Subterfuges Are Not Countenanced

Independent contractor status comes up more often as an issue in workers' compensation than we give credit for - and while the industry watches what is happening with the "share economy" companies, cases involving much more mature industries continue to come out of the courts in surprising quantity, and reiterate what we already know about employee versus independent contractor determinations.

Trucking is one of those industries that has gone round and round for years, and even to this day it surprises me that folks haven't learned - it's not what you call the relationship, it's how you treat the relationship.

The First District Court of Appeal for California yesterday released an opinion that, once again, made it clear that the actions, not words, define the employment status.

In Lexington Insurance Co. v. WCAB (Ali), No. A142340, 12/16/2015 (unpublished), Sheik Zahid Ali was seriously injured on July 19, 2006 after driving a tractor-trailer filled with latex paint from Hayward, California to Spokane, Washington.

When Sheik climbed on top of the trailer to unload its contents, a pressurized cap came off and struck him in the head.

The truck was owned by Ali’s Trucking; the trailer was owned by Trimac Transportation Services Western.

Ali's Trucking had a contract agreeing to lease its trucks to Trimac and provide drivers. The contract noted the drivers would be employees of Ali’s Trucking, not Trimac.

Ali’s Trucking entered into a separate contract with Sheik called an “independent contractor agreement.” This contract made no mention of Trimac.

At the time of Sheik's injury, Trimac had a Truckers Occupational Accident Insurance policy with Lexington Insurance Co. Trimac was also covered for workers' compensation by Zurich Insurance Company.

The court's opinion is extensive, and goes over nearly every detail of Sheik's relationships with the companies. The bottom line conclusion - it's not what what people say, but how they act. There is no clear, defining line - the more control a business has over a worker, the more likely the worker will be found an employee for purposes of workers' compensation.

There's nothing magical about the ruling, and there's nothing unusual either. The public policy towards finding an employment relationship despite contractual definitions to the contrary is to ensure that people injured performing services at the direction of another do not become the burden of the state.

As noted by the Lexington court, the seminal case in California (and highly influential in other jurisdictions) is the California Supreme Court opinion in Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).

Borello cites the public policy of liberality in favor of finding an employment relationship, as quoted by the 1st DCA:

"The nature of the work, and the overall arrangement between the parties, must be examined to determine whether they come within the ‘history and fundamental purposes’ of the [workers' compensation] statute” Those purposes are: “(1) to ensure that the cost of industrial injuries will be part of the cost of goods rather than a burden on society[;] (2) to guarantee prompt, limited compensation for an employee’s work injuries, regardless of fault, as an inevitable cost of production[;] (3) to spur increased industrial safety[;] and (4) in return, to insulate the employer from tort liability for his employee’s injuries. [Citations.] [¶] The Act intends comprehensive coverage of injuries in employment. It accomplishes this goal by defining ‘employment’ broadly in terms of ‘service to an employer’ and by including a general presumption that any person ‘in service to another’ is a covered ‘employee.’ ”

Workers' compensation is a privatized social benefit system. Take out "privatized" and you get to the heart of the matter: work comp is a social benefit system.

That means its' primary purpose is to provide benefits to society. It does this by taking care of that small minority (thankfully) of workers who have unfortunate things happen to them while contributing to civilization by furthering the economic goals of another.

What's beautiful about this is that the financial burden of Sheik's serious injuries have been spread out amongst many thousands of other companies and businesses, not just Trimac and not just Ali Trucking. Lexington and Zurich took on the fiduciary obligation of ensuring that risks such as Sheik's injury were sufficiently diversified financially.

Lexington and Zurich decided to be in the business of accepting money for the promise that someone like Sheik would be taken care of in case a pressurized cap popped off and hit him in the head. That they argue amongst themselves about who ultimately pays is okay, so long as Sheik's receipt of medical care and wage loss were not impaired while they fiddled around for nearly 9 years (there's indication that Zurich did provide some benefits).

The California Supreme Court said it most succinctly: “The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.” (Borello, supra, 48 Cal.3d at p. 349.)