In Lee v Cardiff, a Contra Costa appeal released for publication on August 11, again a contractor was caught claiming his employees were independent contractors in order to avoid paying workers compensation insurance premiums. The contractor was ordered to repay $238,470 that the owner had paid. Workers compensation insurance for contractors is incredibly expensive. If a contractor cannot afford it, then the law does not allow it to compete with legal contractors who pay to protect their employees.
The law is absolutely clear on this issue. A contractor who is not properly licensed cannot collect any payments and will be required to return any payments for work while it was unlicensed. The state legislature and the California Supreme Court have repeatedly found that a contractor who is not properly licensed does not earn anything, even for work done properly and on time, even for fixtures and materials installed. They have declared it an important public policy.
If a contractor has even a single employee, then the law requires workers compensation insurance to protect the employee. Without workers compensation coverage, the contractor’s license is suspended, automatically. No notice. No hearing. A contractor with an employee and no workers compensation insurance, has no license.
Saying employees are contractors does not help. To be a contractor, a worker must meet all three of the following “ABC” test established by the California Supreme Court: (A) the worker must be free of control and direction of the hirer, in fact, not just on paper; (B) the worker must perform work not part of the hirer’s regular business; and (C) the worker must work in the same occupation for others. To guaranty the quality of the work and protect their reputations, most general contractors will not pass test (A). Carpenters, framers and sheetrockers all do the same thing a general contractor does. Laborers so the same thing as landscape contractors. It is going to be very hard to prove they meet test (B)
When estimating or bidding a job, if a contractor is going to need even a single co-worker, pay for workers compensation. If the contractor cannot afford the workers compensation on that job, then do not bid on it. Workers comp is not optional.
If you have any question about whether or not you can pass the ABC test or whether you can avoid paying for workers comp, please call us at Sack Rosendin Inc.