North Carolina Workers’ Compensation Laws for Subcontractors & Independent Contractors

Are contractors and subs eligible for workers’ compensation benefits in North Carolina?

In the last couple of decades, it has become increasingly common for employers and companies to hire independent contractors, freelancers and subcontractors to perform vital work, rather than hiring full or part-time employees.

According to the U.S. Bureau of Labor Statistics, independent contractors are now the largest group of workers who are employed in “alternative arrangements.” They made up 6.9 percent of the total workforce in May 2017, totaling 10.6 million people. In 2018, that number grew to 10.1 percent of the total workforce according to the Labor Department, meaning that 1 in 10 American workers was an independent contractor.

From the business’s perspective, there are a number of advantages of hiring contractors—including reduced payroll costs, greater flexibility, reduced exposure to liability, and more. However, from the worker’s perspective, a disadvantage of being hired as a subcontractor or independent contractor is a lack of employer-paid benefits—including workers’ compensation if you get hurt while on the job.

The workers’ compensation system was created to help protect workers who get hurt or become ill in the course of their employment. Unfortunately, companies often try to get around this safety net and boost their bottom line by hiring independent contractors and subcontractors.

Generally speaking, employers and companies in North Carolina are not required to purchase workers’ compensation coverage for independent contractors, freelancers and subcontractors. However, there are many legal issues that come into play that make this topic much more nuanced and complicated.

For example, who qualifies as a contractor or “sub” isn’t strictly determined by the employer. Just because your boss says you are an independent contractor and makes you sign a contractor agreement doesn’t mean that you actually are. The legal system should determine whether or not you are, in fact, an independent contractor—and therefore whether or not you are owed workers’ compensation benefits.

In this article, we’ll explore some common examples of when the employer/employee relationship is disputed, common defenses raised by employers and insurers to deny coverage, important legal doctrines that come into play, and past landmark cases that have set a precedent regarding workers’ compensation coverage for independent contractors and subcontractors.

---

Examples of statutory employer/employee relationships

In order to qualify for workers’ compensation benefits in North Carolina, the employer-employee relationship must first be established. Here are some examples of occupations and employment where the employer/employee relationship is commonly called into question.

General contractors and subcontractors

One helpful avenue for establishing the employer/employee relationship for general contractors and subcontractors is to demonstrate that you are a statutory employee of a higher-tier contractor (typically a general contractor) pursuant to N.C. Gen. Stat. § 97-19.

North Carolina’s appellate courts have noted that § 97-19 is an exception to the general definition of “employment” and “employee,” and it provides that a principal contractor, intermediate contractors, or subcontractor may be held liable as a statutory employer when 2 conditions are met. These 2 conditions are:

1. The relationship of contractor or intermediate subcontractor with a lower-tier subcontractor, and
2. The lower-tier subcontractor is uninsured.

In other words:

Under § 97-19, if a general contractor or an intermediate subcontractor retains a lower-tier subcontractor, the higher-tier contractor is responsible for ensuring that the lower-tier contractor has workers’ compensation insurance.

A higher-tier contractor can ensure this by obtaining a “certificate of insurance” from the lower-tier contractor, the Industrial Commission, or the Department of Insurance. This proof of compliance must be produced for every job between the general contractor and the subcontractor, even if the parties have a regular course of dealing.

If the higher-tier contractor fails to obtain the certificate of insurance, then that contractor is responsible for obtaining coverage for the employees of the lower-tier contractor and is liable for workers’ compensation benefits due to injured employees of the lower-tier contractor.

The purpose of this section is to protect the workers from financially irresponsible subcontractors.

It is helpful to remember that all subcontractors are always independent contractors, but not all independent contractors are subcontractors. If the person in question is an employee, then the employer is liable. If the person is not an employee but works for an independent contractor, then there can still be liability if that independent contractor is a subcontractor under § 97-19.

It is also helpful to remember that the lower-tier contractor is not required to have 3 or more employees for the workers’ compensation responsibility to attach to the higher-tier contractor. So, even if a lower-tier contractor has only 1 employee, the higher-tier contractor is still responsible for ensuring the lower-tier contractor has workers’ compensation coverage.

