WCDefenseCA

So, there I was, sitting in my Uncle Olaf’s kitchen as his possibly-independent-contractor scrubbed his prize-winning giant Clams, getting them ready for sale.  Uncle Olaf was beginning to get worried – what if his upstart nephew was right and, even though Uncle Olaf didn’t get insurance for the Clam Cleaner, an employment relationship was formed.  After all, if Mr. Clam Cleaner was an employee, Uncle Olaf would be liable for any injuries sustained by Mr. Clam Cleaner, and, having lost both hands to giant Clam Bites before, was very much aware of the risks involved.

“I’m pretty sure he is an independent contractor,” said Olaf.  Just then we heard a loud *SNAP* as a clam slapped shut, and the young gentleman in the Clam tank yanked his hand away just in time.  Uncle Olaf breathed a sigh of relief and said “but he signed a contract… the contract says ‘I am not an employee; I am an independent contractor.  I will clean Olaf’s clams.  And if I should lose a hand or two, I will only sue the clam or clams that got me, and not poor Uncle Olaf’.”

I shook my head and told poor Uncle Olaf of the panel decision in the case of Leonard Key v. Los Angeles County Office Education. Leonard Key had signed a contract stating that he was an independent contractor paid to teach music lessons at one of the Los Angeles County schools.  However, the Workers’ Compensation Judge found that Mr. Key was, in fact an employee, and his injury was compensable.  Workers’ Compensation in California is compulsory, after all, and Mr. Key was simply an employee by any other name.  And, after all, the farmers in the Borello case, discussed last time, had signed a contract as well.

The most important thing for Uncle Olaf to remember is the guiding policy of workers’ compensation – to shift the costs of industrial injuries to the produces and not the consumers/public.  Even the Legislature might make efforts to amend the law, defining a contractor vs. an employee based on a long list of factors.

So, dear readers, what should Uncle Olaf do?  Before the young gentleman sticks his hand into another one of Uncle Olaf’s clams, should Olaf pull him out of the tank and cease operations until he can get a workers’ compensation policy?

And so, dear readers, the story picks up just where it left off – there I sat in my dear Uncle Olaf’s kitchen as he ground his hooks into his wooden table, nervously watching the man he hired to clean his prize-winning clams for his Clam sale business, who he thought was his independent contractor but was actually allegedly (your humble blogger is a zealous defense attorney, after all) an employee, place his hands inside the snappiest of Uncle Olaf’s prize-winning clams.  “Scrub from the outside!” he shouted, but the young gentleman cleaning the clams couldn’t hear him…

The California Supreme Court issued its opinion in the case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989), outlining the proper analysis for determination of the question of employment or independent contractor status.  S. G. Borello & Sons owned farmland near Gilroy (a place with a wonderful Garlic Festival).  Although they kept regular employees for the various crops grown on these farms, for cucumbers, the nature of the market dictated another approach.  Cucumber harvesting was contracted out to various migrant farm-worker families.

The families were provided with the opportunity to lay claim to a certain amount of plots of cucumbers, were provided with crates into which to harvest the cucumbers, but were otherwise left to their own devices.  The cucumbers were sold to a pickle company in the area, and the profits were shared between the land-owners and the harvesters.

For the multi-week cucumber harvesting season, the harvesters were responsible for taking care of the cucumbers, picking only those ripe and ready for picking, and generally seeing about maximizing profits.  The most aggressive task-masters in S.G. Borello & Sons employ found themselves absolutely powerless at the edge of the cucumber plots, for no employees dwelt there – only independent contractors.

That is, until, the Department of Industrial Relations issued a stop-work order.  Finding that the independent-contractors were actually employees, and uninsured employees at that, the DIR went on the war path against poor Mr. Borello and his sons (as well, effectively, against all other farmers in the Gilroy area that adopted the same practices).

Borello’s argument before the Supreme Court was simple – unlike other crops, cucumbers required a degree of knowledge and skill for harvesting, and the harvest workers were compensated for the final product and not the means of rendering service.  But the Supreme Court found that other factors, primarily found in the Restatement Second of Agency, play into the analysis as well, among them:

1. The right to discharge at will, without cause;
2. Whether the workers is engaged in a distinct occupation or business;
3. Whether the occupation, in that locality, is typically performed by a specialist without supervision;
4. The skill required in the particular occupation;
5. Whether the worker supplies the instrumentalities, tools, and the place for doing the work;
6. The length of time for which services are performed;
7. The method of payment (hourly or by task);
8. Whether the work is part of the regular business of the principal; and
9. The intent of the parties.

The Borello Court noted that “under the [Workers’ Compensation] Act, the “control-of-work-details” test for determining whether a person rendering service to another is an ‘employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposes of the protective legislation.”

