Employee? Independent Contractor? Who really knows?

Michigan Supreme Court Opinion: Failure to satisfy any one of three criteria in MCL 418.161(1)(n) will exclude an individual from employee status.

The issue of employee vs independent contractor has been debated for years. This important distinction means the difference between collecting workers’ compensation benefits or sometimes having no recourse at all.

Michigan courts have been unclear as to whom is excluded from coverage under the WDCA. Confusion arises from the language in MCL 418.161(1)(n). This section says an employee is every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service (1) does not maintain a separate business, (2) does not hold himself or herself out to and render service to the public, and (3) is not an employer subject to this act.

The Court of Appeals in Auto-Owners Insurance Company v All Star Law Specialists Plus Inc. convened a special panel and determined that all three criteria are necessary before an individual is divested of employee status.  The Michigan Supreme Court has now reversed finding that failure to satisfy any one of the three criteria will exclude an individual from employee status.

Round and round it goes

Michigan employers are required to purchase workers’ compensation insurance. This is to protect both employers and employees should a work accident occur. In exchange for paying limited benefits, employers get protection from civil lawsuits.

One of the biggest problems in the workers’ compensation system is employee misclassification. This is done by bad employers who want to save money on workers’ compensation insurance. It shifts the burden to other payers who must pick up the tab. This ends up costing everyone in the long run.

Some employers intentionally pay wages as non-employee compensation (Form 1099) in order to avoid workers’ compensation. Others require employees to incorporate their own business as a legal fiction. We typically see this occur in the trucking industry.

Reducing the confusion

Amendments to the WDCA in 2011 further change who is considered an employee. On and after January 1, 2013, services are employment if the services are performed by an individual whom the Michigan Administrative Hearing System determines to be in an employer-employee relationship using the 20-factor test in IRS revenue ruling 87-41.

This seems to return us to the days of the old economic reality test. It appears that employer control over an individual will now be a major factor in the determination of employment status. This change will hopefully reduce the number of employers who try to game the system.

Michigan Workers Comp Lawyers never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 35 years. Call (855) 221-2667 for a free consultation today.

Related information:

Auto-Owners Insurance Co v All Star Lawn Specialists Plus, Inc.

Photo courtesy of Creative Commons, by Woody H1.

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