Workers’ Compensation for Self-Employed Sole Proprietors in Massachusetts

What happens if you are a self-employed sole proprietor who gets injured on the job in Massachusetts? Are you treated as an employee for purposes of workers’ compensation? It depends on your policy language, including any exclusions.

A 2010 case arose when a self-employed carpenter doing business as a construction company/sole proprietor purchased a workers’ compensation insurance policy from Liberty Mutual Insurance Company. He purchased the policy because a real estate management company that managed properties where he performed construction work required him to show them proof of the policy before starting work.

The policy he purchased required him to pay the minimum policy premium because he had no employees on payroll. It included an exclusion. It excluded “partners, officers and others”; it excluded him from coverage as an owner. At the time, Massachusetts’ law did not permit him or other self-employed sole proprietors to be considered an employee of his own business. In 2002, the statute was amended to permit a sole proprietor to be considered an employee.

In 2005, the carpenter cut his hand with a saw while working. Between 2002 (when the statute was amended) and 2005, he had renewed his policy multiple times. The exclusion still applied to the renewed forms. After the accident, he filed a workers’ compensation claim for benefits. Liberty Mutual denied it.

The department held a hearing on the issue of whether he was covered as an employee. The administrative judge determined that because the carpenter did not notify Liberty Mutual he wanted to be covered as an employee, he wasn’t covered. His claim was dismissed. He appealed to the board. The board affirmed the administrative judge’s ruling on the grounds that a self-employed sole proprietor must take the affirmative step of writing a letter to the insurer on company letterhead to obtain coverage.

He appealed to a Massachusetts appellate court, arguing that he met the statutory definition of a covered employee. The appellate court explained that every employer in Massachusetts (not subject to exceptions) is required to self-insure or acquire workers’ compensation insurance for employees. If the latter, employees who are injured on the job, can claim benefits. However, an injured person who makes a claim must initially show he or she is a covered “employee” or, in other words, a person in the service of another under a hiring contract. A sole proprietor can elect coverage by notifying an insurer that he is also an employee. The carpenter in this case said that he met the statutory definition, even though he did not comply with the regulation requiring notification. The Act is intended to be construed broadly in favor of coverage.

The appellate court explained that the regulation had to be interpreted in harmony with the legislative mandate and that the agency was to be given heightened deference. In this case, even if the statute were unclear, the employee couldn’t show the regulation was in conflict with the statute. Therefore, the appellate court found no merit to his claim. It explained that even though the law was changed to allow sole proprietors to be covered, it did not mean that a self-employed individual was automatically covered as an employee without making an affirmative decision to be treated as such.

The court reasoned that coverage of sole proprietors is voluntary, not mandatory. If you are a sole proprietor, particularly if you have been in business for a long time and have an older policy, check the language of your policy to make sure there are no affirmative steps you need to take in order to be covered in case of an accident. An experienced Massachusetts workers’ compensation attorney can help if you need to file a claim or need a consultation. Contact us by calling 800-367-0871 or using our online contact form.