Company Pilots: Contractors or Employees?

What are the legal and insurance implications? Careful consideration is required warns Stuart Hope.

Stuart Hope  |  27th May 2014
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Stuart Hope
Stuart Hope

Stuart Hope is a co-owner of Hope Aviation Insurance. His career as an aviation insurance broker began...

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When your company employs a pilot, the decision on whether to hire the aviator as an independent contractor or an employee should be made only after careful consideration, warns Stuart Hope.

One of the company’s employee pilots has requested time off for vacation or sick leave. Your aviation manager has located a qualified person who flies the same make and model aircraft for another owner on the field to fill in and take the trip. This arrangement appears to be a very convenient solution – made all the better by hiring the pilot as an independent contractor, thereby avoiding the administrative hassle of employment contracts, payroll deductions, and other costs associated with making him or her an “employee”.

But this convenience comes with serious downsides—the most critical being exposure to a lawsuit resulting from the bodily injury or wrongful death of the independent contractor pilot. As independent business persons, contractors are expected to provide their own liability insurance and workers’ compensation. For this reason, your insurance policy will not respond to any pilot injuries that should have been covered by a workers’ compensation policy.

Second, as we have discussed in previous articles, the independent contractor may be an approved pilot (which validates only your coverage) but he/she personally is not provided legal liability protection. In fact most independent contractor pilots do not carry any insurance, either because they are not aware they should, or it is cost prohibitive. Who do you think is left “holding the bag”?

In the event the contract pilot who doesn’t carry workers’ comp coverage is injured on the job, a court is likely to rule that the contract pilot was an employee by definition and should have been covered under your workers’ compensation insurance. You could be faced with paying significant retroactive premiums, employment taxes and interest.

If the pilot is ruled an independent contractor, then the protection generally granted an employer under the workers’ comp bar (which in essence prohibits an employee from suing their employer for job-related injuries) is removed, thereby allowing the independent contractor or his estate to sue the aircraft owner for bodily injury. Since greater than 85% of all aircraft accidents are caused by pilot error, logically you would think it unlikely the pilot or his/her estate would have grounds to sue you or your company for their own negligence. But things often aren’t logical, and the fact that you are the one with the deep pockets puts you squarely in the cross-hairs after an aircraft accident.

As you can quickly see, there’s a lot more than meets the eye when using independent contractor pilots. The distinction between who is an employee and who is an independent contractor is no different with pilots than with any other person you employ. The situation remains one of the most misunderstood areas of employment law in business today.

Appropriate Strategy

Option 1: Don’t use independent contractor pilots. This isn’t really a practical solution, however, because finding a pilot to fill in on short notice is difficult. But beware—most supplemental pilots available immediately are probably flying for another aircraft operator on the field and are just trying to do your pilot a favor by filling in. They aren’t going to purchase their own liability or workers’ compensation insurance for the few flights they might make for your company.

Option 2: Use a well-known temporary pilot staffing company that can issue proof it provides its pilots with workers’ compensation and adequate liability protection.

Option 3: Go through the pain of hiring the aviator as a part-time employee. This process is costly and time consuming, but it eliminates the liability and workers’ compensation exposures, and at the same time provides protection for the pilot filling in. This option is probably the best solution.

Option 4: If you decide to continue using independent contractors, add them to your workers’ compensation insurance and endorse your aircraft liability policy to properly protect them (and your company!).

Operators must satisfy many masters in the aircraft ownership world (IRS, FAA, Insurance), which often is very complicated. I just touched the surface of the complexities in this article. Your best strategy is to seek professional help, and I mean that in the best way. When it comes to insurance, your aviation insurance broker will be one of your most valuable allies. Use that resource.


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