New Court Decision Impacts How Workers are Classified in South Carolina Workers’ Compensation Claims

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When employers try to classify workers as independent contractors, they are opening themselves up for potential problems. Companies prefer to keep workers as independent contractors versus employees because it affords them a variety of benefits and often excludes them from filing workers’ compensation claims. However, companies also risk opening themselves up to liability and potential damages. The IRS, the Department of Labor, and the South Carolina courts each have different guidelines on what constitutes an independent worker. This means even the most well-meaning employer may run afoul of at least one set of regulatory guidelines at some point.

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A recent Court of Appeals decision in South Carolina confirms the risk employers take trying to save a few dollars by keeping a worker on “1099” or independent contractor status. In Sellers v. Tech Service, Inc. et. al., the issue of classification of a worker was the basis for the appeal.

Sellers v. Tech Service Case Background

In this particular case, Stacey Sellers sued Tech Service and Builders Insurance for denied workers compensation benefits. Sellers sustained injuries while performing heating, ventilation, and air conditioning construction after falling from a thirty-foot extension ladder. His injuries were severe enough that he required hospitalization.
The next day, he reported the incident to the insurance company, whose 3rd party administrator denied the claim under the premise that Sellers “knowingly and voluntarily” excluded himself from the workers’ compensation policy. He filed a Form 50 to add Tech Service Myrtle Beach, LLC (“TSMB”) as a party to his case and then filed an amended Form 50 that named a separate company named Tech Service, LLC as a party.
At his workers’ compensation hearing, Sellers testified that he was a longtime employee of both companies and was working within the course and scope of his employment at the time of the accident.
He testified that prior to his fall, he had complained to his employer that he was not receiving proper overtime pay or deductions because his employer was separating out his hours between the two companies. In response, Tech Services, LLC had offered to make Sellers a “1099 employee” and help him with taxes when filing. They also provided him with cash and told him to purchase a workers’ compensation policy for tax purposes only. When Sellers purchased the policy, he excluded himself based on the good faith belief he was covered under Tech Services’s policy.
Tech Services refuted Sellers statements, claiming that Sellers approached them about becoming a subcontractor rather than employee and there were never any complaints about lack of overtime pay or proper deductions. Tech Services also adamantly denied handing him cash to purchase the policy. Its version of events was that they told Sellers he could be a subcontractor for them as soon as he obtained a workers’ compensation policy for himself.
The commissioner concluded that Sellers was in fact an employee and not an independent contractor at the time of the injury pursuant to South Carolina Code Section 42-1-130 (2015). Upon appeal, the Commission affirmed and adopted the single commissioner’s order in its entirety, and the court of appeals affirmed the decision of the full Commission

Court’s Basis for Decision on Workers’ Compensation Insurance

This case demonstrates that although a business chooses to treat a worker as a 1099 employee for tax purposes, the standard of the law may prove that the person was actually an employee rather than independent contractor. The primary factor in determining whether a worker is an employee or  independent contractor is the amount of control the employer has over both the performance and manner that work is completed. The court noted there are four employment test factors regarding the right of control. These are:

  • Direct evidence of the right or exercise of control
  • Furnishing of equipment
  • Method of payment
  • Right to Fire

In Sellers v. Tech Service, the court found that whether or not Tech Service actually exerted control over the details of his work at the time of injury, there is evidence illustrating it had the right to exercise that control. The Commission found that Sellers:

  • Was instructed on the work he was to perform and it was supervised;
  • Reported to work as instructed;
  • Did not bid on work on projects for Tech Service;
  • Was directed to wear a Tech Service shirt, which he wore every day;
  • Carried Tech Service business cards and service contacts;
  • Had authority to purchase and pick up supplies at Gateway Supply using Tech Service’s account; and
  • Was not presented by Tech Service as an independent contractor to the general contractor.

The court acknowledged that some evidence points to Sellers being a subcontractor, like the separate workers’ compensation policy, invoices, and his 1099 form.  However, the court also found that there is no independent contractor agreement and Tech Service listed Sellers as an employee on its internal business documents and records.
As to the final prong, the right to fire, the court determined that Tech Service also had the power to fire him without liability, thereby furthering the finding of employee employer relationship based on the “right of exercise of control.”

Speak to a SC Workers’ Compensation Attorney to Discuss Your Options as an Independent Contractor

If you are a worker who’s been denied workers’ compensation benefits due to an employer claiming you are an independent contractor or subcontractor, it’s important to contact an experienced Greenville workers’ compensation attorney, like those at David R. Price, Jr., P.A. Our attorneys are well-versed in South Carolina workers’ compensation matters. Contact us today to schedule a consultation.

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