Episode 123: Telework, Contractors & Workers’ Comp

Welcome to the Workplace, a podcast by Cal Chamber. I'm Erika Frank, Executive Vice president and General Counsel of the California Chamber of Commerce. And today on the podcast we are going to delve into a subject that is always top of mind for employers, workers compensation. And we are fortunate to be joined by a workers compensation legal expert, John Parente, and of the Laughlin, Falbo, Levy and Morrissey law firm. Welcome John.

Thank you.

John has been practicing workers compensation for over 43 years and specializes in defense of insurance carriers, third party administrators and self insured employers in all areas of workers compensation defense. And we are grateful that John is here to share his expertise with us. So John, you and I were having a nice casual conversation talking about workers compensation and that it is an issue that employers always have on top of mind, as I had mentioned before. But one of the things that we were talking about is California's independent contractor law. And we have a law on the books that we've had for a couple years that was an offshoot of the California Supreme Court Dynamics decision decision. And you know, one of the things that doesn't get a lot of chatter when we talk about independent contractor is how it impacts workers compensation. Or maybe we should look at it the other way, how workers compensation law and the legal requirements impact independent contractor classification. And you had told me you have quite a bit to say about this.

Absolutely. And as I was telling you before, California has not been in favor of independent contractor status for quite a long time and they've been trying to eliminate it. The construction industry is one in which they classify under the labor code contractors based upon their licensing. And if they don't have licensing, they then they can't be independent contractors. So that's where it started. Employment Development Department has been trying to make employees out of what we used to call 1099 INDEPENDENT contractors. And that's been going on. Then comes along SB5 that essentially was pointed at the gig industry and in particular Uber and Lyft, and has been expanded to others. And there were unintended consequences of that in that it had a dramatic effect on the trucking industry and it had a dramatic effect on the film industry and the music industry. And because of the unintended consequences, the legislature had to scramble to make exceptions to the law. And it has been crazy. But the fact of the matter is.

There are still.

Employers that are trying to utilize independent contractors for a couple of simple reasons. Number one, the cost of workers compensation for most employers is, is dramatic, especially small employers. And those are the individuals that try to utilize independent contractors, either with part time employees or people that are consultants, et cetera. So that's one impact. And I believe that there still are ways around the, the AB5 type of situation. However, it becomes more complicated now with the current law.

Right. And that's something that we were definitely concerned about as Cal Chamber when we were working in the legislature trying to craft out some of these exceptions and working to find a workable solution to the California Supreme Court's decision. And to your point, as a result, there are a number of what we call carve outs, different industries and professions that still need to meet requirements, but they're not as stringent as what we call the ABC test under now the Labor Code independent contractor classification law. One of the things that I thought about as you were talking just a moment ago was the number of employers that may wish to hire independent contractors. Particularly in the current climate right now where as we've seen news reports that it's challenging to find available workers. For many small businesses, restaurants, retailers, there's a lot of we're hiring signs and the available workers are not necessarily coming knocking on the door. And I think anecdotally some of the articles and studies suggest that employees are really enjoying having the flexibility that they have right now. And the pandemic has certainly turn the workplace as we used to know it upside down. So speaking to what workers want in that sense of independence, the law doesn't necessarily meet the needs of the worker because of some of the requirements that we have to meet. So when it comes to, let's say, an employer that is really trying to do the right thing, they've taken a look at the law, they really truly believe that they are hiring someone as an independent contractor. I mean, what's the risk with that? And what really is the risk if that independent contractor or that worker gets injured?

Well, first of all, I think what an employer needs to consider when they want to bring in somebody as an independent contractor, that that individual should have an independent business. Frequently what happens is they either have a business license or something of that nature.

They're advertising themselves either through social media or by other means that they are an ongoing business entity, that they're essentially filing their taxes.

As a business entity. Maybe they have a schedule C or something like that that's going to support the fact that they are independ and not an employee. The other factor that would be important is that they have multiple clients. The first thing that's going to bounce back is if this person is supposed to Be an independent contractor and you're the only one they're working for. That isn't going to fly.

Right.

So those are the same tests that were used by Eddie before AB5 even existed. So they would come in and audit employers that were 1099 and they would want to see evidence that there was an ongoing business relationship with multiple people as opposed to just one. So that's part of it.

I think a lot of things are changing and it may be that the legislature wises up, especially with people working from home.

However.

I hope that most employers do carry workers compensation and don't believe that having all of the people working for them as independent contractors is going to work, because it's not. And there's a tremendous liability if you don't have workers compensation insurance.

