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Joseph Wells
Senior Vice President, Head of Workers’ Compensation
(646) 828-5028
This second part of the two part article will begin to address how the new challenges faced by employers might impact the Workers’ Compensation Industry.
In today’s technologically driven demand for on-line, fast, “On-Demand” products and services, an emerging phenomenon is evolving in the labor force used to deliver them. On-Demand labor is best described through the Uber & Lyft business models. Each company delivers services through a network of individuals that have applied on-line and meet selected pre-qualifying criteria. These companies then provide each individual with the tools and instructions to complete their assignments through a software platform and downloadable application.
This second part of the two part article will begin to address how the new challenges faced by employers might impact the Workers’ Compensation Industry.
There are developing labor and business leader opinions, regulations, legislation and court case rulings which will shape the debate in the coming months and years. The Occupational Safety & Health Administration (OSHA) appears to be looking at this issue as they do with other worker relationship issues.
OSHA enforces worker safety regulations for companies using a temporary workforce and companies that work at multi-employer worksites such as construction projects. OSHA’s Multi-Employer Citation strategy holds four entities responsible for worker safety, including the:
- “Creating” entity, the company that created the hazard such as an open floor hole or a damaged scaffold
- “Exposing” entity, the company that allowed their workers to be exposed to these hazards
- “Correcting” entity, the company if hired, responsible for correcting hazards
- “Controlling” entity, the company hired to manage the project or the project owner
Compliance decisions continue to emerge which may have application to some On-Demand companies, requiring them to provide more protections for their freelance worker than they are currently offering.
- In an August, 2015 decision by the National Labor Relations Board “the definition of joint employer included a business’s “possession of authority to control the terms and conditions of employment over a contractor’s or staffing agency’s employees.” August 2015 NLRB decision (PDF).
- On December 19, 2014, the National Labor Relations Board reported that it had issued complaints against McDonalds’ franchises and McDonald’s Corp as “joint employers”. NLRB Office of the General Counsel Issues Consolidated Complaints Against McDonald’s Franchisees and their Franchisor McDonald’s, USA, LLC as Joint Employers
- In on-going litigation initiated in 2012 between licensed taxi drivers and Boston Dispatch, Inc. the drivers are alleging that the company misclassified them as independent contractors rather than as employees. While the focus of the case concerned wages and other compensation, a ruling in favor of the drivers could mean that Boston Cab may have additional responsibilities for worker safety and workers’ compensation insurance. Boston Cab Dispatch
OSHA may not have jurisdiction over a specific employee or independent contractor relationship advanced by an On-Demand company however this is part of the uncertainty that currently exists. When determining whether the worker is an employee or an independent contractor no one factor stands alone, and factors which are relevant in one situation may not be relevant in another. The key is to look at the entire relationship and consider the degree or extent of control over the individual.
Workers’ Compensation laws are set by the individual states. Therefore, the states will generally have the final say in how a worker is classified for purposes of workers’ compensation coverage. This may require claims departments to modify any national strategy to deal with the claims issues that could arise out of the classification of On-Demand employees, to the extent any such strategy exists.
A State’s interpretation of whether or not a worker is an independent contractor generally hinge on the following issues:
- Degree of control exercised by the alleged employer
- Skills required in performing the job
- Length and permanency of the relationship
- Method of payment for work
- Who supplies tools and equipment needed to perform work
As the number of “freelance” workers increase, it can be expected that more challenges to the independent contractor classification will be made in an attempt to gain access to workers’ compensation coverage. The responsibility for safety is an issue to be resolved for business, but for insurance carriers the employee vs. independent contractor debate can also manifest itself as an issue for Premium Audit or Claims.
Premium Audit expense increases are a distinct possibility when a dispute of this nature occurs with the policyholder. This can result in hours of additional time spent by auditors and managers alike, and potentially legal costs if the dispute escalates.
Claims professionals should be cognizant of the different types of employees that may exist and how they could potentially fit or be excluded from the coverage available under workers’ compensation policies.
Moreover, with health insurance availability an issue for true On-Demand workers, companies might anticipate some of these workers seeking to utilize workers’ compensation for injuries that may or may not be related to their work, unless alternative insurance options becomes more readily available and affordable.
As a result of these challenging times claims professionals should also be prepared to inquire about the relationship between the alleged employer and the worker. It remains to be seen what impact a change in the classification of freelance workers may have as a whole or if there is no coverage for such workers under traditional workers’ compensation policies. For instance, will there be a rise in cost for accident and health or individual health policies? Will accident and health coverage be offered in lieu of workers’ compensation coverage? Will freelance worker requirements be expanded to encourage a sole proprietor workers’ compensation purchase, or expansion of the Affordable Care Act to extend to work related injuries for freelance workers?
Ultimately, with the On-Demand economy growth, will resources previously devoted to workers’ compensation claims be shifted into accident and health claims or other types of coverage?
The On-Demand economy has already revolutionized how people access products and services. We are currently on a journey to understand and adjust to its impact. While many are changing and adapting their lives, those of us in the Workers’ Compensation industry are challenged to do the same.
Notes
1“The views and opinions expressed in this article are those of the individual author and do not reflect the views of Everest National Insurance Company and/or its affiliates.”
About Joseph Wells
Joseph Wells joined Everest Insurance as Head of the Workers’ Compensation Division in November of 2015. In his 30 plus years in the Insurance Industry he has held a variety of roles in workers’ compensation with increasing leadership responsibilities, primarily in underwriting and product management. Joseph’s depth of experience in both the California and broader U.S. workers’ compensation marketplace supports Everest’s selective expansion initiatives for this product line across the United States.
About Everest
Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest Reinsurance Company (Ireland), Limited provides reinsurance to non-life insurers in Europe. Mt. Logan Re, a segregated cell company, capitalized by the Company and third party investors, is a specialty reinsurer of catastrophe risks. Everest National Insurance Company and Everest Security Insurance Company provide property and casualty insurance to policyholders in the U.S. Everest Indemnity Insurance Company offers excess and surplus lines insurance in the U.S. Everest Insurance Company of Canada provides property and casualty insurance to policyholders in Canada.