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TN Senate Accepts Bill To Exempt Some In Construction Industry From WC
04 Jun, 2010 WorkersCompensation.com
Nashville, TN (CompNewsNetwork) - The Tennessee Senate approved a bill that creates a procedure for sole proprietors, partners, officers of corporations, and members of limited liability companies engaged in the construction industry to file for an exemption from obtaining workers compensation insurance to cover themselves. - Amends TCA Title 1, Chapter 3; Title 29; Title 39, Chapter 11; Title 50; Title 56, Title 68 and Chapter ___ of the Public Acts of 2010 (Ex. Sess.)(Senate Bill 1 / House Bill 7 of the First Extraordinary Session).
Under prior law, sole proprietors and partners were not required to obtain workers' compensation insurance on themselves. Chapter 1041 of the Public Acts of 2008, which took effect December 31, 2009, changed prior law by requiring that sole proprietors and partners who are engaged in the construction industry must obtain workers' compensation coverage on themselves unless they are working on a structure on their own property, for their own use and without compensation or they are doing work directly for a homeowner. During the First Extraordinary Session of the 106th General Assembly in 2010, legislation was enacted, Chapter 1 of the Public Acts of 2010 (Ex. Sess.), to temporarily remove the requirement that sole proprietors and partners who are engaged in the construction industry must obtain workers' compensation coverage on themselves. Chapter 1 of the First Extraordinary Session provides for the requirement being reinstated on March 28, 2011.This bill revises the laws governing workers' compensation insurance for persons or entities in the construction industry. Under this bill, whenever a person or entity is engaged in the construction industry, such person or entity must carry workers' compensation insurance on any employee, regardless of the number of employees, as well as any subcontractor not otherwise covered by a workers' compensation policy. Sole proprietors, partners, officers of corporations and members of limited liability companies engaged in the construction industry will be required to carry workers' compensation on themselves. However, sole proprietors, partners, officers of corporations and members of limited liability companies engaged in the construction industry as contractors may exempt themselves from workers' compensation coverage if such persons:
(1) Own at least 30 percent of such contractor; and
(2) Except as provided below, only serve in a supervisory role while attending the worksite without engaging in any of the sub-classifications for the building construction categories listed rules promulgated by the Tennessee board for licensing contractors.
Notwithstanding (2) above, this bill provides that sole proprietors, partners, officers of corporations and members of limited liability companies engaged in the construction industry as residential contractors or as "small commercial" as defined by rule may exempt themselves from coverage so long as they meet the other requirements of this bill, including the requirements in (1) and (2) above.
Sole proprietors, partners, officers of corporations and members of limited liability companies who elect to exempt themselves from coverage must:
(1) File a request for election to be exempt with the department of commerce and insurance, which will list the name and title of the individual electing to be exempt, as well as the name and federal tax identification number of the contractor;
(2) File a request for renewal of election to be exempt, if applicable, at any time before the initial election expires or is otherwise revoked; and
(3) Remit a filing fee of $50.00 with each request for election to be exempt or renewal of election to be exempt.
If a sole proprietor, partner, officer of a corporation or member of a limited liability company files a request for election to be exempt and complies with this bill, then the department will issue a certificate of election to be exempt, which will become on the date of issuance and remain valid for two years. The department will revoke a certificate of election to be exempt or deny a request for election to be exempt upon a determination that such person does not meet the requirements for exemption or that the information contained in the request is invalid. At any time, a sole proprietor, partner, officer of a corporation or a member of a limited liability company who has elected to become exempt may request a revocation of the election to be exempt. Such revocation will become effective 30 calendar days after receipt by the department.
If a sole proprietor, partner, officer of a corporation or member of a limited liability company has elected to become exempt, then such person may not recover compensation for themselves from the property owner or any other contractor.
This bill would not apply to any person building a dwelling or other structure, or performing maintenance, repairs, or making additions to structures, on the person's own property for the person's own use and for which the person receives no compensation.
There may be no more than three independent contractors, with no employees, that have exempted themselves from obtaining workers' compensation in accordance with this bill on any one project.
ON JUNE 3, 2010, THE SENATE ADOPTED AMENDMENTS #6 AND #7 AND PASSED SENATE BILL 3591, AS AMENDED.
AMENDMENT #6 rewrites the bill.
BACKGROUND
Under prior law, sole proprietors and partners were not required to obtain workers' compensation insurance on themselves. Chapter 1041 of the Public Acts of 2008, which took effect December 31, 2009, changed prior law by requiring that sole proprietors and partners who are engaged in the construction industry must obtain workers' compensation coverage on themselves unless they are working on a structure on their own property, for their own use and without compensation or they are doing work directly for a homeowner. During the First Extraordinary Session of the 106th General Assembly in 2010, legislation was enacted, Chapter 1 of the Public Acts of 2010 (Ex. Sess.), to temporarily remove the requirement that sole proprietors and partners who are engaged in the construction industry must obtain workers' compensation coverage on themselves. Chapter 1 of the First Extraordinary Session provides for the requirement being reinstated on March 28, 2011.
