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Recent Developments from Davis Parry & Tyler

 

The Effect of The Affordable Care Act (“Obamacare”) on Reducing Claims for the Expense of Future Medical Care: There’s Not Much There

By Tom Tyler

   Davis Parry & Tyler, P.C.

 November 15, 2016

 

In a number of recent cases we’ve defended where the cost of future medical care was an item of claimed damages by the plaintiff, there were proposals by some enterprising defendants to argue at trial that the costs of future care (such as plaintiffs’ very expensive Life Care Plans) could be reduced by the terms of the federal Affordable Care Act, the effect of which could dramatically lower that typically-high item of special damages.  Because (at least generally speaking) (1) the application of the ACA is federally mandated, (2) the ACA carries a wide array of mandated benefits, and (3) its costs to a user are both relatively predictable, and lower than the charged expenses for medical and ongoing care, the thinking was that the expense of the ACA benefits to the plaintiff could be shown to be far lower than the anticipated expense the medical provider or Life Care Planner would describe.  Such an approach was attempted at trial by defendants in the Philadelphia County Court of Common Pleas case of Deeds v. University of Pennsylvania, 110 A.3d 1009 (Pa.Super. 2015), a medical malpractice action alleging a failure to diagnose that culminated in severe birth defects of the minor plaintiff.  At trial, the court permitted the defendant to “inform the jury that [the minor plaintiff’s] substantial medical needs were all being attended to at little to no cost to [the] legal guardian due to the existence of state and federal education and medical benefits programs,” in the form of Medicaid and the ACA.  

On appeal, however, the Superior Court found these references at trial to be “a patent violation of the collateral source rule,” 110 A.3d at 1013.  “Collateral sources” are benefits arrangements a plaintiff may have, such as health insurance benefits, wage payments from accrued vacation allowance or disability (or workers comp) plans, or pension benefits, that serve to lower the claimant’s own out-of-pocket losses.   The Collateral Source Rule provides that payments from a collateral source cannot be relied on by the defendant to diminish the damages otherwise recoverable from the wrongdoer.  The rule is “intended to prevent a wrongdoer from taking advantage of the fortuitous existence of a collateral remedy.”  Beechwoods Flying Service, Inc. v. Al Hamilton Contracting Corp., 504 Pa. 618, 476 A.2d 350, 353 (1984).  Longstanding defense objections, that the absolute application of the Collateral Source Rule represented a windfall to plaintiffs, have received little sympathy in Pennsylvania courts; the ACA argument, it was hoped, may have served to dent the effect of the Rule, but Deeds represented the first failure of that effort.  

Notably, subsequent decisional law addressing Deeds has uniformly followed it.  In November 2015, the Western District of Pennsylvania in Cordes v United States, 2015 WL 10986360 (W.D.Pa. Nov 20, 2015), followed Deeds and barred a defendant from arguing that the ACA limited the future medical expenses of the plaintiff.  This last summer, in the Pennsylvania Superior Court case of Scott v. Lower Bucks Hosp., 2016 WL 5210668 (Pa. Super. Jul. 21, 2016) and a few weeks later in the Middle District of Pennsylvania’s Bernheisel v. Mikaya, 2016 WL 4211897 (M.D. Pa. Aug. 9, 2016), the courts both found that “the collateral source rule precludes counsel from pursuing certain inquiries, including raising an individual's access to Medicare, Medicaid, and benefits under the Affordable Care Act.”  Bernheisel, 2016 WL 4211897 at *4; see also, Scott, 2016 WL 5210668 at *16 (“A new trial is necessary where evidence of collateral sources of payment may have improperly influenced the jury's verdict”, citing Deeds).  Most recently, Judge Nealon of Lackawanna County, also relying on Deeds, barred defense cross examination of plaintiff's economic experts that sought to limit damages on the basis of the Affordable Care Act.  Vaccaro v. Scranton Quincy Hospital Company, LLC, No. 2014-CV-7675 (C.P. Lacka. Co. Oct. 24, 2016 Nealon, J.),

One distinguishing feature of these cases is that they all were medical malpractice actions that are statutorily governed by the Medical Care Availability and Reduction of Error Fund (“MCARE”) which statute in certain respects (subject to some exceptions) abrogated the Collateral Source Rule.  See, 40 P.S. § 1303.508 (2016).  The fact that the foregoing cases still invoked the Collateral Source Rule meant that, not only are MCARE’s exceptions carefully constrained, but the Collateral Source Rule will still enjoy unfettered application in all other tort claims (i.e., those that do not sound just in medical malpractice).   

