Synopsis: Don’t Panic! While Not Precedent, Thanks to New Ruling, OccAcc or Occupational Accident Insurance May No Longer Insulate Companies From WC Exposure. Analysis by Arik Hetue, J.D. Commentary/editing by your gracious editor.
Editor’s comment: We published several articles in the past discussing the concept of “jobbing-out” some tasks or whole corporate departments and moving them to independent contractors, however we have always cautioned this was a risky thing to do. The primary focus of past articles was to ensure you weighed the “multi-factor control test” such that a reasonable hearing officer would find the contractor to be just that – a contractor – as opposed to an employee. In the past we have advised the primary concern was to have such individuals or groups obtain their own WC insurance coverage. With this new ruling by the Southern District Federal Court, this may no longer be a green light option. This may signal the “Independent Contractor” status being relegated to only those classic examples of hiring a professional to perform a specific one-time task.
The Independent Contractor is a work classification status long used in the American workforce. Individual contractors are retained to perform specific one-time tasks, or a series of similar tasks which are outside the normal business operations of a hiring company. This is the most well-known variant. Over the past 20 years, there has been a rise of a different kind of “independent” contractor both in Illinois and also in other high-dollar WC venues. We have previously opted to use the term of “dependent” contractor, somewhat tongue-in-cheek, as the IL courts have hammered and chiseled away at the concept since its inception. The entire concept is most easily understood by considering a trucking company as opposed to a logistics company.
Numerous U.S. trucking companies have selected OccAcc or Occupational Accident insurance for all or part of their workforce. Such WC-like coverage doesn’t match statutory requirements and comes with challenges and risks for any company using it. To better understand the concept, take a look at this website:
The new federal court lawsuit is going to be required reading for this industry and anyone in a different industry considering similar concepts for “independent contractors.”
To better understand it, we will use a fictional company for an example: DEF Transportation, Inc. – this fictional company has a warehouse with an attached office and the following employees: 6 office workers, 8 warehouse personnel, and 15 drivers. The drivers show up at the warehouse, take the trucks that are pre-loaded by the warehouse staff and deliver the goods pursuant to a route designed by the office staff. Easy peasy – everyone is an employee and DEF Transportation will need to provide WC coverage for all such workers who may come with varied risk for injury.
Presume DEF Transportation wants to get away from the high cost of insuring their truck drivers from WC. As the drivers are the ones assuming the most risk in this set of employees (driving on highways, removing the goods from the truck without the assistance of a forklift or material other than a dolly, entering onto private property to deliver said goods), DEF Transportation could likely see a significant cost reduction in work comp insurance if they can remove these folks as “employees” from their books. How this is done is to change from a trucking company into a “logistics” company – they don’t deliver the goods themselves anymore, they just facilitate the delivery. The company would still employ the office staff and warehouse personnel, but the drivers would now be “Independent Contractors” and would need the following in place in order to continue to contract with the company:
· A vehicle which in some cases could be leased from the company, or the company could facilitate a financed purchase of the truck,
· Their own WC insurance which again is often obtained through the company, or via their required company insurer,
· Potentially a requirement the individual driver incorporate or create a personal LLC for his new venture, and
· All the attendant expenses for the gear – vehicle insurance, maintenance of the vehicle, gas, etc, and the drivers are now paid via 1099, and as such responsible for their own taxes and deductions.
When these factors are present, DEF Transportation “contracts” with the driver to deliver the goods they previously “employed” a similar driver to deliver.
Where you can fall into pitfalls is the ever-present “multi-factor control test” which governs classification of an employee v. independent contractor. In Illinois, there are many issues to look at including:
• The right to control the manner in which the work is done (who sets routes);
• The nature of the work performed as it relates to Respondent’s business;
• The method of payment (1099 for tasks/hourly wages);
• The right to discharge (can they be “fired”);
• The skill required in the work to be done;
• Who provides tools, materials, or equipment;
• The label given to the contractor by the parties in a written agreement;
But the caveat we have always stated was the primary concern in such cases is whether Claimant provided their own workers' compensation insurance. We have often touted this as the number one concern for employers looking to maneuver their “logistics” company into this system – if the contractor has their own WC insurance, if injured they will likely file a claim against said personal insurance and proceed as one would expect, leaving what used to be the “employer” in the clear. While it seems arcane, and as though it is an end-around the simple issue of having to provide coverage, there is a long history of this being allowed as long as the facts line up properly.