More importantly, the higher-tier contractor need not have the normally-required 3 employees for its obligation to verify coverage of the employees of lower-tier contractors.

Accordingly, a general contractor with only 1 employee may still be liable for workers’ compensation benefits for the injured employees of a subcontractor, even though it has no obligation to provide coverage for its own employee.

Can you waive workers’ compensation for contractors?

No, in North Carolina, general contractors cannot waive workers’ compensation obligations for subcontractors. If a general contractor hires a subcontractor, the general contractor is responsible for ensuring that the subcontractor has workers’ compensation coverage. This requirement remains in effect even if the subcontractor has fewer than 3 employees or is classified as an independent contractor.

For a general contractor to comply with this obligation, they must obtain a “certificate of insurance” from the subcontractor, proving that the subcontractor has valid workers’ compensation coverage. If the subcontractor cannot provide this certificate, the general contractor is legally required to secure workers’ compensation benefits for the subcontractor’s employees in the event of a workplace injury.

Other subcontractor relationships

We usually think of subcontractors in the building and construction trades, but these relationships can show up in odd places. Here are a few examples:

Repairmen

A past client of ours was doing repair work on a small apartment complex. The initial reaction might be that there is no subcontractor relationship because the repairs were being done on owned property. Homeowners are usually not a general contractor with respect to the guy who paints their house because they do not have a contractual obligation to somebody else to have the house painted.

However, our client was, in fact, a subcontractor because the apartment complex had a contractual obligation to the tenants to make the repairs to their units, which they subbed out to our client. Thus, the apartment complex was liable for the workers’ compensation claim in the end.

Convenience store owners and gasoline distributors

In a past case, the North Carolina Court of Appeals has ruled that there might be a subcontractor relationship in the context of a convenience store owner and a gasoline distributor. The plaintiff was shot by a robber while working as a cashier at an Amoco station owned by the defendant, Abassi. The plaintiff’s employer, Abbasi, was uninsured for workers’ compensation.

Abassi leased the Amoco station, including the underground tanks, gas pumps and other equipment, from Erwin Oil. Erwin Oil was a “jobber,” which purchased gasoline wholesale from producers, then sold the gasoline, through its own stores or dealers like Abassi, who received a commission on the gas sold.

The plaintiff claimed workers’ compensation from Erwin Oil as a statutory employer, citing N.C. Gen. Stat. § 97-19. The Commission initially denied the claim on grounds that Erwin Oil was an owner or principal contractor, so there could be no subcontract to Abassi.

However, the Court of Appeals reversed this decision.

The issue was jurisdictional, so the Court was free to consider the evidence de novo (a new trial). Erwin Oil’s contract with producer Amoco, which provided the gas sold at Abassi’s Amoco station, required Erwin Oil to use its “best efforts” to market the gas and offer or cause to be offered for sale amounts necessary to satisfy public demand.

The Court held that the obligation to sell gasoline to meet public demand was sublet to Abassi by a contract that required Abassi to keep the station open 18 hours per day, 7 days per week. The North Carolina Supreme Court affirmed the ruling.

These cases illustrate that North Carolina’s subcontractor statute (§ 97-19) is not limited to the construction context and can be used in creative ways to find coverage for the injury.

Truck drivers

The North Carolina General Assembly enacted N.C. Gen. Stat. § 97-19.1 in 2003. The intent of the legislation was to address the circumstances under which interstate or intrastate motor carriers and owners/operators must secure workers’ compensation insurance.

Prior to this statute, most owner/operators leasing their truck to a motor carrier were considered “employees” of the motor carrier. Therefore, the motor carrier was responsible for maintaining workers’ compensation coverage for the owner/operator of the leased vehicle if the motor carrier employed 3 or more employees. The 2003 statute instead instilled the “common law” legal test to determine if the truck driver is an employee or an independent contractor.

