Avoid the Pitfalls of Using Independent Contractors

In an over-regulated complex business economy such as ours, the use of independent contractors is undeniably attractive.  The contractor is responsible for his or her own withholdings and taxes, and the employer doesn’t have to pay workers’ compensation or unemployment compensation premiums. 

At least as far as workers’ compensation is concerned, the use of independent contractors can be a mine field.  The moment that contractor is injured while working on your job, you’ve got a potentially big, expensive problem.  If you haven’t established your relationship properly with the contractor, your business could be on the hook for the contractor’s medical expenses and lost time compensation out of pocket, dollar for dollar.  The Ohio Bureau of Workers’ Compensation is not shy about tagging your business as the “employer of record” for an independent contractor’s work related injury.  And if you had assumed the contractor was not an employee and you weren’t paying workers’ compensation premiums, the claim will be considered a “non-compliant” claim that will stick with you as long as the claim is alive.

A few simple steps might help in proving to the BWC and Industrial Commission that the business relationship between your company and an independent contractor was not of an employer/employee nature.

1.                  Before any work begins, obtain a copy of your contractor’s BWC certificate of premium coverage and make sure you require him or her to provide you with an updated copy every six months.  If your contractor doesn’t have BWC coverage, tell him or her that there’s no work until they do have it.  Direct them here to apply. 

2.                  Step number one includes domestic workers employed at your residence.  Do you have a nanny or someone who cleans your house for you?  Someone who mows your lawn, perhaps?  Step one applies as long as you are paying them $160 or more per quarter.  Some situations may require that you as the homeowner pay for their BWC coverage.  Have questions? Call us.

3.                  Consider writing up an agreement with the contractor which outlines your relationship, including who is responsible for what, payment terms, and separation terms.  An attorney could draft an agreement for you easily in order to offer your business the most protection.

4.                  The less control your business has over the contractor, the better.  If your business dictates the hours of work, the manner or method of work, the tools to be used, the order of work, etc., then you might easily be considered an employer to the contractor, and would be responsible for workers’ compensation premiums.

5.                  An independent contractor should be able to make his or her services available to the general public, and should not necessarily be required to perform the work personally.

6.                  Have your contractor keep track of his or her own hours and invoice you for the time.

7.                  If you have any doubts about whether or not your contractor might be construed as an employee, by all means, call us to discuss the situation.

The Ohio Revised Code addresses the issue of independent contractors specifically as they relate to construction contracts.  O.R.C. 4123.01 (A)(1)(c) lists twenty criteria to be considered in determining whether an independent contractor is an employee.  A person is an employee, not a contractor, if at least ten of these questions apply to him/her.  While some of these questions are worded awkwardly, and they technically apply only to construction contracts, Ohio courts have found these questions instructive in considering whether injured workers are employees or not regardless of the industry.  Read them for yourself, and consider them before using any independent contractor.

4123.01 (A)(1) “Employee” means:

(c) Every person who performs labor or provides services pursuant to a construction contract, as defined in section 4123.79 of the Revised Code, if at least ten of the following criteria apply:

(i) The person is required to comply with instructions from the other contracting party regarding the manner or method of performing services;

(ii) The person is required by the other contracting party to have particular training;

(iii) The person's services are integrated into the regular functioning of the other contracting party;

(iv) The person is required to perform the work personally;

(v) The person is hired, supervised, or paid by the other contracting party;

(vi) A continuing relationship exists between the person and the other contracting party that contemplates continuing or recurring work even if the work is not full time;

(vii) The person's hours of work are established by the other contracting party;

(viii) The person is required to devote full time to the business of the other contracting party;

(ix) The person is required to perform the work on the premises of the other contracting party;

(x) The person is required to follow the order of work set by the other contracting party;

(xi) The person is required to make oral or written reports of progress to the other contracting party;

(xii) The person is paid for services on a regular basis such as hourly, weekly, or monthly;

(xiii) The person's expenses are paid for by the other contracting party;

(xiv) The person's tools and materials are furnished by the other contracting party;

(xv) The person is provided with the facilities used to perform services;

(xvi) The person does not realize a profit or suffer a loss as a result of the services provided;

(xvii) The person is not performing services for a number of employers at the same time;

(xviii) The person does not make the same services available to the general public;

(xix) The other contracting party has a right to discharge the person;

(xx) The person has the right to end the relationship with the other contracting party without incurring liability pursuant to an employment contract or agreement.

Every person in the service of any independent contractor or subcontractor who has failed to pay into the state insurance fund the amount of premium determined and fixed by the administrator of workers' compensation for the person's employment or occupation or if a self-insuring employer has failed to pay compensation and benefits directly to the employer's injured and to the dependents of the employer's killed employees as required by section 4123.35 of the Revised Code, shall be considered as the employee of the person who has entered into a contract, whether written or verbal, with such independent contractor unless such employees or their legal representatives or beneficiaries elect, after injury or death, to regard such independent contractor as the employer. 

