A Virginia appeals court has ruled that briefly hired subcontractors can trigger workers' compensation insurance requirements – even for the smallest contractors.
The February 24, 2026 decision may serve as a useful reminder for contractors and their insurers that the question of who counts as an employee under Virginia's Workers' Compensation Act is not always as straightforward as a payroll list might suggest.
Jose A. Zacarias Perez worked for Gencon, a small remodeling contractor run by owner Ibnan Johri out of Virginia, specializing in basement, bathroom, and kitchen renovations. Perez and a colleague, Nester Lemus, were Gencon's only two direct employees. On March 29, 2022, Perez was seriously injured when a concrete wall collapsed on him at a job site. He filed a workers' compensation claim seeking disability benefits, medical-bill reimbursement, and a lifetime medical award. The problem: Gencon had no workers' compensation insurance, which brought the state's Uninsured Employers' Fund into the picture to defend against the claim.
The injury itself was not in dispute, nor was Perez's pay of $600 a week. The only real question was whether Gencon was even required to carry workers' compensation insurance – and that came down to a deceptively simple issue: did Gencon regularly have three or more employees?
Under Virginia law, employers with fewer than three employees regularly in service are exempt from the workers' compensation system entirely. With only Perez and Lemus on the payroll, and owner Johri not counting as an employee under the law, Gencon appeared to fall short of that threshold at first glance. But Virginia law also counts employees of subcontractors the same way it counts a company's own workers – a provision designed to stop employers from sidestepping their obligations by farming out work to outside contractors rather than hiring directly.
The Commission and the court looked at Gencon's projects in the ten months before the accident to understand how the company actually operated. On a $75,000 basement remodel that started in May 2021, Perez and Lemus were on site throughout the four-to-five-month job, but Johri also brought in a rotating cast of specialists: a carpet installer who worked with his wife, an electrician, a drywall installer, and a countertop crew of two to three people. All told, eight or nine tradespeople contributed to that single project, though most of the outside workers wrapped up their portion in four days or less. A $22,000 water damage repair job and a subsequent six-month basement remodel followed much the same pattern. Across five total projects that year, only two did not bring in a subcontractor's employee at any point.
The Uninsured Employers' Fund argued that because the outside workers were only on site for short stretches, they should not count toward the three-employee threshold. The Deputy Commissioner who first heard the case agreed. The full Commission saw it differently, reversing that ruling and finding that three of Gencon's five jobs in the year before the accident each required at least two subcontractors' employees to complete. Lemus himself testified that whenever extra help was needed, Johri "calls extra people," and that he did so "regularly."
The Court of Appeals sided with the Commission. The court was clear that how long an outside worker spends on a job is beside the point – anyone hired to work in the usual course of an employer's business counts as an employee under the Act, regardless of how briefly. An employer cannot escape coverage obligations simply by structuring its workforce around short-term outside help if that is genuinely how the business gets its work done.
The court also addressed the Fund's reliance on an earlier case, Ragland v. Muguruza, where the employer had truly never had three workers at any point before or after the incident. Gencon's situation was different: bringing in extra hands for specialized work was not a one-off event – it was the normal pattern across the majority of its contracts.
The Court of Appeals affirmed the Commission's award to Perez, upholding his entitlement to temporary total disability and medical benefits. Because Gencon had no insurance, the Uninsured Employers' Fund was left to cover the liability.
For contractors and the insurance professionals who work with them, the case underscores that coverage thresholds can be met in ways that are not always obvious from a company's formal headcount. A business that regularly depends on subcontractors' workers to get jobs done – even for a few hours or days at a time – may well be operating as though it has three or more employees in the eyes of Virginia law. And without a policy in place, the consequences can be significant.