Statute 97-19.1 requires that an owner/operator be covered under a workers’ compensation policy, even if the owner/operator is an independent contractor. If the owner/operator does not secure his or her own workers’ compensation insurance, responsibility will then shift to the trucking company under whose Interstate Commerce Commission (ICC) number the driver is driving.

In other words:

If the owner/operator is uninsured and is driving under a motor carrier’s ICC number, that motor carrier is responsible for the workers’ compensation claim, regardless of whether the truck driver is an independent contractor or employee. This is true even if the motor carrier has less than 3 employees.

In rare cases where truck drivers are not employees driving under a trucking company’s ICC number, those who drive trucks or make deliveries in their own vehicles are almost always considered subcontractors because the trucking company has a contractual obligation to deliver the inventory, which is then subbed out to the driver.

The statute also places the ultimate burden of providing workers’ compensation insurance on the motor carrier if the owner/operator does not have his or her own coverage. Unlike § 97-19, the production of a certificate of insurance from the owner/operator to the motor carrier will not insulate the motor carrier from liability if the owner/operator ultimately does not have coverage in place at the time of the accident. This also allows the motor carrier to purchase a policy providing blanket coverage for all of its owner/operators.

Lastly, the statute allows the motor carrier to charge the workers’ compensation premium to the owner/operator IF that owner/operator is truly an independent contractor. If the owner/operator is an employee under the common law test, then the premiums cannot be charged to the owner/operator because it would be a violation of N.C. Gen. Stat. § 97-21.

Case example: Hojnacki v. Last Rebel Trucking, Inc.

In this case, the plaintiff truck driver contracted with Last Rebel Trucking to drive one of Last Rebel’s trucks. Last Rebel owned the truck and hired the trucker to drive under its contract with Comtrak Logistics. (Comtrak is a large nationwide trucking company with a principal place of business in Tennessee. Comtrak leases local trucks and drivers to haul its freight.)

Comtrak gave the plaintiff his assignments and collected his log sheets. Comtrak then paid Last Rebel Trucking for his time. Last Rebel, in turn, paid the trucker wages based on the miles he drove for Comtrak. Comtrak provided an occupational accident policy for the trucker and deducted the premiums from Last Rebel’s account. Last Rebel did not have workers’ compensation insurance.

The truck driver sustained an injury while off-loading the truck in Charleston, South Carolina. His contract of employment with Comtrak was made in Atlanta. Last Rebel is based in North Carolina.

The trucker filed a North Carolina workers’ compensation claim against both Last Rebel and Comtrak. The Full Commission found that the trucker was an employee of Comtrak, but that there was no employee-employer relationship with Last Rebel. The Commission dismissed the claim, indicating that it did not have subject matter jurisdiction.

The injured trucker appealed to the Court of Appeals, which held that he entered into a contract of employment with Last Rebel in North Carolina. Therefore, the Commission had jurisdiction to hear the claim. The Court declined to address whether or not the trucker was a joint employee of both Comtrak and Last Rebel. It also declined to address whether the driver was entitled to benefits under § 97-19.1 from Comtrak because Last Rebel was uninsured.

These issues were remanded to the Full Commission, but the parties settled the case prior to the remand. However, it’s our belief that the Full Commission probably would have found that Comtrak was liable for providing workers’ compensation benefits because the trucker drove under its ICC number and was uninsured.

The persuasive policy argument that was made by the plaintiff is that we do not want to encourage out-of-state trucking companies to lease drivers from mom-and-pop local companies in order to avoid paying workers’ compensation insurance.

Domestic servants

North Carolina’s Workers’ Compensation Act excludes “domestic services” from the definition of “employment,” thus making employers of domestic servants not clearly eligible for compensation under the Act. However, the mere fact that an employee performs services in a home does not necessarily make that employee a “domestic servant.”

Case example: Kirkpatrick v. Ryburn

The Full Commission found that a couple who utilized the services of 3 certified nursing assistants (CNAs) to care for them qualified as an employer subject to the Act, and that their CNAs were “employees.” The Commission reasoned that the CNAs were not performing domestic services, but rather they were performing the services that would ordinarily be performed at a nursing home, thus removing them from the category of “domestic servants.”

