Can Independent Contractors Collect Workers’ Comp in Pennsylvania?

In Pennsylvania, employees can receive workers’ compensation benefits, while independent contractors typically cannot. While this seems like a straightforward issue, in reality it is one of the most complicated areas of workers’ comp law. A recent case handled by Martin Law shows just how complex this area of the law can be and how something as simple as timing can impact eligibility for workers’ comp benefits.

What is an Independent Contractor?

According to the Department of Professional Employees, AFL-CIO, an independent contractor is generally a worker who has a contract to provide a service for a business or person. The independent contractor is not supposed to be under the employer’s control except as outlined in the contract. Government entities use several standards to determine who is an independent contractor.

The Internal Revenue Service (IRS) examines a series of factors that encompass control over behavior, financial matters and the type of relationship a worker and employer have. The Department of Labor uses an “economic reality” test to determine whether a worker is economically dependent on the employer. States, including Pennsylvania, may have their own standards for classifying some or all workers.

Because of the complexity, some employers mistakenly misclassify employees as independent contractors. Others may intentionally classify workers as independent contractors as a cost-saving measure, advocates for workers and even government officials have said. According to Bensman, the federal deputy Secretary of Labor said in 2010 that much worker misclassification is intentional and that employers misclassify workers to reduce labor costs.

How Often Are Workers Misclassified?

The problem is serious. A U.S. Department of Labor study in 2000 found that up to 30 percent of employers had misclassified some of their employees. Regardless of whether they are properly classified, the number of workers in the U.S. who are independent contractors or contingent workers is growing. Bensman reports that 42.6 million workers are in contingent job situations.

Employee misclassification happens when regular workers are considered independent contractors. Independent contractors are not given the same benefits as regular employees, including workers’ compensation and the rights to form unions.

For workers, being misclassified as an independent contractor can deprive them of benefits and rights given to employees, including company-sponsored health insurance, workers’ compensation, unemployment insurance and the right to join unions. A worker who is injured on the job may be denied workers’ compensation benefits if he or she is considered an independent contractor, leading to further financial uncertainty, medical expenses and other losses.

Some contractors are independent, highly paid professionals, but many are low-paid workers who are illegally deprived of their benefits. A study by the U.S. Department of Labor in 2000 found that up to 30 percent of employers had misclassified some of their employees.

A college professor, named David Bensman of Rutgers University, who focuses on labor studies says that sweeping changes in the U.S. workforce are leading to widening inequality and job insecurity. The changes, called contingent employment, involve increasing numbers of workers who are not on the payroll in standard jobs. Instead, they are temps, part-timers or contract workers. An estimated 42.6 million workers have contingent employment.

According to the professor, some of the industries in which worker classification at issue include:

• Package delivery. One major package delivery service considers workers to be employees; another treats thousands of delivery drivers as independent truckers.
• Construction. In one state, 14.8 percent of construction workers were misclassified as independent contractors.

Other areas frequently involving misclassification include day labor, home health care, janitorial work and agriculture.

Workers who are misclassified as independent contractors may still be eligible for workers’ compensation benefits, but they must show that they are actually an employee. Pennsylvania courts will examine the relationships between the parties and other factors to determine whether a worker is an employee. An experienced workers’ compensation attorney can advise you on this issue.

Why Misclassification Occurs, and How it Affects Workers’ Comp Rights

Determining whether a worker should be classified as an employee or an independent contractor is a fact-intensive process that looks to whether the worker or the company has control over how the work is done and the financial aspects of the work (are tools provided by the employer, are expenses reimbursed, etc.). The nature of the relationship as understood by the parties is key as well; this means examining factors such as the terms of a contract, the ongoing or temporary nature of the work, and whether the worker is provided with employee-type benefits.

In the right situations, a company can greatly reduce labor costs through the use of independent contractors. Firms hiring independent contractors save on a variety of employment taxes and do not have to pay workers’ compensation insurance premiums. They may not have to provide benefits, and are not forced to adhere to certain labor laws. Given the many advantages independent contractor status provides to an organization, it is no surprise that a number of employers get overzealous and misclassify some workers who are actually employees.

But, while treating an employee as an independent contractor is often good for the company, it can be bad for the worker. In addition to having to pay more taxes, independent contractors miss out on many workplace protections and are unable to collect workers’ compensation benefits. For injured workers, misclassification can be disastrous.

What if You Were Misclassified as an Independent Contractor?

Are you an employee, or an independent contractor? Chances are the company you work for has an answer to that question. But are they right? Misclassification of workers is a widespread problem: Pennsylvania even has a new law specifically targeting improper mislabeling of construction workers. If they get away with it, calling employees “independent contractors” can save an organization a few dollars; but, it can lead to big headaches for individuals seeking workers’ compensation benefits.

If you’ve been hurt in the workplace and told that you cannot get workers’ compensation benefits because you are an independent contractor, there is an important question you must ask: “Am I actually an independent contractor?”

Just because an employer tries to say you’re an independent contractor doesn’t mean that under the law you’re an independent contractor, and therefore you may still have rights to workers’ compensation benefits.

Employers sometimes try to classify employees as independent contractors to avoid responsibility for workers’ comp and other benefits. It is important to know that the way an employer labels your job is not what determines independent contractor status; there are specific laws and regulations that make that determination.

