The Pennsylvania Commonwealth Court found that psychological counselors who provided services to clients referred by Pathways Counseling Services, LLC had been properly classified as independent contractors, applying the state’s two-prong AB test. Pathways has contracts with insurance companies to provide referrals for counseling, the costs of which are covered by insurance. The insurers do not contract directly with the individual psychologists or counseling practices; Pathways contracts with the counselors and provides them with referrals from the insurers. The counselors, in turn, are paid through Pathways with funds from the insurers for the counseling services provided to their insureds. In exchange for referrals, office space, telephone/fax service, and billing services provided by Pathways to the counselors, Pathways retains a percentage between 30-40% of the fees it receives on behalf of each counselor.
In reversing an assessment of unemployment taxes against Pathways by the Pennsylvania Department of Labor and Industry, the court determined that Pathways had met Prong A because the therapists operated free of direction and control by Pathways. Specifically, the counselors set their own rates of compensation and work schedules; have the right to accept or reject engagements; and obtain their own professional licenses and liability insurance. In addition, no taxes were withheld by Pathways; Pathways provided no training, meetings, or tools to the therapists; counselors were not subject to monitoring or review by Pathways; and the requirement that services had to be provided at Pathways’ offices was imposed by the insurer, not Pathways. The court also found that Pathways satisfied Prong B, which requires a showing that the counselors were customarily engaged in an independently established trade, occupation, profession, or business. The court found that “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”. Likewise, the court stated, “one who practices in a ‘free-standing’ profession and whose arrangement with a referral service is ‘non-exclusive’ is ‘not compelled to look only to a single employer,’ and thus satisfies the second prong”. Pathways Counseling Services, LLC v. Commonwealth of Pennsylvania, Dep’t of Labor & Industry,No. 1332 C.D. 2018 (Comm. Ct. Penn. July 12, 2019)