You Be the Judge

Is a Subcontractor an Employee Entitled to Benefits?

A district court found that intent was the most important factor in determining whether a subcontractor qualified as an employee, but an appeals court disagreed.
By: | July 14, 2014

A carpenter was working for Stark Construction when his saw kicked back and his left index and middle fingers were cut by the blade. He underwent surgery to repair tendon damage. At the hospital, he provided information that he was employed by another company and was self-insured. He said he was not covered by workers’ compensation insurance and was the person responsible for the billing.

The carpenter owned a subcontractor business and had reported pay he received from Stark as income for his business. Stark kept track of his hours and paid him an hourly wage. The carpenter sometimes brought his adult son to assist him on the job, and Stark provided the carpenter wages to pay his son. Another construction worker said that it was common for construction companies to pay subcontractors more than employees because they did not have to “pick up their insurance.”

Stark told the carpenter what job to go to each day and set the work hours. The carpenter could not change the way the work was to be performed. Stark had the ability to fire or reprimand him. Stark controlled the contracts with customers. The carpenter brought his own basic tools, but Stark provided specialized tools and the supplies needed for the project.

The carpenter filed a claim for workers’ compensation benefits, claiming that he was Stark’s employee. A deputy workers’ compensation commissioner concluded that he failed to prove he was an employee. The commissioner reversed, awarding him permanent partial disability benefits, healing period benefits, and medical expenses. The District Court found the carpenter was not an employee, explaining that the “intent of the parties” was the most important factor in determining whether a worker qualified as an employee. The District Court also found no evidence showing that the parties intended to evade workers’ compensation law. The carpenter appealed.

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How the court ruled:

The court found that Stark had the right to control the carpenter’s work. The court found that the parties’ designation of their relationship as contractor and subcontractor was not controlling because it was “plainly and completely at odds with the undisputed facts.”

A is incorrect. The court said the construction worker’s testimony that companies paid more to subcontractors could raise an inference that work relationships were structured to “maximize the amount of take-home pay and not to reflect the true balance of responsibilities.” The court found that as a whole the evidence showed that Stark exercised control over the carpenter’s work.

B is incorrect.The court found that the District Court erred in viewing the intent of the parties as the controlling factor. The court said the most important consideration in determining whether a worker is an employee or independent contractor is the right to control.

C is correct.The Iowa Court of Appeals held that the carpenter was an employee of Stark and was eligible for benefits. Stark Construction v. Lauterwasser, No. 3-1114/13-0609 (Iowa Ct. App. 04/16/14).

Editor’s note: This feature is not intended as instructional material or to replace legal advice.

Christina Lumbreras is a Legal Editor for Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at [email protected]

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