Workers’ Compensation and the Exemption for Agricultural Labor

Overview

Agricultural law is often “law by the exception.”  For a variety of reasons, the law views many aspects of agricultural production as significantly different from other industrial enterprises.  As a consequence, in such situations general legal rules have been deemed inappropriate as applied to agriculture.  One area of the law, for example, involves farm employment situations.    Farm employers are not subject to many federal labor laws and, in many states, are not included within the scope of the state workers' compensation provisions.  A recent opinion of the New Mexico Court of Appeals, however, held that the exemption for certain types of agricultural employment from state workers’ compensation statutes was unconstitutional.  The court’s opinion, which is likely to be reviewed by the New Mexico Supreme Court, is contrary to the outcome of similar cases in other states.  But, the New Mexico court’s opinion does illustrate another tough legal issue associated with the increasing commercialization of the traditional family farm.

In any event, farm employers should carefully review state workers’ compensation law as it might apply to their operation and determine whether it is more advisable to opt in to coverage under the system or rely on any exemption for agricultural employment that state law might provide. 

Workers’ Compensation (In General)

Under a workers’ compensation system an employee is entitled to a guaranteed compensation for work-related injuries, regardless of fault.  The amount of compensation is a set statutory amount.  The employer pays for the cost of participating in the system through the payment of insurance premiums.  Once the employment situation is in the system, the employee cannot bring any type of legal claim against the employer related to injuries sustained on the job. 

Exemption for Agricultural Activities

Presently, 16 states have some sort of exemption for “farm” or “agricultural” labor from workers’ compensation coverage.[1]  The historic reasons for the exemption are couched in administrative ease and economics – that it would be particularly difficult for a small farming operation to maintain the necessary records, insurance and accounting to properly comply with the workers’ compensation system, and that a farming operation cannot pass the increased costs of coverage in the system on to the consumer.[2] 

Note:  Agricultural products grown or raised in accordance with a production contract may not result in an employer-employee relationship covered by workers’ compensation even if the party hiring the grower is otherwise a covered employer.[3]

The state exemptions vary widely.  Some statutes tie the exclusion to the pay level of a particular employee or the number of employees on the payroll or average payroll wages.[4]  Other exemptions apply only to casual or seasonal labor.  In some states, the exclusion applies to family members.[5]  But, in these states that exclude from workers’ compensation certain types of agricultural labor, it is typically possible for the employer to voluntarily elect to be covered in order to gain tort immunity.[6]          

Two Ag States and Two Different Approaches

Kansas.  In Kansas, employers engaged in an “agricultural pursuit” are exempt from the workers’ compensation system.  However, feedlots, sale barns, grain elevators and feed mills are not exempt.  But, even if an ag employer is exempt, the employer can elect to be covered by the workers’ compensation system and purchase workers’ compensation insurance.  If the election is made, an employee injured on-the-job cannot file a civil suit to recover for their injuries.  Also, sole proprietor farmers can elect to include themselves in the system. The same applies for farm partnerships.  For farm corporations that are included in the workers’ compensation system, all employees are covered.  But, an employee owning 10 percent or more of the corporate stock has the option to not be included. 

Clearly, an important issue under Kansas law is what constitutes an “agricultural employee.”  The workers’ compensation system does not automatically apply to employers that are engaged in “agricultural pursuits” (unless the employer is the state).[7]  But an “agricultural business” is not exempt.  Thus, for example, charging a fee for a service (such as a set rate for feeding cattle, baling hay or harvesting crops) constitutes an “agricultural business” to which workers’ compensation applies.[8]  

Kansas caselaw shows that whether an activity is an agricultural activity is difficult to determine.  In general, an “agricultural activity” involves tillage or soil cultivation, under natural conditions, with large fields and associated farm buildings.  But, when the activity involves processing of farm commodities or commercial activities, or where employees work in both agricultural and non-agricultural pursuits, questions can arise as to whether the overall activity is an “agricultural activity.”  In essence, the key question is whether the nature of the specific job is agricultural rather than what the nature of the employer’s business is.  So, an employee could be exempt from workers’ compensation coverage even though working for a non-agricultural business.[9]  But, if the employer’s primary business is agricultural, the workers are exempt from workers’ compensation regardless of the nature of their specific jobs.

