By
Deputy Commissioner
Chief Deputy Commissioner
This paper discusses recent legislation adopted by the North Carolina
General Assembly generally addressing the obligations of interstate and
intrastate motor carriers and/or owner/operators to comply with the North
Carolina Workers’ Compensation Act (hereinafter “Act”). As with any new
statute, some provisions may be subject to more than one interpretation.
Traditionally, provisions that may be subject to various interpretations
generate litigation by which statutes are interpreted by the Industrial
Commission and the appellate courts of this State.
The discussion that follows reflects the opinions of the authors only.
The authors’ opinions do not have weight as legal authority in specific cases
before the Industrial Commission and specifically may not represent the ultimate
legal interpretations of N.C. Gen. Stat. §97-19.1 by the Industrial Commission
or the appellate courts of this State.
This paper is being published only as a reference point for information
and to attempt to address the large volume of questions being directed to the
Industrial Commission’s staff.
Anyone attempting to ascertain whether or not they must comply with the
Act should seek the opinion of a qualified attorney. Each case depends upon its
own facts which only qualified legal counsel can evaluate.
The North Carolina General Assembly
adopted N.C. Gen. Stat. §97-19.1 in 2003, effective for all workers’
compensation claims after October 1, 2003. The stated intent of the legislation
is to address the circumstances under which interstate or intrastate motor
carriers and/or owner/operators must secure workers’ compensation insurance or
provide proof of self insurance.
The statute clearly represents a departure from the former law applicable
in North Carolina as expressed in Brown v.
L. H. Bottoms Truck Lines, 227 N.C. 299, 42 S.E. 2d 71 (1947)(hereinafter
“Brown”) The Brown Court held that the:
Owner
driving truck leased to licensed interstate motor carrier for transportation of
goods in interstate commerce for which owner himself had no license to operate
truck was an “employee” of lessee within Workmen’s Compensation Act,
notwithstanding lease provision that owner would indemnify lessee against damage
arising from operation of truck, since truck could be used for such interstate
transportation only by virtue of lessee’s franchise and hence its operation
was under lessee’s control.
Licensed
interstate motor carrier by placing its own license plates on leased truck in
order to authorize its use in transportation of goods in interstate commerce
assumed such control over operation of leased truck as would defeat its plea of
nonliability under Workmen’s Compensation Act for injury to driver on ground
driver was independent contractor and not lessee’s employee.
Under the Brown decision most owner/operators leasing their truck, tractor, or truck tractor trailer to a motor carrier were considered “employees” of the interstate or intrastate motor carrier. Most motor carriers were, therefore, required to maintain workers’ compensation coverage for the owner/operator of the leased vehicle if they employed at least three owner/operators in this State.
It appears that the recent statute enacted by the General Assembly
addresses the legal test to be used to determine if an owner/operator is an
“employee” of the motor carrier or and “independent” contractor and
proscribe under what circumstances an owner/operator and/or motor carrier must
secure workers’ compensation coverage.
The statute provides:
§97-19.1. Truck, tractor, or truck tractor trailer driver’s status as employee or independent contractor.
An individual in the interstate
or intrastate carrier industry who operates a truck, tractor, or truck tractor
trailer licensed by a governmental motor vehicle regulatory agency may be an
employee or an independent contractor under this Article dependent upon the
application of the common law test for determining employment status.
Any principal contractor,
intermediate contractor, or subcontractor, irrespective of whether such
contractor regularly employs three or more employees, who contracts with an
individual in the interstate or intrastate carrier industry who operates a
truck, tractor, or truck tractor trailer licensed by a governmental motor
vehicle regulatory agency and who has not secured the payment of compensation in
the manner provided for employers set forth in G.S. §97-93 for himself
personally and for his employees and subcontractors, if any, shall be liable as
an employer under this Article for the payment of compensation and other
benefits on account of the injury or death of the independent contractor and his
employees or subcontractors due to an accident arising out of and in the course
of the performance of the work covered by such contract.
