The Consequences of Not Having Worker’s Compensation Insurance

April 26, 2016


What are the consequences of a misclassified Independent Contractor Truck Driver getting hurt on the job?


Over the last several weeks, I have had the privilege of working with trucking companies who are dealing with the unfortunate situation of having an Independent Contractor driver file a claim for Workers’ Compensation Benefits. Obviously, this particular situation is only made worse if the driver is really an employee who has been misclassified as an Independent Contractor. So today I am revisiting the disastrous consequences that can occur when a Misclassified Independent Contractor truck driver sues a trucking company for Worker’s Compensation Benefits.

Failing to have workers’ compensation coverage is a criminal offense. If the Division of Labor Standards Enforcement (DLSE) determines that an employer is operating without workers’ compensation coverage, a stop order will be issued. This order prohibits the use of employee labor until coverage is obtained, and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, a fine of up to $10,000, or both. The DLSE will also assess a penalty of $1,000 per employee who is on the payroll at the time the stop order is issued and served, up to $100,000 (California Labor Code Section 3722(a)).  If an employee gets hurt or sick because of work and the employer is not insured, that employer is responsible for paying all bills related to the injury or illness. Also, if an employer is illegally uninsured and an employee gets sick or hurt because of work, that employee can file a civil action against the employer in addition to filing a workers’ compensation claim.
Additionally, if an injured worker files a Workers’ Compensation claim that goes before the Workers’ Compensation Appeals Board and a judge finds that the employer had not secured insurance as required by law, when the dispute is resolved the uninsured employer may be assessed a penalty of $10,000 per employee who was on the payroll at the time of injury, if the worker’s case was found to be compensable, or $2,000 per employee who was on the payroll at the time of injury, if the worker’s case was noncompensable, up to a maximum of $100,000 (Labor Code Section 3722(b))
The risks to an uninsured trucking company are many, and can threaten the continued existence and viability of the trucking company. These risks include:
  1. Possibility of business closure
  2. Large fines imposed by the California Labor Commissioner ($2,000-$10,000 per Employee)
  3. Presumption of negligence
  4. Exposure to civil suits by injured workers
  5. Criminal conviction and personal fines
  6. Imposition of a 10% surcharge in addition to the disability claim, plus attorney’s fees for the worker
The reason I emphasize attorney’s fees is because that is what drives lawsuits.
California has a strong “pro-employee” public policy, and that encourages plaintiff’s lawyers to take on cases where the damages may be small: the employee’s lawyer will ask the court to have the employer pay for his fees (often at $400-$600 per hour), so even a “small” case is a moneymaker for the lawyer.

The implications here are big penalties and fines for the Trucking Company:
Sections 226.8 and 2753 of the California Labor Code authorize California’s Labor and Workforce Development Agency to assess civil penalties of not less than $5,000 and not more than $15,000 for each violation in addition to those civil penalties already permitted by law. The civil penalties increase to$10,000 to $25,000 for each violation if the Agency determines that the employer has engaged in a pattern, or practice, of willful misclassification of its employees as independent contractors. The worker can file a complaint with the Labor Commissioner and the Labor Commissioner can assess the above-mentioned civil penalties against the employer if the Labor Commissioner determines that the employer has in fact misclassified the employee.
The misclassified employee can seek up to three years worth of unpaid wages (including overtime and meal and rest break violations), unreimbursed businesses expenses, and penalties for violating various California Labor Code provisions (Labor Code §203, §210, §226.3, §2802 and §3710.1; California Unemployment Insurance Code §§1112, 1113.2, and 2118).  California business owners may also face exposure to tort liability for injuries suffered by employees when workers compensation insurance was not secured (Labor Code §3706), for unfair business practices (Business and Professions Code §17200), and even potential criminal liability under Labor Code §3700.5
Pursuant to California Labor Code § 226.3, a misclassified worker may claim that the business violated the statutory obligation to provide itemized wage statements each pay period. If the Court determines the worker was in fact an employee, the court may award additional civil penalties in the amount of$250 per employee for the first citation and $1,000 per employee for each subsequent citation. It should also be noted that under California Labor Code §226.6, a knowing and intentional violation of these requirements is a misdemeanor.
Pursuant to California Unemployment Insurance Code §§1112 and 1113.2, if a court determines that a worker was misclassified, the employer will be assessed amounts due for state income tax withholding, unemployment insurance contributions, and disability insurance contributions, unless the employer can show the income was reported and all taxes due were paid by the employee. Employers who fail to pay for unemployment insurance benefits and/or state disability insurance benefits are not only required to pay the unwithheld amounts, but may also be assessed a 10% penalty and interest on the unpaid contributions.
AJS Insurance Solutions offers A+ rated Worker’s Compensation Insurance as well as bundled comprehensive Payroll and Worker’s Compensation programs.  With our partners, who have been working with the trucking industry for over 30 years, giving us a fully in-depth knowledge of the Trucking Industry and it’s Insurance needs.

Contact AJS Insurance Today for a comprehensive review of your Worker’s Compensation Coverage and Needs!!