Total and Partial Unemployment TPU 415.05

Self Employment or Other Work/General

Section 1252 states in part:

"An individual is ‘unemployed’ in any week during which he performs no service and with respect to which no wages are payable to him, . . ."

Employment under the Unemployment Insurance Code has been defined as service performed for wages or under a contract of hire. Service is defined as performance of labor for the benefit of another or at another’s command. Therefore, a person who is self-employed, or an independent contractor is unemployed within the meaning of the Unemployment Insurance Code since such a person is not performing service for wages under any contract of hire, or at another’s command.

  1. Self-Employment

    The Superior Court of Los Angeles County considered the case of a self-employed individual in People v Nest. The claimant was self-employed in a clothing business and claiming unemployment insurance benefits as a unemployed individual. The court ruled that the claimant was unemployed, and stated:

    "The word ‘service’ not being defined in the act, must be given its common meaning . . .’ the occupation, condition, or status of a servant. - Performance of labor for the benefit of another, or at another’s command; - hired helper; -duty done or required.’ Certainly these definitions do not embrace the activities of the defendant in . . . the running of his own clothing establishment . . . He was not under ‘any contract of hire’ express or implied."

    Section 1279 goes on to say:

    "For the purposes of this section only ‘wages’ includes any and all compensation for personal services whether performed as an employee or as an independent contractor . . ."

    Therefore, a self-employed individual, or independent contractor, is eligible under Section1279 in any week in which the wages payable to him or her are not XE.

    This concept was considered by the Board in Benefit Decision 5903. The claimant was a licensed insurance broker. The claimant stated that he/she was self-employed as a broker, and that he received earnings from his/her insurance business. The Board ruled on the employment status of the claimant, and in holding that he/she was unemployed, stated:

    "An individual who is self-employed may nevertheless be unemployed . . . However, if such an individual is in receipt of income for services performed in an independent business, such income constitutes ‘wages’ . . ."

    The Board went on to reason that unless the wages are not XE, then the individual cannot be considered as unemployed within the definition of Section1279. Further, in the case under consideration, the wages payable to the claimant with respect to each of the weeks involved were not XE, and therefore the claimant was considered to have been unemployed.

    An independent contractor is a person who is engaged in an independent employment or occupation, responsible to his/her principal only for the result and not for the manner or means by which it is accomplished.

    The Supreme Court in the Empire Star Mines case summarized the rules for determining the existence of the employment relationship as follows:

    "In determining whether one who performs services for another is an employee or an independent contractor, the most important factor is the right to control the manner and means of accomplishing the result desired. If the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists. Strong evidence in support of an employment relationship is the right to discharge at will, without cause . . . "

    Using the above principles, the Board has considered the employment status of claimants in several cases.

    In Benefit Decision 6578, the Board considered a tax case in which the petitioner, James, contends that the claimants, Smith and Bell, were partners, not profit-sharing employees. The petitioner had obtained the parking lot concession from the owner of the Queen’s Arms Restaurant. The concession was an oral agreement on a month-to-month basis. The petitioner was to retain all the proceeds from the parking lot. In addition, petitioner agreed with the Queen’s Arms to create and maintain a reserve for injuries out of the proceeds. The petitioner conducted all negotiations with Queen’s Arms, and retained the funds set up as the reserve for injuries. The claimants both testified that at no time was there a partnership agreement entered into; that each of them considered himself to be a profit-sharing employee; that the petitioner was the employer and retained control over the operation of the parking lot and scheduled the work and they were not consulted about either the operation or the scheduling. Smith further testified that on two occasions he was warned about absenteeism by James and was told "if it happens again, you can look for another job." The Board held that the claimants were employees, and said:

    "Section 15006 of the Corporations Code describes a partnership as an association of two or more persons to carry on as co-owner a business for profit. In order to constitute either a partnership or a joint venture there must be (1) a community of interest in the object of the undertaking; (2) an equal right to govern the conduct of each other with respect thereto; (3) share in the losses, if any; and (4) close and even a fiduciary relationship between the parties . . . The fact that there is a profit-sharing arrangement does not justify the conclusion what a partnership relation exists where there is no joint participation in the management and control of the business . . .

