The Not So Independent Contractor

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.