This article is a companion piece to this video 

In this episode of our informational YouTube and podcast series about subrogation, On Subrogation: Independent Contractor Defense, RG founder and subrogation attorney Kim Rathbone explains the use of the Independent Contractor Defense in subrogation litigation. In the context of vicarious liability, this affirmative defense often clouds the waters of employee vs. employer liability in the event of tortious damages.

Subrogation Specifics: When an Employee isn’t Really an Employee

When an insured is injured by someone who is on the job, it is natural to look to their employer to help cover the cost of the damages the worker causes. Often, the employer will respond by invoking the independent contractor defense. 

In essence, the employer is arguing that they are not liable for the wrongful acts of the negligent party because that person is not actually their employee. Therefore, they aren’t directly responsible for that person’s mistakes. This is because employers generally cannot be held liable for the acts of their independent contractors.  

However, just because an employer asserts that a negligent worker is an independent contractor does not entirely shut down the question of employer liability. First, there are some exceptions to the independent contract defense, which we will review here. Second, an employer sometimes asserts that the tortfeasor has independent contract status for their own convenience when circumstances suggest it is not actually the case.  

Let’s begin with the exceptions to the independent contractor defense.

Defense Exception 1: Negligent Supervision

Even if a worker is an independent contractor, the employer is still liable for its negligent supervision of that contractor. For example, the employer may fail to inspect the contractor’s work after completion. In this circumstance, the employer’s own negligence creates exposure, and that employer can be held directly liable for the damage that resulted from the independent contractor’s actions. 

A subrogating insurer will want to investigate the facts of the situation to ascertain if there is any direct exposure for negligence on the part of a the employer in question. A thorough investigation phase at the outset can help subrogating counsel determine the nuances of the relationship between the employer and contested employee.

Defense Exception 2: Non-Delegable Duty of Care

Another circumstance where an employer may be liable for the actions of the independent contractor is when the employer has asked the independent contractor to perform a task for which it owes a non-delegable duty of care to the public. 

For example, suppose a trucker was independently contracted to transport large logs for some distance on the highway. The logs are not properly secured to the long-haul truck, become dislodged and injure other people sharing the road. 

Here, the fact that the logs were not properly secured by the independently contracting trucker does not prevent the employer from being held liable, because there is a non-delegable duty to keep the public safe when completing that kind of action.  

So, in these circumstances, both the employer and the independent contractor would be held liable for the independent contractor’s actions. Thus, in the context of subrogation, it is wise for insurers to conduct an independent negligence analysis as it pertains to the employer in question to determine whether they have a duty to protect the public through their independent contractor’s actions.

Defense Exception 3: Inherently Dangerous Activities

Likewise, an employer cannot disavow liability for injury when they have asked an independent contractor to perform work that is inherently dangerous. 

Another simple example also arises in the trucking industry: an independent contract trucker is hired to transport a flammable substance on a highway. Under these circumstances, the action is considered so potentially dangerous to the public that an employer cannot disavow legal responsibility for injury by employing an independent contractor. 

Where work inherently dangerous to the public is concerned, both the independent contractor and the employer retain liability for harm done to others.  

Defense Exception 4: Interstate Materials Transportation

In addition, whenever commercial materials are transported through interstate roads, the Federal Motor Safety Act supersedes any question of employer/employee relationship, or how a given state may handle trucking subrogation claims. Those federal laws can serve to hold the employer liable. 

It is important for any subrogation expert to have an excellent working knowledge of both the state and federal laws relevant to a given subrogation file. Subrogation law firms that work nationwide retain teams of attorneys, specialists, and other professionals able to serve subrogation clients in jurisdictions across the country. This is especially useful in all transportation insurance disputes like trucking, maritime and rental cars.

When is an Independent Contractor not an Independent Contractor?

There is another issue surrounding the independent contractor defense.. The question always arises whether the tortfeasor in question is, in fact, an independent contractor. Just because an employer gives a worker that title does not necessarily mean it is accurate. 

In general, an employer exercises much more control over an employee than an independent contractor, and there are a number of balancing tests to determine whether or not a worker truly qualifies as an independent contractor. To make this determination, there are several such balancing tests used throughout the country, including:

  • Economic Realities Test
  • Common Law Test,  also called IRS 20 Factor Test
  • ABC Test

Whichever test a jurisdiction applies, they are all very fact-based, intensive investigations. Each test seeks to analyze just how much control an employer has over an independent contractor who is performing a job. There are 5 main factors a court examines to determine whether a worker in question is legally an independent contractor. 

