Sam Pond and Allison Wheeler are featured as contributing writers in today’s Pennsylvania Law Weekly. In this article, they take a look at the case of Six L’s Packing Company and the issues surrounding Workers’ Compensation insurance for contractors under the Misclassification Act.
See the article, featured in today’s edition of PA Law Weekly.
Tuesday, July 24, 2012
The Supreme Court of Pennsylvania recently handed down a decision in Six L’s Packing Company v. WCAB (Williamson) 46 EAP 2011; decided May 29, 2012. On its face, we have an injured worker and two employers who are trying to avoid workers’ compensation liability. From a much broader perspective, I believe the case will also have a positive implication in the context of employee versus independent contractor fact patterns for injured workers in Pennsylvania.
A basic tenet of the Workers’ Compensation Act is that only employees are allowed to receive wage loss and medical benefits. Independent contractors need not apply. Harkening back to the bar exam, you may recall learning (or at least hearing) that labeling an individual an independent contractor on a piece of paper tends to be valueless. Of course we must, as practitioners, delve much deeper into the issue. Like most bar exam questions, there is a “factor test” to help us decide the issue of whether the individual in question is an employee or independent contractor. Undeniably, the most important factor deciding this question is the extent of the employers control over the injured worker.
In the workers’ compensation realm, it almost goes without saying that the cases surrounding whether an injured worker is truly an employee and, therefore entitled to benefits, are hotly contested and aggressively litigated. Never more is this the case than in the construction environment. Construction work, by its very nature, generally does not require a high degree of control from a supervisor over a subordinate. For example, if you are a cement mason, you generally know what you are doing and you do not need to be told by your boss how to do your job. The same, of course, is true for carpenters, bricklayers, electricians and mechanics. Defense attorneys who are well versed in the law are of course very quick to argue that the individual in question is not being controlled by his or her supervisor and therefore, an independent contractor.
However, just over a year ago, The Pennsylvania Construction Workplace Misclassification Act went into effect. The legislative intent was to bring a halt to employers in Pennsylvania classifying workers in the construction industry as independent contractors in order to avoid workers’ compensation liability. The Misclassification Act made it much easier for construction workers to be covered under a workers’ compensation policy. The Misclassification Act provides very strict requirements for an entity to properly classify an individual as an independent contractor: First, there must be a written contract to perform the services. Second, the individual must be truly free from control or direction over the performance of such services under the contract. Lastly, and quite importantly, the individual must be customarily engaged in an independently established trade, occupation or business. Absent all of these critical requirements under the Act, employers are prohibited from asserting that an injured worker is an independent contractor. That certainly does not mean that insurance carriers won’t try. However, the Misclassification Act paved a much easier road for injured workers to receive benefits.
Along with the Misclassification Act, the Supreme Court’s holding in Six L’s should further serve to benefit injured workers that are often inappropriately deemed independent contractors by employers. I believe this is true even though the holding in Six L’s had little to do with the issue of employee vs. independent contractor. My reasoning is simply due to the fact that statutory employer cases often run in tandem with employee vs. independent contractor cases.
First we must take a step back. Prior to Six L’s, courts in Pennsylvania have traditionally relied on the McDonald test to determine whether an employer must “step into the shoes” of a subcontractor and provide an injured worker with workers’ compensation insurance. The McDonald test essentially states that, in order to make the determination that an entity is a statutory employer, there must be a general contractor and a subcontractor who is performing a part of the regular business of the general contractor. Further, the general contractor must occupy or control premises where the injury occurred. And last but not least, you must have an injured worker who is employed by the subcontractor who failed to secure workers’ compensation insurance. Subsequent to McDonald, Section 302(a) of the Act was enacted by the General Assembly to mandate statutory employer status when the activity at issue involves “removal, excavation, drilling of soil, rocks, minerals and cutting of timber.”
In Six L’s, the injured worker was employed by a subcontractor of Six L’s Packing Company. Six L’s Packing Company was in the business of growing and processing produce. Six L’s Packing Company hired another company to transport tomatoes for processing. The Claimant was injured in a motor vehicle accident while working for the transporter hired by Six L’s, driving tomatoes to a processing facility on a public highway, not Six L’s premises. Only Six L’s employees had workers’ compensation insurance.
The Court was left with the age-old problem of interpreting oldlaw and new law harmoniously. Did the injured worker need to be on the premises? Was injured worker moving earth? What did the legislature intend by enacting Section 302(a) of the Act?
What the Six L’s Court ultimately held is that the General Assembly intended to create a broader class of statutory employers (i.e. employers who must provide workers’ compensation coverage to their subcontractors’ employees). The Court held that the General Assembly, by opening the door to the “earth removal” category, intended to offer more protection for the injured worker, not less. Therefore, according to the Pennsylvania Supreme Court, entities like Six L’s Packing Company who contract with others to perform the duties that are a part of their business, must now ensure that those employees are covered by workers’ compensation insurance or risk facing secondary liability.
Generally speaking, the working people of the Commonwealth have been under attack in recent years. However, the Misclassification Act and the Six L’s decision are certainly favorable for injured workers. Both undermine companies that contrive ways to avoid liability when an injury occurs. The Pennsylvania Supreme Court and Legislature seem to be on the same page and are complimenting one another. Truck drivers and construction workers’ are some of the most commonly targeted people for liability avoidance. What I see from a practical standpoint is companies facing a steeper battle in avoiding statutory liability and subsequently trying to assert the independent contractor defense. At the end of the day, it means some entity will be far more likely to provide workers’ compensation benefits for an injured worker than they were prior to the Misclassification Act and Six L’s.
To me, the Misclassification Act and the holding in Six L’s are moving in the right direction. If you run a business and you have a need to outsource part of it, hire good people to do the work and make sure they have insurance. It is no different than ensuring that the contractor redoing your kitchen is fully insured or paying auto insurance premiums. It is a fact of life and quite frankly, the cost of doing business. Had Six L’s Packing merely ensured that its subcontractors carried workers’ compensation insurance, it would have paid out this claim and saved a bundle. Experience tells me that businesses do care very much about the bottom line. Doing the right thing from the beginning can only serve to protect the bottom line.
Special to the Pennsylvania Law Weekly