TOOL TYPE CEO BRIEF LAST REVIEWED 30, AUG 2010 GEOGRAPHY ALL SOURCE DON'T LET COMPANY GET STUCK HAVING TO PAY A CONTRACTORS WORKERS COMP PREMIUMS

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Crystal McDonald
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1 TOOL TYPE CEO BRIEF LAST REVIEWED 30, AUG 2010 GEOGRAPHY ALL SOURCE DON'T LET COMPANY GET STUCK HAVING TO PAY A CONTRACTORS WORKERS COMP PREMIUMS HOW TO USE THE TOOL Here s a briefing that you can download and give to your CEO, Board or members of senior management to educate them on important aspects of OHS law that impact them personally or the company in general. HR COMPLIANCE I N S I D E R BONGARDE MEDIA C O M P A N Y 501 MAIN ST. PENT I C T O N, B.C. V2A 9A

2 DON'T LET COMPANY GET STUCK HAVING TO PAY A CONTRACTORS WORKERS COMP PREMIUMS A general contractor building a power station in NB hired a subcontractor to do some of the work. The subcontractor didn t pay its workers compensation assessment for the year. The NB Workers Compensation Board (Board) apportioned 93.42% of the outstanding assessment to work the subcontractor had performed for the general contractor and sued the general contractor to collect this portion of the assessment. The court explained that both a contractor and subcontractor can be liable for the amount of any worker s comp assessment related to the work done under the subcontract. And because the contractor didn t get a clearance certificate from the Board showing that the subcontractor was in good standing, the court ordered it to pay $43,914 to the Board [Workers Compensation Board v. Atcon Construction Inc.]. THE PROBLEM To be in good standing under workers compensation, a company must make all premium payments. When the company hires a contractor or subcontractor, it may assume that the contractor is also in good standing under workers comp. But if the contractor is behind on its premium payments, the company could be held responsible for that portion of the contractor s unpaid premiums that are related to the work

3 the contractor performed for the company. However, there s a simple way to avoid such liability get a clearance certificate from the contractor showing that it has made all premium payments. As the Atcon case shows, failing to get a clearance certificate can be a costly mistake. THE EXPLANATION Workers comp is an insurance scheme. In exchange for paying a premium, the employer secures coverage for its workers for work-related illnesses and injuries, as well as immunity for itself from being sued by workers who get injured or ill on the job. But some workplaces involve not one but several employers. As the court in Atcon noted, in such situations, *t+he spirit and intent of the *Workers Compensation+ Act is to visit the cost of industrial disease, death and injury on employers and to spread the responsibility for such costs among multiple employers engaged in a single project. To diversify responsibility for injuries and illnesses and ensure the financial viability of the workers comp program, the worker s comp board may be able to hold a company liable if one of the contractors doesn t pay its premiums. That s what happened to the contractor in Atcon. The subcontractor didn t pay its premiums and the contractor didn t request a clearance certificate from the subcontractor before paying it. As a result, the Board could collect the subcontractor s unpaid premiums from the contractor and the contractor s only recourse would be to sue the subcontractor for reimbursement, concluded the court. Although the case took place in NB, the same principles apply in other jurisdictions. Thus, it s important for the company to ensure that any contractors it hires have paid all their current workers comp premiums and are in good standing under the program. How can the company verify a contractor s standing? By getting a clearance certificate (called a clearance letter or letter of good standing

4 in some jurisdictions) from the contractor or the workers comp board. The certificate confirms that the contractor is registered with the board and, in most jurisdictions, that it s up to date with its payments. Without a clearance certificate, the company has no way of knowing the contractor s workers comp standing and risks being held liable for premium payments the contractor failed to make. In addition, if a contractor s worker is injured on the job and that contractor hasn t been paying its workers comp premiums, the company could be liable for the costs of the injury. Even if the contractor is to blame for the incident, the worker s claim may affect the company s own rating or standing before the board and ultimately lead to an increase in its own workers comp premiums. THE LESSON Avoiding liability for a contractor s workers comp premiums is completely within the company s control. And as the contractor in the Atcon case learned, failing to get clearance certificates could end up costing the company tens of thousands of dollars. So you and your fellow officers and directors must ensure that somebody in the company is responsible for obtaining clearance certificates from every contractor the company wants to use before we actually hire them. If a clearance certificate indicates that a contractor is behind on its premiums, we shouldn t hire it. If the clearance certificate clears the contractor, we can safely hire it. In addition, you need to ensure that somebody verifies that the contractor s clearance certificate is still current. Although the specific durations vary from jurisdiction to jurisdiction, clearance certificates generally expire in 30 to 60 days. Consequently, the clearance certificate the company relied on when hiring a contractor will become outdated about two months later. Thus, the company will also need to get

5 updated clearance certificates when necessary. You should also make it company policy not to issue final payment to a contractor until an updated clearance certificate has been obtained for it. If at that time, the contractor has outstanding premium payments, the board may, in fact, ask the company to withhold payment to the contractor until its workers comp account has been paid in full. SHOW YOUR LAWYER Workers Compensation Board v. Atcon Construction Inc., [2002] NBQB 55 (CanLII), Feb. 12, 2002

Workers Compensation and Employers Liability (Lecture 13)

Workers Compensation and Employers Liability (Lecture 13) Overview of Lecture 13 (Chapter 9, CPCU 4) I. Introduction II. III. IV. Employers Liability Under Common Law State Workers Compensation Laws Workers