By: Kevin L. Connors, Esquire
Channeling Miracle Max from the infamous Princess Bride Movie, Circa. 1987, in Saladworks v. WCAB, decided on October 6, 2015, the Commonwealth Court has, in effect, stormed the liability-deflecting fortress that the Uninsured Employers Guaranty Fund has erected around the Pennsylvania Supreme Court’s milestone decision in Six L’s v. WCAB, 44 A.3d 1148 (Pa. 2012) in which decision the Supreme Court broadly expanded the scope of “statutory employer” liability, from its traditional matrix, as defined by the Supreme Court’s 1930 decision in McDonald v. Levinson Steel Company, 153 A. 424, under which “statutory employer” liability for workers’ compensation coverage traditionally attached to a nexus of vertical privity between a construction site owner and the employee of an uninsured subcontractor performing work entrusted to the general contractor by the construction site owner.
In Saladworks, the Claimant, Frank Gaudioso, an employee at a Saladworks franchise restaurant, was injured in 2011, while walking out of the back of the Saladworks restaurant to throw away a box, with the Claimant falling and sustaining work-related injuries.
Filing a Claim Petition against the Saladworks franchise, corporately registered as G-21, which, coincidentally, was uninsured for workers’ compensation claims.
For that reason, the Claimant filed a second Claim Petition against the UEGF, alleging that UEGF was secondarily liable for the Claimant’s workers’ compensation benefits by virtue of the Claimant’s employer, the Saladworks franchise, being uninsured for workers’ compensation benefits.
Always seeking a tertiary target, the UEGF filed a Joinder Petition against the main Saladworks corporation, which was a franchising operation, selling and marketing franchises to franchisees; UEGF alleged, however, that Saladworks should be jointly and severally liable for any workers’ compensation benefits awarded by the WCJ to the Claimant, claiming that Saladworks was, in effect, a “statutory employer” for the Claimant.
To clear up the elusive fiction being painted by this tale of woe and weave, it is best exposed in the light of the exchange between Princess Buttercup and the Man in Black in the Princess Bride, when Princess Buttercup, in flawless diction, insisted: “You mock my pain”; to which the Man in Black reposted: “Life is pain, My Highness. Anyone who says differently is selling something.”
What are we selling in this repository, beyond that, correct or incorrect, Six L’s continues to be an invaluable weapon in the UEGF’s arsenal, in the course of deflecting secondary liability against it to tertiary parties, either with direct or indirect involvement in the underlying employment status of the Claimant seeking workers’ compensation benefits, with Six L’s now being an established lexicon in the legal nexus that we refer to as the topography of our workers’ compensation universe in Pennsylvania.
Turning back to the UEGF’s Joinder Petition, Saladworks, in response, argued that the Joinder Petition should be dismissed and stricken, as Saladworks had no direct relationship with the Claimant, was simply a franchisor, granting certain rights to G21 to use as registered trademarks and system pursuant to the terms and conditions of its Franchise Agreement, which was introduced into evidence.
Seeking the dismissal of the Joinder Petition, Saladworks presented testimony from its Director of Franchise Administration, with that testimony setting forth the following:
- “We only sell franchises to prospective franchisees to open up their businesses with Saladworks’ concept”;
- “Franchises are sold under Franchise Agreements”;
- “Saladworks, as the corporate franchisor, has no information regarding the identity of employees at franchise locations”;
- “Saladworks, again as the corporate franchisor, does not do any of the hiring or firing of the employees at franchise locations”;
- “Saladworks, as the corporate franchisor, does not dictate how many hours an employee might work at a franchise location, nor does it provide any training for the day to day operational employees of a franchise”.
Cross-examination of the Saladworks administrator revealed that Saladworks does train the owner of the franchise, and that its Marketing Department assists the franchisees with marketing, and it also provides assistance to the franchisee prior to the opening of the location, thereafter conducting operational performance reviews of franchisees, while retaining the authority to terminate a franchise if a franchisee fails to comply with the Franchise Agreement and a Confidential Business Manual, instructing franchises in the operational details of running the business.
The Franchise Agreement also requires the franchisee to maintain certain types of insurances, to include insurance for workers’ compensation benefits.
After hearing the testimony of Saladworks’ administrator, the WCJ granted Saladworks’ Motion to Dismiss/Strike the Joinder Petition, as the WCJ found the administrator’s testimony to be credible, further finding that Saladworks, as the corporate franchisor had no direction or control over individual franchisee’s employees, as direction and control was reserved for the franchisee location.
Not surprisingly, the UEGF appealed the denial of its Joinder Petition, arguing that Saladworks should have been considered to be the Claimant’s statutory employer, an argument that the Workers’ Compensation Appeal Board agreed with, reversing the Judge’s denial of the Joinder Petition, with the Appeal Board finding that the Pennsylvania Supreme Court’s Decision in Six L’s applied to the case at hand, and that notwithstanding that Saladworks did not own or occupy the premises where the Claimant was injured, Saladworks could nevertheless be held liable as the Claimant’s statutory employer, based upon the franchisee, G21, being uninsured for workers’ compensation benefits.
So holding, the Appeal Board held that Saladworks’ Franchise Agreement imposed upon it the contractual obligation to insure that G21 carried the appropriate workers’ compensation insurance coverage, to protect Saladworks from liability, and to insure coverage for work-related injuries to franchisee employees.