If the uninsured employer is having you or your loved one perform services in a home that are outside the purview of “domestic services,” you or your attorney may be able to show that you are an employee entitled to the protection of the Act.

---

The borrowed servant doctrine

If you happen to have been working for someone other than the assumed employer at the time of your injury, you or your attorney should consider whether you might be deemed to be the “borrowed servant” of the other entity.

North Carolina courts have recognized that it is possible for an individual simultaneously to be an employee of 2 different employers, and that either or both of the employers may be liable to pay workers’ compensation benefits.

Under the “borrowed servant” doctrine, an employee of 1 employer can also be the employee of another employer (the “special employer”) when all 3 of the following circumstances exist:

1. The employee entered into separate employment with the special employer, express or implied;
2. The work the employee does is the work of the special employer; and
3. The special employer is vested with the right to control the details of the employee’s work.

An employee is an employee of both their primary employer and the special employer when all of these circumstances are present, and both employers are liable for workers’ compensation benefits.

The “borrowed servant” doctrine is especially useful when recovery may not be possible against the primary employer, but when recovery against the special employer is more likely. However, this doctrine can also be a double-edged sword in some circumstances.

When an employee is injured as the result of negligence on the part of a special employer, the special employer is entitled to raise the bar of the exclusivity provision of the Workers’ Compensation Act—meaning that when the employee recovers workers’ compensation benefits from either of the employers, the employee cannot proceed against either employee in a common-law action for personal injuries.

Common defenses raised by uninsured employers

When an injured employee brings a claim against an uninsured employer for workers’ compensation, the employer often scrambles to avoid having to pay compensation and penalties. Knowing the common defenses used to escape liability for workers’ compensation can help injured workers be prepared for these arguments.

Defense #1: Not an employee

The first common defense asserted by uninsured employers is that the injured worker is not an “employee,” but rather an independent contractor who does not qualify for benefits. This is often accompanied by an assertion that the worker’s earnings were reported on IRS Form 1099 and not Form W-2, along with a document or documents signed by the worker purporting to acknowledge that he or she was an independent contractor and not an employee.

The first place to look to when this defense is asserted is the precedent set by Hayes v. Elon College, which lists and explains the factors that must be considered in determining whether a worker is actually an employee or an independent contractor.

These factors include:

• If the employee is engaged in an independent business, calling, or occupation
• If the employee is to have the independent use of his or her special skill, knowledge, or training in the execution of the work
• If the employee is doing a specific piece of work at a fixed price or for a lump sum or upon a quantitative basis
• If the employee is not subject to discharge because he or she adopts one method of doing the work rather than another
• If the employee is not in the regular employ of the other contracting party
• If the employee is free to use such assistants as they may think proper
• If the employee has full control over such assistants
• If the employee selects their own time to work

The most important of these factors is the right to control the manner and method of the worker’s work.

In the case Youngblood v. North State Ford Truck Sales (1988), the Supreme Court expanded this list to include if a worker provides his or her own necessary tools of the trade. Whom the IRS holds responsible for remitting of tax is not a determinative issue in the context of workers’ compensation, according to the case Denton v. South Mountain Pulpwood Co. (1984). 

Accordingly, a worker might be an “independent contractor” for purposes of the Internal Revenue Code, but an “employee” for purposes of the Workers’ Compensation Act.

Other non-determinative factors include:

1. The person’s own beliefs and assumptions with regard to the relationship
2. The fact that the person did not work regular hours
3. The fact that the person is skilled and required very little supervision

Defense #2: The employee signed a written agreement (estoppel)

North Carolina’s Workers’ Compensation Act (N.C. Gen. Stat. § 97-6) forbids an employer from escaping its obligation to provide workers’ compensation benefits by having the injured worker sign any special agreement or contract.

Sometimes, an employer will ask the putative employee to sign either a waiver of workers’ compensation benefits or an agreement that the employee is an independent contractor. However, any waiver of workers’ compensation benefits by the putative employee is unenforceable and does not constitute a defense to the claim.

