Synopsis: Understanding Employer v. Employee in IL Work Comp.
Editor’s comment: Thoughts and concepts for all WC professionals to consider.
Employee vs. Independent Contractor
In situations where elements of both an employee-employer relationship and an independent contractor relationship are present, the IL WC Commission and Illinois courts reviewing the decision of the Commission on appeal look to the following major factors in determining whether petitioner is 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
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.
Case law is generally unpredictable. The Commission and courts ostensibly utilize formal legal standards as their published decisions are presented to the larger public—they will indicate the ‘right to control the work’ is a paramount standard. I don’t agree with that “standard” at all.
Illinois now has the Employee Classification Act (820 ILCS 185) which outlines the above elements to assist in categorizing workers as employees or independent contractors. More veteran observers point to the ‘deep pocket’ theory of who has available insurance (or ‘self-insurance’) coverage when an individual suffers a serious injury and is left without any source of paying for time lost and medical bills.
Remember if the injured party had his or her own workers’ compensation policy, they probably wouldn’t be bringing the claim. The party most likely to have insurance coverage faces a very strong burden of establishing the individual claiming to be an employee was an employer in their own right and had an equal responsibility to obtain insurance to cover his or her own injuries. The above concept is critically important in ongoing work relationships, particularly where the individual claiming to be an employee worked alone and continuously performed most or all of their work for the individual or organization claiming to be the employer.
A good example of this is a truck driver who only delivers loads for one organization, even if the driver owns his own truck and pays all of his own expenses (not including workers’ compensation coverage). Where this is occurring, we strongly urge that you require such an individual to present continuing proof of workers’ compensation coverage for his own injuries. Where the injured individual is left without coverage, the IL WC Commission and courts have gone to great lengths to find that such an individual is an employee.
Another growing area of legal controversy is the mischaracterization or misclassification of workers as independent contractors when they are filling traditional employee roles. If a general contractor or building owner hires five plumbers and keeps them working at all times, it may become difficult to call each of them “independent,” particularly if they only work for the same company for weeks, months and years. Misclassification of workers is designed to avoid payroll taxes, unemployment benefits, workers’ comp insurance and other costs. The Illinois Department of Labor and many of our sister states are “attacking” this concept with new and punitive laws whenever and wherever they see it. In the workers’ comp arena, we do feel protections should be in place to insure injured workers are provided benefits when the unforeseen occurs.
2. ‘Independent Contractor Agreements’
Also, you can be confident the IL Workers’ Compensation Commission and courts tend to be extremely suspicious of ‘independent contractor agreements’ or other documents designed to clearly state or claim an 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 IL WC Commission may completely reject the terms of the ‘independent contractor agreement’ as a subterfuge designed to mislead both the Commission 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 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 Commission will 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 misleading agreement. An employer may get caught without needed WC coverage if you don’t report to your insurance carrier/TPA or otherwise reserve for such losses.
Only to the extent an injured individual views such a document as legally enforceable and doesn’t seek benefits, it may have its intended informal effect. In our view, the risks are much too high to rely on it.
3. Special employment relationships
Volunteers are not generally considered employees under the Illinois Workers’ Compensation Act. Purely volunteer workers who are not paid and have no expectation of payment are excluded from coverage under the Illinois Workers’ Compensation Act, even if they suffer severe injuries. Please note, workers’ compensation benefits other than medical bills such as TTD/TPD and PPD are calculated based on the wages/salary of the worker—volunteers don’t have a wage/salary from which to calculate those weekly benefits. Again, remember 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 might serve to cut off the third party exposure.
b. Casual or part-time employees
Casual or part-time employees even with very low wages are covered by the Illinois Workers’ Compensation Act and will be entitled to benefits despite part-time status. In these situations, the employees’ average weekly wage may be under or close to the minimums for TTD and PPD. It is not the minimum for amputations, death or total and permanent disability benefits—those minimums are exponentially higher. The part-time employee’s average weekly wage may actually become the 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 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, as indicated above, this limit does not apply in amputation, death or total and 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 a tremendous 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.