In unclear situations, the courts examine the nature of the employer’s business, and generally do not find the labor to be agricultural unless the employer’s business is agricultural as well.  Workers that handle agricultural products that have been cut and harvested are generally viewed to be in a commercial employment situation that is covered by workers’ compensation.  IN these situations, there’s no actual agricultural activity involved such as tillage or soil cultivation.  For employees that do different tasks, some of which are agricultural and some of which are not, the focus is on the overall nature of the person’s job.  Temporary departures from the employee’s basic job are disregarded. For example, a farm employee that is usually engaged in farming activities who also fixes roofs and repairs farm machinery is still a farm employee engaged in agricultural activities.  In a Colorado case, delivery of harvested crops by truck was determined to be part of the farming operation for workers’ compensation purposes.[10] 

Note:  A Nebraska case illustrates the difficulty that can arise in determining the line between agriculture activities and covered commercial activities.  In the case,[11] an employee was injured while roping a steer that a customer of the employer owned.  The employer operated a livestock feedlot and claimed that it was exempt from workers’ compensation because it’s business involved the business of farming or ranching.  The court, however, held that the employee, at the time of the injury, was engaged in a non-agricultural activity and was covered by the Nebraska workers’ compensation statute.  The court noted that an employer could be engaged in two separate business activities, one that was commercial and one that was exempt as agricultural.  However, the court focused on the activity the employee was engaged in at the time of the injury and determined that was not an exempt   agricultural activity.  Instead, the work was for the benefit of a separate commercial business that the employer conducted. 

Iowa.  Under Iowa workers’ compensation law,[12] an exemption is provided for persons engaged in agriculture for injuries sustained while engaged in “agricultural pursuits” or any other operations immediately connected to those pursuits whether on or off the employer’s premises,[13] unless the employer’s cash payroll amounts to $2,500 or more during the preceding calendar year.[14]  Thus, Iowa farmers do not have to provide workers' compensation for farmworkers unless at the time of injury, the employer's total cash payroll to one or more employees amounts to $2,500 during the preceding calendar year.   If a farm’s total cash payroll in the previous year exceeds $2,500, then the employer must buy workers’ compensation insurance for workers.[15]

The Iowa workers’ compensation statute includes the following ag-related persons as exempt:[16]

  • The employer’s spouse, parents, siblings, stepchildren (including the spouse’s stepchildren), and the siblings, children and stepchildren of the employer’s spouse;
  • The spouse of a partner of a partnership; parents, siblings children and stepchildren of either a partner or spouse of a partner, and the spouse of the siblings, children and stepchildren of either a partner or the spouse of a partner who are employed by the partnership and actually engaged in agricultural pursuits or operations immediately connected with the partnership;
  • Officers of a family farm corporation or members of a limited liability company and the same related parties as referenced above where the primary purpose of the entity is farming or ownership of agricultural land and the persons are actually engaged in agricultural pursuits either on or off the business premises;
  • A person engaged in agriculture, or as a person engaged in agriculture who is otherwise exempt while exchanging labor with another owner of agricultural land, farm operator or person engaged in agriculture who is also exempt.

Any farm that exceeds the cash payroll threshold should include all workers who perform labor for the farm on their workers’ compensation policy. The penalties for not carrying workers’ compensation may include large fines and possible felony charges.

Note:  Federal law requires that a farmer employing H-2A workers provide workers' compensation to all employees. If a farmworker is employed by a grower who also employs H-2A workers, then the grower must provide workers' compensation to all other employees as well. Federal law requires that a farmer employing H-2A workers provide workers' compensation to all employees.

