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Statutory Employer, Who’s That?

definition of a statutory employer

Sometimes terms are thrown at you, and when you don’t understand them you can become confused and frustrated. If you have been injured on-the-job, terms and dates have probably come up that you just don’t understand, and now you are overwhelmed. One of those terms you may have heard is “statutory employer.”

Who is a Statutory Employer

Statutory employer is a term used in the Colorado Workers’ Compensation Act, specifically at C.R.S. § 8-41-401. It states:

Any person, company, or corporation operating or engaged in or conducting any business by leasing or contracting out any part or all of the work thereof to any lessee, sublessee, contractor, or subcontractor, irrespective of the number of employees engaged in such work, shall be construed to be an employer…

C.R.C. § 8-41-401(1)(a)(I). Thus, pursuant to this statute a “statutory employer” is an employer who is responsible for paying workers’ compensation benefits. To put this more simply, the business or entity that is contracting out part or all of its work is considered to be the employer to those who are performing that work, even though they are not directly working for that business. In this situation, the person performing the work is usually employed by a subcontractor.

Ordinarily, an independent contractor does not qualify as an employer for workers’ compensation purposes; it is only in the situation involving a statutory employer where workers’ compensation benefits apply. See C.R.S. § 8-40-202 (describing situations in which an individual is free from control and direction in the performance of a service).

How to Decide if a Contractor is a Statutory Employer

In order to establish that one is a statutory employer, the general contractor needs to show that the work performed by the subcontractor is part of the general contractor’s regular business activity. Regular business activity can be assessed by looking at:

  • Routines;
  • Regularity;
  • Importance of the service performed.

However, a statutory employer relationship can still be found even if the work does not contribute directly to the main business of the general contractor. It really is a case by case basis in many situations. Mainly though, the court will look at the relationship between the type of contracted work and the purpose of the business. The court wants to know how important the activity is that the subcontractor is providing. In other words, if the subcontractor was unavailable would the general contractor have to use its own employees to perform the work? If so, the relationship is there.

Immunity from Liability

The purpose of the statutory employer statute is to provide general contractors with immunity from a tort lawsuit, but still make them responsible for the injury that has occurred to someone on-the-job. Therefore, for assuming the workers’ compensation liability, the general contractor does not have to worry about a lawsuit because the injured worker can’t get both workers’ compensation and damages from a tort lawsuit.

However, how does this immunity work when there seem to be so many players? Just because the general contractor, the person above the subcontractor, is immune does not necessarily mean other parties are as well. That immunity couldn’t be shared by say another subcontractor of the general contractor who could have been negligent or reckless on the job and caused a worker’s injury. They could still be responsible for damages.

Exceptions to Immunity

C.R.S. § 8-41-401(3) provides an exception to the immunity granted in the statute, and that is in the case of an individual independent contractor. That individual would not be covered by workers’ compensation insurance of a general contractor. In this case, the individual could sue the general contractor for damages for an injury caused by that general contractor’s negligence or acts. The statute provides however, that the total amount of damages to be recovered pursuant to a cause of action resulting from a work-related injury that would have been compensable under the workers’ compensation statutes cannot exceed $15,000. Certain conditions have to be met for this $15,000 limitation to apply though. The limit is in place to encourage independent contractors to purchase their own workers’ compensation insurance, rather than depend on a lawsuit against a general contractor.

What Can You Do?

If you are an independent contractor it is important for you to look into workers’ compensation insurance if you do not have any. If you are not an independent contractor, it is important for you to check with your employer so you know more about your employer’s workers’ compensation policy. We hope you never experience a work-related injury, but it is important to know when workers’ compensation will apply to you.

For more information please see Robert Wren’s article in The Colorado Lawyer.

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