Likewise, the determination of whether the injured worker is an employee or an independent contractor is solely a judicial decision. Any agreement by the parties as to their relationship will not constitute a defense to the workers’ compensation claim.

An interesting fact pattern arises when the putative employer subtracts workers’ compensation premiums from an alleged independent contractor. If the injured worker is truly an independent contractor, the argument can be made that the employer is “estopped” from denying responsibility under the Act because it collected workers’ compensation premiums.

On the other hand, if the injured worker is an employee, N.C. Gen. Stat. § 97-21 forbids an employer from collecting workers’ compensation premiums from the employee.

In the first scenario, the carrier would be off the hook for providing benefits under the policy, but the employer may be primarily liable for workers’ compensation benefits under an estoppel theory.

Under the latter scenario, the employer must reimburse the injured worker for the premiums collected during the period of employment. This is the employer’s responsibility and not the carrier’s responsibility.

The employer may also face criminal prosecution for violating N.C. Gen. Stat. § 97-21. A defense attorney may have a conflict of interest if he or she is representing both the employer and the carrier in this situation.

Defense #3: Ghost policies

An unintended consequence of the 1995 legislation rescinding coverage to subcontractors was the creation of “ghost policies.” The North Carolina Department of Insurance has permitted insurance carriers to underwrite a policy that does not provide coverage to a sole proprietor (or subcontractor) but does provide coverage to any employees that the sole proprietor may hire during the policy period.

These policies are relatively inexpensive (about $750-$850) because no payroll is used to determine the price for coverage. The policy provides protection to the upper-tier contractor from claims made by employees hired by the subcontractor.

However, the policy does not cover the subcontractor.

Because general contractors require a certificate of insurance before allowing a subcontractor to do work on their project, the subcontractor can compete for contracts by producing the “ghost policy.”

At the time that this article was written, there was only 1 appellate case addressing ghost policies. In Stutts v. Travelers Indem. Co. (2009), the court held that the subcontractor who was not covered under his own ghost policy could not sue the insurance company under the Unfair & Deceptive Trade Practices Act.

Case example: Stutts v. Travelers Indem. Co.

In Stutts v. Travelers Indem. Co., the plaintiff started his own business hauling concrete and other materials. He only had 1 customer—a trucking company that required him to purchase a ghost policy before allowing him to haul concrete. Mr. Stutts purchased the ghost policy, but he was under the misimpression that he was covered under this policy.

When coverage was denied, Mr. Stutts filed a claim against the trucking company under a common-law employee/employer relationship. The Deputy Commissioner applied the common law test and found that Mr. Stutts was indeed an employee of the trucking company and awarded benefits.

Mr. Stutts then sued Travelers in civil court for Unfair Deceptive Trade Practices, alleging fraudulent collection of premiums. The plaintiff contended that the workers’ compensation carrier illegally collected premiums because it knew the policy was not intended to cover any individual.

Mr. Stutts had elected not to cover himself under the policy, and he did not have any employees. Travelers charged him $850 for the ghost policy. At his yearly audit, Travelers reimbursed Mr. Stutts $568, but it kept the remaining $282.

Mr. Stutts sued on behalf of himself and all similarly situated policyholders for charging the minimum premium along with treble damages and attorneys’ fees. The trial court granted summary judgment on behalf of Travelers.

The Court of Appeals affirmed the summary judgment ruling, indicating that the collection of premiums was not fraudulent because the policy would have covered any employee who Mr. Stutts may have hired during the year the policy was in effect. The court reasoned that the carrier still assumed risk because Mr. Stutts could have hired employees. When the yearly audit indicated that no employees were hired, Mr. Stutts was reimbursed his premium minus the set administrative fee of $282.

The court indicated that the N.C. Rate Bureau has the sole discretion for setting such minimum premiums. It reasoned under the “filed rate doctrine” that Travelers could not be held responsible for an allegation that the minimum rate was excessive.

The filed rate doctrine holds that a “plaintiff may not claim damages on the ground that a rate approved by a regulator as reasonable is nonetheless excessive because it is the product of unlawful conduct.”

