No Workers Comp? Go to Jail! Go Directly to Jail! - Part 2
In the first installment of this series I talked about the
legal obligation employers have to carry workers
compensation insurance on their employees. I explored the
severe consequences meted out on those employers that
don't. Namely, employers who willfully choose not to carry
workers comp on their employees are subject to both
criminal and civil penalties. The employer also loses its
immunity from employee initiated lawsuits. All in all, the
downside of non-compliance is generally unpleasant enough
to get most organizations to comply.
An Inncocent Mistake?
But what about this situation? Paul the painter needs
another painter to keep pace with all the work he's lined
up. But Paul needs to keep his costs down to remain
competitively priced. He's afraid that if he hires Pedro
the painter the additional workers comp and employee
benefits he'll have to pay will cause his costs to
skyrocket. Paul tells Pedro that he just can't afford to
hire him. "No problem," says Pedro. Just hire me as an
independent contractor. I'll even sign a form stating
unequivocally that I'm not your employee. "Great idea!"
says Paul. "You're hired."
Several months go by and business is really booming. Pedro
has proven to be a valuable asset. Each morning Paul and
Pedro meet. Paul gives Pedro explicit instructions as to
what hours to work, where to work, and how he should do the
job. Paul also supplies Pedro with the paint, spray guns,
and other equipment he'll need. With the amount of work
Paul gives him, Pedro is now working only for Paul. The
situation works so well that Paul does the same thing with
26 other "independent contractors."
Trouble in Paradise
One day Pedro is working away high on some scaffolding.
His foot slips on some spilled paint and before he can
regain his balance, he goes hurtling towards the ground
below. Fortunately, Pedro only landed on his back and not
his head. And although his injuries are not life
threatening, they are certainly life altering.
Upon admission to the hospital, Pedro is questioned as to
how his injury occurred. He responds that he was injured
on the job. Pedro's hospital bills add up quickly. He has
no heath insurance. In addition to being in constant pain,
he fears that he will also face financial ruin. He is very
concerned about the well being of his wife and 3 children.
Meanwhile, Pedro's wife Jill contacts Paul. Paul is very
sympathetic to Pedro's situation but explains to Jill that
there is no workers compensation policy in force because
Pedro is an independent contractor. He even offers to fax
Jill the form Pedro signed.
Jill is absolutely outraged at Paul's attitude towards her
husband. After seeing Larry the Litigator's splashy
television commercial, she decides that she means business
and calls him. After hearing of Pedro's plight, Larry goes
on a 10 minute tirade full of righteous indignation. Jill
now feels that not only does she have a case against Paul,
she has a moral obligation to sue so as to protect the
world from the other "Pauls" that are out there lurking.
Rough Justice
So what do you think happens next? Well, given the facts
of the case, here's what could end up being posted under
"Failure to Insure" Prosecutions on the Pennsylvania
Department of Labor and Industry's website:
Paul the Painter, owner of Paul's Painting in Harrisburg,
pled guilty to 27 misdemeanor counts of the third degree on
June 1, 2008, in the Dauphin County Court of Common Pleas
for failing to insure its workers' compensation liability.
The judge sentenced Paul to pay the costs of prosecution
and placed him on probation for a period of 27 years. Judge
also ordered Paul to make restitution to the injured
employee in the amount of $173,370. The Bureau's
Compliance Unit reports that Paul's Painting is no longer
in business.
So where did Paul go wrong? Pennsylvania case law is clear
that whether an employee / employer relationship exists is
a matter of law and is determined by the facts of each
case. The perceptions of the parties involved (ie. Paul
and Pedro) are completely irrelevant.
Although many factors have to be considered to determine
the true nature of an employment relationship, the amount
of control exercised by the employer is generally given a
lot of weight. The facts here show that Paul closely
monitored and controlled what Pedro did and how he did it.
Therefore, Pedro was an employee and Paul was not in
compliance with Pennsylvania law.
----------------------------------------------------
Eric D. Patrick is an attorney and Chief Operating Officer
of Consumers Insurance Agency Inc.
http://www.consumers-insurance.com . He also engages in
insurance consulting and legal work through The RiskAssure
Consulting Group. Please contact him for further
information.
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