Loaned and borrowed employees—Staffing/PEO’s
From time to time, an employee of one company may perform job duties for another company either under a contractual relationship or in a relationship implied by the nature of the employment. In such claims, both employers are simultaneously liable for WC benefits with one of the employers having primary liability for a loss. In these situations, the employer benefiting from the services of the employee at the time of the accident will be found to be the primarily responsible party. Secondary liability will be on the company providing the worker—unless there is an agreement to the contrary.
However, if the borrowing employer does not pay or fails to timely pay benefits, the loaning or original employer must pay. The IL WC Act is clear–liability is joint and several in such situations. Again, remember the unstated rule is to insure the injured employee has WC insurance coverage resulting in benefits for the loss. It is incumbent on risk managers and defense attorneys to make sure which entity has primary liability in defending or managing such claims. You may want to address choice of counsel as well as liability for payment of counsel in any agreement.
d. Statutory employment
In Section 1(a)(3) of the Illinois Workers’ Compensation Act, there is an unusual and little-known provision which will impose a statutory employment relationship solely for the purposes of workers’ compensation coverage. A general contractor or commercial property owner who directly or indirectly hires an uninsured contractor to perform work on a commercial property becomes the statutory employer of the employees of that contractor if they become injured.
In the 1978 landmark case of Fefferman v. Industrial Commission, the Illinois Supreme Court found the owner of a property became liable to pay compensation to an uninsured contractor’s employee who was injured while demolishing the building. Statutory employment extends to activities deemed to be extra-hazardous including erection, maintaining, removing, remodeling, altering or demolishing any structure, including construction, excavation or electrical work. In this situation, the statutory employer may file a common law action against the uninsured contractor and recover as damages any benefits which they were required to pay as a result of the statutory requirement. This is a cumbersome method of recovering these payments and is a strong incentive to insure that a valid certificate of insurance is maintained.
It is therefore critical a commercial property owner or any contractor hiring a subcontractor to perform work on a commercial property require a certificate of insurance establishing valid Illinois insurance coverage for that subcontractor’s employees. Otherwise, the Workers’ Compensation Commission will impose liability ‘up the chain’ of contractors to the owner until they locate a party with insurance coverage for the loss.
The owner or general contractor can only avoid liability if the subcontractor actually has insurance to cover the loss. There have been cases reported where a certificate of insurance was issued but an injury took place outside of the limitations covered in the policy, either geographically or during a period of time that the certificate of insurance did not cover.
4. Lack of WC Insurance Now Ends IL WC Exclusivity
The other aspect of handling such claims is the IL WC Commission’s heightened efforts to police and patrol all Illinois employers to stop uninsured employers from operating without WC insurance and/or file for civil and criminal penalties where appropriate. Starting in 2011, the Act was amended to allow two possible legal outcomes where an employer does not have insurance for a work injury.
First, the employee can make a traditional WC claim against the employer and due to the lack of WC insurance, the employer can try to adjust the claim and pay what is due under the Act.
Second, the employee can also sue the employer in Circuit Court for the injury. When they do so, damages are effectively unlimited. Due to the lack of WC insurance, there is no more exclusivity protection. Section 4(d) of the Act now states:
Employers who are subject to and who knowingly fail to comply with this Section shall not be entitled to the benefits of this Act during the period of noncompliance, but shall be liable in an action under any other applicable law of this State. In the action, such employer shall not avail himself or herself of the defenses of assumption of risk or negligence or that the injury was due to a co-employee. In the action, proof of the injury shall constitute prima facie evidence of negligence on the part of such employer and the burden shall be on such employer to show freedom of negligence resulting in the injury.
This statutory provision basically creates “all-fault” liability on the uninsured employer.
5. Never Allow Executives of Independent Contractors to “Opt-Out” of WC Coverage
There is a little-known provision of the IL WC Act that allows the owner or partners of a company to “opt-out” of coverage to save money and take the risk of injury upon themselves. This sets up a situation where a company that hires that executive or partner is doing so in a setting where there is no protection/insurance for a work-related injury in your workplace.
We consider that model very dysfunctional. If the executive of what might be a true “independent contractor” suffers a serious injury, resulting in injury or death, there is always the specter of the executive or their family coming to the company that hired them and seeking WC benefits due to the lack of insurance. When you understand a serious WC claim can cost millions of dollars, you don’t want such exposure. Even if the company allowing such an executive or partner on your premises wins the coverage battle, you have to face the costs and uncertainty of litigation.