Concluding that Saladworks had not fulfilled its contractual obligation under its Franchise Agreement, the Appeal Board held that “the purpose of the statutory employer doctrine is to place responsibility for payment on the first entity in a contractor chain when an injured employee’s direct employer, subcontractor, fails to secure workers’ compensation insurance … our determination that Saladworks is a statutory employer supports that purpose as well as the humanitarian purposes of the Act.”
Time for another epistle from the Princess Bride, with Princess Buttercup, again confronting dire circumstances, as she did throughout the movie, blurted out: “We will never survive”; to which the Man in Black, ultimately cool no matter how desperate things looked, rebutted quietly with “Nonsense, you are only saying that because no one ever has before.”
As indicated earlier, Six L’s was a landmark ruling by the Pennsylvania Supreme Court in 2012, as it significantly expanded the previously-held scope of what a “statutory employer” might be under the Pennsylvania Workers’ Compensation Act.
Prior to Six L’s, the status of being a “statutory employer” under the Pennsylvania Workers’ Compensation Act was seemingly controlled by the Pennsylvania Supreme Court’s Decision in McDonald v. Levinson Steel Company, 153 A.424 (Pa. 1930), setting forth the following conditions necessary to establish “statutory employment”, including:
- That a contractor had a contract with a property or premises owner;
- That the contractor under contract with the property owner was occupied and was in control of the premises where the work injury took place;
- That the contractor entered into a subcontract with a subcontractor;
- That the contractor entrusted a part of his regular business to the subcontractor; and,
- That the injured employee was an employee of the subcontractor, whether insured or uninsured.
In Six L’s, the employee seeking workers’ compensation benefits was an injured truck driver, employed by an independent contractor, with the Claimant’s injury occurring on a public highway, not on premises owned or controlled by the contractor that had contracted with the subcontractor, the Claimant’s employer, with the WCJ, finding that the McDonald “statutory employer” test had been satisfied, such that the contractor hiring the subcontractor was the Claimant’s statutory employer under Section 302(a) of the Act, as that provision provides:
“Any employer permits the entry upon premises occupied by him or under his control of a laborer or an assistant hired by an employee or contractor, for the performance upon such premises of a part of such employer’s regular business entrusted to that employee or contractor, shall be liable for the payment of compensation to such laborer or assistant unless such hiring employee or contractor, if primarily liable for the payment of such compensation, secured the payment thereof, as provided for in this act.”
Notwithstanding the WCJ’s Decision in Six L’s being overturned and reversed by the Appeal Board, the Judge’s Decision was then affirmed by both the Commonwealth Court, and by the Pennsylvania Supreme Court, which held that the McDonald test did not apply to Section 302(a) of the Act.
Turning back to Saladworks, the Commonwealth Court determined that UEGF’s appeal was predicated upon whether the work performed by G21, the franchisee, under the Franchise Agreement was a regular or a recurrent part of the business, occupation, profession, or trade of Saladworks, the franchisor.
However, the Commonwealth Court ruled in Saladworks, that Saladworks’ main business was the sale of franchises to franchisees, in the course of which its corporate trademark and systems, as well as marketing expertise, were utilized by the franchisees. Although Saladworks provided certain services to independent franchisees like G21, it was not in the restaurant business, nor was it in the business of selling salads, as its business was limited to selling franchises to franchisees.
For those reasons, the Commonwealth Court held that Six L’s was inapplicable to the facts in Saladworks, and that the Claimant was not, therefore, an employee of Saladworks, such that the Judge’s denial and dismissal of the UEGF’s Joinder Petition was correctly decided based upon the evidence presented by Saladworks as to its business operations as a franchisor licensing franchises to franchisees.
Important for what reason?
Well, first, it represents a rare instance in which the UEGF was turned away from deflecting liability against it, utilizing tangential evidence that another party should be held liable as a statutory employer of a Claimant seeking workers’ compensation benefits for a work-related injury while working for an uninsured employer.
This Decision also represents an appellate wall, potentially unscalable in affirming the separation of the contractual rights and responsibilities between a franchisor and a franchisee, in terms of secondary liability for workers’ compensation coverage and claims.
No less true, it provided an opportunity to link in unrelated and quixotic quotes from one of our favorite movies, The Princess Bride (1987).
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We defend Employers, Self-Insureds, Insurance Carriers, and Third Party Administrators in Workers’ Compensation matters throughout Pennsylvania. We have over 100 years of cumulative experience defending our clients against compensation-related liabilities, with no attorney in our firm having less than ten (10) years of specialized experience, empowering our Workers’ Compensation practice group attorneys to be more than mere claim denials, enabling us to create the factual and legal leverage to expeditiously resolve claims, in the course of limiting/reducing/extinguishing our clients’ liabilities under the Pennsylvania Workers’ Compensation Act.
Every member of our Workers’ Compensation practice group is AV rated. Our partnership with the NWCDN magnifies the lens for which our professional expertise imperiously demands that we always be dynamic and exacting advocates for our clients, navigating the frustrating and form-intensive minefield pervasive throughout Pennsylvania Workers’ Compensation practice and procedure.