Home > Case Histories, Industry Issues, Labor and Industries, Prime Contractor Liability, Workmens Compensation > Tennessee Firms Opting Out of Workers’ Comp Must Register

Tennessee Firms Opting Out of Workers’ Comp Must Register

By Michael Adams | January 25, 2011

A new Tennessee law is requiring sole proprietors to register with the state if they choose to opt out of the state’s workers’ compensation system.

The new law is designed to protect general contractors from having to pay benefits for uninsured subcontractors who under the old law were often ordered to cover the subcontractor’s injuries by an administrative law judge.

The new law is the latest change by Tennessee lawmakers who have sought to resolve a long-standing problem over the role of workers’ compensation in the construction industry. Under the old law, subcontractors could choose not to purchase workers’ compensation coverage for themselves, although they were mandated to provide it for their employees. However, when the subcontractor was injured, they would often file a claim arguing they did not know they could not be covered. Judges then awarded benefits often at the expense of the general contractor.

“The judges would go up the ladder until they found someone with insurance,” said Susan Ritter, executive vice president of the Home Builders Association of Tennessee.

Lawmakers changed the law in 2008 calling for all subcontractors to obtain workers’ compensation policies for themselves. The new law was scheduled to take effect January 2010. However, the building industry, and trade groups such as the National Federation of Independent Business-Tennessee, strenuously argued the law would hurt subcontractors.

“The law would have put many sole proprieties out of work,” said Ritter. “They were looking at having to pay $10,000 or $12,000 for a policy when they only make $25,000 a year.”

Faced with the outcry over the law change, the state legislature met in a special session to address the issue. As a result, lawmakers changed the law’s due date to January 2011 to allow themselves time to modify the statute in their regular session. Under the new law, as of Jan. 4, all sole proprietors are now required to register with the State’s Department of Commerce and Insurance. Additionally, the department is setting up a website so that homeowners and businesses can verify a subcontractor’s insurance status.

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