THIS AMENDMENT
This amendment requires all construction services providers to carry workers' compensation insurance on themselves. This requirement would apply whether or not the provider employs fewer than five employees. A construction services provider would be exempt from this requirement if the provider:
(1) Is a construction services provider rendering services on a construction project that is not a commercial construction project and is listed on the construction services provider workers' compensation exemption registry described below;
(2) Is a construction services provider rendering services on a commercial construction project and is listed on the registry. No more than three construction services providers who are performing direct labor on a commercial construction project may be exempt under this amendment;
(3) Is covered under a policy of workers' compensation insurance maintained by the person or entity for whom the provider is providing services;
(4) Is a sole proprietor or partner engaged in the construction industry doing work directly for the owner of the property;
(5) Is a sole proprietor or partner building a dwelling or other structure, or performing maintenance, repairs, or making additions to structures, on the sole proprietor or partner's own property for the sole proprietor or partner's own use and for which the sole proprietor or partner receives no compensation; or
(6) Is a provider whose employment at the time of injury is casual and thus is not subject to the worker's compensation laws under present law.
Any construction services provider who meets one of the following criteria may apply for an exemption from the requirement to carry workers' compensation insurance on the provider:
(1) An officer of a corporation who is engaged in the construction industry, except that no more than three officers of one corporation would be eligible for an exemption;
(2) A member of a limited liability company who is engaged in the construction industry if such member owns at least 30 percent of the company;
(3) A partner in a limited partnership, limited liability partnership or a general partnership who is engaged in the construction industry if such partner owns at least 30 percent of the partnership;
(4) A sole proprietor engaged in the construction industry; or
(5) An owner of any business entity listed in (1) - (4) that is family owned; except that no more than three owners of one family owned business may be exempt.
A construction services provider would only be eligible for one exemption, regardless of the number of business entities with which the provider may be associated. Any construction services provider requesting an exemption under this amendment must submit an application to the secretary of state. The exemption would be valid for two years from a date and time set by the secretary of state, but may be renewed. If the secretary of state refuses to list a provider on the registry, the provider may appeal the refusal to the chancery court of Davidson County. The court's final decision may be appealed as in other civil proceedings.
This amendment makes it a Class A misdemeanor for any employer to knowingly:
(1) Coerce or attempt to coerce a job applicant to obtain an exemption pursuant to this amendment; or
(2) Coerce, attempt to coerce, discharge or take any adverse employment action against an employee because the employee has failed to obtain such an exemption.
An action to recover damages for personal injury or death by a construction services provider on the registry will proceed as at common law, and the defendant may make use of common law defenses, but the provider will forego the right to sue to establish or reestablish workers' compensation coverage while the provider is listed on the registry.
A subcontractor engaged in the construction industry under contract to a general contractor engaged in the construction industry may elect to be covered under any policy of workers' compensation insurance insuring the general contractor upon written agreement of the general contractor, regardless of whether such subcontractor is on the registry, by filing written notice of the election with the department of labor and workforce development. The election of coverage may be terminated by the subcontractor or general contractor by providing written notice of the termination to the department and to all other parties consenting to the prior election.
A workers' compensation exemption may be revoked by the secretary of state upon:
(1) Notification from the board that the board has revoked or suspended any license issued to the construction services provider by the board;
(2) Notification from the department of any noncompliance with the present law provisions regarding worker's compensation payment of penalties by the construction services provider;
(3) A determination by the secretary of state that the construction services provider no longer meets the requirements for the exemption; or
(4) A determination by the secretary of state that the provider failed to renew the exemption or failed to pay any of the fees described below.
If a provider's exemption is so revoked, such revocation is effective upon the provider's name and other identifying information no longer appearing on the registry after being removed by the secretary of state.
The secretary of state may charge the following maximum fees:
(1) $100 for the issuance of a construction services provider registration to providers who have not been issued a license by the board or of a renewal of such registration;
(2) $100 for the issuance of a construction services provider workers' compensation exemption or of a renewal of such exemption;
(3) $20.00 for the filing of correction information for a document filed with the secretary of state, including change of address information;
(4) $20.00 for the filling of a revocation of the exemption;
(5) $20.00 for the issuance of a copy of a notice that the provider is listed on the registry; and
(6) An online transaction fee to cover costs associated with processing payments for applications submitted online.
WORKERS' COMPENSATION EMPLOYEE MISCLASSIFICATION EDUCATION AND ENFORCEMENT FUND AND THE MISCLASSIFICATION ADVISORY TASKFORCE
This amendment establishes the workers' compensation employee misclassification education and enforcement fund. Any moneys collected from the above fees would be deposited into the fund. All money in the fund would be allocated to the secretary of state to pay for all costs associated with the administration of this amendment.