Remember, a subrogating insurance company looking to recover losses is interested in categorizing a worker as an employee, because employers have liability for their employee’s tortious acts. Important factors when determining liability for losses in a subrogation claim where the opposing party is claiming the independent contractor defense are:

  • Is it a continuous relationship?  A worker with a continuous relationship with an employer is more like an employee. On the other hand, if the worker is hired more sporadically on an as-needed basis, this suggests the worker is an independent contractor.
  • Is it an exclusive relationship? If a worker is employed exclusively to one employer, it suggests an employee relationship.  
  • Does the worker have specialized skills? A more specialized skillset suggests an independent contractor. Less specialized skills suggest a more typical employee.
  • Does the worker’s regular business differ from the employer’s business? If so, this indicates more of an independent contractor relationship.
  • Does the worker receive supervision from the employer? Working without supervision suggests an independent contractor. The more supervision an employer provides, the more likely an employee relationship exists.

Certainly, the easiest way to analyze these facts in your subrogation case is to examine any employment contract(s) between the parties at issue. A contract may address multiple factors that help examine the realities of an employment relationship, regardless of just the title of “Independent Contractor.”  

Control is Key to Determining Employee vs Independent Contractor

The bottom line in determining a worker’s status as an employee vs an independent contractor is how much control an employer exercises over a worker. The greater the employer control, the more likely a court will be to throw out the independent contractor title and treat a tortious worker as an employee of the employer. 

Some additional facts that courts find relevant to making this determination follow:

  • Are there particular staffing requirements that the employer has? Requiring a specific number of employees among which the worker count suggests an employee. Requiring a background check in order to work for the employer likewise suggests an employee.  
  • Does the employer require a performance level beyond just providing a competent level of work? This suggests an employee.  
  • If the employer provides job training, the worker is more like an employee.
  • Conducting performance audits suggests that a worker is an employee.  
  • Work schedules are relevant. Requiring work performance on certain days, or certain holidays, or specific hours of the day, even if it is just a best practice recommendation, lends itself to an employer/employee relationship.
  • Visual cues can go a long way. If a worker is wearing the logo of the employer, they do not look like an independent contractor. Likewise, driving a vehicle with the employer’s logo makes a worker look like an employee. If you put yourself in the shoes of the insured, ask yourself whether the insured would think they were dealing with an employee of the employer in question.
  • Of course, payment methods are relevant. If a worker is paid an hourly rate or is on salary, it suggests an employee. Whereas, if they are paid per service or job completed, it suggests an independent contractor. Workers who invoice employers look more like independent contractors. Providing benefits to a worker certainly suggests an employee, whereas a 1099 indicates an independent contractor. If your insured paid the worker directly, rather than the employer, it suggests an independent contractor.
  • If the employer provides extensive control over the job itself, that suggests the worker is an employee. How much instruction is the employer providing in order to complete the job? Does the employer have the right to stop the work for inspection or changes? Does the employer change details, or provide alterations to the worker’s project?  
  • Requirements regarding security checks or other procedural restrictions suggests an employee/employer relationship.
  • Requiring use of specific materials, tools, or personnel likewise suggests an employee. Employers who own the required tools or materials likewise suggests an employee.
  • If driving a vehicle, employers who choose the routes that a worker has to drive in order to complete a job suggests an employee. This is something attorneys come across often in subrogation cases in the trucking industry.
  • If an employer assigns projects, and then when the job is complete requires a worker to write reports, or meet a certain number of quotas, or provide reports regarding compliance, that lends itself to an employee relationship.  

Weighing the Evidence: What is Enough to Prove Your Case?

Imagine all the factors are in a game of tug-of-war. The more factors that are on the employee argument side, the more strength the argument has pulling the rope. With all these factors, the employer has to assert more than just occasional control. If instructions and requirements are merely intermittent, it indicates an independent contractor relationship. 

Not every box needs to checked here. Even if only some of these factors come into play to create that employer/employee relationship instead of an independent contractor relationship, it can be enough. Recall that, since subrogation occurs in civil courts, the burden of proof is lower than in criminal; it just has to be more likely than not that the nature of the relationship is employer-employee.

As long as the balance of evidence tends to suggest an employee relationship, it will create a valid argument that may hold an employer responsible for the so-called independent contractor’s actions. For a subrogating insurer, this analysis is critical to successfully recouping losses.

Finally, when you are investigating claims or litigating a subrogation case, it’s imperative to fight for access to all the detailed answers to these questions. This kind of information is not always readily available, and if the answers aren’t favorable for the employers, they aren’t going to want to turn them over to you. 

This is another reason the quality of the investigation phase of a subrogation claims case is possibly the biggest defining factor in limiting an employer’s ability to assert the independent contractor defense surreptitiously. A subrogating carrier needs skilled counsel to properly navigate these nuanced circumstances.

Curious to learn more about vicarious liability and other important topics about the subrogation process? Check out Rathbone Group’s blog, YouTube channel and podcast library for more on subrogation. And if you can’t find what you’re looking for, reach out to us at [email protected] to see your question about insurance disputes answered in a future episode of On Subrogation.