The principal contractor,
intermediate contractor, or subcontractor may insure any and all of his
independent contractors and their employees or subcontractors in a blanket
policy, and when insured, the independent contractors, subcontractors, and
employees will be entitled to compensation benefits under the blanket policy.
A principal contractor, intermediate contractor, or subcontractor may include in the governing contract with an independent contractor in the interstate or intrastate carrier industry who operates a truck, tractor, or truck tractor trailer licensed by a governmental motor vehicle regulatory agency an agreement for the independent contractor to reimburse the cost of covering that independent contractor under the principal contractor’s, intermediate contractor’s, or subcontractor’s coverage of his business.
This act is effective when it becomes law and applies to any claim arising on or after October 1, 2003. (2003.)
The first paragraph of the new statute
appears to overrule the Brown decision deeming an owner/operator an “employee” of the
licensed motor carrier. The statute instead, adopts the common law test of
whether or not the owner/operator is an “employee” or an “independent
contractor.” Initially, it appears that if an owner/operator is determined to
be an “employee” applying the common law test, the intra or interstate motor
carrier must provide workers’ compensation coverage that complies with the
North Carolina Workers’ Compensation Act.
Paragraph two of the new statute appears to require that workers’
compensation coverage is required to cover owner/operators, even if deemed
independent contractors under the common law of North Carolina. Paragraph two
contemplates that the owner/operator may procure workers’ compensation
insurance. However, the new act clearly provides that if the owner/operator,
even as an “independent contractor” under North Carolina common law, does
not have workers’ compensation insurance the licensed intra or interstate
motor carrier must pay workers’ compensation benefits. In sum, if the
owner/operator does not have workers’ compensation coverage, the motor carrier
must provide workers’ compensation coverage. Additionally, the specific
language appears to require the intra or interstate motor carrier to provide
coverage under the Act even if the intra or interstate motor carrier has less
than three employees. A logical conclusion is that the intra or interstate motor
carrier must provide workers’ compensation coverage under the Act so long as
it contracts with even one owner/operator.
The application of paragraph two of the new statute appears analogous to
the requirements for contractors and subcontractors as provided in N.C. Gen.
Stat. §97-19 in placing the ultimate burden of providing workers’
compensation coverage if the owner/operator does not maintain the coverage.
Unlike N.C. Gen. Stat. §97-19, an owner/operator’s producing a certificate of
workers’ compensation insurance to the motor carrier does not insulate the
motor carrier from liability under the Act if the owner/contractor does not
actually have workers’ compensation coverage on the date of any work related
accident. The new statute appears to contemplate vicarious strict liability upon
the motor carrier.
Paragraph three augments the requirements of paragraph two of the statute
by permitting the intra or interstate motor carrier to cover its own employees
and owner/operators with whom it has a contractual arrangement to provide
workers’ compensation coverage under one policy, “blanket,” insurance
policy.
Paragraph four of the new statute addresses the issue of who can bear the
cost of workers’ compensation coverage. The thrust of paragraph four appears
to permit the intra or interstate motor carrier to charge the actual cost of
insurance to an owner/operator even if deemed an independent contractor but not
an “employee” of the motor/carrier.
The Industrial Commission has received numerous questions from both motor
carriers and owner/operators who may be affected by the new statute. The
questions that follow are examples of the most frequently asked questions as of
the date of this paper. These questions are certainly not all of the questions
that may arise or represent all of the fact patterns that could emerge.
The author attempts to answer the questions based on the facts given in
each question. It is important to remember that altering the fact patterns, even
slightly, could change the answer given.
1. I am an independent
owner/operator. I own my own truck. I subcontract with an interstate motor
carrier to transport cargo out of the state of North Carolina under the
motor/carrier’s ICC license. I secure these loads in North Carolina. The motor
carrier informs me that I must carry workers’ compensation coverage under the
North Carolina Workers’ Compensation Act. Can the trucking company require me
to carry such workers’ compensation coverage?
