Mountain Law: Beware of the statutory employer trap
In certain circumstances, a worker will be considered an “employee” of the person who hired him by operation of Colorado’s workers’ compensation law. This can have serious consequences for an unwary property owner or contractor obtaining services.As an illustration: Assume a homeowner hires a general contractor to remodel his home. The general contractor then subcontracts with a framer to do some of the work, and the framer falls on the job and hurts his back. If the framer is covered by workers’ compensation insurance, the owner and general contractor have no obligation for his injuries; the framer would look to the workers’ compensation insurance fund for medical expenses and any disability. However, if the framer is not covered by insurance, he may be able to sue the owner or general contractor as his “statutory employer” to recover his damages. The owner is potentially liable even if he never met the framer and didn’t know the general contractor intended to hire him. This example illustrates the importance to owners and contractors of ensuring that their workers are covered by adequate insurance. If a worker is covered by workers’ compensation insurance, his “exclusive remedy” in the event of an on-the-job injury is to make a claim with the insurer. This means that owners and contractors (including their employees and agents) can be shielded from liability for negligent or intentional acts that cause injury. In our example, if it turned out that the general contractor or owner was responsible for the framer’s injuries, the framer still could not recover against either of them if he was otherwise covered by insurance. In some situations, the exclusive remedy provision can make it advantageous for an owner to assert that it is a given worker’s statutory employer. For example, in one case a janitor covered by workers’ compensation insurance was injured cleaning the bathroom at a manufacturing company. The janitor, who was not directly hired by the company, obtained some insurance benefits, but then sued the company for damages not covered by the insurance. The court determined that cleaning services were a routine and regular part of the company’s total business enterprise for which it contracted every day. If it had not contracted for these services, it would have been obliged to provide them using its own employees. This was sufficient basis for the janitor to be considered a statutory employee of the company and for the company to successfully avoid liability (because the janitor’s exclusive remedy was to recover from the insurer).One important consideration is that a contractor must hire at least one worker to perform work under him before a landowner can be considered a statutory employer. Returning to the original illustration, if the general contractor had not hired the framer, but had instead performed all the work himself, the owner would generally not be liable if the contractor was injured on the job even if the contractor did not have insurance coverage. (The example assumes that the contractor is an “independent contractor” and not the owner’s direct employee, which isa distinction I will address in a future column.) The lesson here is clear: Any person who contracts for services should consider the importance of workers’ compensation insurance for all contractors and subcontractors. The insurance can be obtained through private companies or a state entity called Pinnacol Assurance, and its cost may be withheld and deducted from any amounts due to workers under their contracts without the need of a separate contractual provision. Failure to heed this caution canresult in liability for injuries incurred within the scope of a worker’s employment.Noah Klug is an attorney with the Breckenridge law firm of Bauer & Burns, P.C. He may be reached at (970) 453-2734 or at Noah@BreckenridgeLawyer.com. This article is intended as a general overview; consult an attorney for advice on your particular situation.
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