January 30, 2002
SOLE PROPRIETORS AND WORKERS' COMPENSATION
By: Susan Price-Livingston, Associate Attorney
You asked whether some general contractors are forcing sole proprietors to buy workers' compensation insurance in order to be hired on as subcontractors, and if they can legally do so. The Office of Legislative Research is not authorized to give legal opinions, and this report should not be considered as such.
Amy Stolfi, an attorney who handles contractor issues for the Workers' Compensation Commission, reports that some general contractors do give subcontracting jobs only to sole proprietors who have workers' compensation coverage. She was not aware of any law or regulation banning this practice.
Sole proprietors are generally exempt from the workers' compensation law's definition of "employee," and thus are not required to be covered by workers' compensation insurance. (They have the option under CGS § 31-275(10) of electing coverage. ) But sole proprietors must cover all employees working for them.
Stolfi suggests that reasons why general contractors require sole proprietors to show proof of coverage may include (1) the law making general contractors liable for injuries suffered by employees of uninsured subcontractors (CGS § 31-291, sometimes called the "principal employer rule") and (2) general contractors' inability to monitor work agreements between subcontractors and the people they hire. Requiring a sole proprietor to have workers' compensation coverage could insulate a general contractor from liability if the sole proprietor hires people without its knowledge to work under the subcontract and they are injured on the job.
Stolfi reports that it is not unusual for sole proprietors to buy workers' compensation policies and exclude themselves from coverage under them. In this way, they obtain a certificate of insurance that satisfies a general contractor's proof of coverage requirement. She estimates that such policies cost about $ 800 per year. And while such policies exclude the individual sole proprietor, they would cover people he hires to work on the subcontracted project.