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A reader asks: When employees are making money on the side by free-lancing for clients, who is responsible for accidents?

I run a boarding/training stable, and all of my employees are paid through a formal payroll and have workers’ comp, etc. Frequently I have been running into a problem with boarders wanting to pay my workers cash for special favors for their horses and I’m not sure how to deal with this. If something happens to the horse or employee when the time is “off the books,” it seems that the liability would be in a gray area.

This question involves determining what is, and more importantly, what is not, involved in the scope of an employee’s job. And the result of that determination creates a new question of how we protect ourselves if employees’ activities are outside of the scope of their employment.

Basically, for workers’ compensation to cover an injury, the accident must have occurred within the scope of the employee’s job. As examples, a jockey who was injured traveling in his car from the racetrack to the employer’s stables to ride a horse for training was within the scope of his employment and covered by workers’ compensation. On the other hand, a radio station employee was not covered by workers’ compensation when she was injured at a stable where she was meeting with an advertiser. The court felt that this accident did not occur as a part of her job (even though she was supposed to solicit advertisers for the station). Normally, scope of employment is considered to be an activity that benefits the employer, but the limits to an employee’s job can be difficult to determine.

If the employees’ actions are within the normal scope of their employment, and your customers are basically providing them with “tips,” then you shouldn’t have any problems. One way to look at this situation is to compare it to a restaurant. If a waiter brings you an extra cup of coffee, and you provide him compensation for that by giving him a tip, there is no problem for the owner of the restaurant. Similarly, if one of your employees keeps an extra careful eye on one of the horses, and your boarder tips him for that attention, there should be no problem.

But if the situation that you’re describing doesn’t fit that description, then you might run into problems. To give you an example, say your stable does not provide training and one of your employees, on his own time, either with or without compensation from the horse’s owner, starts training a horse at your stable and is injured. Because your stable does not provide training, it would be next to impossible to obtain workers’ compensation for this injury as it is completely outside of the employee’s scope of employment. The activity of this employee providing training to a horse does not seem to benefit you, the employer, at all.

If the employee’s activities are outside of the scope of their employment, then the normal rules of negligence and liability would apply. If the employee, on his own time, is electrocuted turning on the lights, and it was shown that this occurred because of your negligence, then you would be found liable. Whereas, if the same accident occurs while the employee is working, then workers’ compensation would cover it.

But as a business person, your questions are really ‘Do I need to worry about this?’ and if so, ‘How do I avoid getting sued?’ The answer to the first question is ‘Yes, you need to worry about this,’ as you obviously realized when you stated that this appeared to be a gray area. So how can you avoid being found liable for an injury for these activities? There are two different approaches that you can take.

The first is to include the activities as additional services of the stable. Let’s go back to the employee providing training—instead of the employee doing it on his own, make it part of his job. You then charge the boarder for the service and increase the employee’s job responsibilities (and compensation). Initially, you’d probably only be able to charge your present boarders what they have been paying, but eventually, this could become an additional source of revenue for you. “If your customers are basically providing them with ‘tips,’ then you shouldn’t have any problems…”

The alternative is to allow your employees to continue their present approach of free-lancing, but to put legal documents in place to protect you. The first document would be to include in your boarding agreement a clause that indemnifies you from any damages that occur to your employees while they are doing freelance work for the boarder.

The second document that you need is an independent contractor agreement with your employees. You will need to define very carefully what work is not included in their normal employment. The issue of independent contractors is very touchy with the Internal Revenue Service, so although you would not be paying your employees, you’d want to make sure that fact is well documented. Obviously included in the agreement would be a provision protecting you from any liability that might occur while the employee was freelancing.

In thinking through my clients’ operations, I can see benefits and disadvantages to both approaches, depending on the particular client. I think you need to discuss this with your attorney to determine the approach that would work best for your specific stable.






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