WILL THE REAL EMPLOYER PLEASE STAND UP: AN ANALYSIS OF WORKERS’ COMPENSATION IMMUNITY UNDER UTAH LAW
Workplace accidents are a leading cause of serious injuries in the United States. Given the general inadequacy of the benefits provided by workers’ compensation, it is not surprising that plaintiffs’ attorneys are regularly called upon to investigate and pursue tort claims on behalf of individuals injured in construction and other workplace accidents. However, it is often difficult to tell at the beginning of a case which potential defendants–subcontractors, the general contractor or the property owner (or all three)–can be sued and which can claim immunity under the exclusive remedy provision of the Workers’ Compensation Act. This article addresses Utah law on when workers’ compensation immunity attaches to such claims. In next quarter’s edition of the UTLA Journal, we will address other liability issues relating to workplace accident and party claims.
Under the Utah Workers’ Compensation Act, an injured worker is precluded from suing his direct employer and co-employees: “The right to recover compensation [under the Workers’ Compensation Act] for injuries sustained by an employee . . . shall be the exclusive remedy against any officer, agent, or employee of the employer . . . .” UTAH CODE ANN. § 34A-2-105(1). However, the injured worker is entitled to assert an action in tort against other entities, including general contractors, subcontractors and property owners, whose negligence caused the injury:
(1) When any injury or death for which compensation is payable under this chapter . . . is caused by the wrongful act or neglect of a person other than an employer, officer, agent, or employee of the employer:
(a) the injured employee, or in case of death, the employee’s dependents, may claim compensation; and(b) the injured employee or the employee’s heirs or personal representative may have an action for damages against the third person. . . .
(4) For the purposes of this section and notwithstanding Section 34A-2-103, the injured employee or the employee’s heirs or personal representative may also maintain an action for damages against any of the following persons who do not occupy an employee-employer relationship with the injured or deceased employee at the time of the employee’s injury or death:
(a) a subcontractor;
(b) a general contractor;
(c) an independent contractor;
(d) a property owner; or
(e) a lessee or assignee of a property owner.
Id. § 34A-2-106
Section 34A-2-106 appears to create a simple framework whereby an injured worker may recover in tort against any party, with the exception of the direct employer, whose negligence caused the injury. Unfortunately, the reality is quite different.
Despite the apparent clarity of section 34A-2-106, the question of whether a potential defendant is immune from tort liability pursuant to the exclusive remedy provision of the workers’ compensation act is an issue in nearly every workplace injury case. The analysis of when an “employer-employee relationship” exists is quite confusing and can be easily manipulated to create the impression that immunity is present in all but the most obvious cases. Construction projects typically involve multiple layers of contractors, property owners, developers, engineers and architects. Determining which parties are subject to liability often involves obtaining and examining stacks of complex contracts and other documents, as well as interviewing or deposing numerous witnesses. Much of this information often cannot be obtained without filing and serving a complaint. Even then, it is sometimes unclear whether a claim of immunity will be successful. And, as we will see, much of the confusion emanates from a lack of clarity in Utah’s appellate cases in this area.
A. DISTINGUISHING INDEPENDENT CONTRACTORS FROM EMPLOYEES FOR PURPOSES OF WORKERS’ COMPENSATION IMMUNITY: THE “RIGHT TO CONTROL” TEST.
The existence of an employer-employee relationship is the starting point for determining whether immunity exists under the Workers’ Compensation Act. If your client or his employer acted as an independent contractor, the potential defendant can be liable in tort, but if your client or his employer is deemed to be an employee of the potential defendant (or if the potential defendant and your client’s employer were both employees of a third entity, making them co-employees), then workers’ compensation may be your client’s only remedy. The legal definitions of “employee” and “independent contractor” are considerably more complex and less clear than the standard “Webster’s Dictionary” definition of those words would suggest.
