The Three-Employee Threshold: When Subcontracted Workers Can Bring an Employer Within the Virginia Workers’ Compensation Act

Arguably the very first question to ask when assessing the compensability of a workers’ compensation claim is often one we, as practitioners, skip over entirely: does the Workers’ Compensation Act even apply to this employer? In Virginia, employees and employers are conclusively presumed to have accepted the provisions of the Workers’ Compensation Act. Va. Code § 65.2-300(A). However, this presumption does not apply to employees of any person, firm, or private corporation that has less than three employees “regularly in service.” Va. Code § 65.2-101. In most cases, it is clear whether an employer regularly employees three or more employees. Where this question becomes more complicated is with small businesses, especially those that rely on subcontractors.

In Uninsured Emp.’s Fund v. Perez, 87 Va. App. 1, 925 S.E.2d 881 (2026), the Virginia Court of Appeals addressed the question of how many employees were “regularly in service” of a general contractor. Gencon, a residential remodeling business, operated as a sole proprietorship and employed Perez and one other individual as its only two employees. Like many contractors, Gencon utilized various subcontractors to perform specialized work on its remodeling projects (e.g., drywall, tiling, plumbing). Although the subcontractors and the subcontractors’ employees generally worked on individual projects for only a short period of time, the Virginia Workers’ Compensation Commission found that Gencon regularly employed three or more employees to perform its business, thus bringing it within the governance of the Workers’ Compensation Act and the jurisdiction of the Commission. This decision was affirmed by the Court of Appeals.

The Court explained that whether an employer has three or more employees “regularly in service” is determined by examining the employer’s “established mode of performing the work.” Id. at 8 (citing Osborne v. Forner, 36 Va. App. 91, 96 (2001) (quoting Cotman v. Green, 4 Va. App. 256, 259 (1987))). This inquiry focuses on the character of the business rather than simply the nature or duration of a particular employment relationship. The Court emphasized that the Commission found that most of Gencon’s jobs required three or more employees at some point. The fact that the additional workers were present only briefly did not remove them from the calculation. As the Court explained, Va. Code § 65.2-101 encompasses persons hired to work in the usual course of the employer’s business “regardless of how often or for how long” they may be employed. Perez, 87 Va. App. at 11 (quoting Cotman, 4 Va. App. at 258).

For employers and defense counsel, Perez highlights the importance of gathering details concerning the employer’s regular and recurring business practices. An employer should not assume that having only one or two employees on the regular payroll places it outside the Workers’ Compensation Act. If its established method of performing its work regularly requires additional workers – whether through subcontractors or other employment arrangements – the Commission may determine that the statutory threshold has been satisfied. At the same time, Perez does not mean that every use of a subcontractor automatically brings an employer within the Act. The Court’s analysis turned on the recurring nature of Gencon’s use of additional workers. In the year prior to Perez’s injury, Gencon performed five jobs, and only two did not require work from a subcontractor’s employees. The other three projects each required at least two employees of subtractors to complete. In other words, it was more likely than not that a subcontractor’s employee would be working, at least for a limited period, at Gencon’s job sites. Accordingly, when the three-employee threshold is at issue, it is important to examine more than just the employer’s payroll. Relevant evidence may include the employer’s contracts, invoices, project histories, subcontractor records, information regarding how projects are staffed, and the frequency with which additional workers are required. The ultimate question is how the employer regularly conducts its business.

The practical significance of Perez extends beyond the remodeling business involved in this case. Small businesses – though especially in the construction industry – frequently structure their operations around temporary or project-specific labor. Perez makes clear that an employer cannot necessarily avoid application of the Workers’ Compensation Act simply because those additional workers are not permanent employees or are present only for limited periods. For defense counsel, the decision also underscores the importance of addressing this threshold issue early. Whether an employer is subject to the Workers’ Compensation Act can be dispositive of a claim, making the employer’s mode of performing its business a potentially significant issue before the merits of compensability are reached.

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