How to Guarantee Your Rights

A company that has misclassified an employee as an independent contractor can be held liable by the IRS for employment taxes. Perhaps more importantly, injured employees misclassified as independent contractors may be eligible for workers’ compensation benefits. If you have been injured on the job and might be incorrectly classified as an independent contractor by your employer, contact a workers’ compensation attorney to ensure you receive the benefits you have earned.

A Case that Martin Law Handled for a Misclassified Contractor Who Successfully Received Workers’ Comp

A worker with 20 years of painting and roofing experience responded to an advertisement requesting the services of a painter. The employer who placed the ad met with the worker and offered to pay him $100 a day for his work. Shortly thereafter, the worker showed up at the employer’s job site. He brought his own tools, but the employer provided everything else (ladders, etc.).

On his third day on the job, the worker slipped off the roof and hit his head on the sidewalk below. He was taken to the hospital and discharged later that day. He underwent surgery on his right knee and left ankle later that month. A few months after his surgery, the worker filed a claim for workers’ comp benefits.

The lasting effects of the injuries were extensive; almost two years later, an independent medical examination revealed that the worker was able to return to only light duty work.

Was the Worker an Independent Contractor?

The critical question in this case was whether the worker was an independent contractor or an employee.

The Pennsylvania Workers’ Compensation Act lists a variety of factors that must be present for a worker to be classified as an independent contractor instead of an employee. One of the most crucial provisions requires that a worker have a written contract for the services he or she was hired to perform.

In this situation, there was a written contract, but the case hinged on when that contract was signed and when it went into effect. While an employer would typically have a worker sign an independent contractor agreement before starting a job, the worker in this case was not asked to sign such an agreement until after he was injured. Once he was released from the hospital, he went to retrieve his tools and obtain payment for his services. At that time, the employer asked him to sign an independent contractor agreement, and he did so.

Because this written, signed contract did not exist at any point during the time the worker was providing services to the employer, he could not be considered an independent contractor.

The Result

The Commonwealth Court affirmed previous decisions that said the worker was an employee, not an independent contractor. This meant that the man had rightfully received benefits for his on-the-job injury.

The court made it clear that the worker signing the agreement after his injury did not limit his eligibility for workers’ comp benefits, because it did not modify his employment status at the time of the injury.

Martin Law’s Involvement In The Case

Martin Law partner John Dogum was the attorney for the employee in this case. Regarding the case, Dogum said:

“I applaud the Legislature and the legislation it put in place to protect workers in difficult situations such as this. When the law is followed, employers who properly classify their workers for various payroll taxes and workers’ compensation premiums benefit from the legislation as much as injured workers.

“In addition to the fact that the employer did not satisfy any element of the Misclassification Act (as noted in the concurring opinion), any finding of a valid contract applicable to this injury would have been against public policy. [The worker] was presented with the so-called independent contractor agreement in one hand and pay in the other at a time of duress after he was released from the hospital, and allowing such a contract to have any bearing on the injury would be against the public’s interest.

“Sadly, situations such as the one in this case occur far too frequently. Unscrupulous contractors still utilize ‘independent contractors’ in construction without meeting the elements of the Misclassification Act – often with undocumented workers who are fearful of stepping forward. This not only results in a lack of or substandard medical care (as well as lost wages) for workers, but also results in lost premiums for the insurance industry, uncollectible medical expenses and lost payroll taxes.”

Another Case Where a Misclassified Truck Driver Received Workers’ Comp Benefits

In the case, a man was employed by a trucking company to be a driver. The trucking company was hired by a produce company to transport its goods from its warehouse to a processing facility. During the trip, while the truck was traveling on a Pennsylvania highway, the driver was involved in an accident. He filed a workers’ compensation claim against his employers, the trucking company.

However, the trucking company did not carry workers’ compensation insurance. The driver then filed a request for workers’ compensation benefits with the produce company, on the basis that the produce company could be considered as his employer.

The produce company contended that the driver was an independent contractor, and therefore, the company did not have to cover the driver under their workers’ compensation insurance.

The case finally made its way up to the Pennsylvania Supreme Court, which issued the same ruling as the other bodies that had heard the case. The ruling stated that anyone who was performing work for a company that was a “regular or recurrent part of their businesses” should be granted contractor status and covered by workers’ compensation, even if they were an independent contractor.

This decision will mean that many more employers could be held to pay workers’ compensation benefits. This could allow many more workers to get the care they need to allow them to recover after being injured on the job.

Reducing Employee Misclassification

Given these problems – and the fact that the government misses out on unemployment and workers’ compensation taxes when workers are misclassified – efforts are underway to root out employee misclassification. The Department of Labor and the IRS both investigate companies for suspected employee misclassification. In 2011, Pennsylvania lawmakers enacted a law that makes it difficult for employers to classify construction workers as independent contractors. Additionally, workers have filed lawsuits, including claims against FedEx. The FedEx lawsuits have had mixed results, according to Bensman and others.

As a worker, you may not be out of options if you are injured on the job but have the status of an independent contractor. An experienced workers’ compensation attorney will understand the factors used to determine how workers in your industry are classified as employees or independent workers and can help you show that you are an employee who is entitled to the workers’ compensation benefits you deserve.