In the recent order from the U.S. District Court for the Southern Illinois in the matter of Thomas Frederking v. Zurich American Insurance Company and Triple Crown Services Company, Federal Judge Staci M. Yandle allowed a portion of a lawsuit to go on beyond the Motion to Dismiss stage, and while it is certainly too early to tell, this may signal the death knell of the concept in Illinois and possibly the Federal Seventh Circuit.
It should be noted at the outset, in the interests of full disclosure, Plaintiff Frederking’s counsel is Lee Barron, who is a veteran and solid litigator in Southern Illinois. Your author had the pleasure of trying a case against Attorney Barron in the Southern District some 5 years ago. With utmost respect to Mr. Barron, who is an excellent attorney, we couldn’t disagree more with the mental gymnastics necessary to get to the legal conclusions alleged in the complaint. That said, his arguments have survived dismissal, and this case will move forward.
Plaintiff Frederking was a Missouri citizen and driver for Defendant Triple Crown, a company which had a terminal based out of Madison County, Illinois. Frederking alleged Triple Crown misclassified him and other "owner-operators" as independent contractors and committed a fraudulent act by requiring them to purchase workers' compensation insurance coverage via an insurance contrivance titled as an "occupational injury" plan through Zurich, or an equivalent policy from another carrier. It should be noted Triple Crown took deductions from the drivers' paychecks to pay for the coverage, and as such it can be argued the insurance was not obtained independently of Triple Crown, but through them. The complaint goes through the facts to demonstrate the multi-factor control test was weighted in favor of finding Mr. Frederking as an employee.
Frederking’s second amended complaint contained 7 counts – two counts for a violation of the Illinois Deceptive Business Practices Act against Triple Crown and Zurich individually, two counts of unjust enrichment against each individually, a count of a count of civil conspiracy against both defendants, a Federal RICO count against both defendants, and a count for a preliminary injunction to cease the practice pending the resolution of the matter at bar. We note the complaint is not the proper vehicle for an injunction and it was summarily dismissed with an instruction to assert this issue via motion.
The primary allegations Frederking made, which are the bases for all counts, presuppose he and his fellow drivers were actually employees of Triple Crown at all times, and as such they should have already been covered by the Illinois Workers' Compensation Act. In this scenario, they did not require the coverage Triple Crown required and Zurich offered to sell them. There were numerous other allegations in the complaint, but this appears to be the crux of the argument – Triple Crown and Zurich conspired to force the drivers into purchasing their own “occupational accident insurance” which was overpriced and did not absolve Triple Crown of its liability under the IWCA.
Zurich filed a motion to dismiss all counts against it, and the order entered was in relation to this motion. Zurich argued Frederking did not allege any fraud with enough specificity to maintain a cause of action, there were not sufficient acts plead to maintain a count under the RICO statute or for conspiracy, and that the unjust enrichment count should be dismissed as there was no underlying improper conduct. For the purposes of this analysis, we ask our readers to remember – when dealing with a motion to dismiss, as in the matter at bar, all facts need to be looked at in the light most favorable to the non-moving party – in this case, Mr. Frederking.
The order of Judge Yandle is disheartening to the defense bar, as she disagreed with Zurich and found the complaint alleged sufficient facts to allow the claim to proceed under the Illinois Consumer Fraud Act count and the unjust enrichment count. Part of her reasoning included a letter from a Zurich claims professional attached to the complaint stating that the occupational accident coverage is not a workers' compensation policy. We caution our readers – you will want to take note of this specific issue, as it may result in a simple change of requiring an actual WC policy.
While Judge Yandle agreed with Zurich the conspiracy and RICO counts were insufficiently plead and therefor dismissed. They were dismissed without prejudice, and the Judge outlined in her order the reasons the claims failed – effectively that Plaintiff had not plead sufficient facts to confirm who discussed the alleged fraudulent acts between Zurich and Triple Crown, when those discussions took place, where and when they occurred, etc. She further outlined for the RICO count there was no pattern of racketeering alleged. There was a final concern on the RICO count with respect to a possible statute of limitations issue dependent upon when Frederking became aware of the alleged misdeeds.
We note this is only a motion to dismiss, and not a dispositive ruling. We also note the claims Judge Yandle dismissed can easily be resurrected upon inclusion of relevant facts consistent with her outlined reasoning. As a matter of law, there is nothing (outside a possible time bar on the RICO action) preventing Plaintiff from asserting these claims. We will be watching this case closely (along with the rest of the insurance and trucking industries) to see what further information comes out of the Southern District, as it has significant bearing on any company using this style of workforce, inside and outside of Illinois. We are the heartland, many trucks cross our borders en route to another state and a legal attack on OccAcc coverage may be sweeping.
