Six L’s is a game-changing ruling by the Pennsylvania Supreme Court.
It was decided on May 29, 2012.
The ruling deals with statutory employment, in reliance upon Section 302 (a) of the Pennsylvania Workers’ Compensation Act.
Section 302 (a) of the Pennsylvania WCA sets forth as follows:
“A Contractor who subcontracts all or any part of a contract and his insurer shall be liable for the payment of compensation to the employees of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided for in this Act.”
77 P.S. §461.
Yes, Section 302 (a) is over thirty (30) years old.
So why is Six L’s a game-changing Decision?
Well, for as long as most of us have been practicing in the field of Pennsylvania workers’ compensation have known, the concept of statutory employment, where vertical liability is asserted against an insured contractor for work injuries sustained by an employee of an uninsured subcontractor, the guiding principal has always been that the application of this Everest-like liability has been limited to applications generally involving construction claims, under the Pennsylvania Supreme Court’s landmark Decision in McDonald v. Levinson Steel Co., 153 A. 424 (PA. 1930) (“A statutory employer is a master who is not a contractual or common-law one, but is made one by the Act.”).
McDonald was a landmark ruling as it set forth a five prong test controlling statutory employer liability, with the prongs being:
1. The entity (statutory employer) is under contract with an owner or one of position of an owner;
2. The entity (statutory employer) occupies or is in control of the premises (where the injury occurs);
3. The entity (statutory employer) entered into a subcontract;
4. The entity (statutory employer) entrusted a part of its regular business to the (uninsured) subcontractor;
5. The injured party is an employee of the (uninsured) subcontractor.
And the reason that we are bringing Six L’s to your attention is that it did not involve a construction claim, as the employer found to be a statutory employer in Six L’s was a produce harvester and distributor, that hired a subcontractor to transport produce, with the subcontractor being uninsured for workers’ compensation claims.
Yes, it depends upon “what the meaning of the word is, is.”
So, in Six L’s, the Claimant was a truck driver for the subcontractor, and he, of course, was injured in a motor vehicle accident while transporting produce for Six L’s.
Post-accident, the Claimant filed Claim Petitions against his employer, as well as against Six L’s. Over the course of that compensation litigation, it was determined that Claimant’s employer, the subcontractor, had not maintained workers’ compensation insurance, with the case then centering on the Claimant’s claim against Six L’s, the insured produce contractor, as the Claimant argued that Six L’s was the Claimant’s statutory employer, and was, therefore, secondarily liable for the payment of workers’ compensation benefits.
Defending the statutory employer claim, Six L’s presented evidence that it did not own any trucks, did not employ any truck drivers, and that it used independent contractors for all transportation services. This evidence was presented to establish that Six L’s was not the Claimant’s employer, either in fact, or by statute.
The defense in Six L’s also argued that the Claimant could not satisfy the five elements necessary for statutory employer liability to attach under the McDonald test established by the Pennsylvania Supreme Court.
Arguing that the Claimant had not been injured on premises occupied or under the control of Six L’s, Six L’s took the position that the McDonald test could not be satisfied, and that it could not, therefore, be deemed to be a statutory employer.
Before the workers’ compensation Judge, the Judge found that the McDonald test had been satisfied, such that the workers’ compensation Judge found that Six L’s was liable for the payment of workers’ compensation benefits, in reliance upon Section 302 (a). The WCJ also found that Six L’s had agreed to provide workers’ compensation coverage for drivers employed by the subcontractor while transporting produce for Six L’s.
Appealed to the Pennsylvania Workers’ Compensation Appeal Board, the Board affirmed the WCJ’s Decision, with the Board finding that McDonald did not apply to statutory employer status under Section 302 (a).
The Board held that the McDonald test actually involved an application of Section 203 of the WCA, dovetailing with Section 302 (b), dealing with an employer permitting entry upon premises occupied by or under their control, specifically pertaining to subcontractors, and their employees, who are hired to perform a part of the employer’s regular business.
The Board further ruled that Section 302 (a) contain no language suggesting an “on-a-premises-injury limitation.” It also held that Section 302 (a) was a statutory employer status provision that was added under Amendments post-dating McDonald, such that the McDonald test should not be interpreted as a limitation on the application of Section 302 (a).
Finding that a regular part of Six L’s business, i.e., transporting produce, had been subcontracted to the Claimant’s uninsured employer, the Board found that Section 302 (a) of the Act required that Six L’s be found to be the Claimant’s “statutory employer”, thereby becoming liable for the payment of workers’ compensation benefits, by virtue of two key facts, being the subcontractor’s uninsured status, and the subcontractor having been hired to perform a “regular part” of Six L’s business.
Appealed to theCommonwealth Court, the Court applied a rationale as having been the predicate for the Board’s affirmance.
Appealed to the Pennsylvania Supreme Court, Six L’s argued that the McDonald test, required the five elements earlier referenced, had been the legal nexus for all intermediate Court Decisions dealing with statutory employer appeals over the last thirty (30) years.
Six L’s also argued that broadly interpreting Section 302 (a) negated the relevance of Section 302 (b), a heady argument flatly rejected by the Pennsylvania Supreme Court.
Submitting an amicus brief in support of the Claimant’s position, the Department of Labor and Industry, the state agency overseeing the Bureau of Workers’ Compensation, distinguished Sections 302 (b) and (a) to require very different applications, with the Department arguing that Section 302 (b) really dealt with situations in the construction industry, where a property owner hires a general contractor, who then hires a subcontractor to do specialized work, in recognition of the reality that construction is not a regular part of the premises owners’ business, being the reason for hiring a general contractor in the first place, while Section 302 (a) addresses the situation in which a contractor subcontracts a “regular or recurrent part” of its business, a situation distinct from the construction industry-type situation, with the underlying supposition behind this statutory provision being, that the general contractor is attempting to avoid certain liabilities, by virtue of the subcontract, such that the Courts do not want the general contractor to get a “free ride”, in avoidance of liability that they would have assumed, had the general contractor used its own employees to perform its own work, rather than subcontracting liability away.
Conceding that the underlying decisional authorities in this issue have conveyed “mixed signals” concerning the application of the McDonald five elements, the Pennsylvania Supreme Court, in an Opinion authored by Justice Saylor, concluded that the Pennsylvania General Assembly had intended to close a potential loop-hole in the law, by enacting Section 302 (a), notwithstanding the ambiguity is inherent in the WCA, by virtue of the definition of “contractor” in the Act being loosely applied, such that the Court found that the McDonald test, requiring property/premises ownership, did not apply to the statutory employer scenario under Section 302 (a) of the Act.
Negating the application of McDonald to Section 302 (a) of the Act, the Supreme Court affirmed the underlying Decisions of the Commonwealth Court, the Workers’ Compensation Appeal Board, and the WCJ, ruling that Six L’s was the Claimant’s statutory employer, by virtue of it having contracted a “regular part” of its business to the Claimant’s uninsured employer.
So what do we need to take from Six L’s, in order to avoid unexpected surprises, and uncertain liabilities?
And that answer, as always, depends upon “what the meaning of the word is, is!”
It depends, first of all, on who is asking the question, as well as who will answer it.
Next, it obviously begs that thought be given to making sure that contractor/subcontractor agreements are supported by considerations of making sure that the requisite insurances are married to the potential liabilities, as, on the ground/on the fly, as it were, a Certificate of Insurance is never what it is thought to be, nor is it sufficient to establish that contractor and subcontractor are both adequately insured for the risks that might potentially arise under contract performance.
Anyone desiring a copy of the Six L’s Decision, please contact our office.
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By Kevin L. Connors, Esquire