In determining whether a worker acted as an employee or as an independent contractor for purposes of applying workers’ compensation immunity, the Utah Supreme Court has traditionally relied on whether the employer had the “right to control” the worker. While numerous descriptions of this “right to control” test have been provided, the following appears to be the most often quoted characterization:
Speaking in generality: an employee is one who is hired and paid a salary, a wage, or at a fixed rate, to perform the employer’s work as directed by the employer and who is subject to a comparatively high degree of control in performing those duties. In contrast, an independent contractor is one who is engaged to do some particular project or piece of work, usually for a set total sum, who may do the job in his own way, subject to only minimal restriction or controls and is responsible only for its satisfactory completion.
The main facts to be considered as bearing on the relationship here are: (1) whatever covenants or agreements exist concerning the right of direction and control over the employee, whether express or implied; (2) the right to hire and fire; (3) the method of payment, i.e., whether in wages or fees, as compared to payment for a complete job or project; and (4) the furnishing of the equipment.
Harry L. Young & Sons v. Ashton, 538 P.2d 316, 318 (Utah 1975). See also Utah Home Fire Ins. Co. v. Manning, 985 P.2d 243, 247 (Utah 1999); English v. Kienke, 848 P.2d 153, 157 (Utah 1993).1
The holdings of these cases seem to make it clear that it is the employer’s right to exert control over the worker, rather than the degree of control actually exercised, which determines the relationship. Manning, 985 P.2d at 247. The terms of any agreement between the parties, either express or implied, will certainly provide a strong indication of the extent of control which the employer retained over the worker. However, in many Utah appellate decisions the actual dealings between the parties and the control which was in fact exercised are also examined and discussed, presumably on the theory that the parties’ course of conduct is the best evidence of the relationship which was actually created. See Averett v. Grange, 909 P.2d 246, 250 (Utah 1995). And, as we shall see, even if the contract purports to establish an independent contractor relationship (and therefore no immunity to the tort-feasor), the court may look beyond the contract to find a “right to control” (and therefore immunity) from the parties’ actions.
The right to control test is really the common law analysis for distinguishing between employees and independent contractors for purposes of determining vicarious liability. The Utah Supreme Court has adopted the criteria set forth in the Restatement (Second) of Agency § 220 as bearing on the distinction between the two relationships and has repeatedly stated that no single factor is controlling. See, e.g., Sutton v. Industrial Comm’n of Utah, 344 P.2d 538, 540 (Utah 1959). In determining whether a worker is an independent contractor or employee, numerous factors other than the employer’s right to dictate specific methods of carrying out the work must be considered. For example:
- Was the worker paid in the form of wages, with taxes and other items withheld, or in a lump sum upon completion of the project?
- Did the employer provide the worker with tools and equipment, or did the worker use his own equipment?
- Did the employer have the unmitigated right to fire the worker?
- Did the employer have the power to fire any employees of the worker?
- Was the worker authorized to hire assistants without the approval of the employer?
- Was the worker subject to specific working hours dictated by the employer, or could the worker come and go as he pleased?
- For what length of time was the worker hired?
- Was the worker retained to perform a specific job or to provide general labor?
- If retained for a specific task, did the worker perform other forms of work for the employer?
- Did the employer regularly inspect the work and give orders regarding its completion?
- Was the worker required to provide regular reports to the employer?
- Was the worker supervised in the same fashion, and employed under the same conditions, as regular employees of the employer?
- Did the employer purchase workers’ compensation insurance to cover the worker?
The recent case of Utah Home Fire Insurance Co. v. Manning, 985 P.2d 243 (Utah 1999), deserves special attention. In Manning, a general contractor retained a subcontractor to install siding on a construction project. The siding contractor, who was designated an independent contractor in his contract with the general contractor, was fired by the general contractor before the siding work was completed. The general contractor then hired several temporary employees, including the plaintiff, to complete the installation of the siding. The plaintiff was injured when scaffolding which had been erected by the original siding contractor collapsed. The plaintiff then sued the siding contractor, alleging that the scaffolding had been negligently erected.
The trial court granted the siding contractor’s motion for summary judgment on the grounds that he was an employee, rather than an independent contractor, of the general contractor. In reaching its decision, the court gave little weight to the contract, which stated that the siding contractor was an independent contractor. Having found the siding contractor to be an employee of the general contractor, the court next concluded that the siding contractor and plaintiff were co-employees of the general contractor2 and held that the siding contractor was immune from tort liability pursuant to the exclusive remedy provision of the workers’ compensation act.
