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The Pennsylvania Supreme Court Expands a Contractor’s Liability for Workers' Compensation Payments to a Subcontractor’s Employees


July 2, 2012

Background Facts of Case

The most common case implicating an alleged statutory employer as liable for workers' compensation benefits for an individual, typically involves a construction worker whose direct employer, namely, a subcontractor on a large construction project, has failed to provide workers' compensation insurance coverage for that individual.  In that instance, the subcontractor has failed to purchase or maintain an active or valid workers' compensation policy to cover its own employee.  The question then arises as to whether the general contractor becomes the statutory employer liable for workers' compensation damages to that individual if he is injured on-the-job.

However, in this case, Six L's Packing Company grew, processed, and distributed tomatoes and other produce.  The company owned various farms, processing, and distribution facilities.  Six L's contracted with F. Garcia and Sons to perform certain services, including transporting tomatoes by truck between a warehouse in Pennsylvania and a processing facility in Maryland.  Claimant was employed by Garcia as a truck driver, and sustained injuries from a vehicular accident incurred on a highway in Pennsylvania while hauling tomatoes between the two locations.  Claimant filed workers' compensation Claim Petitions against Garcia and against Six L's.  It turned out that Garcia had not maintained workers' compensation insurance for its employees.  This case was therefore focused on the theory of whether Six L's then became claimant's statutory employer, under Section 302 of the Pennsylvania Workers' Compensation Act, as amended, and whether Six L's consequently became liable for payment of workers' compensation benefits to claimant.

Under Section 302,

(a) A contractor who subcontracts all or any part of a contract and his insurer shall be liable for the payment of compensation to the employes of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided for in this act.  Any contractor or his insurer who shall become liable hereunder for such compensation may recover the amount thereof paid and any necessary expenses from the subcontractor primarily liable therefor. 

For purposes of this subsection, a person who contracts with another (1) to have work performed consisting of (i) the removal, excavation or drilling of soil, rock or minerals, or (ii) the cutting or removal of timber from lands, or (2) to have work performed of a kind which is a regular or recurrent part of the business, occupational, profession, or trade of such person shall be deemed a contractor, and such person a subcontractor.  This subsection should not apply, however, to an owner of lease of land principally used for agriculture who is not a covered employer under this act and who contracts for the removal of timber from such land.

(b) Any employer who permits the entry upon premises occupied by him or under this control of a laborer or an assistant hired by an employe or contractor, for the performance upon such premises of a part of such employer's regular business entrusted to that employe or contractor, shall be liable for the payment of compensation to such laborer or assistant unless such hiring employe or contractor, if primarily liable for the payment of such compensation, has secured the payment thereof as provided for in this act.  Any employer or his insurer who shall become liable hereunder for such compensation may recover the amount thereof paid and any necessary expenses from another person if the latter is primarily liable therefor. 

For purposes of theis subsection (b), the term "contractor" shall have the meaning ascribed in Section 105 of this act.

Section 105 states that,

The term "contractor" as used in article two, section two hundred and three, and article three, section three hundred and two (b), shall not include a contractor engaged in an independent business, other than that of supplying laborers or assistants, in which he serves persons other than the employer in whose service the injury occurs, but shall include a sub-contractor to whom a principal contractor has sublet any part of the work which such principal contractor has undertaken.  

Six L's did not own trucks or employ truck drivers, but instead utilized independent contractors, such as Garcia, to supply its transportation services.  Six L's thus took the position that it was not claimant's employer for workers' compensation purposes.  In fact, Six L's contended that only where a claimant proves all of the following five elements, can Section 302 liability possibly be imposed against it as a statutory employer entity:  (1) The entity is under contract with an owner or one in position of an owner.  (2)  The entity occupies or is in control of the premises where the injury occurred.  (3)  The entity entered into a subcontract.  (4)  The entity entrusted a part of its regular business to the subcontractor.  (5)  The injured party is an employee of such contractor.

In taking this position, Six L's relied on a 1930 Pennsylvania Supreme Court case that specifically addressed the language in 302(b).  Keep in mind that, conversely, paragraph (a) of Section 302 had been enacted about 44 years after the issuance of the 1930 case.

Since claimant was injured on a public highway and not on premises occupied or controlled by Six L's, Six L's contended it could not be deemed a statutory employer under this scenario.

The Workers' Compensation Judge (WCJ) nevertheless found that the above five elements were met, and accordingly held Six L's liable for payment of workers' compensation benefits to claimant under Section 302(a).

