8-7-12; When is an Injured Worker an “Employee” for Workers’ Compensation Purposes and Coverage?
/Here are our thoughts:
A. Employee vs. Independent Contractor
In situations where elements of both an employee-employer relationship and an independent contractor relationship are present, the Illinois Workers’ Compensation Commission (and Illinois courts reviewing the decision of the IL WC Commission on appeal) ostensibly look to the following factors in determining whether Petitioner is considered an employee:
1. The relationship of the work performed to the overall business of both the individual performing the work and the regular work of the alleged employer;
2. The party most likely to have insurance coverage for the loss;
3. The right to control the manner in which the work is performed;
4. The method of payment for the work performed;
5. The right to discharge and the means of discharge;
6. The party furnishing tools, materials and equipment.
In our view, Illinois and most states’ WC case law is generally unpredictable. The WC Commission/Boards and reviewing courts ostensibly utilize the above-outlined formal legal standards as their published decisions are presented to the larger public—they may uniformly indicate the ‘right to control the work’ is a paramount standard. We don’t feel that standard tells the bigger story.
In contrast, more veteran observers point to the ‘deep pocket’ theory of who has available workers’ compensation insurance (or ‘self-insurance’) coverage when an individual suffers a serious work-related injury or death and their family is left without any source to pay for time lost and medical bills. Always remember, the workers’ comp system in Illinois arose out of the ashes of the Cherry Mine disaster where numerous families were left to fend for themselves without breadwinners.
Also remember if the injured party had their own workers’ compensation insurance policy, they probably wouldn’t be bringing the claim. In analyzing whether a worker is an employee or an independent contractor, the party most likely to have insurance coverage faces a very strong burden of establishing the injured worker claiming to be an employee wasn’t actually an “employee” but was an employer in their own right and therefore had an equal responsibility to obtain and pay for insurance to cover their own injuries.
The above concept is critically important in ongoing work relationships, particularly where the injured individual now claiming to be an employee worked alone and continuously performed most or all of their work for the individual or organization claimed to be the employer. In our view, it is crucially important to continuously audit your vendors to insure everyone on your worksite has their own binding WC insurance coverage.
A good example of this is a truck driver who only delivers loads for one organization, even if the driver owns their own truck and pays all of their own expenses but possibly doesn’t have workers’ compensation coverage and is going “bare” to save money. Where this is occurring, we strongly urge that you require such an individual present a “CI” or certificate of insurance demonstrating proof of workers’ compensation coverage for their own injuries. Please note in Illinois, it is workers’ comp fraud to present a faked or phony certificate of insurance. Where the injured individual is left without WC coverage, the WC Commission or Board may go to great lengths to find such an individual is an employee.
B. ‘Independent Contractor Agreements’
Risk managers can be confident Workers’ Compensation Commissions/Boards and courts generally are extremely suspicious of ‘independent contractor agreements’ or other documents designed to clearly state an uninsured individual is an independent contractor in advance of the injury. When all the facts and circumstances of the work being performed lead to the conclusion the individual performing the work is an employee, the hearing officers may completely reject the terms of the ‘independent contractor agreement’ as a subterfuge designed to mislead both the administrator and the injured employee.
Our favorite example of this is the trucking company that had each driver execute an ‘independent contractor agreement’ when further investigation also disclosed that the driver also had to fill out a typical ‘employment application’ which was contained in the same file. Don’t be misled into thinking that an ‘independent contractor agreement’ will be legally enforceable—in many instances, the applicable Commission/Board may provide an even higher level of scrutiny when presented such documents.
In a serious injury, it is likely the employee may seek out legal assistance and a veteran workers’ compensation attorney will readily bring such a claim and ignore the agreement. You may get caught if you don’t report or otherwise reserve for such losses. To the extent that the injured individual views such a document as legally enforceable and doesn’t seek benefits, it may have its intended informal effect.
We are repeatedly asked—can I hire an independent contractor who is a “sole proprietor” and can “opt out” of WC coverage? In our view, the answer is technically yes, it is legally possible to do so. Our strongest legal advice is to never, ever do so. The problem you are going to have when you allow such a legal relationship to occur is you are hanging yourself out to dry—if that uninsured independent contractor is seriously injured or killed, it is possible they or their family will come after you for WC benefits. Defending such claims is always expensive and dicey. Our strongest vote is to insure all of your independent contractors have their own WC coverage—don’t let anyone “opt out” and expose you to a tough WC claim.
C. Special employment relationships
1. Volunteers
Volunteers are not generally considered employees under most states’ Workers’ Compensation Acts. Purely volunteer workers who are not paid and have no expectation of payment are excluded from WC coverage, even if they suffer severe injuries.
Again, remember that this concept may give you a legal ‘option.’ It is possible the volunteer may have a viable common law liability claim and it is conceivable workers’ compensation benefits can be paid which may serve to cut off the third party exposure. If you have such a claim, give us a call or reply for further advice.
2. Casual or part-time employees
Casual or part-time employees are covered by the Illinois Workers’ Compensation Act and the Acts of many states. Such workers may be entitled to benefits despite their part-time status. In these situations, the IL employees’ average weekly wage may be the same as the rates for TTD and PPD. What we mean by this is the part-time employee’s average weekly wage may actually become the maximum amount they can be paid for TTD and PPD (see the last two sentences in Section 8(b)(2) and 8(b)(2.1)). This low rate leads to a generally minimal exposure in claims involving part-time employees unless the individual was working more than one job and the employer was aware of dual employment.
Also, this limitation on rates in IL does not apply in amputations, death cases or total/permanent disability claims where the minimum amount is one-half of the then-applicable statewide average weekly wage. In these claims, benefits may be paid at levels which greatly exceed the amount the employee was making and can be what some observers consider a windfall for the employee. It can also lead to enormous problems in getting a seriously injured part-time employee back to work as they may want the much higher total and permanent minimum rate.
3. Loaned and borrowed employees
From time to time, an employee of one staffing or logistics company may perform job duties for another company either under a contractual relationship or in a relationship implied by the nature of the employment. Under IL WC law, both parties have liability for injuries to staffing employees.
In these situations, where the employee is working at the time of the accident may lead to that employer being primarily responsible unless there is a contractual agreement to the contrary.
However, if the employer that is primarily responsible does not pay or fails to timely pay benefits, the other employer must pay. Liability is joint and several in such situations. Again, remember the unstated “rule” is to insure the injured employee has insurance coverage for the loss.
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