Independent Contractors & Workers Compensation

The Workers Compensation Laws in New York State have traps that many businesses fall victim to. The following is an overview of some problems to be aware of and some simple solutions to consider.

Independent (or sub) contractors are in some cases truly independent, but they are often declared as such so the Workers Compensation and other expenses normally associated with an employee can be avoided by a company. The independent contractor then does not carry Workers Compensation because the law says they do not need it as a one-person business. While it is true that the one-person business is not required to carry Workers Compensation there are two problems created for a company that hires an independent contractor that does not have their own Workers Compensation policy.

First, should a claim arise from either the independent contractor or someone that works for them, the company that hired the independent can be charged with the claim and the responsibility for all the paperwork. The fact is that in many cases the company that hired the independent doesn't know who else is involved with the independent, until of course, the claim comes in. The result is the possibility of a surcharge to the company's policy, a possible loss of dividends on a policy and in general a very costly situation. This may also present an opportunity for a lawsuit by the injured party against the company.

Another concern is the impact on the premium that will be charged to the company that hired the independent. The insurance company is allowed to charge, and they do, for all uninsured independent (sub) contractors. The reason is that whether or not a claim occurred, the potential existed from the uninsured independent or someone who works for them, to have made a claim. The result can be some very large premiums to be paid by the company at the end of a policy period with no corrective measure available and generally no financing for the premiums due.

A company should be aware that when using the independent (sub) contractor there is the potential for a lawsuit being filed by the employee of an independent. Since the Labor Laws in New York generally do not allow for an employee to sue their employer, the employee sues a third party such as the company who hired the independent that the employee works for. Now the problem is how does the company handle this lawsuit? First, the company reports it to their own insurance company under General Liability and triggers a claim against their policy. They then can try to bring in the independent who the employee worked for but the question is how? Is there a contract between the company and the independent that they hired, and if there is, does it protect the company from liability caused by the hiring of the independent? The problem is that there are various laws, policy coverages and exclusions that can be in conflict with each other and may leave either the company, the independent or both unprotected.

Simple Solutions:

Have a contract between the company and the independent that contains a complete indemnification or "hold harmless" clause that protects the company from any liability that was caused by or as a result of the work of the independent or their employees for which the company might be sued.

• Make sure that the independent's General Liability policy contains "Blanket Contractual Liability".x

• Maintain current certificates of insurance from the independent and be certain that the company is named as an "Additional Insured" on the General Liability policy.

• The certificate must also provide for Workers Compensation insurance as well.