Workers’ Compensation Coverage Considerations for Subcontractors
When employees in North Carolina sustain injuries by accident arising out of and in the course of their employment with employers, their ensuing workers’ compensation claims are generally compensable. However, what if the injured worker is a subcontractor? And, does it matter if the injured subcontractor is uninsured?
What if the injured worker is a subcontractor?
The answer to the first question is determined by the analysis of whether the worker was an employee or an independent subcontractor at the time of the injury. Many employers mistakenly believe that simply calling workers “independent contractors” or “subcontractors” and paying them cash or with a Form 1099 makes their workers independent or subcontractors. That is often not the case. Rather, in North Carolina, it is a multi-factored analysis as to whether an injured worker is an employee or an independent contractor, with the ultimate test being whether the contracting entity had the right to control the details of the injured worker’s work.
Some of the factors the Industrial Commission considers are whether the injured worker (1) was engaged in an independent business, calling, or occupation; (2) whether they had independent use of their special skill, knowledge or training; (3) whether they were doing a specified piece of work at a fixed price, for a lump sum, or on a quantitative basis; (4) whether they are not subject to discharge for choosing their method of work; (5) whether they are in the regular employ of the other contracting party; (6) whether they are free to hire assistants; (7) whether they have full control over their assistants; and (8) whether they select their own time. No single factor is determinative. Instead, the ultimate test is whether the contracting entity had the right to control the details of the injured worker’s work.
These cases are all fact-specific and often require careful factual and legal analysis. Some at the Commission give the benefit of any factual doubts to the injured worker. Moreover, if the injured worker was paid by the hour, the Commission will often give that factor great weight and find that the injured worker was an employee rather than an independent contractor, such that the worker’s claim would be found compensable.
Does it matter if the subcontractor is uninsured?
If the injured worker is a subcontractor, and they are uninsured for workers’ compensation purposes, can they successfully argue that the statutory employment protections of N.C.G.S. 97-19 should nonetheless apply to enable them to obtain workers’ compensation benefits? Fortunately for contracting entities and their carriers, the answer is likely “No.”
N.C.G.S. 97-19 provides, in relevant part, the following:
…shall be liable, irrespective of whether such subcontractor has regularly in service fewer than three employees in the same business within this State, to the same extent as such subcontractor would be if he were subject to the provisions of this Article for the payment of compensation and other benefits under this Article on account of the injury or death of any employee of such subcontractor due to an accident arising out of and in the course of the performance of the work covered by such subcontract. N.C.G.S. Ann. 97-19.
In an earlier version of the statute, the class of persons protected by this provision included not only employees of the subcontractor, but also the subcontractor himself. Southerland v. B.V. Hedrick Gravel & Sand Co., 345 N.C. 739, 483 S.E.2d (1997). However, in 1995, the General Assembly reinstated the pre-1987 language of N.C.G.S. 97-19 by deleting ” any such subcontractor, any principal or partner of such subcontractor or” preceding “any employee of such subcontractor” effective June 10, 1996. Boone v. Vincent, 127 N.C. App. 604, 609, 492 S.E.2d 356, 359 (1997), cert. denied, 347 N.C.573, 498 S.E.2d 377 (1998). (citing 1995 N.C. Sess. Laws ch. 555 sec.1).
Consequently, the current Act only protects injured employees of a subcontractor, and not the uninsured, injured subcontractor himself. Obviously, subcontractors can choose to purchase workers’ compensation insurance coverage to protect themselves, in addition to their employees, in the event of a work-related injury.
Claims Handling Practice Tips
At the inception of a claim, insurance carriers and their adjusters need to thoroughly investigate and confirm whether the injured worker was an employee or an independent subcontractor, bearing in mind the factors mentioned above. If the injured worker is a subcontractor and uninsured, the Act does not provide any protection for that injured subcontractor. Rather, under the statutory employment scheme of N.C.G.S. 97-19, only injured employees of subcontractors are protected by the coverage, which is afforded by the general contractor’s workers’ compensation policy.
If you have questions about coverage for subcontractors or other workers’ compensation issues, reach out to John A. Tomei or any member of the Teague Campbell workers’ compensation team.