    There is scant evidence in this matter to indicate that Bell and Smith participated in the management of this enterprise, as would be required if a partnership existed, or that any of the parties involved herein intended that they should participate in the management. The petitioner, James, controlled the concession contract and alone performed all the negotiations with the Queen’s Arms, retained the reserve funds, scheduled the work, hired an individual to complete the schedule, warned Mr. Smith about absenteeism, and finally give notice to Smith and Bell that their services were terminated. The additional fact that no partnership records were kept and no partnership return was filed also supports the conclusion that not only was this business enterprise not a partnership but that the petitioner exercised substantial control over Smith and Bell as their employer . . .

    We hold that Smith and Bell were employees of the petitioner."

    The question of employee, or independent contractor, was brought before the Board again in Benefit Decision 5786. The claimant, who previously had been employed as a cleaning woman in a private home, was advised by an acquaintance that she was leaving Grass Valley and that if the claimant were interested, she would introduce the claimant to three employers in Grass Valley for whom she was rendering janitorial services. The claimant expressed an interest in such an arrangement, and as a result of contact with the owners of these business establishments, she was hired under oral agreement of indefinite duration. She was to perform cleaning services in the establishments, which consisted of an ice cream parlor, shoe store, and dress shop. The work was to be performed during the early morning hours when the establishments were closed. Upon completion of her work in the ice cream parlor, which consisted of scrubbing the floor, the claimant cleaned and dusted the shoe store, and then worked in the dress shop until her duties were completed. The claimant was paid at a monthly rate. The essential equipment and supplies were furnished by the establishments for the use of the claimant. The owner of the dress shop on several occasions left notes directing the claimant to perform specific tasks. There was no evidence that the claimant advertised or held herself out to the public as being engaged in the business of rendering janitorial services. In holding that the claimant was an employee, the Board said:

    "In determining whether an individual is an employee or an independent contractor, the most important factor is the right to control the manner and means of accomplishing the result desired. If the employer has the power to exercise complete control, whether or not that potential control is exercised with respect to all details, an employer-employee relationship exists; . . .

    We have previously held that individuals performing janitorial services who do not hold themselves out to the public generally as being engaged in an independent business are ordinarily considered to be subject to the direction and control of the one for whom the services are performed . . . In our opinion, the preponderance of the evidence . . . compels the conclusion that the relationship between the claimant and the owners of the establishments where the claimant worked was that of employer-employee as opposed to principal and independent contractor. The claimant was not engaged in an independent business of furnishing janitorial services to the public generally, . . . It appears that the right to direct the manner and means of accomplishing the desired result existed and on occasion was exercised. The claimant was paid on a monthly basis rather than by each separate assignment and she was required to perform the work during hours specified by the employers . . . It further appears that the claimant was free to quit upon her own volition and was subject to discharge without cause without incurring legal liability. Under these circumstances, we hold that the claimant was in employment . . . "

    On the other hand, without this right of control, the claimant is self-employed. In Benefit Decision 6282, the Board considered the case of a claimant who drives an ice cream vending truck. He contends that he is an employee of the vending company. The claimant purchased from the employer the products he sold. All spoiled goods became the claimant’s loss. The claimant was prevented from selling competitive products but he could sell other items not in competition with the employer’s ice cream products. There was no established route and the claimant was free to sell when and if he pleased. The claimant could sell at whatever price he chose. The Board held that the claimant was self-employed and said:

    "The test of whether an individual is an employee in performing services for another is set forth in the case of the Empire Star Mines v. California Employment Commission . . .

    In applying this test, the court . . . held certain distributors who . . . distributed the company’s bottled water products were independent contractors.

    Pursuant to the foregoing authority, we do not find sufficient reason to disturb the ruling issued by the Department that the . . . claimant herein was not an employee . . ."