We would appreciate your thoughts and comments, feel free to reply to Arik Hetue, J.D. at firstname.lastname@example.org or post them on our award winning blog.
Synopsis: HERE WE GO AGAIN--NEW IL WC RATE SHEETS ARE HERE AND ILLINOIS RATES INCREASE AGAIN!!!
Editor’s comment: Illinois WC Rates Jump Again So Please Be Aware Of The New Rates or Your Claims Handling Will Suffer and Penalties May Ensue.
Maybe it’s a sign of a growing economy—even though rates continued to increase almost every cycle as we continue to watch the growth of IL WC rates. Starting in the 1980’s, the IL WC Act provides a formula which effectively insures no matter how poor the IL economy is doing—WC rates continue to climb and climb some more.
We caution our readers to pay attention to the fact the IL WC statutory maximum PPD rate is now a whopping $755.22. This rate is only through June 30, 2016 and the new max PPD will be published in January 2017. When it will be published in January 2017, this rate will change retroactively from July 1, 2016 forward. If you don’t make the change, your reserves will be incorrect--if this isn’t clear, send a reply.
The current TTD weekly maximum has risen to $1,428.74. A worker has to make over $2,143.11 per week or $111,441.72 per year to hit the new IL WC maximum TTD rate. Does any state in the United States have a TTD maximum that sky-high?
The new IL WC minimum death benefit is 25 years of compensation or $535.79 per week x 52 weeks in a year x 25 years or $696,527.00! The new maximum IL WC death benefit is $1,428.74 times 52 weeks times 25 years or a lofty $1,857,362.00 plus burial benefits of $8K. IL WC death benefits also come with annual COLA increases that we feel potentially makes our state the highest in the U.S. for WC death claims.
The best way to make sense of all of this is to get Shawn Biery’s colorful, updated and easy-to-understand IL WC Rate Sheet. AGAIN—If you want just one or a dozen or more, simply reply to Shawn at email@example.com and Marissa at firstname.lastname@example.org They will get a copy routed to you before they raise the rates again! Please confirm your mailing address if you would like laminated copies sent to your home or office!
Synopsis: The Seventh Circuit Denies Employee Sexual Orientation in Title VII Action, Cautioning of Things to Come. Analysis by Bradley J. Smith, J.D.
Editor's Comment: In An Opinion Imploring Changing Title VII Sexual Orientation Laws, the Federal Seventh Circuit Remains with Applicable Stare Decisis. On July 28, 2016, the Seventh Circuit issued an opinion in Hively v. Ivy Tech. Justice Rovner authored the ruling affirming the Federal District Court’s dismissal of Plaintiff Hively’s Title VII discrimination claims. In doing so, the Seventh Circuit cited its precedents of Hamner v. St. Vincent Hosp. & Health Care Ctr., Inc., 224 F.3d 701, 704 (7th Cir. 2000) and Spearman v. Ford Motor Co., 231 F.3d 1080, 1085 (7th Cir. 2000). Both of those cases held sexual orientation is not a protected class pursuant to Title VII’s protections.
The Seventh Circuit embarked on an extensive assessment of the current state of all the Federal Courts’ precedence on sexual orientation discrimination. It also analyzes the EEOC’s recent opinion in Baldwin v. Foxx, EEOC Appeal No. 0120133080, 2015 WL 4397641 (July 16, 2015), which identifies sexual orientation as a protected category under Title VII. Justice Rovner explicitly invites SCOTUS or the federal legislature to change the history of sexual orientation’s applicability to Federal Title VII employment laws.
