Another State’s Laws – Reciprocity. Not every state will recognize your state’s extraterritorial provision. Essentially, some states don’t care what another state law provides; employees working in their jurisdiction will abide by and be subject to the law of the state in which the employee is working, allowing the employee more benefit selection options.
The third “contract of hire” test, “Is the employee working under a contract of hire made in this state for employment principally localized in another state whose worker’s compensation law is not applicable to the employer?” highlights this non-reciprocity opinion and requires knowledge of the law of any state where employees are working, whether temporarily or principally. If the employee is working in a reciprocal state, the domicile state benefits will apply; employees injured in a non-reciprocal state may subject the employer to a gap in coverage as the employee may be allowed to choose the other state’s benefits. Employers, and their agents, with employees working principally in another state should not depend on this extraterritorial extension of coverage to provide the necessary workers’ compensation benefits.
Knowing reciprocal status between states will allow better decisions when considering the need to extend primary 3.A. status to a particular state. The difficulty lies in the fact that the states do not have relatable reciprocal agreements. For instance, Oregon fully reciprocates with 24 states according to the state Web site while Idaho only lists eight states with whom they reciprocate.
Each state has and develops its own reciprocal agreements. States that mutually honor the other’s extraterritorial provisions limit the injured employee’s choice of jurisdictional benefits to those of the home state or state to which the employee is primarily assigned. Employees injured while working in a non-reciprocating state may have their choice of any of the four employee options previously discussed; a court will likely participate in this determination.
Several states offer limited reciprocity, even to states with whom they freely reciprocate otherwise. Limited reciprocation may be based on the employer’s business classification, the amount of time the employees are in the state or the number of employees working in the state. If these thresholds are crossed, coverage must be extended to that state via a 3.A. listing.
Florida, Montana, Nevada, Washington (a monopolistic state), and possibly Illinois will not honor another state’s extraterritorial provisions when the employer is in the construction industry. When a contractor’s employees are working, even temporarily, in one of these states, the state must be listed as a 3.A. state. Massachusetts is required to be listed as a 3.A. state anytime an employee is working there, regardless of the classification of the employer. Payroll earned in these states must be calculated using the respective state’s rates.
New Mexico and Wisconsin both restrict reciprocity and mandate 3.A. status for any employer having three or more employees in their respective states, even on a temporary basis. South Carolina extends the employee count to four or more. Alabama, Arkansas and North Dakota (a monopolistic state) are the other examples of states applying limited extraterritorial reciprocity.
Assigning Primary / 3.A. Status
No fixed rules or guidelines exist to delineate exactly the circumstances under which a particular state should be assigned 3.A. status. Lawyers are even unwilling to pin themselves down to a “yes” or “no,” only an “it depends.” Following is a list to consider when determining whether a state should be scheduled as a 3.A. state. Without specific information regarding a particular employment situation, these are not “rules,” only recommendations. States that may require assignment to 3.A. status include:
• The employer’s state of domicile – the “home office;”
• The employer’s state of incorporation if the employer incorporated in a state other than where the primary operations or carried out (the home office). Employers sometimes incorporate in states other than where they operate for tax governance reasons; the state of incorporation may need to be listed as a 3.A. state;
• States where branch offices are located;
• Monopolistic states will require a separate policy;
• Any state outside office-location states where the employer hires temporary “employees” solely to perform operations in that particular state;
• Any state where a subcontractor is hired to perform work on behalf of a general contractor if proof if workers’ compensation is not provided. Remember, general contractor-subcontractor relationships are not limited to construction operations. Uninsured subcontractors may become de jure employees in the other state based on that state’s law;
• Any state that has “significant contact” with an employee. If the employee lives and primarily works in a state different than the employer, that state should be assigned status as a 3.A. state for example;
• Any state where employees work more than a prescribed number of days during the policy year. Ninety days may be a good gauge, but this is not a concrete number – individual state law should be reviewed for jurisdictional requirements;
• Any state that does not reciprocate with the employer’s state of domicile or scheduled branch locations;
• States with limited reciprocity provisions such as Florida or Montana should be scheduled;
• The state in which the “contract of hire” was executed (even if the employee moves);
• Any state where the employee works on a regular basis (60 to 75 percent of the time might be a good guide); and
• Any state where the employer has more than a pre-determined number of employees working for longer than a few consecutive days. Three or more employees longer than 30 days may be a good measure.
Remember, these are just recommendations and not rules to be followed in every case. Additionally, underwriters may be unwilling to extend 3.A. status even when a good case can be made for the need.
Not every state in which employees are working will require or even be eligible by underwriting guidelines for assignment as a 3.A. state; but there still exists the potential for an injury in another state to trigger that state’s workers’ compensation law. The second option offered in the workers’ compensation policy for extending coverage to extraterritorial jurisdictions is the Other States provision. These are the 3.C. states. Provisions of this section of the policy will be the topic of the next article.
All terms in this glossary and the glossary itself is taken from the book “The Insurance Professional’s Practical Guide to Workers’ Compensation: From History through Audit.” The book is available now to add to your insurance library.