Arkansas Carrier Wins: Requires Premiums Be Paid on Worker’s Earnings, Then Says He Was Independent Contractor

In a real “head-scratcher,” an Arkansas appellate court, relying on a 50-year-old decision of the state’s Supreme Court, held that the Arkansas Commission did not err when it determined that a workers’ compensation insurer could deny coverage of a serious injury claim on the basis that the injured “worker” was an independent contractor, and not an employee, in spite of the fact that the insurer had, following two state audits of the purported employer, required the policyholder, i.e., the employer, to pay premiums based on the earnings of the injured worker [Davis v. Ed Hickman, P.A., 2020 Ark. App. 188, 2020 Ark. App. LEXIS 200 (Mar. 18, 2020). The court held that while such payment of premiums was a factor to be considered by the court in determining the employment relationship, if any, between the parties, it was not determinative, and that under the facts of the case, the other factors were appropriately considered by the Commission in denying the injured worker’s claim.

Background

In October 2014, Davis sustained permanent injuries in a motor-vehicle crash. At the time, Davis was working as a physical therapist making home patient visits for Ed Hickman P.A. (“Hickman”). Hickman and its carrier argued that Davis was an independent contractor, not an employee, and that he was accordingly not entitled to benefits. The parties stipulated that if the claim was compensable, Davis would be entitled to benefits at the maximum compensation rate.

The Work Relationship

Davis had worked with Hickman since 1992. Hickman provided rehabilitation services to patients in or near Fort Smith, Arkansas, and around eastern Oklahoma. Hickman provided some equipment to Davis to use during his in-home patient visits. In 2007, Davis and Hickman entered into a written contract in which Davis agreed to provide physical-therapy services for Hickman, for which he was paid on a “per patient” basis. The contract specified that Davis was an independent contractor and that nothing in the terms of the contract should be construed so as to create an employment relationship between the parties. The agreement also required Davis to carry a minimum amount of professional-liability and automobile-liability insurance and to indemnify Hickman.

The Oklahoma & Arkansas Audits

In 2010, Davis signed a notarized “Affidavit of Exempt Status Under the Workers’ Compensation Act,” a document wherein Davis acknowledged that he was an independent contractor for workers’ compensation purposes. At some point after 2010, Oklahoma officials performed an audit and concluded that that state would no longer recognize or honor Hickman’s contract therapists as being independent contractors. Thereafter, Hickman secured workers’ compensation coverage for its Oklahoma operations.

At some later point, Arkansas officials performed a similar audit and, as a result, Hickman’s carrier, Travelers required Hickman to cover its therapists in Arkansas as well. In a deposition, Ed Hickman testified that in spite of that requirement and the payment of premiums, he still considered the therapists independent contractors.

Travelers denied coverage for the injury claim, contending that Davis was not a covered employee.

Commission Says Davis Was Independent Contractor

The Arkansas Commission determined that Davis was an independent contractor, based upon his tax returns, the fact that he was paid on a flat “per patient” basis, and based upon a finding that it was Davis, not Hickman, who had control over the plan of care provided to each patient and how to implement that plan. The Commission found that Davis was free to work for other companies and that he had worked for a hospital while also performing services for Hickman. The Commission determined that Travelers’ collection of a premium did not constitute an admission against interest. Davis appealed.

Appellate Court Decision

Acknowledging the conflict in the evidence, the appellate court stressed that under Arkansas law, there was no fixed method by which to determine whether a person was an employee or an independent contractor. Among the factors to be considered were:

• The extent of control which, by the agreement, the master may exercise over the details of the work;
• Whether or not the one employed is engaged in a distinct occupation or business;
• The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
• The skill required in the particular occupation;
• Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
• Whether the parties believe they are creating the relation of master and servant; and
• Whether the principal was in the same business as the alleged independent contractor.

Although not listed above, the court also indicated that under a decision by the state’s Supreme Court, the purported employer’s payment to a carrier for compensation insurance on a worker was also a “circumstance to be considered” [see Voss v. Ward’s Pulpwood Yard, 248 Ark. 465, 452 S.W.2d 629 (1970)]. In Voss, the Court held that an injured worker was an independent contractor although the company who hired him had paid on an insurance policy to cover the worker and in spite of the fact that the insurance company had paid a previous claim.

Payment of Premium on Injured Worker’s Wages But One Factor

The appellate court stated that according to Voss, whether an employer paid workers’ compensation insurance premiums for a worker was one relevant factor, but that although Davis’s earnings were included in the amount Travelers used to calculate Hickman’s workers’ compensation premiums, that fact alone did not answer the independent contractor versus employee question.

The court acknowledged that other states, such as Mississippi and Georgia [see, e.g., Miss. Code Ann. § 71-3-79; Ga. Code Ann. § 34-9-124} prevented an insurance carrier from denying coverage to a worker when an employer paid insurance premiums. The court stressed that Arkansas did not.

Appellate Court Says Considering Entire Record in Case, No Error

The appellate court acknowledged Davis’s argument that unless Travelers considered Hickman to be an employer with employees there would have been no legitimate reason for it to have sold Hickman the policy. The court said, however, it was constrained by Voss. According to the court, either the General Assembly or the supreme court would have to change the law on this issue; it could not do so. Consequently, the Commission’s opinion is affirmed.

Quick comment: I wouldn’t be surprised to see the Arkansas Supreme Court take a new look at its decision in Voss.