The Manning court examined numerous factors bearing on the issue of right to control and affirmed summary judgment because the undisputed facts clearly indicated that the siding contractor was retained as an employee. For example, the relevant contract (1) prohibited the siding contractor from hiring employees who were objected to by the general contractor, (2) required the siding contractor to submit daily written reports, and (3) required the siding contractor to work specific hours. In addition, the general contractor routinely exercised the control it retained over the siding contractor, going so far as to dictate that the siding be installed from right to left rather than left to right. 985 P.2d at 247. Even in his dissent, Justice Stewart did not contest the determination that the siding contractor was an employee rather than an independent contractor.
The Manning decision is an excellent example of how workers’ compensation immunity issues can arise in unexpected places. It was probably reasonable for the plaintiff’s attorney to assume that one hired exclusively to install siding on a single construction project was an independent contractor, but that assumption proved wrong. The result in Manning emphasizes the importance of conducting extensive witness interviews and attempting to obtain as many relevant documents as possible prior to filing a complaint. A review of the contract between the general contractor and siding contractor, as well as interviews of the siding contractor and employees of the general contractor, would certainly have shed more light on the nature of the relationship.
The broader lesson of Manning is that under the right to control test, numerous entities working on a construction project may be protected from tort liability by workers’ compensation immunity. The only relationship examined in Manning was that between the general contractor and the siding contractor, because the plaintiff was clearly an employee of the general contractor. However, the result would not necessarily change if the plaintiff had been injured while working as an employee of another subcontractor on the project. Assume that the plaintiff had been working as an employee of a painting contractor when he was injured by the negligence of the siding contractor. The Manningcourt held that the siding contractor was immune from liability for the plaintiff’s injuries because the plaintiff and the siding contractor were co-employees of the general contractor. If our hypothetical painting contractor had been hired by the general contractor on the same terms and conditions (including the same right of control) as was the siding contractor, the plaintiff and the siding contractor might be considered co-employees, and the plaintiff might be denied recovery in tort.
B. STATUTORY EMPLOYERS AND IMMUNITY UNDER THE WORKERS’ COMPENSATION ACT.
The term “statutory employer” is much like Einstein’s theory of relativity: most of us have heard of it and know e=mc², but few can explain what it really means. The two rules are also alike in that neither tells you much about whether an entity will be immune from tort liability under the Workers’ Compensation Act. Under current Utah law, the fact that an entity qualifies as a statutory employer does not, by itself, render that entity immune from tort liability.
The statutory employer classification is meant to assign responsibility for paying workers’ compensation benefits to workers whose direct employers are uninsured or for some other reason do not provide workers’ compensation benefits. For example, suppose a general contractor hires an independent contractor which does not carry workers’ compensation coverage for its employees. The general contractor will be required to provide workers’ compensation benefits to an employee of the independent contractor if the general contractor meets the test for a statutory employer.
The basis for the statutory employer doctrine is Utah Code Ann. § 34A-2-103(7)(a), which states:
If any person who is an employer procures any work to be done wholly or in part for the employer by a contractor over whose work the employer retains supervision or control, and this work is a part or process in the trade or business of the employer, the contractor, all persons employed by the contractor, all subcontractors under the contractor, and all persons employed by any of these subcontractors, are considered employees of the original employer for the purposes of this chapter . . . .
The purpose of section 34A-2-103(7)(a) is “to protect employees of irresponsible and uninsured subcontractors by imposing ultimate liability [to provide workers’ compensation benefits] on the presumably responsible principal contractor, who has it within his power, in choosing subcontractors, to pass upon their responsibility and insist upon appropriate compensation protection for their workers.” Bennett v. Industrial Comm’n of Utah, 726 P.2d 427, 431 (Utah 1986); see also Manning, 985 P.2d at 248-49.
