows:

    In semimonthly installments, after the commencement of the playing season covered by this contract . . . .

    The obligation to make such payment shall begin with the commencement of the Club’s playing season (or such subsequent date as the Player’s service may commence) and end with the termination of the Club’s scheduled playing season and any official league play-off series in which the Club participates except that if the player is in the service of the Club for part of the playing season only, he shall receive such proportion of the payment above stipulated as the number of days of his actual employment in any month bears to the number of days in said month.

    The Board after studying the contract made the following comparison with the contract found in Benefit Decision 6818.

    "In Benefit Decision No. 6818 we concluded, after our careful consideration of the terms of the contract, that the claimant’s services were contracted for on a yearly basis and during the year covered by the contract the claimant was, in fact, employed although not performing services. We do not believe the services of the claimant in the instant matter were contracted for a year. Rather, it appears from a careful evaluation of all of the clauses in the contract that services were contemplated only during the club’s training season, exhibition games, and playing season and official series; that is, the services were contracted for in connection with all games of the club, not for the entire year. Therefore, we conclude that after the playing season ended and all games of the club during the year 1967 were completed, the claimant was, in fact, unemployed. We do not believe that because he agreed under the contract not to perform certain types of activity that this indicates he was employed. Granted the contract may be interpreted as providing for a continuing employment relationship between the claimant and the club subsequent to the last game of the club but the mere existence of such an employment relationship does not preclude a finding that a claimant is unemployed."

    While the term of athletic contracts may vary as to duration, most contracts contain a provision whereby the employer may exercise an option, on or before expiration of the contract, to RENEW the contract for a further term extending to some specific date in the future.

    Because athletic clubs (employers) retain control over the athlete’s actions in that he is not permitted, by league association rules, to bargain for his services with any club other than the one holding his contract, failure to accept the employer’s offer to renew his contract is considered a voluntary quit.

    If the opportunity for renewal, i.e., continuous employment, is not offered to him, there would be an involuntary severance of the employer-employee relationship at the expiration of the contract.

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Benefit Determination Guide