This amendment creates an employee misclassification advisory taskforce to study issues relative to employee misclassification in the construction industry. Membership on the taskforce would include the commissioner of labor and workforce development; the commissioner of commerce and insurance; and the executive director of the board for licensing contractors. The secretary of state, the attorney general, the chairman of the advisory council on worker's compensation, the executive director of the district attorneys general conference, and the director of the TBI would all serve as ex officio nonvoting members of the taskforce. The taskforce may appoint additional ex officio nonvoting members as it deems appropriate. By February 1, 2012, and each February 1, thereafter, the taskforce must submit a report on its findings and progress to the commerce, labor and agriculture committee of the senate, and the consumer and employee affairs committee of the house.
By March 1, 2013, and each fiscal year thereafter, the taskforce must make recommendations to the general assembly regarding the allocation of any surplus in the fund. Such recommendations must include at least 80 percent of such surplus being allocated for the purposes of enforcement efforts relative to employee misclassification by the department of labor and workforce development and the board for licensing contractors. "Surplus" means any amount in the fund that exceeds 1.5 times the amount used from the fund in the previous fiscal year to pay for the costs associated with this amendment. Beginning on October 1, 2012, and annually thereafter, the treasurer must report the balance in the fund and the amount of such balance that is considered surplus to the commissioner of finance and administration for inclusion in the annual budget document and to the taskforce.
To the extent permitted by law, every agency, department, office, division or public authority of this state must cooperate with the taskforce and furnish such information that the taskforce determines is reasonably necessary to accomplish its purposes.
The taskforce would terminate on June 30, 2014, unless continued by the general assembly.
OTHER CHANGES
Under present law, an employer who deducts any portion of the worker's comp premium from the wages or salary of any employee entitled to such benefits commits a Class C misdemeanor, and upon conviction is fined for each offense.
This amendment specifies that it is also a Class C misdemeanor for any employer whose employee is entitled to the worker's comp benefits to require such employee to pay any portion of the insurance premium paid by the employer. In addition to the criminal penalties for these two offenses, the commissioner may impose a civil penalty of up to the amount of premiums deducted from such employee's wages or salary. Such a civil penalty would be paid directly to the employee.
Generally, present law provides for various penalties to be assessed against employers who are subject to the workers' compensation laws but who have failed to secure payment of compensation until after being notified in writing of such failure by the commissioner. The monetary penalty is equal to 1.5 times the average yearly workers' compensation premium. This amendment adds that for employers in the construction industry, the penalty will be the greater of $1,000 or 1.5 times the average yearly workers' compensation premium. Under present law, the penalty for failure to timely obtain coverage in violation of an order by the commissioner is 2.5 times the average yearly workers' compensation premium. This amendment establishes that penalty to be the greater of $2,000 or 2.5 times the average yearly workers' compensation premium if the employer is in the construction industry.
This amendment requires the commissioner to notify the secretary of state when any employer engaged in the construction industry fails to secure payment of compensation and when an employer who has failed to secure payment of compensation has secured such payment.
This amendment adds that in the event an employer fails to comply with the workers' compensation laws by failing to secure payment of compensation two or more times within the past five years, the commissioner will issue a monetary penalty of 1.5 times the average yearly workers' compensation premium or, in the case of an employer in the construction industry, the greater of $3,000 to 3 times the average yearly workers' compensation premium for each second or subsequent violation and such person would be permanently prohibited from obtaining an exemption pursuant to this amendment.
Records maintained by the secretary of state relative to the construction services provider registration and to the workers' compensation exemption registration, other than records displayed on the registry, would not constitute a public record and would not be open for public inspection.
For purposes of promulgating rules and regulations, the bill would take effect upon becoming a law. The provisions of the amendment regarding the civil penalties described above would take effect July 1, 2011. The requirement that any employer engaged in the construction industry that fails to comply to secure payment for compensation would be permanently prohibited from obtaining an exemption pursuant to this amendment as described above would take effect March 1, 2012, and would apply only to a failure to secure payment for compensation that occurs on or after such date. For all other purposes, the bill would take effect March 1, 2011.
AMENDMENT #7 specifies that any online transaction fees that are charged by the secretary of state to cover the costs associated with processing payments for applications that are submitted online will not be deposited into the employee misclassification education and enforcement fund. This amendment requires that the commissioner of labor and workforce development must administer the employee misclassification education and enforcement fund instead of allocating monies in the fund to the secretary of state.
This amendment replaces the requirements that the governor make recommendations for disbursements from the employee misclassification education and enforcement fund and that the employee misclassification advisory taskforce make recommendations for allocating any surplus in the fund with a requirement that the taskforce make recommendations regarding programs and services to be funded from the employee misclassification education and enforcement fund.
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