Answer: Yes. The ICC motor carrier can require you to procure workers’ compensation coverage for work related injuries. If you do not maintain workers’ compensation coverage, the ICC motor carrier will be liable for your injuries under the North Carolina Workers’ Compensation Act.
2. I own a motor carrier company. I subcontract with an independent owner/operator to carry loads throughout the United States under my company’s ICC license. The owner/operator does not pick up or deliver loads in North Carolina. He only travels through North Carolina to other destinations. Can my company be held liable for an injury he sustains while operating his truck in North Carolina under the North Carolina Workers’ Compensation Act.
Answer: Yes. The ICC motor carrier can be held liable under the North Carolina Workers’ Compensation Act for injuries the truck driver sustains while operating his vehicle in North Carolina unless the truck driver has purchased his own workers’ compensation policy to provide coverage for such injuries and it is in effect on the date of the work related accident.
3. I own a motor carrier company whose principal place of business is North Carolina. As a motor carrier my company subcontracts with owner/operators who live outside the State of North Carolina to deliver loads outside the state of North Carolina. The contract with the independent owner/operator was made by a telephone call from my office in North Carolina. The independent owner/operator is an independent contractor and does not operate his vehicle in North Carolina at any time. Can my ICC licensed motor carrier company be held liable for an injury the independent owner/operator sustains out of state under the North Carolina Workers’ Compensation Act?
Answer: Yes. If your company entered into a subcontract in North Carolina with the independent owner/operator to deliver goods for your company out of state, then your company could be liable under the North Carolina Workers’ Compensation Act for the out of state injuries sustained by the independent owner/operator.
4. I am an independent
owner/operator. I own my own truck and have no employees other than myself. I
subcontract with a motor carrier to transport cargo only inside the state of
North Carolina. The trucking company has told me that I must carry workers’
compensation insurance. Can the trucking company require me to carry workers’
compensation insurance?
Answer: Yes. The motor carrier can require you to purchase workers’ compensation insurance to cover your work related injuries. If you do not maintain workers’ compensation insurance, the motor carrier will be held liable for your injuries under the North Carolina Workers’ Compensation Act.
5. I am an independent owner/operator. I own my own truck and have no employees. I subcontract with a motor/carrier to carry loads out of the state of North Carolina under that trucking company’s ICC license. I pick up these loads in North Carolina. My insurance agent has told me that it will cost me a minimum of $4488.00 to purchase workers’ compensation coverage based on a minimum payroll of $30,000.00. I currently have a much cheaper “accidental occupational injury policy” to cover injuries I sustain during the operation of my truck. Does my “accidental occupational injury policy” substitute for the more expensive workers’ compensation policy?
Answer: No. If you deliver loads with your truck pursuant to a subcontract with a motor carrier, then the “accidental occupational injury policy” does not provide workers compensation coverage required by the North Carolina Workers’ Compensation Act. If you sustain an injury while operating your vehicle under the subcontract and you do not have a workers’ compensation coverage, the motor carrier will be liable for the payment of benefits required under the North Carolina Workers’ Compensation Act. “Accidental occupational injury policies” do not meet the requirements of the North Carolina Workers’ Compensation Act.
6. I am an independent owner/operator. I own my own truck and have incorporated my business. My wife and I are the corporate officers for my company. The corporation does not have any other employees. I am the only person who drives my truck. My insurance agent informs me the corporation can purchase what he describes as a workers’ compensation “ghost” policy that is in compliance with the new law. He represents that the cost of this “ghost” policy is approximately $1000.00 if I and my wife, as corporate officers, sign a waiver that will exempt us from coverage as a corporate officers. Will the motor carrier still be liable for injuries I sustain if I purchase this type of policy instead of the more expensive workers’ compensation policy?
Answer: Yes. If you purchase a “ghost” policy and then sustain an injury while operating your truck delivering a load under a subcontract, the motor carrier will be liable for your injuries. If the ICC motor carrier requires you to purchase workers’ compensation coverage for yourself and you present a certificate of insurance showing you have workers’ compensation coverage leading the ICC motor carrier to believe there is coverage when, in fact, there is no coverage, you could be subject to civil penalties and criminal prosecution. If your insurance agent assists you in the purchase of a “ghost” policy knowing that you will be driving your vehicle under a subcontract, then he or she could be subject to civil penalties and/or criminal penalties.
