The most potent defense law available to construction contractors sued in Pennsylvania by workers injured on their projects is the statutory employer defense. In recent years, this doctrine has been criticized as an archaic rule of law from the days before construction contractors and subcontractors were required to carry workers' compensation coverage, providing contractors with a "free walk" in certain instances. One commentator has gone so far as to label the statutory employer defense "a license to kill." 1 There has been some reluctance by trial judges ruling on summary judgment motions to apply the statutory employer doctrine, and a good deal of hope among the plaintiffs bar that the appellate courts of Pennsylvania would eliminate or drastically curtail the defense. However, two recent opinions, one from the Pennsylvania Supreme Court and one from the Pennsylvania Superior Court, have unequivocally reaffirmed the statutory employer defense in Pennsylvania.
Under the Pennsylvania Workers' Compensation Act, employers are immune from tort liability to employees injured within the course and scope of their employment. The statutory employer doctrine provides this exact same immunity from suit for certain contractors, who are not the actual or direct employer of the injured worker. The statutory employer defense is available to contractors who can establish the following elements:2
(1) A contractual relationship with the owner of the premises where the accident occurs or one in the position of an owner;3
(2) Premises occupied by, or under the control of, the contractor;4
(3) The contractor hires a subcontractor to work on the premises;5
(4) Work subcontracted is a part of the contractor's regular business; and6
(5) The injured worker is an employee of that subcontractor.7
The rationale for statutory employer immunity is based upon a quid pro quo. A contractor meeting all of the five elements of statutory employer is subject to potential liability to pay workers' compensation benefits to the injured employee of a subcontractor. In exchange for that potential liability, the legislature has extended tort immunity to the statutory employer. The statutory employer defense originated in an era when employers could opt out of carrying workers' compensation coverage for its employees.8 Such an employer remained subject to suit in tort. Under this old statutory scheme, when a construction subcontractor opted out of workers' compensation coverage and one of its employees was injured on a job, the general contractor was conclusively deemed the injured worker's statutory employer and liable for comp payments if the five elements outlined above were met and the general contractor had not posted notices informing workers that it had rejected workers' compensation coverage.9 In 1974, Section 302(b) of the Workers' Compensation Act was amended, making workers' compensation coverage mandatory for all employers, including contractors and subcontractors.10 General contractors on construction projects were now subject to liability for workers' compensation benefits to employees of its subcontractors only if the injured employee's actual employer violated the law by failing to provide the now mandatory workers' compensation benefits. Questions thus arose of the continuing necessity for, and fairness of, the application of the statutory employer defense to general contractors in the usual situation in which the injured worker's actual or direct employer provided workers' compensation benefits. Many argued that since workers' compensation coverage was now mandatory, it would be a very rare case in which a contractor other than an injured employee's direct employer would have to provide workers' compensation benefits, and that therefore the statutory employer immunity should only attach to those general contractors who actually pay workers' compensation benefits due to a subcontractor defaulting on the statutory requirement. On 1/21/99, the Supreme Court of Pennsylvania put these issues to rest with a resounding reaffirmation of the statutory employer doctrine, in the case of Fonner v. Shandon, Inc.11
In Fonner, a company called Shandon hired Jendoco Construction Corporation as the general contractor to build an addition to Shandon's existing facility. Jendoco subcontracted with Olde Cast Stone Products to do pre-cast concrete work. Olde Cast then subcontracted this work to a company called Pre-Cast Services. Plaintiff William Fonner was employed by Pre-Cast. He was injured in a fall from a height while doing the concrete work. His employer, Pre-Cast, had workers' compensation coverage and he was paid workers' compensation benefits through that coverage. Mr. Fonner sued the property owner, Shandon, as well as the general contractor Jendoco. Jendoco moved for summary judgment based upon the statutory employer doctrine, and that motion was granted.12 The Superior Court of Pennsylvania affirmed the trial court's order granting summary judgment, and the Pennsylvania Supreme Court agreed to review the issue of whether the 1974 Amendments to Section 302(b) of the Workers' Comp Act essentially added a sixth element to the statutory employer defense -- that in order to qualify as the statutory employer, the general contractor must have actually paid workers' compensation benefits to the injured employee of the subcontractor.