6. WC Adjuster’s Procedures in handling such claims
The procedure for handling these types of claims as an adjuster provides some difficult choices. If a valid WC claim arises in a context with multiple possible respondents and lack of clear evidence about the correct or liable employer, there generally are two ways to approach the problem:
Consider a reservation of rights letter before you handle any aspect of the claim;
Deny the claim until adequate proof of insurance or lack of insurance is clearly established;
Force the matter to an expedited hearing for the Arbitrator to rule on coverage;
Begin benefit payment and hope to obtain reimbursement if it turns out that the direct employer or other indirect employer acknowledges responsibility or coverage for the loss.
Other caveats in handling such claims:
It is important to notify the building owner’s general liability insurance carrier of the claim as it is conceivable benefits might be payable under such a policy. If the work is still in progress, the failure to procure workers’ compensation coverage may be a breach of the contract or subcontract agreement and moneys due under the contract may be withheld to cover the loss (this should be done in consultation with counsel).
If the Workers’ Compensation Commission clearly awards reimbursement from one Respondent to another, it may be possible to obtain rapid reimbursement by simply enforcing the order of the Commission rather than suing the other respondent in a collateral civil action. In the 1988 decision of Sanky Brothers v. Workers’ Compensation Commission, the Appellate Court awarded reimbursement to a general contractor from a subcontractor who was found to be the employer by the Workers’ Compensation Commission. If the Commission specifically orders reimbursement, the decision may be enforced under Section 19(g) of the Act which is a much simpler procedure than filing a civil action. However, if the decision merely provides credit, the language may not be specific enough to enforce under Section 19(g).
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Synopsis: The IL State Chamber Has Your Back on Regulating Marijuana in the IL Workplace.
Editor’s comment: We recently reviewed the hard work of Jay Shattuck and the team at the IL State Chamber. This is their summary of the great work and legislative successes they have achieved in trying to make the world safe for all IL businesses:
Workplace Protections Clarified: The Illinois Chamber reached an agreement that addresses several key issues of legislative intent the Illinois Chamber sought to be codified. The language below is what was agreed to. It clarifies several key issues for employers and protects from litigation actions taken by an employer for random drug testing, preemployment testing and for failure of a drug test. It clears up the concern an employer might have to prove impairment when an employee fails a drug test. An employer still will need its drug and alcohol policy to meet the standards of reasonableness and non-discrimination which means you are not totally out of the litigation woods. However, these changes provide greater clarity and protections to employers that need and want safe employees, safe workplaces and a safe public.
While they were unable to secure exemption of the medicinal marijuana law from the Privacy in the Workplace Act, the Chamber has commitments from the legislative sponsors and the Governor’s Office that the issue will be dealt with next session.
They are now working to help secure votes in support of the trailer bill. No bill number has yet been identified as the vehicle for the trailer amendment.
Here is the legislation:
Section 10-50(e) Nothing in this Act shall be construed to create or imply a cause of action for any person against an employer for:
(1) actions taken pursuant to an employer’s reasonable workplace drug policy, including but not limited to subjecting an employee or applicant to reasonable drug and alcohol testing, reasonable and non-discriminatory random drug testing, under the employer’s workplace drug policy, including an employee’s refusal to be tested or to cooperate in testing procedures or and discipline,ing or termination of employment, or withdrawal of a job offer due to a failure of a drug test;
(2) actions based on the employer’s good faith belief that an employee used or possessed cannabis in the employer’s workplace or while performing the employee’s job duties or while on call in violation of the employer’s employment policies;
(32) actions, including discipline or termination of employment, based on the employer’s good faith belief that an employee was impaired as a result of the use of cannabis, or under the influence of cannabis, while at the employer’s workplace or while performing the employee’s job duties or while on call in violation of the employer’s workplace drug policy; or
(43) injury, loss, or liability to a third party if the employer neither knew nor had reason to know that the employee was impaired.
Please consider joining the IL State Chamber—for more info, go to their website at www.ilchamber.org.