Constitutional Issues

Over the years, constitutional challenges based on equal protection have been mounted against state exemptions for certain types of agricultural workers.  Those challenges have largely been dismissed on the basis that the states have a reasonable basis for excluding certain types of agricultural businesses and certain types of agricultural workers from workers’ compensation coverage.  However, the New Mexico Court of Appeals recently held that the New Mexico exemption for particular agricultural workers was unconstitutional.[17]

In this case, the plaintiffs’ cases were consolidated on appeal.  They claimed that their on-the-job injuries should be covered under the state (NM) workers' compensation law.  One plaintiff tripped while picking chile and fractured her left wrist.  The other plaintiff was injured while working in a dairy when he was head-butted by a cow and pushed up against a metal door causing him to fall face-first into a concrete floor and sustain neurological damage.  The plaintiffs' claims for workers' compensation benefits were dismissed via the exclusion from the workers' compensation system for farm and ranch laborers.  On appeal, the court reversed, reaching a conclusion directly opposite of what the court concluded in 1980.[18]  Using rational basis review (the standard most deferential to the constitutionality of the provision at issue), the court could find no rational purpose for the exclusion from workers' compensation for farm and ranch laborers, and noted that the purpose of the law was to provide "quick and efficient delivery" of medical benefits to injured and disabled workers.  Thus, the court determined that the exclusion violated the constitutional equal protection guarantee.  The court stated that the exclusion circumvented the policy of the Act which was to balance the interests and rights of the worker and the employer. 

While the court stated that the exclusion "results in expensive drawn out litigation being the only available option to the employee," the court failed to note that New Mexico is one of very few states that has adopted a "pure" comparative fault system.  Under such a system, an injured party could be 99 percent at fault and still recover damages - although the recovery is reduced by the percentage of the injured party's fault.  Such a system would seem to greatly enhance the likelihood of settlement of personal injury cases without protracted and expensive litigation.  However, the state tort system went completely unmentioned by the court likely because it undercuts the court's claim that the exclusion results in "drawn out litigation."  The court offered no citation to any scholarly research or statistics to back up its claim. 

The court further believed that the exclusion for workers that cultivate and harvest (pick) crops, but the inclusion of workers that perform tasks associated with the processing of crops was a distinction without a difference.  However, the court made no mention (even though it was briefed) that farm laborers are more likely to be illegal immigrants than are workers that are engaged in crop processing activities, and made no mention that New Mexico has at least four sanctuary cities or counties that harbor illegal immigrants.[19]  The processing of workers' compensation claims for such persons is not only illegal, it is more difficult due to the lack of documentation.  Thus, an argument was provided to the court in briefs that the state had a legitimate interest in the farm laborer/processor distinction.  The court did not address the point, holding the exclusion was arbitrary on its face. 

The court further dismissed the claim that the protection of the New Mexico ag industry from additional overhead cost served a legitimate state interest.  The court made no mention of the data indicating that the cost of workers' compensation insurance coverage rates for agriculture is commonly in the 6-8 percent of payroll range, with some states reporting the cost to be approximately 15 percent and, hence, did not address the argument that the exclusion had served a legitimate state interest in keeping food costs to the public down.  The court did not address the point that has been made in similar cases that the ag exclusion slows down the mechanization of certain agricultural crop harvesting jobs as being a legitimate state interest.  The court also made no mention that courts in numerous other states had upheld a similar exclusion for agriculture from an equal protection constitutional challenge.[20]  The court stated that its decision was applicable to workers' claims pending as of March 30, 2012.  That's the date, because of litigation in a different case, that the Workers' Compensation Administration was on notice that the ag exclusion was unconstitutional.  

Conclusion

Even in those states with an exemption from workers’ compensation for agricultural employment, it could be a good idea in certain situations for ag employers to elect to be covered.  Without coverage, business assets can potentially be subject to claims of employees that are injured (or killed) on the job.  In non-covered employment situations, the common law system applies.  Under that system the employer has a duty to provide the employee with a reasonably safe place to work and reasonably safe tools and appliances with which to complete their assigned tasks.  The employer also has a duty to hire reasonably competent employees.  But, the employer is not an insurer of the employee’s safety. 

