09/27/2018 by Andrew P. Selman
Workers’ compensation obligations may extend to cover individuals beyond those you consider to be your traditional employees. While this article considers such obligations under the Virginia Workers’ Compensation Act (VWCA), the consideration may be applicable in other states as well. Consult with an attorney licensed in your state to discuss the issue.
One of the aims of the VWCA is to prevent employers from avoiding responsibility for employee injuries by contracting work out to others. To accomplish this, the VWCA designates some employers as “statutory employers” in certain circumstances. Statutory employers are responsible for injuries under the VWCA just like traditional employers. The statutory employer doctrine is normally implicated where the injured worker is an employee of an uninsured subcontractor. Understanding whether you are considered a statutory employer on a particular project is an important part of ensuring you are prepared to accept that work. This is especially true in the construction context, where contracting and subcontracting is the norm.
Under the VWCA, a statutory employer is one who contracts for another party to do any work that is “part of his trade, business or occupation.” Va. Code § 65.2-302(A). Thus, the key is whether the injured worker was performing work that was part of the potential statutory employer’s “trade business or occupation.” Courts in Virginia often rely on three different inquiries to aid in answering this question.
The first is often called the “normal work test.” This test asks whether the activity in that industry is normally conducted by employees of the project owner, rather than independent contractors. If it is, then the activity is considered part of the employer’s trade, business or occupation. This makes the employer a statutory employer and liable to the injured worker under the VWCA.
The second inquiry is the “subcontracted fraction test.” This test considers whether the work engaging the injured worker was a subcontracted fraction of a main contract. In this case, a general contractor, for example, can be the statutory employer of an injured subcontractor—even if the activity was not part of the trade, business or occupation of the project owner—if the subcontractor was doing work that was clearly part of the main contract.
The third inquiry is the “stranger to the work test.” This test applies when the injured worker is an employee the project owner or general contractor, and a subcontractor was somehow responsible for the injury. The subcontractor is liable under the VWCA if it is not a “stranger” to the particular business of the owner. For example, the Virginia Supreme Court considered a subcontractor who installed an automatic door at an automobile manufacturing plant that injured an employee of the plant owner to be a stranger to the owner’s work of manufacturing and selling automobiles. In that case, the subcontractor was not covered under the VWCA.
Courts have noted that making these determinations is highly dependent on the facts and circumstances of each case. Accordingly, it is important to discuss the issue with an experienced attorney who is familiar with what sort of facts and circumstances should be considered, and who can help you determine what impact any statutory employer issues may have on your business or project.