The Court also noted that the workers made minimal investment in their work – no heavy equipment but just basic tools.

Other cases followed too.

In the case of Jose Luis Lara v. Workers’ Compensation Appeals Board (2010), for example, the Court of Appeal examined whether a garden-variety handy-man could be an independent contractor.  Lara sustained a pretty serious injury while doing work for a small shop called Metro Diner.  Metro Diner didn’t have Lara covered by its workers’ compensation policy because he had no regular employment – he was called up to do odd work such as trimming bushes along Metro Diner’s roofline.

Lara provided his own equipment, paid his own taxes, and, although he was paid by the hour, was hired by the job rather than on a general basis.  Nor did Metro Diner set Lara’s hours – he was just told to come early or late to avoid interfering with the operation of the Diner.

The workers’ compensation Judge found that Lara was an employee, and the Workers’ Compensation Appeals Board reversed.  In affirming the WCAB’s finding that Lara was a contract employee, the Court of Appeal cited Borello.  Specifically, the Court noted that gardening was Lara’s line of work (and not the Diner’s), that Diner could not control the manner of Lara’s work, Lara had his own clients (other than Diner), and Lara had a substantial investment in his business (lots of tools, equipment, etc.).

As Uncle Olaf scratched his head (very carefully, mind you, as those razor sharp hooks hurt!), I could see that he wasn’t convinced.  His prize-winning-hand-eating-giant-clam-raising mind was working.  What else did Uncle Olaf think he had up his sleeve?

Is that guy you have doing that work you need done an independent contractor or an employee?  Why does it matter?  Well, aside from a whole host of other issues, liability for industrial injuries may hinge on whether that worker was an employee or an independent contractor.

Your humble blogger recently had occasion to visit his uncle Olaf.  For those familiar with the exciting sport of competitive clam-breeding, you’ll no-doubt have heard of Olaf the Clamtastic, world-famous for his exceedingly rare clam-breeding abilities.  He also has a business which sells the Giant Clams he raises, “Olaf’s World of Clams.”  “Uncle Olaf” I said, “who is that nice young man cleaning your prize-winning clams?”  Uncle Olaf looked up from his magazine, Clams and Claims, and peered at his Olympic-sized swimming pool, the one where his giant clams ruled and all others feared to tread.

There, scrubbing the giant clams, was a young gentleman with a nervous look concealed by goggled and a breath mask.

“Oh,” said Uncle Olaf, “That’s Jim – he’s my independent contractor helping me keep the Clams clean.”  As Uncle Olaf turned the page with one of his two hook-hands, I remarked “it’s a good thing he’s a contract worker and not an employee, those clams can be vicious!”  But, the workers’ compensation defense attorney in me felt something was amiss.  So, being the good nephew that I am, I asked Uncle Olaf “how do you know he’s a contractor and not an employee?”

Uncle Olaf smiled, as if his silly nephew couldn’t be any sillier, and said “because I didn’t buy workers’ compensation insurance for him, of course!”

Poor Uncle Olaf…

The State of California does not require independent contractors to be covered by workers’ compensation insurance.  In theory, one could have a thriving business using nothing but independent contractors and saving untold fortunes on workers’ compensation policy payments.

But, the law requires employers to either self-insure or obtain workers’ compensation insurance for their employees.  And, much to Uncle Olaf’s surprise, the nature of a relationship, with respect to employer or contractor, is not determined by the possible employer’s purchase or failure to purchase workers’ compensation insurance.  There is another test out there…

But, let’s start with the basics.

California Labor Code section 3353 defines an independent contractor as “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.”  Section 3353 was enacted in 1930, codifying the common law distinction between employees and independent contractors.  But, this distinction wasn’t concerned with workers’ compensation, but rather with tort law.  Whereas an employee could make his employer liable for injuries caused to third parties (imagine an employee-bartender accidentally dropping a crate of fine whiskey on a poor bar patron – an unbearably cruel thought, I know, but one necessary to shock and make the point), the liability buck stopped with an independent contractor.

But, as California Labor Code section 3357 specifically excludes independent contractors from the presumption of employment (and therefore the presumed requirement for the employer to insure or self-insure against those workers’ industrial injuries), the issue is an important one – and case-law expanded the test.  So, poor Uncle Olaf can’t put his checkbook away just because he never took it out to insure against a worker’s injuries.  Uncle Olaf can’t even put his checkbook away just because he doesn’t micromanage the work or “control the means by which such result is accomplished.”

After all, Uncle Olaf thought that, so long as he doesn’t stand over the young gentleman’s shoulder… hovering… judging… making little comments and directing his every move (“you missed a spot; scrub that clam harder, put your hand inside the clam to get a better grip…”) the young gentleman could remain an independent contractor and Uncle Olaf could laugh at the competitor Clam stores paying insurance premiums every month.