  2. Elective Coverage

    Section 708(a) of the UI Code permits certain individuals to elect UI coverage of their services in self-employment. A self-employed person who elects such coverage must show that he is a recognized employer, as defined in the UI Code, and regularly employs one or more persons in an established business. The elective agreement will be effective for at least two complete calendar years or until the employer terminates his business.

    Having been granted elective coverage under Section 708, an individual who has filed the necessary reports and paid the required contributions, would be entitled to benefits providing he is otherwise eligible under the Code.

    In determining the eligibility of a claimant who has chosen elective coverage, it must first be determined that the individual is unemployed.

    Benefit Decision 6669 is an example where the Board held that the self-employed claimant met this requirement. In this case, the claimant was a licensed electrician and electrical contractor. As a contractor he frequently obtained contracts which required him to employ other electricians; however, he also worked at times either as an employee or as an independent contractor. The claimant had reported wages and paid contributions for himself as an employee under Section708(a) of the Code. At the time his claim was filed, he was performing no services either as an employee or as a contractor. He was actively seeking employment in either category. In finding that the claimant was unemployed the Board said:

    ". . . Clearly the claimant in this case performed no services nor were wages payable or net income received with respect to the week in which the claim was filed . . ."

    Since a finding of unemployed within the meaning of Section 1252 requires both that no services were performed and that no wages were payable, clearly the absence of wages alone does not establish that a claimant is unemployed.

    For example, in Benefit Decision 6819 the Board considered the case of a licensed building contractor who had submitted a bid on a job and received the contract. However, he was unable to obtain a crew and for this reason turned the contract over to a neighbor. Working under the claimant’s license, the neighbor performed most of the work, with the exception of the electrical work which was performed by the claimant. During this time the claimant also performed some corrective work on a house which e had previously built. Under his license, the claimant was similarly required to do any corrective work which became necessary within one year of the completion of the structure built by his neighbor. The claimant testified that when the job was completed, he had cashed the check and turned the entire amount over to his neighbor. The claimant testified that when the job was completed, he had cashed the check and turned the entire amount over to his neighbor. He contended that he, therefore, was unemployed during this period. The Board said, however:

    ". . . We believe a more reasonable interpretation (of the term ‘unemployed’ when dealing with elective coverage claimants who are self-employed) would be to consider that an individual . . . who performs work under a contract is fully employed commencing with the date on which he is granted the contract and continuing until the terms of the contract are completed. . . "

    Although suggesting doubt of the credibility of the claimant’s statement that he received no money, the Board made no findings that he did in fact receive pay. The clear inference being that earnings are not essential to a finding that a self-employed person is "employed."

    Another key point in determining eligibility under elective coverage is whether the absence of or reduction in earnings is the result of the claimant’s own actions. A claimant who decides that work is slow or for the moment unprofitable and closes down his business with the intent of reopening when work picks up, is still employed within the meaning of Section 1252.

    For example, in Precedent Benefit Decision 49 the claimants were commercial fishermen who had chosen elective coverage. Since profits were low, the claimants chose to tie up their boats and file claims rather than compete against other boats with better equipment and larger crews. In determining that the claimants were still employed, the Board said:

    ". . . The commercial fishermen in the present cases are self-employed individual employers who have elective coverage. In deciding whether they are or are not ‘unemployed’ . . . we should use the same rules as apply to commercial fishermen employed by corporations or other employing units subject to the Code.

    . . . The claimants remained skippers responsible for their own boats at all times and in effect were ‘standing by’ in their own employment during the periods for which they claimed benefits. They made their own decisions not to fish while other boats were going out . . . They were not unemployed.

    Once a self-employed claimant under the elective coverage provisions of Section 708 becomes potentially eligible for UI benefits, eligibility is determined by the same standards that apply to other claimants. Whether he can restrict himself to seeking and accepting only self-employment is dependent upon whether there is a labor market in which he has reasonable prospects for securing self-employment. (For a full discussion of the availability of claimants engaged in self-employment, see AA 360.)

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Benefit Determination Guide