7. I am a ICC motor carrier and incorporated. My company enters into a subcontract with an independent owner/operator to deliver goods with his truck. He employs at least one helper to help him unload the goods. He presents a certificate of insurance that shows he has purchased a workers’ compensation insurance that provides coverage under the North Carolina Workers’ Compensation Act. He cancels the policy after delivering the certificate of insurance to me. His helper then sustains an injury. Can my trucking company be held liable for the injuries sustained by the helper?
Answer: Yes. The owner/operator’s
certificate of insurance does not protect the motor carrier if the
owner/operator’s workers’ compensation insurance policy is subsequently
cancelled. The certificate of insurance provides no protection against liability
for the helper and probably not the independent owner/operator himself. N.C.
Gen. Stat. §97-19.1 does permit the motor/carrier to protect itself by allowing
the motor carrier to purchase the workers’ compensation insurance and charging
the independent owner/operator for its actual cost. Under such an agreement you
can deduct the costs of this insurance at the time of settlement with the
independent contractor.
8. I am an independent owner/operator. I own my own truck. I directly enter into a contract with a manufacturing company to deliver its goods both in the state of North Carolina and out of state. The contract I have entered into is not a subcontract. Can the manufacturing company be held liable for injuries under the North Carolina Workers’ Compensation Act that I sustain while delivering their goods under the agreement we have entered?
Answer: No. Assuming that the contract between you and the manufacturing company does not involve a subcontract with another ICC motor carrier, then the manufacturing company is not a motor carrier and the manufacturing company cannot be held liable for your injuries under the North Carolina Workers’ Compensation Act.
9. I am an independent
owner/operator and own my own truck. I operate my truck pursuant to a lease
agreement I have with a motor carrier. The motor carrier has informed me that I
must pay for my own workers’ compensation coverage. I am paid by the load. The
company has issued a 1099 to me and does not deduct federal and state income
taxes from my pay. The carrier says I am an independent contractor. I say I am
an employee. While I own the truck, the lease agreement prohibits me from
driving for anyone else. I am unable to hire someone else to make the
deliveries. The motor carrier sets my schedule for the deliveries I must make.
Am I an employee or an independent contractor?
Answer:
You could be either an “employee” or an “independent
contractor.” Under the common law, an independent contractor exercises an
independent employment and contracts to do certain work according to his own
judgment and method, without being subject to his employer except as to the
result of his work. In contrast, an employer-employee relationship exists where
the employer retains the right to control and direct the manner in which the
details of the work are to be executed. There are eight factors to consider in
determining which party retains the right of control and, thus, whether the
claimant is an independent contractor or an employee: These factors are as
follows: the person employed (a) is engaged in an independent business, calling,
or occupation; (b) is to have the independent use of his special skill,
knowledge, or training in the execution of the work; (c) is doing a specified
piece of work at a fixed price or for a lump sum or upon a quantitative basis;
(d) is not subject to discharge because he adopts one method of doing the work
rather than another; (e) is not in the regular employ of the other contracting
party; (f) is free to use such assistants as he may think proper; (g) has full
control over such assistants; and (h) selects his own time.
No particular one of these factors is controlling in itself, and all
the factors are not required. Rather, each factor must be considered along with
all other circumstances to determine whether you possess the degree of
independence necessary for classification as an independent contractor.
10. I am a truck driver for a
motor carrier in North Carolina. I am an employee for the company. Can the
trucking company make me pay for my workers’ compensation coverage as a result
of the passage of 97-19.1?
Answer: No. If you are an “employee” of the motor carrier, the motor carrier must pay for your workers’ compensation coverage. If the motor carrier makes you pay for your coverage and you clearly are an employee the trucking company could be subject to criminal prosecution and be required to reimburse you for the costs of any workers’ compensation policy that you were required to purchase.