So before I pick up on the liability for not having workers compensation insurance and really, what should an employer do if an independent contractor is injured? Just to remind folks that may be listening, as far as what that ABC test entails, there are three prongs to it and John was talking to them. One is the worker is free from the control and direction of the hiring entity in connection with the performance of the worker performs work that is outside the usual course of the hiring entity's business. And the worker is customarily engaged in an independently established trade occupation or business of the same nature as that involved in the work performed. And that's the foundational ABC test. And then from there we have some of those carve outs and exclusions that we were talking about. So going back, John, to your comment about liability, if we have a small employer, whether or not they have independent contractors, let's just broaden this hypothetical here. And they don't retain workers comp coverage, they don't go out and invest in the cost of workers compensation coverage and someone gets hurt. What happens?

Well, first of all, if, I mean, not having workers compensation insurance if you have employees is a misdemeanor, but that's still a crime. The other factor that occurs is if you do not have insurance, then the employee can file both a workers compensation action and a simple action. And one of the penalties for being uninsured is that the employer is presumed to be negligent. So the negligence is going to be there as a presumption and you're going to have to overcome the negligence. With regard to the civil. The other problem that occurs is civil damages are much greater because pain and suffering, et cetera, are all there, which doesn't exist in workers compensation.

Having to defend both can be very expensive. As I was telling you yesterday, to defend a typical workers compensation case could cost anywhere from 5 to $20,000, depending on how complicated it is.

To defend a civil case. Probably starts at a minimum about $25,000 and could go as high as $100,000, depending on, again, how significant it is. So there are tremendous risks associated with being uninsured.

While in certain professions, roofing and construction, the rates are very, very high. For a normal business, they aren't that high.

It makes sense to.

Get a basic policy and even if you have one or two employees, it saves you so much more in the long run. I represent some people that are uninsured and it gets very expensive.

Yes. You had shared with me a story about it. Maybe you could share the story about the contractor in Pacific Heights.

Oh, yeah, he was a high end contractor who hired a young man to work for him. And the young man fell off a ladder and fractured both ankles.

The young man got an attorney and the contractor hired me. And I have to say the contractor.

Was very reasonable in the way that he approached it. He knew that he made a mistake and was willing to pay the benefits. Well, that claim ended up costing from beginning to end about $250,000. And had he had workers compensation insurance, he would not be out of pocket $250,000. Now, he was a wonderful man and he stood up and did what he needed to do. But still, that's an expensive proposition for anybody.

It's a very good story to share and just a reminder to all of those listening how important it is to have workers compensation coverage and to continue maintaining that even when things might be rough as they are now, that things are getting much better. We're coming out of the pandemic, but it's still something for us to keep on our minds as we move into, hopefully a better year to come. So in closing then, I want to just throw out a little, just a little fun little question. Not so much fun, but one that we receive quite frequently, particularly when a lot of employers shifted their workplaces to more remote locations. Whether that's at the employee's dining room table or, you know, on the beach somewhere with their laptop. A common question that we were receiving on our labor law helpline is what happens if someone gets hurt at work while they're at home, so working remotely, you know, what happens if, you know, I'm working remotely for the chamber and I trip over my dog's bone and twist my ankle?

Well, traditionally, if you were on the employer's site and you tripped over your own feet, it would be an industrial injury because it occurred at work. And even though it may have occurred through your own negligence, that's not a defense in workers compensation. If somebody has an accident at home and it's not directly due to their work activities, then it's going to be tough to prove that as a workers compensation case. Now, how an employer is going to be able to defend, because I would assume that somebody who trips over their dog's bone is not going to say they tripped over their dog's bone. They're going to say they tripped over their computer cord or some such thing of that nature.

The other subject that we were talking about that's probably more likely is, let's say that they develop carpal tunnel from keyboarding. That's going to be probably a presumed. I mean, you're going to have a tough time defending that as an employer if in fact the part of the job duties of that individual is going to be significant keyboarding. So there's the two things that occur. But I think this whole work from home thing is really going to present problems for employers with regard to industrial injuries at home. The other issue that you brought up yesterday is if somebody has accommodations in the office for either physical problems or disabilities, such as.

Raising a working platform that raises and lowers or some sort of ergonomic keyboard or mice.

I think it's incumbent upon an employee to notify the employer if they're having problems working from home, however, and you can't. The employer shouldn't be presumed to know that. But it's going to be something that's going to be raised. And going forward, I think we're going to have a mixture of home and work. And I think I know that our firm is interviewing the employees to determine what their preferences are. And there's probably going to be some melding of that going forward.

I agree. And I think you are not alone with interviewing employees to find out what their preference is as things start to open again. Well, John, thank you so much for joining me today on the podcast. It was a pleasure to have you on as a guest.

It was my privilege. Thank you. And it's nice to have met you. And I'm always available anytime if you have any questions.

Excellent. Thank you and thanks for joining us on the workplace. Please comment, share and subscribe to Cal Chambers podcast by visiting calchamber.com.