A push by the Tennessee Department of Labor to stop construction companies ducking their workers' compensation and unemployment insurance obligations has resulted in a $300,000 fine. Blake Farmer has the details and how the state will beef up its enforcement efforts going forward.
The Tennessee Supreme Court has declined to hear further arguments on something of a groundbreaking case in worker's compensation law. In January, the Court of Appeals ruled in Continental Casualty Co., et al. v. Theraco, Inc. that employers — in this case a locally based home health care company — are required to pay premiums for worker's comp insurance for independent contractors (physical therapists were at issue here) because employee status is a litigable question.
The court agreed with Theraco that the company could not be charged premiums for the therapists based on their classification as employees. The company possessed little control over the means by which the therapists provided therapy to patients. The control the company exerted to ensure that they complied with state law was control over the quality of the service rather than control over the means by which the therapists provided services.
However, the court agreed with the insurers’ argument that even if the therapists were independent contractors, the insurers were at risk of defending a workers’ compensation lawsuit brought by therapists even if only to litigate their status. The court pointed out that the risk of loss provisions in the company’s policies did not require that potential lawsuits have a reasonable chance of success. The company was obligated by the policies to pay premiums for the therapists in return for shifting the risk of litigation to the insurers.
Ben M. Rose of Brentwood-based The Law Offices of Ben M. Rose represented the insurer, Travelers, and its related companies.
Law firm Eraclides Gelman Hall Indek Goodman & Waters, which runs 10 offices in Florida and Georgia, has recruited Allen Callison to open its first outpost in Tennessee. Callison, who was formerly with Morgan & Akins, has set up shop on Poston Avenue in West End and is being supported by two Eraclides attorneys in Atlanta. Eraclides specializes in workers' compensation defense and also handles other liability cases and Medicare compliance work.
Effective July 1, Tennessee will enforce a recently passed state law (SB233) that penalizes construction services providers that misclassify employees to avoid proper classification of workers' compensation insurance premium calculations. Specifically, the new law will fine a construction services provider up to the greater of $1,000 or 1.5 times its average yearly workers' compensation premium for misstatements and inaccuracies involving payroll, employees or duties.
With the law in place, companies may need to classify some people they previously listed as contractors as employees, which could lead to additional costs due to the state's increased opportunity to crack down on worker’s comp coverage. Post Managing Editor William Williams recently talked to Beckye Sprouse, director of risk management at The Crichton Group, which bills itself as Middle Tennessee’s largest independent insurance provider. Sprouse, who is responsible for large commercial accounts and key accounts for the agency, is a certified risk manager who has worked within the insurance industry since 1968.
Do industry professionals understand the ramifications of the change and why it is being made?
Senate Bill 833 is designed to put teeth into an existing law by imposing monetary consequences for not following the already existing rules. Many construction businesses are already classifying their employees correctly as employees rather than independent contractors and allocating their payroll to the correct construction classification. However, the contractors that abuse the rules — or make a mistake — by misclassifying an employee as an independent contractor maintain an unfair competitive advantage because their insurance costs are lower and their payroll taxes are lower than [those of] their counterparts that follow the rules.
How will enforcement of the law play out in the construction industry — both in terms of cost and policy?
Enforcement with consequences for non-compliance will increase costs for the companies that misclassify. It should have no effect on the construction companies that are already properly classifying their employees, paying the taxes and paying the correct work comp premium. It will shift the cost of workers compensation insurance and coverage for injured workers to the party where it should be. According to the Tennessee Employee Misclassification Advisory Task Force, based on estimates using 2006 data, Tennessee lost between $2.1 million and $3.7 million in uncollected workers’ compensation premium taxes. And its estimated losses from unpaid unemployment insurance premiums range from $8.4 million to $14.9 million.
What are you hearing from industry officials regarding the law? Do they feel it will help the construction sector? Hurt it?
There is nothing clearly announcing the change on the AGC and ABC websites. We have only heard about it from one insurance carrier. So, there needs to be some additional publicity so that those not currently in compliance can take steps to correct their situation.
Do you anticipate lots of fines?
It is difficult to predict what will happen when the law is enforced, but we know that violations will be subject to a penalty up to the greater of $1,000 or one and one half time the average yearly workers’ compensation premium for such construction services provider. So the potential is there.
Members of the National Federation of Independent Business in Tennessee strongly support major reforms to Tennessee’s workers’ compensation system, according to a recently conducted survey released Monday.
Jim Brown, state director of NFIB/Tennessee, said his group "will support comprehensive workers’ comp reforms to include a tighter definition of injury causation and shifting the resolution of disputed claims to a purely administrative process.”
“Tennessee’s processes are bureaucratic, which leads to high costs for employers and delays in medical treatment, return to work and disability payments for employees," said Brown (pictured). "Gov. [Bill] Haslam’s administration has identified many much needed reforms, and we look forward to working with him and members of the General Assembly to improve our workers’ comp system.”
Brown said NFIB, the state’s largest small business association, also will work with leaders to ensure Tennessee small business owners are guaranteed a fair, impartial appeals process for disputes that arise through tax audits.
“Tennessee taxpayers deserve to have their tax hearing appeals heard by an independent body, rather than the same department that decided the case in the first place,” said Brown, noting most states have established an independent appeals process. “Smaller taxpayers who cannot afford to file a lawsuit especially need a less expensive, expeditious and independent forum. Tennessee can accomplish this important goal with almost no additional bureaucracy.”
Preliminary survey results from NFIB/Tennessee’s 2013 Member Ballot indicate the following:
• 77 percent of members oppose Medicaid expansion, while 11 percent favor and 12 percent are undecided
• 79 percent believe Tennessee should prohibit taxpayer-funded government entities from competing directly with private business, while 11 percent oppose and 10 percent are undecided
• 75 percent believe Tennessee should prohibit local governments from enacting minimum or living wages, while 17 percent oppose and 7 percent are undecided
• Members were split on establishing a state-run health exchange (41 percent support, 38 percent oppose and 20 percent are undecided)
• Members were split on legislation that would require insurance companies to cover oral chemotherapy drugs (41 percent support, 36 percent oppose and 23 percent are undecided).
The 108th Tennessee General Assembly is schedule to convene today.
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