Column: Do You Have the Right Employee Coverage?

Editor’s note: This article was written by Chris Hipple, vice president of Leavitt Recreation & Hospitality Insurance, for WOODALLSCM.com.

Go to any RV park or campground conference and invariably the topic turns to employees, subcontractors, 1099 employees and work campers.

How do you define whether a worker is an employee of an independent contractor? Your state’s department of labor is the agency that gets the final say on this issue and can vary from state to state.

The deciding factor is usually: Control.

If the park owners instruct the worker on how to do their job, provides the tools to do their job and tells them when to start or finish their job, then that person is usually an employee. Contractors will have their own insurance, provide their own tools and set the times for starting and stopping work, and usually determine how the job will be completed.

Employers are typically liable for the actions of their employees if someone is injured or property is damaged during the scope of their work. This is usually covered by a commercial general liability policy.

Sexual harassment, discrimination, violation of civil liberties and those sorts of actions can be the employer’s responsibility as well if the worker engages in this while on the job. This would be covered under an employment practices liability policy in most instances and can include coverage for third parties, such as guests to your campground.

Having an employee who engages in any manner of bad behavior who is not terminated can result in a negligent retention claim by a third party. Essentially, this means that the employer knew the employee had issues in the past and failed to terminate the employee putting the general public in harm’s way. Background checks and using special care when an employee will have contact with the public are the foundation upon which a solid defense against this type of claim is laid.

Employees are an almost endless source of potential claims for the park owner, including wage and hour claims, class action suits, Family Medical Leave Act violations, data breaches and their comments on social media, to name just a few.

Contractor Versus Employee

The RV park and campground industry has a slowly changing attitude that work campers are “contractors,” when this is hardly ever the case in reality.  As such, the campground owners are gambling with their park’s future. With this state of mind, there is the potential for not just monetary losses but the very real possibility of jail time depending on the state you are located.

Let’s look at an imaginary park located in California.

The owners decide to contract some work campers to do the basic park maintenance such as mowing, weed-eating, picking up trash…etc. One day a work camper severely lacerates their foot while weed eating as they were wearing sandals and no PPE.

The injured worker goes to the ER for treatment and they do not have health insurance. The hospital admissions people ask how the injury occurred and the worker responds that they did it while working at XYZ RV Park.

The billing department of the hospital will attempt to contact the park to get the worker’s compensation information. There is no worker’s compensation policy as the owners had a valid contract with the work camper or so they thought.

Often there isn’t even a written contract but we’ll assume there is for this case study.

The bills for the injury mount up and the worker is unable to work as the injury was bad enough to keep them off their feet for a while. The hospital will be attempting to collect and the work camper doesn’t have the money to pay, so they call the department of labor (DOL).

The DOL sees all the elements of control that the park owner exercised over the work camper and makes the determination that they were an employee at the time of the injury. The signed contract is in violation of state law and is made null and void.

The DOL informs the park that they are required to have worker’s compensation under state law and they are responsible for all of the medical bills and disability payments to the newly discovered employee. Additionally, in California, this is a misdemeanor punishable by a $10,000 fine and up to one year in jail. The state also has the right to penalize the non-compliant park with a fine that can go up to $100,000. This is on top of having to pay for medical bills and disability.

A part of a standard worker’s compensation policy is employers liability, which gives coverage in case there is a lawsuit in addition to the medical payments. These are rarely used as most states give “tort liability immunity” to the employer if the medical or disability bills are paid by the policy. This is to prevent the employee from “double-dipping.” Since there is no policy, there is no immunity and the employee can also sue.

It could possibly even get worse for the park owner because they made the determination that this worker was an independent contractor and they did not do withholding or report the income on the federal form 941. This could incur a 15% penalty and is a felony punishable by a $10,000 fine and up to five years in prison.

Even barter agreements are required to be reportable to the IRS by *both* parties as it’s considered income to both.

Employees bring with them a lot of potential liability. Small business owners are risking everything for a very small benefit by not considering workers as actual employees and not doing the withholding of income taxes, paying the worker’s compensation and following all applicable local, state and federal laws.