Independent Adjuster vs Employee?

Storm season always brings up the topic “are you an independent adjuster or are you an employee” as independents start receiving new contracts from adjusting firms for the season.

We wrote a blog about the caution new adjusters need to use when signing independent contracts in our blog called Splish Splash don’t go takin’ a bath. Here is a link to it.

While we are still hoping for a great employment attorney to provide an opinion on some of the issues Independent adjusters commonly face, (am I dreaming someone will come forward and volunteer to interpret these things for us as a guest blogger employment attorney or volunteer employment attorney participant)? I’ll post some links to some interesting things we found while researching this topic.

While I’m not sure we entirely understand the issue as it relates to court decisions, we think we’ve come up with a consensus that the issue relates to “independent judgment”  and “control” issues vs whether or not you or your adjusting firm considers you as an independent.

The majority of independent contracts the adjusters have shared with us state the adjuster understands they are a 1099 reporting independent but there are several such as ASU which states on their website here that their adjusting firm is 100% employee owned. I had the opportunity to meet several of their members at the 2007 NACA convention and find this approach most appealing for adjusters to have benefits, educational assistance, 401K plans and many other benefits independents normally don’t have access to with the majority of firms. Do you know of other firms providing employee status vs independent? It would be great to hear about these opportunities via reply to this blog if so!

I found an interesting site called The Society for Human Resource Management (SHRM). Here is a link to their website. They say they are the largest professional organization devoted to Human Resource management.

Their website points out that there are many agencies that have statutory jurisdiction over the “independent vs employee” issue. Here’s an excerpt from their site about this:

“The many statutory jurisdictions that cover classification of independent contractors include the Family and Medical Leave Act, the Americans with Disabilities Act, the Internal Revenue Code, the Fair Labor Standards Act, the National Labor Relations Act, and individual state-by-state unemployment insurance codes” thus the comment above about not being sure we understand all of the issues because there are just too many federal and state laws involved in the classification determination.

An employment law attorney and member of their site addressed the House Labor and Education committee on July 24, 2007 stressing the need for guidance for employers to properly classify employees due to the confusion with all of the programs listed above. Here is a great article about her testimony. I think the following statement in her testimony best addresses the problem independent adjusting firms, carriers, and adjusters face as they create and sign contracts:

“Every new working relationship brings with it the challenge of asking the right questions to ensure the employment situation is being properly classified as an employee or non-employee worker,” said Walters. “In my experience, employers do on occasion unwittingly, misclassify employees as independent contractors,” she said.

Here is a link to the House Committee July 24, 2007 hearing that includes links to the webcast of the testimony at this meeting and to the presentations of several other speakers to include Paul DeCamp, Wage and Hour Administrator from the Department of Labor. Note that the question in the title of the hearing was “What Policies and Practices Best Protect Workers“. 

Chairman Andrew’s  opening statement is found here  and Chairman Woolsey’s opening statement is found on this link. These are worth the read as they outline the reasons employers may misclassify employees…basically to avoid health insurance and workers comp and other benefits such as social security payments they would have to pay or an employee would be due. From information gleaned in Woolsey’s opening statement, CA considers the problem so significant ( see yesterday’s blog too on CA and adjuster overtime issues) that they have State Assembly Bill S.B. 622 that if passed would assess penalties of up to 15K per violation or 25K  per violation if employers have engaged in a pattern of misclassification. This document here says that this bill passed the Assembly 9/10/07 and the Senate on 9/12/07. Those are pretty hefty fines and I hope that adjusting firm owners have been advised of these new provisions by their employment attorneys and have reviewed these issues as they pertain to using independents for each various operation such as carrier daily branch assist on daily claims, inside adjusters in carrier claim central operations, as well as their classifications for catastrophe independent adjusters especially for the types of contracts I’ve seen that require exclusive work with the independent firm or carrier. Would the use of independents as inside adjusters be cause for concern about classifying them as other than 1099 employees? How about daily assist or daily adjusters working under an exclusive contract? I don’t know but I bet a good employment attorney would know the proper classification. I would also want to know about how a bill such as this one passed in CA would apply to an adjusting firm going out to CA to work earthquake claims. There are many firms holding California Earthquake Certification classes in preparation for an inevitable earthquake out there but have they done equally thorough research into classification of adjusters and if those rules would apply to out of state adjusting firms coming in to work catastrophe assignments? I’m not sure how those laws apply when your working out of state as a vendor vs it being the permanent state of your adjusting firm office.