The Supreme Court avoided any "public policy" analysis of the issue before it, and rather decided the case based upon a strict statutory construction analysis. Essentially, the Supreme Court held that if the legislature wanted to add a sixth element to the statutory employer defense, it would have expressly done so when it amended §302(b) of the Workers' Compensation Act in 1974, making workers' compensation coverage mandatory. The Supreme Court refused to find an implicit amendment of §203 of the Act, the section establishing the statutory employer defense. In resoundingly rejecting the plaintiff/appellant's arguments, the Supreme Court stated the following:
Appellant's argument fails for two reasons. First, despite amending §302(b) in 1974, the general assembly never amended §203 of the Act even though existing case law allowed statutory employers to escape liability if someone else was primarily responsible for paying compensation benefits...
The second reason appellant's argument...fails is because that language was not included by the legislature in §203.
[T]his Court must conclude that a general contractor is still entitled to its historic immunity as a "statutory employer" from suit for common law negligence. This is true even though the subcontractor which directly employed the injured worker carried workers' compensation insurance which paid benefits for the worker's injuries.
Id.
The Fonner decision unequivocally reaffirms the application of the statutory employer defense to general contractors who do not provide workers' compensation benefits to injured employees of subcontractors. The "public policy" arguments which have become a staple of plaintiffs' attorneys attempting to defeat summary judgment motions based upon the statutory employer doctrine can now accurately be characterized as lacking all legal merit.
Very interestingly, the plaintiff's actual employer in Fonner was not a subcontractor of the general contractor, but rather a sub-subcontractor. The plaintiff's attorney in Fonner evidently chose not to vigorously pursue on appeal the issue of whether a general contractor may qualify as the statutory employer of an employee whose direct employer does not have a contract with the general contractor, but rather with an intervening, or first, subcontractor.13 The Supreme Court therefore did not rule on another of the frequently litigated issues in cases involving the statutory employer defense -- whether a general contractor can be the statutory employer of an employee of a sub-subcontractor. However, just a month before the Fonner opinion was issued, the Pennsylvania Superior Court addressed that issue directly.
In McCarthy v. Dan LePore & Sons Company, Inc.,14 a roofer was injured when a scaffold collapsed at a construction site at the University of Pennsylvania. The University had hired Henderson Construction Company as the construction manager for the building project. Henderson hired LePore to do exterior masonry work. LePore then subcontracted with plaintiff's employer, Hamada, to do waterproofing work. Plaintiff Gerald McCarthy was a direct employee of Hamada. The scaffold had been erected by LePore.
McCarthy sued a number of parties, including LePore. LePore moved for summary judgment, asserting that it was plaintiff's statutory employer and therefore immune from liability. The trial court granted LePore's motion for summary judgment. The key issue before the Superior Court on appeal was whether LePore could properly qualify as plaintiff's statutory employer, since it was not a general contractor and did not have a contract with the owner or one in the position of an owner.15
The Superior Court very firmly rejected McCarthy's arguments, and clearly adopted a rule which simply requires a "vertical relationship" of contracts up the ladder from plaintiff's actual employer to the party claiming statutory employer status. The Superior Court held that since LePore had a contract with the construction manager, who it deemed to be a "contractor in the position of the owner" and since a direct contractual line ran from the plaintiff's direct employer through LePore, to the construction manager, LePore was entitled to statutory employer immunity.16 The Superior Court quite correctly focused on the potential liability under §203 of the Workers' Compensation Act of each of those contractors on the vertical chain of contracts, as forming the rationale for those parties being immune from suit. The Superior Court stated as follows:
[T]he requisite vertical relationship between [Henderson], Lepore and Hamada is established. By virtue of that vertical relationship, [Henderson] and LePore were each potentially liable for McCarthy's workers' compensation benefits if Hamada did not provide those benefits for McCarthy...Pursuant to Pennsylvania law, we conclude that LePore is entitled to statutory employer status.17
Within the last several months, the Supreme and Superior Courts of Pennsylvania have issued ringing reaffirmations of the statutory employer defense in Pennsylvania. However, the statutory employer defense remains very fact-sensitive -- each of the five elements are carefully scrutinized. A motion for summary judgment is the optimal method of presenting this defense. Inartful comments in witness statements and other early investigation can create "factual issues" which will defeat such a motion. It is therefore vitally important for all contractors on a project at which an accident resulting in serious personal injury occurs to contact experienced counsel immediately to ensure the best chance of successfully asserting this vital legal defense.
