Tuesday, April 3, 2018

A Fairly Common Misclassification in Arkansas

The Arkansas Court of Appeals rendered an interesting decision on March 7, 2018. The opinion caught my attention because of recent discussion about independent contractors and misclassification of workers. In Graves v. Hopper, No. CV-17-254 (March 7, 2018), the court addressed some interesting workers' compensation points.

Luther Graves "assembled" a work crew for a construction project. One of the workers was Timothy Hopper, who fell from a ladder and was injured. 

First, Hopper sued (in a civil court) Dixie Planting Company and its owner Ray Dawson for his injuries. Dixie successfully argued that whether Hopper was an employee or independent contractor should instead be decided by the Workers' Compensation Commission. Though that employee/contractor question was therefore later raised before the Commission, the appellate court in this decision noted that the record of that proceeding "is not clear."

About a year after filing against Dixie, Hopper filed a lawsuit (again in a civil court) against Luther Graves, alleging he was Mr. Hopper's employer. Mr. Graves similarly successfully argued in the civil proceeding that the Commission had exclusive jurisdiction regarding the determination of "employment relationships." 

At this point, one might wonder (1) why Hopper did not, at the outset, file one proceeding against both potential employers alternatively, and (2) having been dismissed by the courts once and sent to the Commission, why not learn from the mistake?

The litigation then proceeded before a workers' compensation administrative law judge (ALJ) at the Commission, with Hopper's claims against Dixie and Graves now consolidated. Both contended Hopper was not his respective employee. Interestingly, Graves also argued that the statute of limitations had run, and therefore Hopper's claims were barred. That interesting argument is discussed further below. 

At trial, Hopper testified that he worked "with" Graves, "for Ray Dawson" (the owner of Dixie). He also testified that "he had worked for Graves" for several years; he had been given a hat with "L.F. Graves Construction printed on it." Hopper testified that Graves would "get the jobs" and that upon completion "the people that we worked for gave us a check." The homeowners seem to have been aware that they were doing business with individual laborers rather than "L.F. Graves Construction," or some other business. 

Hopper also testified that work hours and "instructions on what was to be done" would be provided by Dawson (owner of Dixie) telling Graves, Graves telling Teddy (Hopper's brother), and Teddy passing that along to the rest of the five-man work crew. He testified that his pay rate and two raises were negotiated by Graves. However, Dawson provided Hopper with the paychecks, which were "always paid by the individual on whose property they were working." Because Dawson provided the checks, Hopper testified that he "thought he was working for Dawson." 

Hopper testified that "Graves never paid him, never deducted any Social Security, and never took out any withholding taxes." Hopper said that "not having taxes taken out was a 'fairly common'" practice in that area. Furthermore, when Hopper was hired, Graves made clear that “there’s no workman’s comp, no insurance, no nothing. In those exact words.” 

Graves testified that he is 95 years old and has been working in construction about 30 years. He claimed to be merely "a crew member just like the rest of them." He contended that the whole crew was working for the homeowner. But, Graves also admitted he purchased a workers' compensation insurance policy about six months prior to Hopper's fall in August 2013. 

He explained that he believed he had to buy that policy to maintain his license. The opinion is not clear as to whether he reported Hopper and the others as employees when he purchased the policy or whether the insurance carrier was led to believe he worked alone. 

The ALJ concluded that Hopper was Graves' employee on the date of accident. Benefits were awarded, and Graves appealed. The appellate court concluded that the statute of limitations had not expired when Hopper filed against Graves. The Court explained that Graves had repeatedly denied having workers' compensation coverage. And, when he did obtain insurance in February before the accident, he did not inform the workers that he then had insurance. Under Arkansas law, Graves was required to post notice of having workers' compensation. The Court concluded that "to hold that the statute of limitations had run would allow Graves to benefit from his own failure" to inform and post notice. This is an "estoppel" argument. 

The Court's analysis illustrates several points that bear reiterating. First, the arrangement described is "fairly common." Second, the court's opinion describes Dawson, not Graves, being the one that gave "instructions on what was to be done," and providing the checks. But, the court provides little explanation of the ALJ's conclusion that despite that control, Graves was the employer. Finally, this all illustrates the time and effort required to resolve the question of who is responsible for Hopper's injuries and expenses. 

In The Gig Economy, Can it be Socialized, the evolving nature of work in America is discussed. An underlying theme of the "gig" economy is "independent contractors." Contractors are nothing new, but the gig economy and technology facilitates that classification; it is a market segment perceived to be growing. 

States have traditionally allowed small (Florida is less than four employees) businesses to decline to participate in workers' compensation. But, with the facilitation of that classification, it may be time for this "small employer" accommodation to end. The "fairly common" scheme described in this case illustrates Arkansas employers avoiding their responsibilities as to taxes and workers' compensation through misclassification of the workers as "independent contractors." 

By happenstance, despite the scheme, Graves bought workers' compensation six months before the fall in this case. By chance, there was therefore workers' compensation coverage to provide care for Hopper's injuries. But, Hopper had been on the job with Graves for years before without the benefit of such coverage. And, Graves had been upfront and obvious about the lack of coverage, both at the time of hiring Hopper and at various times on work sites. 

If this fall had occurred in January instead of August, then Hopper might well have no recovery in workers' compensation. There are circumstances in which a worker might sue such an employer, and the employer's failure to secure workers' compensation might make it defenseless to some degree. The result of such a suit might be a judgement against Graves or Dawson or both, but either might or might not have assets from which to pay that judgement. Despite a judgement, Hopper might nonetheless collect nothing, because of the scheme. 

Situations such as this may have been behind Florida's decision to require workers' compensation participation by amending Section 440.02(17)(a), Fla. Stat. in 1990. That change mandated coverage for all employers in the construction industry rather than only those with four or more employees, as is the standard for employers not in the construction industry. As mentioned in The Gig Economy, perhaps the better solution to socializing the cost of work injuries would be to make this broader "construction industry" standard applicable to all employment?

With such a requirement, workers like Mr. Hopper would have coverage, whether classified as an employee of Graves, Dawson, or himself. In Florida, that would be the result today, because the law requires coverage for all in the construction industry. There is a cost associated with such a mandate, but there is a cost associated with an injury as well. Certainly, this Arkansas decision illustrates that some will go to great lengths to avoid the law, but perhaps there is more that the law can do to make that avoidance difficult?

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