Most general contractors will qualify as statutory employers of the employees of the subcontractors they hire. Under section 34A-2-103(7)(a), “a subcontractor’s employee is deemed an employee of the general contractor if (1) the general contractor retains some supervision or control over the subcontractor’s work, and (2) the work done by the subcontractor is a part or process in the trade or business of the employer.” Bennett, 726 P.2d at 431 (emphasis in original). Any aspect of a construction project which is subcontracted out will automatically be considered a part or process in the trade or business of the general contractor. Id. Thus, the statutory employer analysis really turns on the control requirement.
The degree of control which a general contractor must exercise over a subcontractor to qualify as a statutory employer is less than that the amount of control required under the right-to-control test to determine whether someone is an employee or an independent contractor for purposes of tort immunity. Manning, 985 P.2d at 249 n.8. Remember, the “statutory employer provision is a legislatively created scheme by which conceded nonemployees are deliberately brought within the coverage of the act” for purposes of providing workers’ compensation benefits. English v. Kienke, 848 P.2d 153, 158 (Utah 1993).
Under the statutory employer test, “the term ‘supervision or control’ requires only that the general contractor retain ultimate control over the project.” Bennett, 726 P.2d at 432. In the construction context, a general contractor typically retains sufficient control over its subcontractors to qualify as a statutory employer in all but the most unusual case:
Although the construction process requires the general contractor to delegate to a greater or lesser degree to subcontractors, the general contractor remains responsible for successful completion of the entire project and of necessity retains the right to require that subcontractors perform according to specifications. The power to supervise or control the ultimate performance of subcontractors satisfies the requirement that the general contractor retain supervision or control over the subcontractor.
Given the reality that a general contractor will nearly always be considered the statutory employer of each subcontractor on a project, the real question is whether this immunizes the general contractor from tort liability when one of his subcontractor’s employees is hurt on the job. The short answer is: No, not be itself, and definitely not when the statutory employer has not actually provided worker’s compensation benefits to the injured worker. However, before we go any further, a short historical digression is in order.
Before 1975, statutory employers were considered immune from tort liability under the exclusive remedy provision of the workers’ compensation act. To make matters worse, the Utah Supreme Court typically held that every entity involved in a construction project, including the general contractor and each subcontractor, was the statutory employer of every worker on the project. The result of this universal immunity was that an injured worker could not recover in tort from any entity working on the project; workers’ compensation benefits were nearly always an injured workers’ exclusive remedy. See, e.g., Adamson v. Okland Constr., 508 P.2d 805, 807 (Utah 1973).
In 1975 the Utah legislature amended what is now section 34A-2-106 to make it clear that an injured worker can assert an action against a general contractor, subcontractor or property owner with whom the injured worker did not share an “employer-employee” relationship. In Pate v. Marathon Steel Co., 777 P.2d 428 (Utah 1989), the court rejected the argument that a general contractor is immune from tort liability simply because it qualifies as the statutory employer of an injured worker and could be required to provide workers’ compensation benefits. The result in Pate is consistent with the fact that a general contractor must exercise a greater degree of control to qualify as an employer for immunity purposes than is required simply to qualify as a statutory employer.
The defendant in Pate did not actually pay workers’ compensation benefits to the plaintiff. The defendant sought immunity from tort liability on the grounds that because it would qualify as a statutory employer and had a contingent responsibility to provide benefits, it was subject to immunity. The Pate court specifically left open the question of whether a statutory employer is protected by immunity if it is actually required to provide workers’ compensation benefits to an injured worker. This issue remains unresolved.
A related issue which also has not been specifically considered by either Utah appellate court is whether a general contractor or property owner is immune from tort liability because it actually provided a policy of workers’ compensation insurance covering the injured worker. In recent years, it has become more common for general contractors and property owners to purchase “wrap-around” policies of workers’ compensation insurance to cover every individual working on a specific project. While the issue was not specifically considered, the holding in Pate appears to be controlling. The purchaser of a wrap-around policy owes nothing more than a contingent responsibility to pay benefits in the same manner as the statutory employer in Pate, who was held not to be immune from tort liability.