In sum, defendants don’t stand a good chance at relying on the Affordable Care Act as a basis to roll back application of the Collateral Source Rule in Pennsylvania courts.

Please contact Tom Tyler of the firm Davis Parry & Tyler, P.C., should you have any comments or questions regarding these developments.

Thomas E. Tyler, Esquire

Davis, Parry & Tyler, P.C.

1525 Locust Street, 14th Floor

Philadelphia PA 19102-3732

Telephone (215) 732-3755, Ext. 207

Email: tetyler@dpt-law.com

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 © Thomas E. Tyler, Davis Parry & Tyler, P.C.


 



Clarification by the Pennsylvania Supreme Court on the Recovery of Worker Comp Liens  

The Workers Comp Carrier May Not Unilaterally Pursue Its Subrogated Lien Against the Tortfeasor Without Including the Injured Worker as a Plaintiff

By Tom Tyler

May 19, 2015

 

In Liberty Mutual Ins. Co. v. Domtar Paper Co., ___ A.3d ___, 2015 WL 1888572, decided April 27, 2015, the Pennsylvania Supreme Court addressed the ability of a workers' comp carrier alone to assert a claim to recover its lien against the third party tortfeasor, where the injured worker has not asserted a tort claim against the tortfeasor.  In Domtar Paper, the Supreme Court appeared to clarify its 2012 ruling in Frazier v. Workers' Comp Appeals Board, 52 A.3d 241 (Pa. 2012). Frazier dealt with whether a workers comp lien could be asserted against a governmental agency as the tortfeasor, otherwise immune from liability.  Frazier’s Footnote 10 appeared to permit the employer (or workers comp insurer) to make its own claim for lien recovery against the tortfeasor where the injured plaintiff himself made no such claim:  

While not directly implicated by this case, we note that normally in subrogation, the right of action lies in the injured employee, and the action for subrogation against the third-party tortfeasor is brought in the employee's name.  Nonetheless, an “employer ... is not to be denied his right of suit [in subrogation] because the employee does not sue [the third-party tortfeasor], but may institute the action in the latter's name.” Scalise v. F.M. Venzie & Co., 301 Pa. 315, 152 A. 90, 92 (1930). 

Frazier v. W.C.A.B. (Bayada Nurses, Inc.), 616 Pa. 592, 604 n. 10, 52 A.3d 241, 248 n. 10 (2012). Frazier reminded that the workers compensation statute provides that the workers comp carrier/employer is entitled to either subrogation or reimbursement:    

In subrogation, the “insurer stands in the shoes of the insured” in attempting to recover what is rightfully owed to it from the third party tortfeasor . . . .  Thus, the employer/compensation insurer may step into the shoes of the claimant to recover directly against a third party tortfeasor.  

Frazier, 52 A.3d at 248.  A reimbursement proceeding, on the other hand, “occurs only after settlement or award has been garnered by the injured employee from his third party tortfeasor,” in which event the “insurer has a direct right of repayment against the insured.”  Id.  (Generally, the usual course has been for the workers comp lien to be addressed by the reimbursement mechanism, in which the injured employee pursues his tort claim against the tortfeasor, from which recovery the workers comp carrier or employer is reimbursed for its payment of workers comp benefits, rather than for the workers comp carrier to proceed by way of a subrogation action in which the employer or workers comp insurer proceeded “as subrogee of” the injured worker.)

Domtar Paper, written by Supreme Court Justice Baer (who notably also authored Frazier), addressed “whether Section 319 [77 P.S. §671, which addresses the subrogation of the employer to the rights of the employee against the third-party tortfeasor] confers on employers or their workers' compensation insurers a right to pursue a subrogation claim directly against a third party tortfeasor when the compensated employee who was injured has taken no action against the tortfeasor.”  2015 WL 1888572 at *1.  The Supreme Court held that “Section 319 does not permit employers/insurers to commence an action directly against the third-party tortfeasor.  Id. Domtar Paper appears to completely repudiate at least the Footnote 10 of its 2012 Frazier Opinion. 

