Construction Law

Avoid L&I Subcontractor Workers' Compensation Assessments by Checking L&I's Website

By John P. Ahlers

The WA Department of Labor and Industries ("L&I") imposes assessments against general contractors for unpaid industrial insurance premiums owed by their subcontractors under RCW 51.12.070. This concept is known as "prime contractor liability." The statute provides an exception to prime contractor liability if the prime contractor can show compliance with the following five criteria:

• The subcontractor is engaged in a business for which it is registered or licensed.

• The subcontractor has a principal place of business which is eligible for a business deduction under IRS rules (other than the location furnished by the contractor for which the businesses contracted to furnish services).

• The subcontractor maintains a separate set of books and records that reflect all items of income and expenses of the business.

• The subcontractor is contracted to perform work for which it is registered or licensed.

• The subcontractor has an industrial insurance account in good standing and the contractor has verified with L&I that the account is in good standing and has not received written notice from L&I that the subcontractor's account has changed. Acceptable documentation of verification includes a department document which includes an issued date or a date of printout of information from the department's internet website showing a subcontractor's good standing.

When work is performed by a subcontractor and that subcontractor fails to tender its L&I premiums, as indicated above, RCW 51.12.070 imposes primary and direct liability on the prime contractor unless the prime contractor falls within the statutory five-part exemption. Recent L&I decisions have confirmed that contractors will not be liable if they diligently check the L&I website for subcontractor compliance with industrial insurance payments.

In Re: Universal Drywall Inc., et al, Dkt. No. 08 21769 (September 1, 2010) was a consolidated appeal in which seven subcontractors disputed L&I's assessment of prime contractor liability for premiums owed by their second-tier subcontractors. The subcontractors argued that they met the requirements of the exemption, or in the alternative, that L&I should be estopped from imposing prime contractor liability because L&I indicated second-tier subcontractors were current in all premiums that were owing to L&I. The Board found that the subcontractors did not meet all five requirements for the exemption, nevertheless the Board found that L&I was estopped from imposing prime contractor liability on four of the subcontractors because of the information contained on the website.

Subcontractors submitted evidence that they had visited L&I's website for the purpose of confirming the premium status of the second-tier subcontractors prior to issuing payment. While the website indicated the second-tier contractor's premiums were current, payment was made. The subcontractor's evidence included testimony and copies of dated screen prints from L&I's website indicating the current premium status. The Board, citing previous L&I cases held that L&I was estopped from assessing interest and penalties resulting from the incorrect information supplied on the L&I website.

Contractors thus can avoid liability for unpaid subcontractor premiums if they: (1) check a subcontractor's premium status on the L&I website prior to payment; (2) confirm premiums are current; and (3) reasonably rely on L&I's statements to its detriment.

Contractors who print out the website information together with the check stubs will likely enjoy success in defending against L&I workers' compensation assessments.

http://apps.leg.wa.gov/RCW/default.aspx?cite=51.12.070

Full post as published by Construction Law Blog on March 03, 2011 (boomark / email).