I read an interesting article by Richard Reibstein of Locke Lord on a thorny issue that I have encountered numerous times. That is whether an employer can cover individuals it deems “independent contractors” under its workers’ compensation policy. This is tricky because if the employer covers such people, that could possibly be deemed an “admission” that the person is really an employee. If the employer does not cover such people and they get hurt on the job, the employer might face enormous liability whether in a lawsuit or in claims from the particular state Workers Compensation Board.
Of course, businesses are not required to cover independent contractors but there are often issues as to whether a certain person falls into this category. But the risks of non-coverage are manifest. As the article notes, under some state laws, such as New York and New Jersey, there are very high civil penalties for non-coverage, with the New York law imposing fines up to $2,000 per violation for each 10-day period of time no coverage has been provided.
The article notes that some jurisdictions mandate coverage of people who perform certain kinds of work, even if they are correctly classified as independent contractors. The State of Louisiana requires coverage for those who engage in heavy manual work. Other states require coverage for those who work in the construction industry. Other States allow for voluntary coverage of independent contractors, especially construction workers. Accordingly, employers need to determine if they have independent contractors who must be covered or if their state law allows for them to choose to cover these people.
The safest thing to do, as the article notes, is to cover independent contractors. Yet, if this is not done correctly, it may/will be construed as an implicit admission that the individual is a statutory employee. The putative employer must therefore protect itself with disclaimers and caveats that set forth that the person is not an employee, but the coverage is being provided for another, business-based reason.
The Takeaway
The easy answer is to make sure your independent contractors are truly just that and that they carry their own workers’ compensation insurance. Absent that contingency, which might be hard to come by, there is value in covering ostensible independent contractors with workers’ compensation insurance, especially in the construction industry, where an accident might subject an employer to hundreds of thousands of dollars of liability. Employers must also research the state laws of their facilities’ locations to make sure there are no hidden landmines or obligations in those statutes. In sum, employers can manage the risks. and must never ignore the risks
Forewarned is forearmed…