K. Malzi v. UCBR, K. Malzi v. UCBR

Claimant Keith Malzi worked full-time for Temple University; he registered Home Insite, LLC (a home-care agency) on March 16, 2015 and completed registrations/approvals and business banking before his employment terminated June 30, 2015.
Claimant hired first employee June 23, 2015, received first client payment July 27, 2015, and by late 2015 had multiple clients and reported wages for Q3 2015.
Claimant filed for unemployment benefits after separation and repeatedly answered “no” to questions about self-employment and work on biweekly claims; Department learned of the business via a fraud tip and audited.
Department issued three determinations: ineligibility under 43 P.S. §802(h) (self-employment), a fault overpayment under 43 P.S. §874(a), and a 15% penalty under 43 P.S. §871(c) for knowingly failing to disclose a material fact.
A referee and the Unemployment Compensation Board of Review (Board) sustained the determinations; Commonwealth Court affirmed, crediting investigator testimony that Claimant’s business activity substantially increased after his layoff and that he failed to report it.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Claimant was engaged in disqualifying self-employment under §402(h)	Malzi: activities didn’t substantially increase after separation; thus sideline exception applies	Department: Claimant took positive steps to establish and operate an independent business and activities increased after layoff	Held: Claimant was self-employed; sideline exception fails because participation substantially increased after separation
Whether Claimant met the sideline-activity exception (four-prong test)	Malzi: preparatory work before layoff; no substantive post-termination change	Department: evidence shows business became operational (employees, clients, payroll) after layoff	Held: Second-prong (no substantial change) not satisfied; other prongs not met as a result
Whether a fault overpayment under §804(a) was proper	Malzi: law ambiguous as to self-employment/sideline and he believed no income so answered “no”	Department: claimant knowingly omitted business activity and repeatedly denied self-employment despite records	Held: Fault overpayment affirmed—Board found culpable state of mind and failure to report supports fault
Whether 15% penalty under §801(c) was proper	Malzi: argued ambiguity and lack of intent	Department: claimant knowingly failed to disclose material fact to obtain benefits	Held: 15% penalty affirmed—Board found knowing failure to disclose a material fact to obtain compensation

Leary v. Unemployment Compensation Board of Review, 322 A.2d 749 (Pa. Cmwlth. 1974) (positive acts to establish a business indicate self-employment)
LaChance v. Unemployment Compensation Board of Review, 987 A.2d 167 (Pa. Cmwlth. 2009) (articulates four‑prong sideline-activity exception)
Risse v. Unemployment Compensation Board of Review, 35 A.3d 79 (Pa. Cmwlth. 2015) (increases in income/hours may still not show transition where no expansion or solicitation occurred)
Kress v. Unemployment Compensation Board of Review, 23 A.3d 632 (Pa. Cmwlth. 2011) (sideline activity may survive layoff if participation remains unchanged)
Dausch v. Unemployment Compensation Board of Review, 725 A.2d 230 (Pa. Cmwlth. 1999) (preparatory steps shortly before benefit termination do not necessarily show substantial change)
Castello v. Unemployment Compensation Board of Review, 86 A.3d 294 (Pa. Cmwlth. 2013) (definition of "fault" for overpayment liability)
Teets v. Unemployment Compensation Board of Review, 615 A.2d 987 (Pa. Cmwlth. 1992) (burden on bureau when suspending benefits for self-employment)
Keslar v. Unemployment Compensation Board of Review, 195 A.2d 886 (Pa. Super. 1963) (solicitation of clients supports finding of self-employment)