For over a century, states have had laws, rules and regulations in place to ensure that employees who are injured while performing their jobs are adequately taken care of. An uninsured employer that finds itself embroiled in a workers' compensation claim may face a severe financial burden. Thus it is imperative that any entity either hiring its own employees or dealing with independent contractors at least be aware of the basics surrounding workers’ compensation, and protect itself with insurance carriers and attorneys that can act in the entity's best interests. Condominium, cooperative and homeowners’ associations definitely fall into this sphere—and even those without any permanent on-site employees still need coverage, since they will inevitably do business with a revolving door of vendors and contractors. 

The Bottom Line

When hiring anyone in any capacity, whether a permanent employee or independent contractor, the hiring party must accept the fact that they are taking on a degree of responsibility over that individual or team, and that responsibility does not end until payment has been delivered for services adequately rendered.

“If you have any employees whatsoever, by law, you have to provide workers’ compensation insurance,” says Brian Parsons, a commercial account executive in the Manchester, New Hampshire office of Cross Insurance. Workers’ comp, he explains, covers medical expenses and wages for employees injured on the job—from maintenance workers to concierges.  All states require such coverage; without adequate coverage, if an employee suffers an on-the-job injury, the association would become a self-insurer and have to pay for all the doctors, hospital bills and long-term effects of that injury.   

Employees vs. Contractors

Now, given that no two associations are the same in size, scope, and manner in which they conduct business, it’s important to draw a distinction between employees and independent contractors. It’s a fairly safe assumption that all associations will utilize the latter at one point in time, while smaller associations may have little need for on-site staff.

”If a board is using subcontractors for positions like maintenance and front desk, the most important thing is to make sure that the subcontractors they’re using have workers’ compensation insurance," notes Clifford J. Treese, CIRMS, president of Association Data, Inc. in Mountain House, California. “Depending on the degree of exposure, the board will want to consult its own insurance agent, and should consider asking the subcontractors it’s dealing with—and I’m specifically referring to subcontractors who are on the premises all the time—not just a contractor who comes in to do one particular job and leaves—about getting what's called an ‘alternate employer’s endorsement’ that would name the association. This endorsement is not easy to come by, but it does provide protection in the case that you have a subcontractor who is on the premises so regularly that it looks and feels like an association employee.”

When hiring an independent contractor for a particular job—say, facade repair, to name one of almost infinite examples, Mark A. Spognardi, a partner with Pautsch Spognardi & Baiocchi Legal Group, LLP in Chicago, urges boards to make sure that the chosen contractor is properly licensed, properly bonded, and that they have both current workers’ compensation and general liability policies. Spognardi also stresses that boards hire legitimate businesses that have a stable of clientele for which they perform similar types of jobs, as that can help indemnify the association against a claim.

“If you hire subcontractors to do any work on the common grounds—say, a landscaping company— and if you do not collect a certificate of insurance that matches the liability limits of your homeowners’ association and one of the landscaper’s employees gets injured, then because they are not an insured subcontractor, you are now responsible for their injury. Because it’s a work-related injury, the Department of Labor can say the homeowners’ association becomes responsible for paying his injury and time lost,” Parsons says. “The best way to solve this issue is to collect certificates of insurance for contractors the association hires.”

“If an association is following my advice, the issue they do face is verifying the contractor’s insurance,” Gary Daddario, a partner in the law firm of Winer & Bennett in Tyngsboro, Massachusetts, agrees.  “For the duration of the project, they should seek to be an additional insured. The agreement with the contractor should also provide the association with the right to notice of any cancellation of the insurance. There have been situations in which contractors produced insurance certificates to obtain a job, only to allow the insurance to be cancelled during the project. Thus, this becomes another unfortunate circumstance that associations need to guard against,” he cautions. “Finally, I think it is a good practice to have the contractor’s insurance certificate reviewed by the association’s insurance agent. They are typically in the best position to offer judgment on the sufficiency of the insurance coverage.” 

If you’re careful to get those certificates of insurance from contractors, and the association itself does not have any employees, then workers’ comp insurance is not required.