Courts applying Utah law have held under certain circumstances that defendants who did not directly provide workers’ compensation benefits were still immune from tort liability under the exclusive remedy provision of the Workers’ Compensation Act. See Goheen v. Yellow Freight Sys., 32 F.3d 1450, 1452-53 (10th Cir. 1994) (an injured worker could not sue the “loaned servant” of her employer); Sullivan v. Scoular Grain Co. of Utah, 930 F.2d 798, 801-02 (10th Cir. 1991) (one joint venturer was immune from suit even though the other joint venturer had paid for workers’ compensation coverage); Bliss v. Ernst Home Ctr., Inc., 866 F. Supp. 1362, 1368-69 (D. Utah 1994) (the “special” employer of a temporary employee was immune even though the “general” employer–the temporary employment service who provided the employee to the special employer–actually provided workers’ compensation coverage); Ghersi v. Salazar, 883 P.2d 1352, 1354-58 (Utah 1994) (same).3However, those cases did not involve defendants who can be liable in tort under section 34A-2-106. Thus, it remains an open issue as to whether such a defendant can acquire workers’ compensation immunity if he actually provides workers’ compensation coverage.
Even if workers’ compensation benefits are actually paid by an entity other than the injured workers’ direct employer, this fact, standing alone, should not be determinative of the immunity question. Assuming our Supreme Court continues to apply a consistent analysis to the workers comp immunity issues, the payment of workers’ compensation benefits will simply be one factor to be considered in determining whether the injured worker was an employee or independent contractor of the party which paid the benefits. It is the examination of these factors which determines status as independent contractor or employee, which, in turn, controls the application of immunity.
The lesson to be learned from all this is that, when your client is injured on a job site, you cannot simply assume that he can sue anyone on the job except the company that hired him. The court will look at a number of factors to determine whether there was an employer-employee relationship between your client and the defendant (or between your client’s employer and the defendant). The parties’ characterization of the relationship as an independent contractor relationship in the construction contracts will not necessarily be determinative. You can bet that defense counsel will be examining the contract documents and discovering the relevant facts to build as strong a case as possible for the position that your client (or his direct employer) was actually an employee (or co-employee) of the defendant. You need to review the same documents and discover other relevant facts to show that the defendant in fact did not retain the right to control the work of your client (or his employer) and thus is not immune from tort liability under the Workers’ Compensation Act.
In recent years, defense interests have advanced the argument that despite the straight forward language of Section 34A-2-103 of the Workers Compensation Act, the Act should be judicially interpreted to create an expansive web of immunity akin to what existed prior to 1975. Language found in recent cases such as Manning suggests that some members of the current Supreme Court are at least somewhat receptive to the argument that the legislature has allowed for an “end run” around the workers’ compensation exclusive remedy scheme which should be judicially curbed.
We wish that those sympathetic to these arguments could have the experience of representing clients struggling to live on the meager benefits provided by the workers’ compensation insurance scheme. With this experience it is easier to understand the wisdom of the legislatures’ action in 1975, which allowed third party claims against those who were not employers and who were responsible for disabling injuries to workers. Since 1975 the plight of injured workers in Utah has not improved. We can only hope that the soon-to-be-newly composed Supreme Court will keep these real world realities in mind and resist the urge to do away with rights which the Utah Legislature wisely created some 25 years ago.
- Where the facts bearing on the relationship between the employer and worker are not in dispute, the nature of the relationship may be determined as a matter of law. Manning, 985 P.2d at 246. However, where competing inferences regarding the nature of the relationship can be drawn from the evidence, the question must be submitted to the jury. Gourdin v. Sharon’s Cultural Ed. Rec. Assn., 845 P.2d 242, 243 (Utah 1992).
- Temporary employees are considered employees of a contractor or other employer for purposes of workers’ compensation. Ghersi v. Salazar, 883 P.2d 1352, 1357 (Utah 1994).
- The legislature has since amended the statute to specifically provide for immunity for both employers in cases where one employer leases employees to another or provides temporary employees, at least where the temporary staffing company “secures the payment of workers’ compensation” for the temporary employee. See UTAH CODE ANN. § 34A-2-105(2) & (3).