Psychiatric Allowances in an Ohio Workers' Compensation Claim Must Result from the Physical Injury, Not the Mechanism of Injury

All too often, Ohio workers’ compensation claims are additionally allowed for psychological conditions that have not necessarily resulted from the allowed physical injury in the claim, but rather from the circumstances of the accident itself, or from the socioeconomic fallout from a work injury.  Ohio Revised Code §4123.01(C)(1) provides Industrial Commission hearing officers with the gift of plain, unambiguous language.  It states that psychiatric conditions are excluded from the general definition of injury “except where the claimant’s psychiatric conditions have arisen from an injury or occupational disease sustained by that claimant.” Yet, psychological allowances continue to be added to claims, even when the genesis of the conditions are contrary to the statute’s plain language.

The statute doesn’t state that a compensable psychiatric condition can arise from the financial hardship that often follows a work related disability, nor from a particularly heinous mechanism of injury.  The General Assembly did carve out one exception to the premise that a psychiatric injury can grow from something other than the allowed physical injury, which is if the mental condition arises from “sexual conduct in which the claimant was forced by threat of physical harm to engage or participate.”  R.C. 4123.01(C)(1)  The fact that the one exception for sexual assault is so carefully carved out in the statute should necessarily mean that all other potential causes for a mental condition are not to be considered, besides when a psychiatric condition arises from a physical injury sustained by the claimant.

On June 4, 2013, the Ohio Supreme Court offered clarification to the Industrial Commission on this issue, despite the seemingly clear statute.  In Armstrong v. John R. Jurgensen Co., Slip Opinion No. 2013-Ohio-2237, the court ruled that the claimant’s post traumatic stress disorder was caused by the involvement in the work related motor vehicle accident that caused his physical injury, but was not caused by the physical injury itself.  Therefore, the psychiatric disorder was not compensable in the claim. 

In this case, the claimant, Armstrong, was a dump truck driver who had his truck stopped at a yield sign on a highway access ramp when he noticed a vehicle approaching behind him at an accelerated speed.  The vehicle struck the dump truck from behind.  Before being taken to the hospital, he saw the other driver slumped behind the wheel, and suspected that the other driver was dead.  His suspicion was later confirmed.  Armstrong’s claim was allowed for various back sprains, and he later asked to add post traumatic stress disorder to his claim.  Armstrong’s psychologist opined that the PTSD was caused by both the physical injuries and the horror of the motor vehicle accident itself.  The employer’s expert insisted that Armstrong would have developed PTSD even if he hadn’t sustained the physical injuries during the accident. 

The Industrial Commission granted the request to add the PTSD to the claim.  The employer appealed into court and won at trial level, the Second District Court of Appeals, and now at the Supreme Court.  Unambiguously, just as in the statute, the Supreme Court held that, “for a mental condition to be compensable under the Ohio workers’ compensation system, a compensable physical injury sustained by the claimant must cause the mental condition.”  It is simply not good enough that a mental condition arises contemporaneously with a physical injury as a result of the same accident.  The psychiatric condition must be connected to the physical injury itself.

This decision is potentially a game changer when it comes to psychiatric conditions in Ohio claims.  Take a claim where a claimant suffers a torn rotator cuff in the course and scope of their employment.  If they work in a job requiring use of their arm, they are likely to be out of work or on light duty for an extended period of time.  If they begin to show clinical signs of depression, is the condition due to the torn rotator cuff or does it arise as a consequence of the various impacts on the claimant’s life?  The degree of separation between the actual physical injury and the development of the psychological condition may now be too much to support a compensable psych condition.

No doubt this issue will be challenged and the courts will be asked to further refine the Armstrong holding.  For the time, however, employers may have just received a new tool in the defense of flow through psychological conditions.

Termination for Misconduct Which Also Caused a Work Injury is Not Voluntary Abandonment of Employment

On March 13, 2013, the Ohio Supreme Court re-affirmed its holding in the Gross II case by finding that an employee who is terminated for misconduct or violation of a work rule that also caused a work injury can still receive temporary total compensation.[1] 

In State ex rel. Haddox v. Indus. Comm., Slip Opinion No. 2013- Ohio-794, the injured worker was a truck driver who already had two traffic violations when he had a third moving violation, a motor vehicle accident in which he was injured.  Because the employer’s insurance company would no longer insure the injured worker due to the three moving violations, the employer terminated him.  When the injured worker made his first request for temporary total compensation (TT) from the date of injury forward, the Industrial Commission found that he had voluntarily abandoned his employment by having three moving violations, which forced a cancellation of his insurance, resulting in the termination.  This finding of voluntary abandonment of employment was issued before the Gross II case was announced. 

Later, after Gross II had been announced, the injured worker made a second request for TT, which was a subsequent period of compensation to commence after additional conditions had been added to the claim.  A Staff Hearing Officer awarded this later period of TT compensation, finding that the Gross II case held that a discharge which was related to acts that occurred contemporaneously with or before the work injury could not preclude payment of TT. 

With this success, the injured worker once again asked for payment of the first period of TT from the date of injury.  The Industrial Commission, however, denied the injured worker’s request for TT from the date of injury because the issue had already been decided when it was found that the injured worker had voluntarily abandoned his employment.

