Employee or Independent Contractor? Don't Make the Courts Decide
The question of whether a given worker is an employee or an independent contractor has wide and significant ramifications for employers. The courts of Pennsylvania have wrestled with various notions of the status of these workers, and how, if at all, they should be protected by our Workers' Compensation laws. The question cannot be overlooked by employers who are or may be subject to the Workers' Compensation Act (which really includes just about everybody). First, let's take a look at the consequences of not complying with the Act, and then we will explore the differences between employees and independent contractors.
The Pennsylvania Legislature was serious in making sure that employers comply with the Act. For instance, 77 P.S. § 501(b) is a section of the Act which provides that if an injured employee is entitled to an award of compensation, any employer who fails to cover the employee with appropriate workers' compensation insurance can be found guilty of a misdemeanor of the third degree. If the failure to comply is found by the court to be intentional, the employer can be guilty of a felony of the third degree. Obviously, this is not something to be taken lightly.
Not only can an employer be held criminally liable for violating the Act by failing to carry appropriate insurance, but the employer can also be socked in the pocketbook. The Act at 77 P.S. § 1528 provides that if an employer has not provided appropriate workers' compensation insurance for an employee, and the employee is becomes disabled as a result of a compensable injury, the employee can file a certified copy of his claim petition with the prothonotary of the court of common pleas of any county. The statute says that "the prothonotary shall enter the amount... claimed in any such petition as a judgment against the employer, and where the amount... claimed is for total disability, such judgment shall be in the sum of thirty thousand dollars." Ouch.
Of course, the Act doesn't allow the employee to execute on the judgment until he or she is actually awarded compensation by the court, and then only to the extent of the amount actually awarded, but who wants to have a $30,000.00 judgment on the books against them in the meantime?
By this point it should be quite clear that it is important to make sure that any workers who are "employees" under the Act are covered by workers' compensation insurance. So who is an "employee" as far as the Act is concerned? Our Commonwealth Court in Carpenters' Joint Apprenticeship Committee v. WCAB (Wisniewski), which can be found at 654 A.2d 656 (Pa.Cmwlth. 1995), had this to say:
The question of whether an employer employee relationship exists is one of law, based upon findings of fact. The existence of an employer employee relationship is determined by considering several factors. These factors include the control of the manner in which the work is to be done; responsibility for the result only; terms of agreement between the parties; nature of the work or occupation; skill required for performance; whether the one employed is engaged in a distinct occupation or business; which party supplies the tools; whether payment is by the time or by the job; whether work is a part of the regular business of the employer; and the right of the employer to terminate the employment at any time.
In Johnson v. WCAB (Dubois Courier Exp.), another Commonwealth Court case found at 158 Pa.Cmwlth. 76, 83, 631 A.2d 693 (1993), that court instructed that "while all of these factors are important indicators, the key element is whether the alleged employer has the right to control the work to be done and the manner in which it was performed." It is interesting to note that whether the worker has taxes withheld is not part of the legal analysis, nor is whether income is reported on a Form W-2 or a Form 1099.
The Courts have struggled with some difficult cases, attempting to decide whether a given worker is an employee or an independent contractor. A few examples are: a newspaper boy who sets his own hours and his own route; a truck driver who sets his own hours and drives his own tractor, but has to haul a company trailer and has to follow company driving guidelines; a laborer who only works intermittently and brings his own tools to the job but is instructed what to do hour by hour. There are many, many borderline situations where the legal analysis must be sorted out by the courts. In addition, unfortunately, there is not any easy way for an employer to force a worker to be an independent contractor. The employer and the worker cannot execute an agreement which purports to take someone who would otherwise be an employee and make that person an independent contractor - the agreement is not given any weight as far as the workers' compensation court is concerned.
The short answer for employers who want to ensure that their independent contractors are not employees is for the employers not to take an active role in the hour-to-hour business of the independent contractor. If the transaction between the independent contractor and the company is set forth in writing, the independent contractor is responsible for the result only, the work is not part of the regular business of the company and the payment is by the job, the independent contractor should never be considered an employee for workers' compensation purposes. In the same vein, some employers may be paying workers' compensation premiums for workers who are not really their employees. As always, if you have a question, the safest advice is to consult an attorney, or to discuss the matter with your workers' compensation insurance agent. Do your best to make the situation clear, so you don't force the courts to decide!
The attorneys at Wolf, Baldwin & Associates, P.C. are thoroughly familiar with the Pennsylvania Workers' Compensation Act and we are available to answer questions about employees versus independent contractors in a worker compensation setting. Please click here to contact us today.