The court did not make any findings as to whether issuing the ghost policy was unlawful conduct.

While there are only a few appellate cases addressing ghost policies, there are at least 7 Full Commission cases that address these policies:

Case example: Escudero v. Bluewater Homes, Inc.

In Escudero v. Bluewater, Chief Deputy Commissioner Gheen reported the employer to the fraud unit for requiring workers to obtain their own ghost policies and for deducting the premiums for these policies from their paychecks.

In this case, the injured worker’s cousin worked for Bluewater Homes. The cousin was required to purchase a ghost policy in order to work for Bluewater. Bluewater subtracted the premiums for this policy from the cousin’s check. The cousin had no employees, was paid by the hour, and did not control the manner of work.

Bluewater hired the plaintiff, Mr. Escudero, as a carpenter upon the cousin’s recommendation. Mr. Escudero had no prior experience in carpentry. Like his cousin, Mr. Escudero was paid by the hour, received direction from Bluewater, and used Bluewater’s tools. He was injured on his first day on the job.

Bluewater argued that it was not responsible for Mr. Escudero’s injuries because he was “hired” by the cousin, who had provided the ghost policy.

Chief Deputy Commissioner Gheen awarded Mr. Escudero benefits and held that both the cousin and plaintiff were employees of Bluewater. Bluewater’s carrier was required to pay for Mr. Escudero’s claim. Commissioner Gheen also referred Bluewater to the Industrial Commission Fraud Section to investigate Bluewater’s practice of deducting workers’ compensation premiums from its employees.

Case example: Preston v. Transwood, Inc. and Preston Trucking

In Preston v. Transwood, Inc. and Preston Trucking, Deputy Commissioner Chrystal Redding Stanback also attempted to sanction a workers’ compensation carrier who issued a ghost policy and then declined to pay benefits under the policy.

The plaintiff, Mr. Preston, entered into an arrangement to drive a truck as an owner/operator with Transwood, Inc. The plain language of the agreement indicated that Mr. Preston was an independent contractor who was required to supply his own workers’ compensation coverage. He drove the truck under Transwood’s motor carrier authority and ICC number.

Mr. Preston purchased a workers’ compensation policy from Liberty Mutual. He was then hurt when a hose sprayed chemicals into his eyes while off-loading the truck.

Mr. Preston filed a workers’ compensation claim against his own policy, Liberty Mutual, and the trucking company’s carrier, Great West. Liberty Mutual denied the claim, indicating that Mr. Preston did not elect to cover himself under the ghost policy. He presented evidence that the insurance agent never told him that he needed to affirmatively elect to be covered under the policy. Mr. Preston thought that by purchasing the policy, he would be covered in the event of an accident.

Conversely, Liberty Mutual presented evidence that its agent did explain in detail to Mr. Preston that he would not be covered under a ghost policy. Liberty Mutual’s agent testified that cost was a concern to Mr. Preston and that he wanted to get the cheapest policy possible.

Great West denied the claim, indicating that Liberty Mutual should be required to cover Mr. Preston under the ghost policy because it collected his premiums. Great West also argued that its insured, Transwood, collected a valid certificate of insurance from Mr. Preston, so it complied with its obligations under the statute and should not bear liability. (Note that unlike § 97-19, the motor carrier statute under 97-19.1 does not say that collecting a certificate of insurance is a defense to the claim.)

Deputy Commissioner Stanback found as fact that Liberty Mutual assumed no risk under the policy, yet collected $750 in premiums. She indicated that “while this practice [of issuing ghost policies] is common in the insurance industry, the undersigned finds it to be inequitable. Absolving Liberty Mutual from liability would endorse this practice, which the undersigned declines to do. The standard procedure in the insurance industry for selling ghost policies requires the agent to make direct contact with the insured to ensure that the insured understands the consequences of being excluded under the policy.”