On this victory, the employer then requested that the Industrial Commission invoke its continuing jurisdiction to vacate the second requested period of TT that was awarded to the injured worker after the additional conditions were allowed in the claim, arguing that the second period of TT should have been barred both because of the voluntary abandonment of employment and res judicata.  The Commission determined that the SHO who had awarded TT following the additional conditions had made a clear mistake of law in not relying on res judicata to deny the TT.  Additionally, the Commission determined that even if res judicata did not apply, the injured worker was not terminated because of the moving violation that caused the injury; he was fired because he was no longer covered by group liability insurance.  Thus, his voluntary abandonment of employment should preclude the TT which awarded following the additional conditions. 

From this decision, the injured worker filed a Mandamus Action, asking the Franklin County Court of Appeals to require the Industrial Commission be ordered to pay TT from the date of injury pursuant to the Gross II decision.  The Court of Appeals, and ultimately the Ohio Supreme Court, found that the injured worker’s termination was inextricably linked to the work injury, and thus his termination was involuntary and could not prevent payment of TT to compensate for loss of wages.  If an employee is injured by the very misconduct that leads to termination of employment, eligibility for TT is not prohibited, because the Gross II case, later the Upton case, and now the Haddox case, find that this type of abandonment from employment is involuntary, not voluntary.   To find otherwise, to deprive an injured worker of TT compensation due to an injury caused by the claimant’s own fault would pervert the “no fault” workers’ compensation system.

Further, the Court found that when the Industrial Commission invoked its far-reaching continuing jurisdiction to correct a mistake of law, it pushed aside any argument of res judicata.  Thus, when the Industrial Commission decided to re-open the question of whether TT was payable following the allowance of additional conditions, the Commission cannot have declared that the issue should have been  res judicata at the lower level because the very act of invoking its continuing jurisdiction eliminates this as a possibility. 

Curiously, the Court did not fully analyze the fine line between Haddox’s traffic violation and the uninsurability issue as the reason for termination.  Perhaps because the traffic violation’s natural consequence was not only the injury but the disqualification for insurance coverage, the Court did not see the need to discuss the matter, even though the Commission apparently did see a distinction.

Chief Justice O’Connor wrote a “dissent” disguised as a concurring opinion.  She acknowledged that she must follow the Gross II precedent as it stands, but clearly disagrees with it and urged the legislature to right the wrongs of that case, which she resolves was wrongly decided due solely to public criticism.

This is yet another cautionary tale for employers to check with legal counsel prior to terminating an injured employee.

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[1] In State ex rel. Gross v. Indus. Comm., 115 Ohio St.3d 249,2007-Ohio-4916, 874 N.E.2d 1162, a KFC worker who had been warned on several occasions not to put water in the deep fryer to clean it did so again, injuring himself and others.  When he was terminated because of because of this violation of policy which ultimately caused his injury, the court held that his termination was involuntary and could not preclude temporary total benefits.

BWC ON THE HOOK FOR OVER CHARGING NON-GROUP RATED EMPLOYERS

Cuyahoga County Common Pleas Judge Richard J. McMonagle recently issued a decision in San Allen v. Buehrer, Administrator, BWC (Cuyahoga County Court of Common Pleas 2012), No. CV-07-644950 on December 28, 2012 in favor of thousands of Ohio employers who were not eligible for or removed from a group rating plan from 2001 to 2009.  A class action suit filed on behalf employers who were allegedly charged excessive workers’ compensation premiums to subsidize other employers who enjoyed the benefits of inclusion in group rating programs has reached a partial resolution, with BWC found in violation of two Ohio statutes. 

In the 28 page decision, the court found that though BWC did not violate the Equal Protections rights of the Plaintiff employers, BWC did violate Ohio statutes and admitted to treating group rated and non-group rated employers inequitably.   The decision indicates that BWC had a rational basis for treating group/non-group employers differently, in that implementing workplace safety incentives represented a legitimate government interest.  However, BWC specifically violated Ohio Revised Code § 4123.29 and § 4123.34(C) by implementing a prospective rating plan rather than a retrospective plan as required by statute, and by neglecting to “develop fixed and equitable rules controlling the rating system” which “shall conserve to each risk the basic principles of workers’ compensation insurance.” 

Judge McMonagle’s decision drew heavily from the testimony of BWC actuary officials, who admitted to overcharging non-group employers in order to offer deeper premium discounts to group employers.  The class of non-group employers was found entitled to restitution without interest, but the amount is to be determined.  In calculating the amount BWC will be required to repay, the court will rely upon the formula established by the Plaintiffs’ actuarial expert, not upon the formula of BWC’s expert.  A hearing on the final restitution figure is scheduled for March 14, 2013. 

The Ohio Chamber of Commerce estimates the restitution amount could be between $1.3 and $2 billion dollars.  BWC’s assets appear to be robust enough at well over $6 billion to cover the potential judgment.  BWC is almost certain to appeal the decision and the restitution formula to the Eighth District Court of Appeals and the case will likely end up before the Ohio Supreme Court before reaching final resolution.  For those employers who may be eligible for restitution, don't look for a check in the mail any time soon.