Mis-Classifying Employers: Be Careful What you ask for – remember the “workers compensation bargain”

Not long ago I posted an item about a court case in which an employer wanted to treat its delivery workforce as contractors; but, the employer’s effort was ruined by reality – a major retailer cannot give up control over the details of the work when it comes to deliveries.  It has to dictate exactly when and where the deliveries are going to take place, and it has to be sure that the people making the deliveries don’t scare the customers. So, inevitably, the employer insists on making the workers subject to rules about everything from what they wear to how they cut their hair. /2014/07/employee-or-contractor-a-new-case-stresses-the-right-to-control/  The result was that a Court ruled that the workers were “employees”, not “contractors”, leaving the employer subject to substantial liability. Since that post and the case that prompted it, there have been a couple of other high-profile examples. We are going to see more and more of them because, on the surface, the cost savings for employers in “contracting out” are huge. There is an army of plaintiff’s attorneys out there making a fortune “catching” these ill-conceived efforts. I bid them well!

But, I want to dust off my crystal ball and make a prediction, which is that what will really stop this trend is personal injury lawsuits by injured workers.  Some worker is going to get hurt doing work. Happens all the time. And, often, some negligence on the part of the employer is at least partly responsible for the injury. Maybe the truck used to carry the goods, which the employer insists the “independent contractor” use, has been poorly maintained. Maybe the “dolly” the employer insists the “independent contractor” use to carry goods from the truck to the customer’s home has a loose strap. Maybe the worker gets told to drive in very bad weather. Maybe the worker gets told to “work faster”. Many workplace accidents can at least plausibly be attributed to some negligence on the part of the employer.

If those hurt workers are employees, however, they cannot sue their employers. Why not? Because they are covered by workers compensation insurance, and the same laws that require employers to provide workers compensation insurance to their employees forbid employees to sue their employers for negligence. Workers compensation pays for the necessary health care and treatment for the on-the-job injury, and for some portion of the lost wages attributable to the injury, and that insurance pays those benefits without regard to fault on the part of the employer. But, the flip side is that the employee who is injured on the job owing to some negligence of the employer cannot sue the employer in a tort claim. They cannot seek to recover from the employer the portion of lost wages that workers compensation does not pay, or for the value of the physical pain and suffering, or the emotional distress, that was caused by an on-the-job accident.

This trade off of limited benefits without regard to fault against prohibiting the injured employee from recovering their full loss is known as “the workers compensation bargain.” And, nowadays, it is a good bargain for employers. When workers compensation benefits were first required by law, that was actually to the great benefit of workers. In those days (the early 20th Century), injured workers, like all injured people, could not win a tort suit if they were, even in the smallest degree, responsible for their own accident. This was known as the “contributory negligence” doctrine. “Contributory negligence” was a complete defense to a tort claim.  So, if the injured person was 1% responsible for the accident, their claim was 100% barred. This was a substantial barrier to all tort claimants, but it was practically a complete bar to claims by injured workers, because almost no industrial accident occurs in which the injured employee is not responsible in at least some small way for the event. So, the “workers compensation” bargain was a good one for workers at that time, generally speaking. Employers fought against the requirement that workers compensation insurance be required as a matter of law, because the cost of the insurance was large in comparison to the amounts they would have to pay out in the very small number of instances in which injured employees would be able to recover notwithstanding the contributory negligence doctrine.

Nowadays, however, things are different. In the late-1970’s, courts all over the country began overturning the “contributory negligence” doctrine, and replacing it with the doctrine of “comparative fault”. Under the comparative fault doctrine, the fault of the injured person does not bar a claim against another person who also, through their negligence,  bears some of the fault for the injury. Rather, the negligence of both parties is taken into account, and numbers reflecting fault are allocated among the parties. So, if an accident was 50% attributable to the fault of the plaintiff, and 50% attributable to the fault of the defendant, the plaintiff will still be able to recover against the defendant, although the damage award to the plaintiff will be reduced by 50%. In the context of accidents at work, this generally means that, but for the workers compensation bar, the injured employee would, in most cases, be able to recover against the employer in tort.  The recovery of the worker would be reduced proportionally to their fault, but they would still recover. And the amounts would be large in many cases, because the loss for the worker would include not just medical bills and some of the lost wages but all the lost wages, the physical pain and suffering, and the emotional distress associated with the workplace accident. So, in these days of high jury verdicts in personal injury cases, the workers compensation bargain is now tilted in the employer’s favor. That employees cannot sue their employers in tort for personal injuries arising out of work place injuries is a great benefit to employers.

Let us return to the subject of “mis-classification”. Again: to cut corners, employers are taking workers who were formerly employees, firing them, and re-engaging them as “independent contractors”. Doing this saves all sorts of money for the employer for things like overtime, and minimum wage, and breaks, and workers compensation insurance. But I don’t think employers have thought that last one through: if the “independent contractors” aren’t “employees”, and they are not covered by workers compensation insurance, then, when they get hurt on the job (as they inevitably will), they are going to be able to bring “third-party tort suits” against the company that used to be their employer, but which is now just a “customer”. It hasn’t happened yet, that I have seen. But I think it will.  More and more. And I don’t think waivers by the “contractors” are going to be sufficient to avoid liability. And employers are going to have to re-think this whole scheme of “contracting out”.


Ratings and Reviews