What’s more, Deputy Commissioner Stanback found that Transwood had liability as Mr. Preston’s statutory employer under § 97-19.1. Even though all parties agreed that Mr. Preston was an independent contractor, the second paragraph requires the motor carrier to be liable for an owner/operator’s workers’ compensation claim if there is no workers’ compensation coverage in effect.

Deputy Commissioner Stanback found that Liberty Mutual’s policy excluded Mr. Preston so he was uninsured on the date of injury. Therefore, under § 97-19.1, Transwood bore liability for the claim, even though Mr. Preston was an independent contractor. As a sanction to Liberty Mutual for not informing Mr. Preston that he was not covered under the ghost policy, the Deputy held Liberty Mutual jointly and severally liable for paying the claim.

All parties appealed to the Full Commission, which overturned DC Stanback’s decision with respect to Liberty Mutual. The Full Commission indicated that the Deputy did not have the authority to impose joint and several liability on Liberty Mutual. It found that Transwood assumed the entire liability under § 97-19.1 because the owner/operator was uninsured under Liberty’s policy.

Liberty Mutual made the argument that it would have assumed risk under the policy if Mr. Preston had hired any employees during the coverage period; therefore, the ghost policy was valid and not fraudulent. The Full Commission accepted this argument and declined to find that Liberty Mutual engaged in any fraud.

The Full Commission issued a finding of fact indicating that the purchase of ghost policies is a fairly common practice in the insurance industry among independent contractors needing to provide a certificate of insurance to satisfy the requirements of an upstream contractor.

There are 2 general rules to be learned from these cases. These rules are:

1. Sole proprietors and subcontractors are not automatically covered by ghost policies; instead, they must take affirmative action to elect coverage for themselves; and
2. If a subcontractor does not elect to cover himself under a ghost policy, then he or she will need to prove that they are a common-law employee of the general contractor or a covered owner/operator under § 97-19.1.

Contrast the cases above with both Capps and Jacobs, which held that independent business owners who elected not to cover themselves under a workers’ compensation ghost policy could not then later come back and ask for benefits under that policy.

The difference is that in the former line of cases, the injured workers were actually common-law employees who were not required to purchase insurance in the first place. (And, in the Preston case, an owner/operator who was a statutory employee under § 97-19.1.) In the latter cases, the injured parties were either owners or independent contractors who elected not to cover themselves under their own policy.

Although this issue has not been litigated, it would stand to reason from the Court of Appeals holding in the Stutts case that if a subcontractor, after purchasing a ghost policy, actually hires an employee who then got hurt, that employee would be covered under the ghost policy. The ghost policy premiums would then adjust accordingly when the subcontractor went to renew the policy the following year.

However, the converse argument can be made that if the subcontractor really wanted to hire an employee, he or she would wait until they actually hired an employee to procure workers’ compensation coverage.

In other words:

Why buy coverage and pay premiums if nobody is covered but for the ability to shield the general contractor from liability?

The insurance industry’s argument is that a ghost policy provides the subcontractor with the convenience of picking up casual labor without the hassles of buying new coverage.

The insurance industry’s practice of issuing ghost policies is for the state legislature and Department of Commission to review. At this time, however, the general feeling from the Industrial Commission is that ghost policies are valid insurance practices.

Contact an experienced North Carolina workers’ compensation attorney

As you can see, securing workers’ compensation benefits for independent contractors and subcontractors in North Carolina is far from clear-cut. In contrast, these cases are often quite complicated and heavily disputed by employers and insurance companies. For this reason, it’s vital that injured workers who fall under this employment category seek legal advice from an experienced and knowledgeable work injury attorney.

At the Wilder Pantazis Law Group, we are deeply familiar with the commonly disputes types of employee/employer relationships, the relevant legal doctrines that apply, the precedents set by past cases and rulings, as well as the common defenses insurers and employers try to make to deny compensation to supposed subcontractors and independent contractors.

Don’t take your employer at their word when they claim you are a contractor and therefore not entitled to workers’ compensation benefits. Instead, consult with one of our North Carolina workers’ compensation attorneys to learn about your rights and get answers.

GOT QUESTIONS? CONTACT US FOR ANSWERS