Certain "employment" situations and arrangements are exempt from the requirements of workers' compensation. The previous article recapped the more common legal entity types, who is considered an employee in each entity type and which states have numerical threshold requirements. The following paragraphs discuss other employment situations not bound by workers' compensation law in many states.
Each state views these exempted employment classes differently. Some allow total exclusion, while others may require coverage if certain thresholds are breached (generally very high thresholds in comparison to the standard requirements).
Casual Labor - No WC Required
Workers engaged in casual labor on behalf of the employer are not considered "employees" and are not required to be protected by a workers' compensation policy. This exclusionary provision applies in nearly every state with each applying different requirements to the exception. States may:
• Simply define casual labor and exclude the requirement to provide protection. Some states apply subjective terms to this definition such as "brief," "occasional," "irregular," "sporadic," or "infrequent" which may require arbitration or litigation to objectify;
• Assign a maximum dollar limit that can be paid or a maximum number of days the job can last before the work is no longer considered "casual;" or
• Assign a number of "casual employees" allowed.
Casual labor is generally defined as work that is not in the usual course of trade, business, occupation or profession of the employer (contracting party). This could include relationships such as a manufacturer hiring a landscaping company to maintain the grounds; or the owner of an insurance agency hiring a carpenter to upgrade the office. The contractors hired are not performing duties that would normally be done by any employee; they are doing work outside the normal operational requirements. Essentially, a casual laborer is one that does not directly promote or advance the employers business or operation.
Other Employments Exempt From Workers' Compensation
Having fewer than the requisite number of employees and casual labor "employees" are just two of the employment situations that are exempt from workers' compensation statutes. Other employment relationships not subject to workers' compensation protection requirements include:
Domestic employees: Most states specifically remove the requirement of providing workers' compensation protection for domestic employees. Some states place a payroll limit or a numerical limit above which coverage is once again required.
Agricultural, Farm, Ranch, Aquaculture employees: Nearly every state excludes these workers from the definition of an "employee" and do not require coverage be provided to these workers. Like domestic employees, some states limit the exception to operation with less than a specified number of workers or a specified payroll amount. A few states limit this exception with special provisions such as the type of work being performed or the familial relationships.
Commissioned Real Estate Agents: Many states remove the requirement to provide workers' compensation protection to real estate agents or subagents paid purely on a commission basis. This exclusion does not apply in every state.
The above are the most commonly found exclusions to the workers' compensation requirement, but there are several beyond these that may only apply in a few states. Such limited exclusions include:
• Volunteer ski patrol employees;
• Members of the clergy;
• Some taxicab drivers;
• Professional athletes;
• Athletic contest officials;
• Officers of non-profit associations and corporations;
• Direct sale people (i.e. Mary Kay consultants and directors);
• Newspaper re-sellers; and
This is not an all-inclusive list.
If an exempted worker/employee is injured, the only recourse available to recover any medical costs or lost wages from the employer is the legal system. Essentially, the injured party has the same legal rights as a member of the general public, but they also have to prove that the employer was negligent in causing the injury or illness. The employer is allowed the same defenses as were available prior to the enactment of workers' compensation laws:
• Assumption of Risk: Proving negligence requires evidence that a duty of care is owed. When an employee assumes the risk of an inherently dangerous or recognizably potentially dangerous activity, the duty of care is lifted off the employer. With no required duty of care, there can be no negligence. Employees in hazardous occupations are believed to understand the hazards and to assume the risk of injury;
• Contributory or Comparative Negligence (depending on the state): Doctrine of defense stating that if the injured person was even partially culpable in causing or aggravating his own injury he is barred or severely limited in the amount of recovery from the other party; and
• Fellow Servant Rule: Defense against employer negligence asserting that an employee's/worker's injury was caused by a fellow employee not by the acts of the employer. If proven, negligence is not chargeable against the employer and recovery could be severely limited or barred.
Unless negligence can be proven, no finding of guilt or a requirement to pay will materialize.
Workers' Compensation Coverage Provided
Workers' compensation coverage can be extended to many of these exempt employments by attaching one of the available Voluntary Compensation Endorsements. These endorsements extend workers' compensation protection to employments customarily exempted by individual state law by allowing the employer to designate the class of employees they wish protected. Essentially, workers become de facto employees, removing their need to sue and prove negligence and the employer's requirement to pay for and provide a defense.
Extraterritorial and Other States exposures within workers' compensation policies will be the focus of the next several articles. When a state requires scheduling as a 3.A. state or a 3.C. state will be discussed along with some of the penalties for misapplication of coverage.
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.