My husband and I recently had a scary discussion with our insurance agent: He informed us we were exposing ourselves to huge risk by having working students that are not on our payroll and, therefore, have no workers’ comp coverage. Our agent said that if a working student gets seriously hurt or dies while working on our property, our personal and business assets could be in danger. My working students help me run my barn and keep costs down, and it lets them afford a horse and riding lessons when they might otherwise not be able to. Adding workers’ comp and some of the other taxes will add to my costs, not to mention the extra paperwork every month.
The two basic questions that we are going to deal with are: 1) Whether riding stables are required to have workers’ compensation and 2) the consequences if you fail to have it. As most people are aware, employers are required to have insurance (called workers’ compensation) to cover employees that are injured while working. Workers’ compensation is a no-fault type insurance; all the worker has to show is that they were injured while performing their job.
It is clear that working students would be considered employees under most workers’ compensation statutes, unless specifically excluded. The argument that these students help you to “run my barn and keep costs down” is fairly indicative that these students are really employees, not students.
Each state has a statute that defines which employers have to have workers’ compensation and which employers do not. Therefore, for specifics on your state’s requirements, you need to find the statute, which is usually available through your state’s Department of Labor. Although in most states agricultural activities are excluded from being required to cover employees, it is questionable whether this exemption applies to riding stables.
This issue has been litigated on several occasions, and tends to revolve around the issue of what is “traditional” farm labor. The Delaware courts have looked at this issue twice, and have the best description of what the courts should be looking at. In Bohemia Hall, Inc. v. Sturgill, unpublished (DE Supp.Ct. 1988), the court looked at a breeding and training operation. Sturgill’s work consisted predominately of cleaning stalls and feeding and watering horses. The court felt that those were activities that farm labor traditionally did, and determined that Bohemia Hall, Inc. was not required to cover Sturgill under workers’ comp.
Twelve years later, the same court looked at a situation involving a riding instructor. In Irish Hunt Farms v. Stafford, unpublished (DE Supp.Ct. 2000), the court again looked at the activities of the employee, who was an instructor, and determined that despite the Irish Hunt Farms’s argument that it was a farm, Stafford was not engaged in traditional farming type activities and therefore, Irish Hunt Farms was required to provide workers’ compensation.
This analysis of the employee’s job, as opposed to the overall operation of the business, is the approach courts throughout the country have consistently adopted when looking at accidents involving employees in the horse industry. Because I am not aware of what particular duties your working students are employed to do, it is difficult to determine whether they need to be covered under workers’ compensation. Based upon my understanding of what working students are normally employed to do, however, I would advise a client to consider that these activities are beyond the scope of traditional farm labor.
So what happens if one of your working students becomes injured and you don’t have workers’ compensation? The answer will vary somewhat from state to state, but the usual result is that the employer becomes liable for paying all of the damages, including lost wages. The state’s Department of Labor will originally pay the costs, and then come after the employer for reimbursement. Depending upon the state, this liability may fall on the officers and stockholders of a corporation as individuals, with no protection that a corporation normally provides, as failing to provide workers’ compensation when required by law to do so can be a criminal offense. The employer can also be liable for fines and other penalties depending on the state. For example, in New Hampshire, there is a maximum fine of $2,500, plus $100 per day that each employee is not covered, plus the authority to shut down your business. In some states, you could end up in jail!
And to give you an example of how winning can result in losing, let me finish this column with one scenario. Your working student is injured while on your farm. You successfully argue that your working student, although an employee, is engaged in activities that are traditional for farm employees and that you are therefore exempt from having workers’ compensation. Your working student then sues you for damages under the theory that you were negligent. You contact your liability insurance company, who denies you coverage under the grounds that the working student was an employee and therefore not covered under your policy (liability policies specifically exclude coverage of employees). You are now faced with a civil lawsuit for potentially millions of dollars and no insurance coverage at all.
I advise you to contact your state’s Department of Labor to determine whether your particular business is required to have workers’ compensation. Even if your business is not required, it may be financially prudent to obtain the insurance, as your liability policy will not cover employees. Your insurance agent sounds like he’s giving you pretty good advice—I’d listen to him.