But wait, there’s more. Should an association have its own employees, it’s not enough to simply have worker’s compensation and employer’s liability insurance; the association must apply the correct class codes that correspond to the role of the person hired. “The biggest problem an association can run into is if it misclassifies someone,” Treese explains. “For example, a clerical class when it’s actually a maintenance person walking around with a hammer and saw in their hand—a class code which would come with a higher premium. With workers’ compensation, there’s a front-end premium that’s rated retrospectively. The association must provide its payroll info and job classification, and at the end of the workers’ compensation policy year, it could turn out that, were an employee misclassified, the association may owe considerably more money than it anticipated.”

“I try to have my clients avoid most of these issues by consistently advising them to avoid having employees and to instead hire third-party vendors to perform jobs,” Daddario says. “As long as the association avoids being an actual employer, they avoid worker’s compensation, disability and other types of employee-related claims. In addition, they avoid the responsibility of managing the employer-employee relationship, as well as certain tax situations, such as payroll taxes. Given the ample amount of contractors attempting to gain business relationships with condominiums, it is not difficult for associations to hire third-party vendors.”

Treese points out that the degree to which you’re responsible for someone working on the association's behalf all comes back to a simple definition of ‘employee’ as “someone under the employer’s direction or control.” So if you have a roofer working on site, and you’re instructing them to work on building 1 at X time, and then on building 3 at Y time, “You’ve potentially converted a contractor to an employee of the association by controlling the parameters of their work,” he explains. “The thing to remember is that the judgment call on an injured employee is really left to an independent tribunal at the state level that makes decisions about coverage. So you have to make sure that the contractor issues a certificate of liability insurance that shows workers’ compensation, and you’ll have to look at the expiration date to make sure that both of those things haven’t expired before they finish a job.”

The board must be aware of the activity of individual owners as well. “If an owner is bringing a contractor into their unit to do painting, electrical work, or whatnot, the building should make sure that there’s a certificate of worker’s compensation coverage to cover anyone who’s coming in, even if they’re solely working within the unit of a specific owner,” says Evan J. Spelfogel, a New York-based attorney with the national law firm of Epstein Becker & Green, P.C.. “And the insurance certificate should ensure to the benefit of both the building itself and the individual apartment owner.”

Accidents Happen

It’s a cliché, but it’s true. People are going to get hurt, and one of those people might be an employee or contractor working on behalf of your association. Even if you’ve taken care of the proper paperwork and are properly insured, there is still protocol to follow in the case of injury to best avoid any liability issues.

“It’s the association’s responsibility to make sure that the injured party reports said injury in time,” says Peter Rousmaniere, an independent consultant and columnist at WorkCompCentral. “There's a strong correlation between delayed reporting and cost of injury, and there are many dynamics in play there. Even if you’re a small association wherein an injury only happens every other year, the board must make sure that everyone is well-versed in the basics of reporting and filing for that rare rainy day.”

In event of a mild injury, a workers’ compensation claim can be ironed out by insurance brokers. But sometimes it’s best to err on the side of caution and involve an attorney. “Many of my clients don’t even bother calling me in workers’ comp coverage situations,” notes Spelfogel. “And sometimes they should have. The most common issue that comes up at a workers’ compensation hearing concerning an injured worker is the degree to which that worker has been permanently disabled.

“I don’t know how many times I’ve been in workers’ compensation cases where the company doctor will claim the worker to have 30 or 35 percent permanent partial disability, and we, representing the management side, will bring in our own expert doctor who will conduct a thorough examination and render that the disability—if one exists at all—is only five or 10 percent. A negotiation will ensue, something in the middle will be agreed upon, and the worker will get a lump-sum payment for lifetime reimbursement of the decided-upon percentage of disability.”

A board that is aware of the necessary insurance and paperwork can avoid getting hit by a false claim, so even one without permanent employees has much to gain from informing its members on the ins-and-outs of workers' compensation in its area. As always, if in doubt, do not hesitate to contact your attorney and insurance agent.      

Mike Odenthal is a staff writer and reporter for New England Condominium. Associate Editor Pat Gale contributed to this article.