New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on March 4, 2008, representing the position of the New York State Insurance Department.

RE: Workers’ Compensation

Question Presented:

May the State Insurance Fund (“SIF”) unilaterally add, and assess a premium for adding, a “subcontractor” as an employee on a general contractor’s workers’ compensation insurance policy?

Conclusion:

Whether the SIF may unilaterally add, and assess a premium for adding, a “subcontractor” as an employee on a general contractor’s workers’ compensation insurance policy is dependent upon the true nature of the relationship between the general contractor and the subcontractor.

Facts:

A member of an accounting and consulting practice has a client who is a general contractor “seeking relief for charges for coverage related to its subcontractor, ABC Sub Inc. (subcontractor).” The accountant stated that the subcontractor “is a small business corporation and its sole employee is the owner and executive officer,” who has elected the option under N.Y. Workers’ Comp. Law § 54 (McKinney 1994) to forego workers compensation insurance. The accountant further represented that the client believes it should not have to pay premium to cover the subcontractor because the subcontractor “is not an employee but a bonafide [sic] business,” which supplies its own materials, equipment, and payroll; obtains quotes from the general contractor on a job-by-job basis; makes its own work schedule; and bills the general contractor for the work the subcontractor performs.

Analysis:

The inquiry raises the question of whether the subcontractor is an “employee” for purposes of the Workers’ Compensation Law. The determination of whether one is an employee is a factual matter to be decided by a court of competent jurisdiction. In making that assessment, courts have considered such factors as the employer’s control over the employee’s work methods, the payment process, and equipment furnishing.

In Chalcoff v. Project One, 12 A.D.3d 872 (3rd Dep’t 2004), the court determined that William Chalcoff, the sole employee, shareholder and president of Accutek Information Systems, Inc.. was an independent contractor and not an employee of the consulting firm, Project One Computer Consultants, which had hired Accutek to conduct computer-related work for Marsh & McLennan. Nor was Mr. Chalcoff an employee of Marsh & McLennan. Project One did not oversee the work conducted by Mr. Chalcoff in any significant manner and it paid Mr. Chalcoff’s invoices for work it specifically performed. Mr. Chalcoff used his own laptop computer, charged for work performed by the hour, and was ineligible for paid leave or company benefits either from Project One or Marsh & McLennan. He was also not authorized to attend meetings at Marsh & McLennan that were unrelated to his consulting assignment. The contract Accutek signed with Project One stated that neither Project One nor Marsh & McLennan was required to obtain workers compensation insurance for Accutek or its employees. Based on these facts, the court held that Mr. Chalcoff was an independent contractor.

Pursuant to N.Y. Ins. Law § 2339(d) (McKinney Supp. 2008), an insured may file an appeal with the Superintendent of Insurance (after exhausting all internal SIF review procedures) regarding a premium rate charged by the SIF that is in excess of the rate promulgated by the workers’ compensation insurance rating board. Insurance Law § 2339(d), however, does not authorize the Superintendent to settle a dispute as to whether a particular party is an employee of a SIF insured. A court of competent jurisdiction is the proper venue to resolve such a dispute.

Hence, whether SIF may unilaterally add, and assess a premium for adding, a “subcontractor” as an employee on a general contractor’s workers’ compensation insurance policy is a factual question that is dependent upon the true nature of the relationship between the general contractor and the “subcontractor.”

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.