Workers' Comp & Owner-Operators
In most states, workers' compensation is elective for sole proprietors or self-employed persons, but attorneys and insurance experts warn against assuming you have no liability just because your drivers are independent contractors.
As part of a recent teleconference on owner-operator insurance and indemnification sponsored by the Truckload Carriers Assn., Greg Feary, an attorney with Scopelitis, Garvin, Light & Hanson, offered a general overview of independent contractor and workers' comp issues. As he emphasized, there is no single federal body governing workers' compensation. Each state has its own statutes. Moreover, claims are often determined on a case-by-case basis.
Many of those cases hinge on whether or not a driver is an employee or independent contractor. In some states, workers' comp statutes do classify owner-operators as independent contractors. Unfortunately, says Feary, the laws are not uniform and many contain loopholes.
For instance, some state statutes seem to apply to owner-operators and to any drivers they hire. Others limit the rule to owner-operators only. In Alabama the statute applies to "common" carriers that use owner-operators, but there is some question as to whether it applies to contract or exempt carriers.
States that don't specifically address owner-operators by statute often rely on the "right of control" test for workers' comp claims. In general, courts and workers' comp officials look at how much control the carrier exercises over the daily activities of the owner-operator. But other factors can come into play, such as whether or not the owner-operator has a substantial investment in the business or equipment, and whether or not the owner-operator has the right to turn down work.
The question of workers' comp liability becomes even trickier when owner-operators hire drivers of their own. In most states a general contractor is responsible for workers' comp coverage for employees of a subcontractor. When a fleet operator is hauling freight under another carrier's authority, the carrier is generally considered to be the general contractor and the fleet operator is the subcontractor. So if one of the fleet operator's drivers is injured on the job, the workers' comp claim could ultimately be made against the carrier.
Some states make workers' comp optional for very small companies, usually those with fewer than three or sometimes five employees. Feary said the small employer exemption may apply in contractor/subcontractor situations, but only in the states that have such a rule.
He also warned that fleet operators will sometimes attempt to establish an independent contractor arrangement with drivers hired to operate their equipment. Even when there's a written contract between the fleet operator and the driver, courts tend to view this as a device to circumvent workers' comp or other employee obligations - especially when the driver doesn't provide the truck.
One solution to potential owner-operator claims is to include them in workers' comp insurance programs for company drivers and other employees. But if the carrier pays the premiums for owner-operators, it jeopardizes the independent contractor status and increases exposure to unemployment claims.
Passing the premium costs to owner-operators may violate federal leasing regulations which prohibit carriers from requiring that independent contractors buy services from the carrier or its authorized supplier. Carrier-sponsored programs can be offered, but they must be optional.
In general, the best course seems to be a contractual requirement that owner-operators have either workers' compensation or occupational accident insurance. Since occupational accident programs vary widely, it's also a good idea to establish some general benefit requirements.
Insurance and indemnification was the third in a series of teleconferences entitled "Navigational Tools for Working with Owner-Operators."
For more information or to order audiotapes, go to www.truckloadacademy.org or call Virginia DeRoze, director of education and training, Truckload Carriers Assn., (703) 838-1950.
Return to main article