In embarking on that endeavor, the Seventh Circuit identifies a myriad of precedential opinions from other jurisdictions in an effort to invite SCOTUS to say “yes” or “no” to sexual orientation discrimination. Justice Rovner also identifies multiple opportunities when the legislature has passed on amending Title VII to reflect a protected category for sexual orientation. Notably, the Seventh Circuit identifies the various state court jurisdictions that provide or do not provide sexual orientation workplace protections. Indeed, states with laws that prohibit this are: California: Ca. Gov't. Code §§ 12920, 12940, 12926 & 12949; Colorado: Colo Rev. Stat. § 24–34–401, et seq.; Connecticut: Conn. Gen. Stat. sec. 46a–81c(1); Delaware: 19 Del. C. § 711; Hawaii: Haw. Rev. Stat. Ann. §§ 368–1, 378-2; Illinois: 775 ILCS 5/1–103 & 775 ILCS 5/1–102; Iowa: Iowa Code Ann. 216.2(14), 216.6; Maine: Me. Rev. Stat. Tit. 5 § 4571, § 4572, § 4553 9-C; Maryland: Md. Code Ann., State Gov't § 20–606; Massachusetts: Mass. Gen. Laws Ch. 151B, § 3(6), § 4; Minnesota: Minn. Stat. Ann. § 363A.02, § 363A.08; Nevada: Nev. Rev. Stat. Ann. §§ 613.330, 610.185, 613.340, 613.405, & 338.125; New Hampshire: N.H. Rev. Stat. Ann. §§ 354–A:6, 354–A:7; New Jersey: N.J. Stat. §§ 10:5–3, 10:5–4, 10:5–12; New Mexico: N.M. Stat. § 28–1–7; New York: N.Y. Exec. Law § 296; Oregon: Or. Rev. Stat. Ann. § 659A.030; Rhode Island: 28 R.I. Gen. Laws §§ 28–5–5, 28–5–7; Utah: Utah Code Ann. § 34A–5–106; Vermont: Vt. Stat. Ann. tit. 21, § 495; Washington: Wash. Rev. Code Ann. §§ 49.60.030 49.60.010, 49.60.040; Wisconsin: Wis. Stat. Ann. §§ 111.31, 111.36, 111.325. Some states even have this type of protection for government employees: Alaska: Alaska Admin. Order 195; Arizona: Executive Order 2003-22; Indiana: Indiana Governor Mitch Daniel's Policy statement of 4-26-05; Kentucky: Kentucky Executive Order 2003-533; Louisiana: Executive Order No. JBE 2016–11, Governor of Louisiana, 13 April 2016; Michigan: Michigan Executive Directive, No. 2003-24; Missouri: Executive Order 10-24; Montana: Montana Executive Order No. 41-2008; North Carolina: Executive Order 93 (2016); Ohio: Executive Order 2011-05K; Pennsylvania: Executive Order No. 2003-10; Virginia: Executive Order 1 (2014). The jurisdiction that Hively lived in (Indiana) does not provide a state law protecting employees from sexual orientation workplace discrimination.
Importantly, Illinois does have a state law protecting workers from sexual orientation discrimination, so employers within this state should be well aware and have a cultural history of guarding against sexual orientation discrimination in the workplace. Employers in this state are also cognizant of this protected class when making all employment decisions.
One of the interesting evaluations in the opinion is the discussion as to how differing Federal Circuits and District Courts have reasoned out their respective opinions related to sexual orientation. Some of the courts have completely thrown out any case where there is an entanglement of sexual identity and sexual orientation allegations. However, the Seventh Circuit Court cautioned against this reasoning, identifying the risk of “throwing out the baby with the bath water.” Inapposite, other courts have taken on the difficult task of drawing distinctions between sexual identity discrimination and sexual orientation discrimination. The Seventh Circuit cautioned on this reasoning too, because it often includes a distinction without a difference. As you may know, sexual identity discrimination falls under Title VII’s protections falling under the category of discrimination based on sex. Whereas sexual orientation discrimination is based on whom the individual shares an intimate relationship with. In other words, sexual orientation discrimination is based on discriminating against the individual by whom the employee selected as a partner, etc.
Justice Rovner also discusses the difficult task of drawing a distinction due to its effect on the flamboyancy of a gay man or the masculinity of a lesbian. In his assessment, if the distinction were more drawn between the two, then the more extreme the individual’s flamboyancy or masculinity, the more likely the discrimination will fall under sexual identification analysis, and thus, would be protected under Title VII. Justice Rovner predicts this analysis as leaving the more gender conforming homosexuals unprotected.
Based on the Seventh Circuit’s discussion, they expect—and indeed, are advocating for—a change in the law. However, despite this, the Seventh Circuit comes to the ultimate conclusion that due to the principles of stare decisis, they must afford due respect to their prior opinions and affirm the dismissal of Hively’s case.
The research and writing of this article was performed by Bradley J. Smith, J.D. Bradley can be reached with any questions regarding the employment law and general liability defense at email@example.com.