But the California Supreme Court has a different take on the proper analysis in this case.  What’s the test?

Sorry to “clam up” on you now (Get it? Because the story is about clams? Get it?), but come back on Wednesday to see what Uncle Olaf missed.

Be wary of the advice you take, dear readers.  Free advice, especially, tends to prove the most expensive.  Recently, your humble blogger read of a certain private security company getting into hot water for failing to insure for workers’ compensation.

The owner was allegedly advised by his accountant that he wouldn’t have to provide workers’ compensation insurance for his employees, if they were independent contractors (instead of employees).  Unfortunately, the company owner took this advice without consulting an attorney, or even wondering why anyone would ever hire an employee instead of an independent contractor.

Hired to patrol a portion of Salinas, the employer was fined and is in a bit of trouble now, although there is no available information as to whether someone actually filed a workers’ compensation claim.  The silver lining, as far as your humble blogger can tell, is that no one got hurt, and no injured worker will be left in the cold.  Being an illegally uninsured employer is not a pretty picture by any means.

In the recent case of Oscar Ornella Castaneda v. Happy’s Mobile Car Wash, a worker actually did get hurt and the employer didn’t have insurance.  Mr. Castaneda was involved in a car accident while riding in the employer’s truck on the way to a job site.  Happy’s Mobile Car Wash tried to argue that Mr. Castaneda was an independent contractor and that the injury was sustained while in transit to work, and so was not compensable under the going and coming rule.

Well, Happy’s wasn’t very happy after the trial, and the workers’ compensation Judge didn’t have many happy things to say about it either when Happy’s petitioned the Workers’ Compensation Appeals Board for reconsideration.

The arguments were quickly dispatched – there was no basis to conclude that applicant was an independent contractor when he was paid a set salary every week and he performed his job duties under near total control of the employer.  The going and coming rule did not apply because applicant reported to Happy’s place of business and then rode in the company truck to the specific job site.  The fact that he rode in the company truck at all would have negated the going and coming rule, even if coming from home.

Neither the WCAB nor the Court of Appeal bothered to write an opinion on this case, and Happy’s saw its defenses wash down the drain (like at a car wash? Get it?)

California comp rates are expensive, and it’s constantly becoming harder and harder for businesses and employers.  When you’re trying to make ends meet and keep the lights on in your business, it can be very tempting to save the money on a comp policy and apply it to things like inventory and wages and maybe bringing home some profits once in a while.  After all, your employee agreed to be an independent contractor, and what could possibly happen on such a safe job, right?

Don’t do it.  Even if you get lucky for years upon years, sooner or later someone will get hurt or a disgruntled employee will lie and say he did.  If you’re a small business, the Board can be a cold and unforgiving place without the protection of an insurer, with its sharp adjusters and crack team of attorneys (such as your humble blogger).

Trust me – you can’t afford to take the free advice.

As my dear readers may recall, the issue of independent contractor vs. employee is one that has been discussed at some length on this blog.  But the issue is one that is alive and well and comes up again and again.  Spelling life or death for a claim, the issue can determine if the injured worker was an employee covered by the employer’s workers’ compensation policy, or a self-employed life-gambler, taking his or her chances against injury.  It also spells the difference between penalties and a misdemeanor for an illegally uninsured employer, or an entity in the clear.

This issue came in the case of Jennifer Alcedo v. SCI/On Trac.  Applicant was a truck driver for On Trac, and would arrive in her own car (with an On Trac logo) at On Trac headquarters every morning and begin her assigned routes and packages deliveries.  She wore a uniform with the company logo, had a regular schedule, and was not allowed to do delivery work for any other company.  Nor was she allowed to turn down an assignment from On Trac.  So, she claimed, she was an employee and entitled to workers’ compensation benefits.

On Trac, on the other hand, produced an Independent Contractor Agreement, which applicant signed by claimed to not have understood because of language difficulties (the agreement had not been translated into Spanish for the applicant).

The Workers’ Compensation Judge found (unsurprisingly) that applicant was an employee and not an independent contractor.  Defendant was unable to produce a witness to testify on its behalf, and the WCJ held that the defense failed to carry its burden to rebut the Labor Code section 3357 employee presumption.   The Workers’ Compensation Appeals Board denied reconsideration.

But, even though the issue of “meeting of the minds” and language barriers was present in this case, the bigger deal was that the facts were all in favor of an employment relationship and only a signed contract was available to show an independent contractor arrangement instead.  Unfortunately, California does not allow employers and employees to contract out of workers’ compensation, so simply designating an employee as an independent contractor will not do.

And therein lies the dilemma for many employers – each would like to avoid the liability involved in having an employee, but is unwilling to give up the control that independent contractors cannot and will not offer.

Have a good weekend, folks!