December 10, 2007

Contract Workers as Employees in Texas

There are many permutations in the employer/independent contractor matrix. The Texas Supreme Court has ruled in Entergy v. Summers that the employees of a subcontractor - in this case, International Maintenance Corp (IMC) - can be considered employees of the general contractor. The United Steel Workers cry foul: without the remedy of tort liability, they argue, employers can get away with murder.

This case brings us to the heart of workers comp system. Entergy hired IMC to perform maintenance, including "water and turbine-related, generator-related work" at its plant in Sabine LA. In the contract, Entergy defined IMC as an "independent contractor" but also stipulated that Entergy could use a "statutory employee" defense against liability. An addendum to the contract recognized Entergy as the statutory employer of IMC employees (while IMC remained the "direct employer"). Most significant for our purposes, Entergy paid the workers compensation premiums on all IMC employees working on their premises. (Of course, IMC employees were not parties to the written agreements between their employer and Entergy.)

When John Summers was injured, he collected workers comp. However, he subsequently sued Entergy as a third party for negligence. Entergy sought dismissal under summary judgment, arguing that that it was a general contractor and Summers's virtual employer and was thus shielded from tort liability. First they won, then the lost on appeal. Finally, at the Texas Supreme Court, they won again.

The court relied on a couple of definitions:
- A "subcontractor" is a person who contracts with a general contractor to perform all or part of the work or services that the GC has undertaken to perform." With equipment maintenance a key part of Entergy operations, the IMC people appear to fall under this definition.
- The court goes on to say that a premises owner is not precluded from meeting the definition of "general contractor." (The appeals court based its reinstatement of the claim in part on this issue.)

Comp vs. Tort Liability
Here's how the steelworkers frame the issue:

Worker’s compensation was never intended to compensate an injured worker fully and deals with compensation only and not prevention of an unsafe workplace. Benefits decrease dramatically regardless of the severity of the injury. Even though a worker may not be recovered or be able to fully recover, he or she is thrown out of the system when the benefits end. Workers’ compensation also does not include non-economic damages like the pain and suffering of a worker burned severely on the job and the costs his or her family bear because of the injury.

This is an interesting argument, but one that butts up against the very nature of workers comp, which is by definition the "exclusive remedy" for workplace injuries involving employees. To be sure, the benefits provided for catastophic injury are often inadequate. Comp does not take into account pain and suffering. It is by nature "no fault" - its goal is to cover medical costs and replace lost wages. There are built-in limitations in benefits that come into play as you go from state to state. It's an imperfect system. Nonetheless, comp provides the primary protection for workers across the country.

While the Steelworkers Union finds no incentive in the comp system to provide a safe workplace, employers (and general contractors) are penalized for high losses. Comp is experience rated: this year's losses translate into future increases in cost. To be sure, employers in IMC's line of work - energy-related companies - often have poor safety records (did someone mention BP?). Once the "exclusive remedy" protection is breached - as happened with the explosions at the BP plant - liability soars into the stratosphere.

The steelworker's argument is not really with the "pro-business" Texas Supreme Court - it is with the nature of workers comp itself. Comp is a no-fault system designed to protect employees who suffer work-related injuries. It also protects employers by limiting their liability. Comp is not perfect. The benefits can be stingy. But once an employer-employee relationship is established, comp is the exclusive remedy in all but a very few cases. Once Entergy took on the payment of workers comp premiums for IMC workers, the potential for tort recovery all but disappeared.



This Texas ruling seems similiar to our Pennsylvania law, in that a "statutory employer" would have the "work comp exclusive remedy" defense in a civil action arising from a work place injury. Our statute reflects a similiar definition for statutory emplyer status, where a general contractor, occupies or controls the premise and hires a sub-contractor to perform a part of it's regular business affairs.
The "twist" seems to be the payment of the work comp insurance by Entergy. Perhaps this is a contractual arrangement which is more prevalent than we realize. In any event, I believe it should not defeat the statutory employer argument, which limits liability to the work comp benefits. As Jon suggests, this is an essential element of the work comp system, which provides a certain recovery, limited to wage loss and medical expenses, in exchange for the employer waiver of many affirmative defenses, such as contributory negligence, etc.
IMO, It's a trade-off the functions rather well.

But (and correct me if I'm wrong) the unique aspect to this case is the fact Workers' Comp is not a statutory requirement in Texas. In just about any other state, the employee would be covered by the Workers' Comp system (and the exclusive remedy tied to it), regardless of whether or not the employer actually bought coverage, because Workers' Comp is a right of the employee and a statutory requirement of the employer. However, since Workers' Comp is not required in Texas, the area is much more fuzzy.

This leads to a legal, and in some ways almost philosophical question: If an employer can choose whether or not to buy coverage, can an employee choose whether or not to be covered?

Thanks to Michael and Tasha for their comments. Texas is indeed unique, in offering employers an opt-out option for comp (and thereby opening the employer to tort liability). Entergy not only opted in, it made sure that its subs opted in as well.

Few states offer employee choice: MA is one. A new employee can choose to opt out of comp coverage at the beginning of employment, thus preserving common law remedies. I doubt many have done this - it kind of raises a red flag, doesn't it? "I'm foregoing comp, but I reserve the right to sue you if/when I get hurt." Not exactly a great way to begin the employer-employee relationship...


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This page contains a single entry by Jon Coppelman published on December 10, 2007 11:41 AM.

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