Daniel J. O'Brien is a partner in the Casualty Litigation Department, dedicating his professional time to representing construction contractors and healthcare providers. Mr. O'Brien can be reached at (215)864-7168 or obriend@whitewms.com.
1. See the article entitled "A License to Kill" authored by Richard M. Jurewicz, of the Galfand, Berger law firm at The Philadelphia Lawyer, Fall 1997 Issue, Volume 60, No.3. For judicial opinions criticizing the statutory employer defense, see Travaglia v. C.H. Schwertner & Son, 391 Pa. Super. 61, 570 A.2d 513 (1989); O'Boyle v. J.C.A. Corporation, 372 Pa. Super. 1, 538 A.2d 915 (1988) (dissenting opinion).
2. See McDonald v. Levinson Steel Company, 302 Pa. 287, 153 A. 424 (1930).
3. For an analysis of this element of the statutory employer doctrine, see Mathis v. United Engineers and Constructors, Inc., 381 Pa. Super. 466, 554 A.2d 96 (1989), appeal denied, 564 A.2d 1260 (Pa. 1989); Kieffer v. Walsh Construction Company, 140 F. Supp. 318 (E.D.Pa. 1956); Grant v. Riverside Corporation, 364 Pa. Super. 593, 528 A.2d 962 (1987).
4. For cases discussing the occupation or control element, see Dougherty v. Conduit and Foundation Corporation, 449 Pa. Super. 405, 674 A.2d 262 (1996), appeal denied, 546 Pa. 644, 683 A.2d 883 (1996); Ace Tire v. W.C.A.B., 101 Pa. Cmwlth. 186, 515 A.2d 1020 (1986); appeal denied, 529 A.2d 1083 (Pa. 1987); Donaldson v. Commonwealth, 141 Pa. Com. 474, 596 A.2d 269 (1991), allocatur denied, 610 A.2d 46 (1992).
5. See Grant, supra, Dume v. Elkcom Company, Inc., 368 Pa. Super. 280, 533 A.2d 1063 (1987).
6. For a discussion of the "part of contractor's regular business" element, see Dougherty, supra; O'Boyle, supra; Allan v. Babcock and Wilcox Tube Company, 356 Pa. 414, 52 A.2d 314 (1947).
7. This element is rarely in genuine dispute or the subject of litigation. But some disputes have arisen. See 19 North, Inc. v. W.C.A.B., 48 Pa. Cmwlth 208, 409 A.2d 503 (1979); Rolick v. Collins Pine Company, 925 F.2d 661(3rd Cir. 1991).
8. See Cranshaw Construction, Inc. v. Ghrist, 290 Pa. Super. 286, 434 A.2d 756 (1981).
9. See McDonald v. Levinson Steel Company, 302 Pa. 287, 153 A. 424 (1930).
10. 77 P.S. §462, referred to as Section 302(b) of Worker's Compensation Act. Section 203, establishing the statutory underpinning for the statutory employer defense, was not amended in 1974.
11. Pa. S.Ct. No. 49, W.D. Appeal Docket 1996 (opinion dated 1/21/99).
12. Shandon also obtained summary judgment, but the plaintiff did not appeal that order.
13. The Supreme Court in Fonner noted in a footnote that plaintiff's brief challenged the application of the statutory employer doctrine on grounds that the party asserting statutory employer status did not have a contract with the injured worker's employer. However, that issue was not "developed" on appeal, and the Supreme Court ruled that "appellant has waived this issue." See Fonner, at p. 9, footnote 8.
14. Pa. Superior Court No. 4582, Philadelphia 1997 (Opinion dated 12/22/98).
15. Two other issues were argued on appeal -- that LePore was not in control of the job site and that since LePore did not pay worker's compensation benefits to the plaintiff, it could not qualify as the statutory employer. The Superior Court found that LePore was in control of the exterior masonry portion of the work, thus satisfying the "control" element. With respect to the public policy argument based upon LePore not having paid workmen's compensation benefits, the Superior Court, foreshadowing what the Supreme Court would rule one month later, simply stated that until the legislature changes the law, the statutory employer defense will continue to be available to parties who do not pay workers' compensation benefits to injured workers.
16. See McCarthy at pages 8 and 9.
17. See McCarthy at pages 11-12.