By Steven R. Rowland, Esq. [1]
Companies that rely on independent contractors in New Jersey — whether they are motor carriers, general contractors or anyone else that uses independent contractors to do their work — need to understand the legal responsibilities they potentially may have with respect to those contractors.
On April 9, 2020, in Fournier Trucking v. New Jersey Manufacturers Insurance, [2] the Appellate Division issued a significant decision about the hiring contractor’s responsibility to provide workers compensation coverage to subcontractors that fail to meet their statutory obligation to have workers compensation coverage. The Fournier Trucking decision is important to all companies that rely on independent contractors because New Jersey’s workers compensation statute imposes contingent liability on the general contractor in the event that the sub-contractor fails to obtain the statutorily-mandated workers compensation coverage.
By statute, New Jersey requires contractors that hire subcontractors to perform their work either to make sure that the subcontractor maintains the statutorily required workers compensation coverage or be liable for what otherwise would be due to a worker in the event of a workplace injury: “Any contractor placing work with a subcontractor shall, in the event of a subcontractor’s failing to carry workers’ compensation coverage as required by this article, become liable for any compensation which may be due an employee or the dependents of a deceased employee of a subcontractor.” N.J.S.A. 34:15-79(a). Critically, the statute imposes contingent liability on the hiring contractor without distinguishing whether or not the work arrangement with the subcontractor constitutes “employment” — a delineation that is critical in many other legal contexts. In other words, even if the worker is an independent contractor, if he/she is injured while performing the “placed” work, he/she is still a subcontractor for purposes of this statute.
Much of the freight that is transported by truck in New Jersey as well as the rest of the United States is performed by independent contractor, owner-operators who “lease” their equipment and driving services to motor carrier/trucking companies. In Fournier Trucking, the Appellate Division upheld a substantial judgment obtained by a workers compensation insurer against a motor carrier arising from the insurer’s claim seeking the retrospective payment of additional premiums. Notwithstanding that the insurer conceded that the owner-operators were independent contractors, liability was found because the motor carrier could not show that the owner-operators had obtained the legally required workers compensation coverage. The insured, i.e., the motor carrier, had failed to advise its workers compensation insurer that, over the years, it had changed its business model and now relied almost exclusively on independent contractors as opposed to company drivers who were its employees. The motor carrier had also failed to monitor whether or not the owner-operators had complied with their statutory obligation to have workers compensation coverage. Since the owner-operators were performing work for the carrier, they were subcontractors, and because they in fact failed to obtain their own workers compensation policies, the motor carrier’s insurer would have been liable for a workers compensation claim from a subcontractor and hence was entitled to additional premiums, imposed retrospectively, for having borne that risk involuntarily/unknowingly.
The teaching point of Fournier Trucking is straight forward: if your company is utilizing subcontractors to do its work, demand/require proof that each subcontractor has the statutorily mandated workers compensation coverage. Alternatively, if you cannot obtain such proof or, as an administrative matter, cannot monitor compliance, do what most/many motor carriers do in New Jersey, namely, work with your workers compensation insurer and/or insurance broker to obtain that coverage for your subcontractors, i.e., include the owner-operators among the insured on your workers compensation coverage policy. Notably, many of the “lease” agreements between motor carriers and owner-operators provide that the carrier will arrange for workers compensation coverage and then charge-back the cost of the coverage either through specific provisions or simply by reducing the overall compensation of the owner-operator. Often, a “charge back” arrangement is in the best interest of both the motor carrier and the owner-operator because the carrier can obtain a better per unit price for covering a group of subcontractors than the cost of an individual workers compensation policy obtained separately by each owner-operator. Presumably, there are potential cost savings to similar “charge back” arrangements in other industries.
The other teaching point of Fournier Trucking is even more obvious: a company that ignores its potential workers compensation exposure for the work of subcontractors — even if they are independent contractors — does so at its peril. Accordingly, you must monitor your subcontractors’ compliance with their statutory obligation to have workers compensation coverage and should discuss your utilization of subcontractors with your insurance broker. Understand your exposure, and act proactively.
Steven R. Rowland is a partner with Brown, Moskowitz, and Kallen, P.C. in Summit, New Jersey and can be reached at srowland@bmk-law.com or (973) 376-0909, ext. 1124.
[1] Partner, Brown Moskowitz & Kallen, P.C., Summit, New Jersey.
[2] fournier_trucking_inc._vs._new_jersey_manufacturers_insurance_company.pdf
The article is not and cannot be construed as legal advice.