Bar News - August 19, 2011
Worker’s Comp and Personal Injury:
Representing a Business Client in a Worker’s Comp. Insurance Audit
By: Pamela P. Little
When we hear about workers compensation cases we often think about the usual case, where a person is injured on the job and wants to take advantage of workers compensation benefits but the employer claims that the worker is an independent contractor and is not covered under the policy.
|Pamela P. Little
Another less common workers compensation issue is where the workers compensation insurance carrier conducts an audit of the business and determines that an independent contractor is in fact an employee. The employer in either scenario has the burden to prove that the contested individual meets the criteria set forth in the Workers’ Compensation Statute, RSA 281-A:2 (VI), and to rebut the presumption that the person is an employee. The impact of the classification of independent contractors as employees by the insurance auditors can be stressful and costly for the employer, and in a down economy could ultimately put an already struggling small business out of business. The business owner can incur huge additional premiums and interest charges, legal fees, and may have liability for employment taxes and other costs associated with employees that are not associated with hiring independent contractors.
RSA 412:35 defines the audit process for Worker’s Compensation policies. Pursuant to the statute, audits shall be conducted by either physical inspection or an insured’s records or operations, or by telephone or mail request to the insured, and the Insurer must notify the Insured of the dispute (RSA 412:35(II-IV)). Often, the auditor has one or two items that it considers suspicious, and notifies the business owner that there is a dispute. The Worker’s Compensation Statute provides a safety valve for the employer, and allows the Commissioner for the Department of Labor to conduct investigations and hold hearings to resolve the dispute and to determine if the imposition of additional premium charges by the Insurer is truly warranted. RSA 281-A (III)(a).
Chapter 200 of The Department of Labor Regulations defines the procedural rules and conduct of hearings for workers’ compensation issues. Once and evidentiary hearing has been appropriately requested, preparation is necessary to rebut the presumption under the statute.
The Workers’ Compensation statute provides that just about anyone who performs services for pay for an employer is presumed to be an employee. RSA 281-A:2(VI)(b)(1). The presumption many be rebutted by meeting all 12 criteria of the statute. The twelve criteria are as follows:
A. The person possesses or has applied for a federal employer identification number or social security number, or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter.
B. The person has control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work is performed, is the primary element bargained for by the employer.
C. The person has control over the time when the work is performed, and the time of performance is not dictated by the employer. However, this shall not prohibit the employer from reaching an agreement with the person as to completion schedule, range of work hours, and the maximum number of work hours to be provided by the person, and in the case of entertainment, the time such entertainment is to be presented.
D. The person hires and pays the person’s assistants, if any, and to the extent such assistants are employees, supervises the details of the assistants’ work.
E. The person holds himself or herself out to be in business for himself or herself.
F. The person has continuing or recurring business liabilities or obligations.
G. The person’s success or failure of the person’s business depends on the relationship of business receipts to expenditures.
H. The person receives compensation for work or services performed and remuneration is not determined unilaterally by the hiring party.
I. The person is responsible in the first instance for the main expenses related to the service or work performed. However, this shall not prohibit the employer or person offering work from providing the supplies or materials necessary to perform the work.
J. The person is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work.
K. The person supplies the principal tools and instrumentalities used in the work, except that the employer may furnish tools or instrumentalities that are unique to the employer’s special requirements or are located on the employer’s premises.
L. The person is not required to work exclusively for the employer.
The key to successfully rebutting the presumption is to present evidence, witnesses and testimony that addresses all of the criteria, even if the insurance carrier has only challenged a few items. The overall big picture of the relationship between the employer and the worker can be more clearly ascertained if the response is not limited to a few challenged items.
The legislative intent of the workers’ compensation statute is also important. When the bill was first introduced in 1995 there were five criteria to be met. Senator King, introducing the bill, stated "This [bill] is necessary because of the confusion of whether or not independent contractors are required to be covered under workers’ compensation…This bill will help to protect employees whose employers who [sic] don’t want to pay for workers’ compensation and try to get around it by classifying employees as independent contractors." Appeal of Ann Miles Builder, Inc., 150 N.H. 315 (2003), citing N.H.S. Jour. 625 (1995). (Emphasis added).
If the contested individual can produce evidence and testimony to support his independent contractor status, then the intent of the statute is met. It also helps if that individual is willing to testify at the evidentiary hearing. The criteria that may be difficult to meet by physical evidence can often be overcome by testimony.
Be sure to review the "test" that the carrier relied upon, as it may not conform to the statute. The Department of Labor discussed legislative intent in a recent opinion and stated "…carriers are not permitted to charge a premium if there is a "possible" exposure…the carriers can only charge if an "actual exposure" exists… The legislative history, under RSA 412:35, indicates that a carrier "may not" impose its own tests for determining an employee/employer relationship between the parties…." Demers Woodworking v. Travelers Insurance Company, Department of Labor Docket #000184 (January 24, 2011).
Some examples of exhibits to submit at the evidentiary hearing are contracts between the worker and the employer, workers’ compensation policies of the independent contractors, tax forms of the contested individuals showing that they account for their own business expenses, advertising and marketing materials (such as business cards and ads), photos of the independent contractors tools or workshops, invoices submitted to the employer, and all documents related to the audit and policy in the dispute.
It is important that your business clients understand the twelve criteria of the statute and that they have contracts, paperwork and policies in place to insure that they are meeting the criteria. The auditors can impose premiums based on very little evidence, and the business owner is left to rebut the presumption, which can be an expensive proposition for a small business owner who has tried to comply with the law.
Pamela Little practices in New Hampshire and Vermont and has an office located in Keene. A large portion of her practice is dedicated to representing small business clients in business matters.