The Workers' Compensation Appeal Board (WCAB) affirmed the WCJ.  It noted that Section 302(a) contained no language to restrict statutory liability in this situation to only an injury occurring on the contractor's premises.  The WCAB did emphasize that Garcia's supplying of transportation services to Six L's was a regular or recurrent aspect of Six L's business.  Therefore, the WCAB also held that Six L's was a contractor under Section 302(a) and that Garcia was its subcontractor.  Because claimant was an injured employee of Six L's uninsured subcontractor, the WCAB determined that Six L's was claimant's statutory employer.  Consequently, Six L's was determined to have secondary liability for payment of workers' compensation benefits to claimant.

The Pennsylvania Commonwealth Court affirmed the WCAB's decision on essentially the same grounds.

In pursuing further appeal to the Pennsylvania Supreme Court, Six L's argued that it could not be considered a statutory employer in this situation because claimant's injury did not occur on-site at any of Six L's facilities.  In reaching a different holding, Six L's alleged that the appellate courts in this case had thus far ignored legal precedent.  Furthermore, Six L's alleged that as a property owner, the statutory employer designation did not apply to it.  In addition, Six L's alleged that Garcia was an independent contractor and that, as such, Six L's did not exert any control over Garcia's means of accomplishing its work or services.  Moreover, Six L's alleged that the statutory employer designation in this situation was restricted to work involving "the removal, excavation or drilling of soil, rock or minerals," or "the cutting or removal of timber from lands," and consequently did not apply to it.

Supreme Court's Holding

The Pennsylvania Supreme Court affirmed the determinations below and ratified the reasoning of the Workers' Compensation Appeal Board and of the Commonwealth Court.  It held that Section 302(a), by its own terms, is not limited to application only to an injury occurring on premises occupied or controlled by the putative statutory employer, i.e., by Six L's.  Rather, the statute extends to any scenario in which a contractor subcontracts for services or work, including "work performed of a kind which is a regular or recurrent part of the business" of the putative statutory employer/contractor. 

The Supreme Court ultimately held that the Workers' Compensation Act's provisions at Section 302 were meant to require entities ". . . contracting with other to perform work which is a regular or recurrent part of their businesses to assure that the employees of those others are covered by workers' compensation insurance, on pain of assuming secondary liability for benefits payment upon a default."  Therefore, the Commonwealth Court's holding was affirmed and Six L's, as the contractor/statutory employer, was held liable for claimant's workers' compensation entitlement. 

Lesson

In this case, as noted above, claimant was not an employee of the tomato grower, but was the employee of the grower's subcontractor, who failed to carry workers' compensation coverage for claimant.  Under this set of facts, the tomato grower became liable for claimant's injuries.  For this outcome, the injury did not have to occur on the tomato grower's premises.

In the typical contractor/subcontractor relationship, the subcontractor's employee's injury occurs on premises over which the contractor has control.  In the instant case, however, the Supreme Court widened the circumstances under which a contractor can be held liable for its subcontractor's employee's work related injury, where the subcontractor did not provide workers' compensation insurance coverage. 

The result of this case's outcome may be that unsuspecting employers that traditionally have not been viewed as statutory employers now will be.  The most important lesson from this case is that an entity in a contractor situation should make sure all of its subcontractors carry workers' compensation insurance for their workers, or else it will find itself in a statutory employer situation liable for workers' compensation damages for individual workers of its subcontractor's employees, down the line, over whom it exercised absolutely no control, and with whom it had no master/servant relationship.  Again, make sure that if an employer uses the services of another entity (i.e., a subcontractor) with employees of its own, that the employer requires proof of workers' compensation insurance from the subcontractor.  Otherwise, the insurer of the employer-contractor could be liable for another entity's employee, for workers' compensation liabilities that it did not originally contemplate or anticipate.

One benefit, though, to the employer-contractor in a situation such as this, would be that the statutory employer would then derive the benefit from the same immunity from tort liability as the entity which is the employer-in-fact (i.e., the subcontractor).  In other words, the employee's exclusive remedy against the statutory employer/general contractor, would be workers' compensation, and would not encompass civil liabilities.


If you would like a copy of Six L's Packing Company and Its Claims Administrator, Broadspire Services, Inc. v. WCAB (Williamson), issued May 29, 2012 by the Pennsylvania Supreme Court or would like to further discuss this case and its ramifications, please do not hesitate to contact any of us.