Kentucky Adopts "Economic Realities" Test for Workers' Compensation Classifications

by Stephanie Ross, Esq.

The Kentucky Supreme Court issued an opinion earlier this year in the case of Oufafa v. Taxi, LLC, No. 2022-SC-0003-WC (Ky. 02/16/23), adopting the “economic realities” test for determining whether a worker is an employee or an independent contractor for purposes of workers’ compensation.  Though unpublished, the opinion was cited by the Workers’ Compensation Board in a decision rendered this week, Wauneda Hines v. Jerry Walker, d/b/a At Your Service Taxi, WCB No. 21-01455 (6/16/23).

The claimant in Oufafa was a taxi driver shot by a passenger and paralyzed.  The company denied the claim, noting the driver was classified as an independent contractor rather than an employee. The company’s business model was to lease taxis to drivers, and the ALJ reluctantly agreed based on this business model that the claimant was not an employee, dismissing the case.

Historically, Kentucky courts have applied a nine-factor test first outlined in Ratliff v. Redmon, 396 S.W.2d 320 (Ky. 1965), and refined over the years to emphasize those factors most relevant to the risk-sharing considerations of the Workers’ Compensation Act.  The Supreme Court utilized Oufafa as an opportunity to revisit the test and replace it with the “economic realities” model adopted last year in Mouanda v. Jani-King International, 653 S.W.3d 65 (Ky. 2022), a “wage and hours” case.

Citing the difficulty in applying the unwieldy Ratliff test and a desire for consistency in the classification of workers across different statutory employment protections, the Supreme Court adopted this six-factor Jani-King test for determining whether a worker is an employee or independent contractor:

1. The permanency of the relationship between the parties,
2. The degree of skill required for the rendering of the services,
3. The worker’s investment in equipment or materials for the task,
4. The worker’s opportunity for profit or loss, depending upon his skill
5. The degree of the alleged employer’s right to control the manner in which the work is performed, and
6. Whether the service rendered is an integral part of the alleged employer’s business.

There is significant overlap between the Jani-King test and the test under Ratliff and its progeny, but it is noteworthy that one of the factors eliminated is the intent of the parties. This allows the fact-finder to disregard any agreement signed by the parties expressing an intent that the worker be an independent contractor, and presumably will result in more awards.

The Supreme Court instructed that the central question to the economic realities test is “the worker’s economic dependence upon the business for which he is laboring.”  The case was remanded to the judge for further findings under the new test, as was the At Your Service Taxi case, in which the judge also dismissed the claim of a taxi driver for lack of employment relationship.

If you would like a copy of the Oufafa decision or have any questions with respect to its potential implications, please contact a member of Reminger’s Workers’ Compensation Practice Group.