To paraphrase an old saying, “What goes up must be covered when it falls down.” This would, apparently, be very true in the world of shifting sands that surrounds today's independent contractor. At least a story shared recently at the SAWCA All Committee Conference would indicate that was the case.
A speaker at the conference, whose name and company shall not be included here, mentioned that his insurance company employer recently was ordered to provide indemnity and medical benefits to an injured worker whom they had never covered as part of any workers' compensation policy. The worker, who was laboring for a sub-contractor on a construction site, was an “independent contractor.” He was not covered by the subs workers' compensation policy; nor had they ever included his income for premium calculation purposes. The man was seriously injured when he fell off a ladder. A court ordered the insurance company to cover his injuries without regard to the fact that they had never been paid to assume that risk. As our insurance company representative told the conference attendees, “He was an independent contractor when he went up that ladder, but he became a covered employee on his way back down.”
It was conceptually an immaculate conversion if I've ever heard of one.
I'm not going to defend the employer's decision to declare this person as an independent contractor. Nor can I question the courts declaration that he was not one. We don't have the facts. We know that the category can be a highly abused one, and the construction industry practically wrote the book on premium avoidance with that strategy. What I can question is a situation where the employer appears to have shirked their direct responsibilities, and a company who had no actual relation to the situation ended up paying the bills.
It is emblematic of the growing challenges that face independent contractors and the companies that use them.
The courts of late have been making this area quite murky, with the most notorious decision coming out of California this year. In Dynamex Operations West, Inc. v. Superior Court of Los Angeles, the court unanimously established a new test for determining whether a worker is an employee or an independent contractor. Viewed liberally, practically no one in California can still be an independent contractor.
The Court basically adopted a standard that shifts the presumption to that of employment; that all workers are employees instead of contractors. Companies classifying individuals as independent contractors now have the burden to prove they qualify as such. To that end, the court issued a test that employers must use to determine eligibility. To qualify as an independent contractor the hiring entity must establish all of the following:
(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity's business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
If you really look at the tenets of that test, you will quickly recognize the issue for many companies that legitimately use independent contractors. Transportation companies must be having fits with this. They need flexibility and resources all across the state on a very inconsistent basis yet using professional drivers as independents apparently violates category (B) above. Do they now have to put all those people on the payroll even though there is not consistent work for them? And does every driver become an employee of every company for which they provide services? What about interpretation/translation companies? They might need a person fluent in Vietnamese in Barstow once every year or two; but because interpretation is part of their core business, they can't use independents? By ignoring the frequency and geographical demands on these companies, the CA Supremes have completely missed critical components of a truly independent employment structure.
The demands of a changing economy will mean continuing strain in this area. The gig economy will drive the discussion about workers compensation coverage and liability issues at an ever-accelerating pace until the legal and insurance worlds can catch up with a solution. Some envision an eventual mandated solution for independents, where they will be required to acquire some sort of coverages that protects themselves and others from the risks associated with the course of their daily business. There is an increasing expectation that coverage should be in place; that when something falls, protections should be in place. Mandating self-coverage may be the next logical step. Until that time, however, court decisions like the ones discussed here will do anything but clarify the issue. We can expect to see more conversions, but if the California case is any indication, they will be anything but immaculate.
No, they will be a mess; downright sloppy indeed.
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Robert Wilson is President & CEO of WorkersCompensation.com, and "From Bob's Cluttered Desk" comes his (often incoherent) thoughts, ramblings, observations and rants - often on workers' comp or employment issues, but occasionally not.
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