Paul DeCamp’s testimony found here is longer but if I were an adjusting firm owner, I’d certainly take the time to read this and look at the list of 7 items he calls relevant factors to determine if a worker is properly classified. The one I found interesting the most from the independent adjuster standpoint is the relevant question of “Permanency of the relationship”. Page 2 of his testimony also goes into interesting details about “the process” of reviewing these factors and payroll records and how they conduct their inspections. I had no idea that the Wage and Hour Divisions primary responsibility was dealing with complaints as the testimony says 70-78% of their work is addressing workers complaints on these issues. It is  also very important to read the comments further down on page 5 that says that temporary help is often in the most commonly misclassified category. I’d also read the comments  since this is a national program and the testimony states that they are recommending misclassifications  found by the Wage and Hour Division (WHD) for many other violations for some of the other agencies(listed at the beginning of this blog) that they find value in sharing that information nationally with other state and federal programs(page 6). Pg 7 indicates that GAO feels that employers should be notified when they make these reports to other agencies to investigate while WHD did not think it was appropriate for them to report them due to the fact they do not know the rules nor administer the programs for the other agencies looking at independent classifications. 

Another point interesting to property and catastrophe adjusters would be the comments on page 4 indicating that construction companies are in the group receiving the largest findings of misclassifications. The findings in Decamps report about this are echoed by Sara Stafford with a construction firm who testified that firms such as hers are often penalized by losing contract bids as they include the cost of employee benefits in their estimating costs (overhead and such) when other construction firms improperly classify employees as independents which costs the complying firms work by abiding by the classifications. I imagine this would be the same for independent adjusting firms who would have to increase fee schedules to cover their overhead for employee benefits if they were required to provide workers comp and benefits. Here is the link to Sara’s testimony. I didn’t have time to get to the testimony of two other speakers you can find on the links above.

Other research we found in the past few months includes:

This informational article from the state of Texas on form C-8(0406) found here which contains 20 relevant topics to test your classifications.

Here are some interesting comments on independents here with several more good factors to consider.

I really liked this 20 factor check list for small businesses to determine employee vs independent contractor check list to determine under common law what factors apply found here.

This article here from another law firm discusses NY’s “right to control” factor. It’s an older article from 98 but a good article. This website is full of employment articles at www.ebglaw.com.

Here is a good weblink for IRS information on independent contractors which refers also to links for several publications  you would want to refer to found here on their website.

I found this case from Vermont that the Insurance Journal posted quite interesting from May 2007 where at home workers for a knitting company were determined to be employees versus independent contractors. Here is a link to the article.

It took several days to have time to finish up this blog entry due to weeding out alot of repetitive information and narrow it down to some of the most concise current information you might find useful. The research has been well worth the while as I’ve learned that these issues are not set in stone but very active current topics of discussion, court cases, and federal and state agency hearings and discussions right here and now in 2007. The National Law Journal  at www.NLJ.com on their 9/27/07 article update says this will be a banner year for Supreme court labor and employment cases as they have granted review of many cases in this overview of the article:

September 27, 2007

TODAY’S NEWS

FROM THE UPCOMING ISSUE  |  Supreme Court loads up on employment cases
Besides adding such high-profile issues as the constitutionality of lethal injection executions and voter ID laws to its docket, the Supreme Court ensured, through its latest grants of review, what is likely to be a “banner” year for labor and employment law.

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This appears to be the time for independent adjusting firms to update the opinions from their employment lawyers if they haven’t already done so to verifiy if their current practices meet all of the 2007 regulations with all of these current discussions going on. All Independents are waiting on weather (wow as independents call it) for assignments so while everyone is waiting you might want to take the time to double check the classifications to make sure everyone is compliant with their state and federal 2007 regulations. I am most curious about how the state laws apply when an adjusting firm from one state ventures into other states to handle losses. Are they subject to those other state laws too? This feels like going to college! The more you learn the more questions you have!