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Auto-Owners goes too far in seeking advantage: Court rules on "employee" status

When Joseph Derry was hurt while working for a landscaping service, he attempted to sue the owner of the truck and the owner's insurer.  He maintained that as an "independent contractor" he was not limited to workers compensation for his injuries, but instead could collect both No Fault PIP benefits, and legal damages arising from the owner's negligence.  The owner had purchased a general commercial liability policy, a no fault policy and a workers compensation policy from Auto Owners.  The insurer argued that Derry should be limited to collecting the minimal benefits payable under workers compensation law, even though Derry was not an employee of the company, All Star Lawn Specialists Plus, Inc.

It is common for employers to demand that their labor pool be designated "independent contractors," as this designation prevents the employees from claiming federal and state worker protections.  The Company avoids mandatory worker protections and regulations.  The Republican majority of Michigan's Supreme Court has evidenced a sympathy for this employer posture and interpreted the law in a fashion that encourages employers to skirt the normal employee protections.

It is less common for an insurer to attempt to reverse this process in order to reap savings in an individual case.  Nevertheless, that is what happened in Derry's case, as Auto Owners sued to designate Derry an "employee" entitled to collect only minimial medical and partial wage loss benefits.  Despite the existence of a contract between the laborer and his employer that designated Derry an "independent contractor" receiving a 1099 and no wage deductions, Auto Owners persuaded the lower court to limit his legal rights to those of an employee.  He appealed and the Supreme Court, ever protective of employers' long-term rights, reversed.

The Court held that the Court of Appeals special panel that decided the case had erred in concluding that "all three of the statutory criteria must be met before an individual is divested of 'employee' status:"  the individual must not maintain a separate business, must not render service directly to the public, and must not be an employer subject to the workers compensation disability act.  The cynical among us would suggest that this decision was yet another example of "corporations and insurers win; ordinary people lose."  Regardless of theory, logic or precedent.

In any event, the case had implications for future rulings and this week the Supreme Court ruled that the lower court went too far in protecting an employee's status as an "employee."  The Court held that if an individual meets any of the three statutory criteria (Derry did a little lawn work on his own, independent of the truck owner), the individual is an independent contractor, regardless of the economic reality of his "employment" status.  So employers remain free to skirt the rules governing the employment relationship and to "deem" employees to be "independent contractors."

Good news for Derry in a rare loss for a Michigan insurance company.  Bad news for the next hundred employees who are deemed ineligible for legal protections we formerly provided to employees. 

Thompson O’Neil, P.C.
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Traverse City, Michigan 49684
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