In any event, farm employers would be wise to visit with legal and insurance professionals to determine the best course of action to take with respect to employment relationships.

 

[1] Those states are Alabama, Arkansas, Delaware, Georgia, Indiana, Kansas, Kentucky, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, South Carolina, Tennessee and Texas.

[2] See, e.g., Haney v. North Dakota Workers Comp. Bureau, 518 N.W.2d 195 (N.D. 1994).  But, other courts have disagreed with this rationale.  See, e.g., Macias v. Department of Labor & Indus., 100 Wash. 2d 263, 668 P.2d 1278 (1983).

[3] See, e.g., Winglovitz v. Agway, Inc., 667 N.Y.S.2d 509 (N.Y. App. Div. 1998).

[4] The Iowa statute exempts from coverage agricultural employees where the employer has a cash payroll of less than $2,500 in the calendar year preceding the injury.

[5] In Iowa, workers’ compensation is not required for the president, vice president, secretary or treasurer of a family farm corporation and their spouses, and the parents, brothers, sisters, children, stepchildren and their spouses of either the officers or their spouses.

[6] An affirmative election to be covered must be made.  Simply taking out an insurance policy does not equate to having made an election.  See, e.g., Riley v. Taylor Orchards, 226 Ga. App. 394, 486 S.E.2d 617 (1997); Roe v. Roe, 259 Iowa 1229, 146 N.W.2d 236 (1966); Eaton v. Joe N. Miles & Sons, 238 Miss. 605, 119 So. 2d 359 (1960).

[7] Kan. Stat. Ann. §44-505(a)(1).

[8] In uncertain situations, an employee who thinks they are in a covered employment bears the burden of proof.  Campos v. Garden City Co., 166 Kan. 352, 201 P.2d 1017 (1949).

[9] See, e.g., Taylor v. Taylor, 156 Kan. 763, 137 P.2d 147 (1943).

[10] State Compensation Insurance Fund v. Industrial Commission, 713 P.2d 405 (Colo. Ct. App. 1985).

[11] Larsen v. D.B. Feedyards, Inc., 264 Neb. 483, 648 N.W.2d 306 (2002).

[12] Iowa Code Chapter 85.

[13] Iowa Code §85.1(3)

[14] Iowa Code §85.1(3)(a).

[15] Volunteers, worker shares and interns (who are not also in school) are not exempt from workers’ compensation.

[16] Iowa Code §85.1(b)(1-4).

[17] Rodriguez, et al. v. Brand West Dairy, et al., Nos., 33,104 and 33,675, 2015 N.M. App. LEXIS 69 (N.M. Ct. App. Jun. 22, 2015).    

[18] Cueto v. Stahmann Farms, Inc., 94 N.M. 223, 608 P.2d 535 (N.M. Ct. App. 1980)(workers’ compensation statute inapplicable to ag workers of any employer, regardless of whether injured employee performing some non-agricultural service at time of injury).

[19] The Iowa Supreme Court has held that illegal immigrants are included in the definition of “employee” for workers’ compensation purposes.  Staff Management v. Jiminez, 839 N.W.2d 640 (Iowa 2013).

[20] See, e.g., Haney v. North Dakota Workers Compensation Bureau, 518 N.W.2d 195 (N.D. 1994); Collins v. Day, 604 N.E.2d 647 (Ind. Ct. App. 1992); Ross v. Ross, 308 N.W.2d 50 (Iowa); Fitzpatrick v. Crestfield Farms, Inc., 582 S.W.2d 44 (Ky. Ct. App. 1978); Eastway v. Eisenga, 420 Mich. 410, 362 N.W.2d 684; State ex rel. Hammond v. Hager, 160 Mont. 391, 503 P.2d 52 (1972); Otto v. Hahn, 306 N.W.2d 591; Baskin v. State ex rel. Workers’ Compensation Division, 722 P.2d 151 (Wyo. 1986).

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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