Justice Baer in Domtar Paper wrote that his opinion in Frazier, and the 1930 case upon which it relied, Scalise,

[do] not establish that Section 319 confers on an employer/insurer the statutory right to bring suit directly against a third-party tortfeasor to recover workers’ compensation paid where the injured employee has not sought recovery from the tortfeasor.  It is critical to note that in both Scalise and Frazier the injured employee (or his widow) filed suit against the third-party tortfeasor.  Thus, the Court was not faced with the present issue of whether the employer/insurer can sue the tortfeasor directly when the injured employee has not.  Rather, our decisions in Scalise and Frazier reaffirm that the right to sue a third-party tortfeasor lies in the injured employee and suggest, in dicta, that the employer/insurer could seek to enforce its subrogation right by filing an action against the tortfeasor in the name of the injured employee.  Even if this language is an accurate statement of the law, in this case, Liberty Mutual did not file the action against [the third-party tortfeasor] in the name of Lawrence [the injured employee], as required, but rather sued [the third-party tortfeasor] in its own right, simply noting its status as a subrogee. 

2015 WL 1888572 at *7.

While distancing the Supreme Court’s own pronouncements in Scalise and Frazier as to the import of the insurer’s “absolute right” to subrogation, Justice Baer referred to Superior Court precedents, which “have spoken to the issue raised herein, and have consistently held that an employer/insurer has no independent right to sue a tortfeasor in the absence of the injured employee.”  Justice Baer considered Moltz v. Sherwood Brothers, Inc., 116 Pa. Super. 231, 176 A. 842 (1935) which according to Justice Baer emphasized that the tortfeasor’s wrongful act is “single and indivisible, and can only give rise to one liability,” 2015 WL 1888572 at *7, such that

only one action could be brought against a third-party tortfeasor for damages arising from the tort, and that the employer’s right of subrogation “must be worked out through an action brought in the name of the injured employee, either by joining the employer as a party-plaintiff or as a use plaintiff.”

Id., quoting Moltz, 176 A. at 843.  See also, Reliance Insurance Company v. Richmond Machine Company, 309 Pa. Super. 430, 455 A.2d 686, 690 (1983) (“[o]ur appellate courts have not hitherto construed Section 319 as providing the employer or its insurer with a cause of action against a third party in its own right.”); Whirley Indus., Inc. v. Segel, 316 Pa. Super. 75, 462 A.2d 800, 802 (1983) (“the action against the third-party tortfeasor must be brought by the injured employee.”). Whirley emphasized that the subrogation rights are the exclusive remedy against third-party tortfeasors in that the injured employee must sue the tortfeasor and then the employer's insurer is subrogated to the employee's claim.

Justice Baer observed in Domtar Paper that the workers' compensation carrier seeking a reimbursement of its workers' compensation benefits

offers no persuasive reason why this Court should stray from the Superior Court’s precedent in Moltz, Reliance and Whirley, which is consistent with this Court’s ruling in Scalise that the right of action against the tortfeasor is indivisible and remains in the employee who suffered the entire loss in the first instance.  We emphasize that in Pennsylvania, courts disfavor splitting causes of action and have frequently remained true to this maxim in the context of workers' compensation subrogation. 

2015 WL 1888572 at *9.

Justice Baer concluded that the right of action against a third-party tortfeasor under Section 319 remains in the injured employee, and that the right of subrogation of the employer or WC insurer under Section 319 must be achieved through a single action brought in the name of the injured employee, or joined by the injured employee.  The carrier’s action could therefore not proceed, because

Lawrence, the injured employee, did not commence an action against the tortfeasor;

nor was Lawrence named in the action filed by the workers comp carrier;

Lawrence did not join the action filed by the workers comp carrier;

nor did Lawrence assign his cause of action in tort to the workers comp carrier;

nor did Lawrence file any action of his own against the tortfeasor.

Domtar Paper was decided on a 3 to 2 vote, with a dissenting Opinion by Chief Justice Saylor noting that the plaintiff was captioned as “Liberty Mutual Insurance Company, as subrogree of George Lawrence, Plaintiff.”  Such a styling, according to Chief Justice Saylor, is “a particularized means of bringing suit in the name of the use plaintiff,” by which he believed the action was properly positioned as having been brought in the name of the injured worker George Lawrence.  2015 WL 1888572 at *10. That would seem to be the case under standard subrogation cases that are so styled (that is, the name of the insurer, as subrogee for the injured insured that actually sustained the loss), but now such a styling is, without more, insufficient for purposes of the workers comp carrier’s effort to recover, on its own initiative, its lien from the tortfeasor. 

The import of the Supreme Court decision is that while the subrogation rights of the workers' compensation carrier remain putatively “absolute,” Domtar Paper in fact limits the workers comp carrier’s right to recover its paid benefits, for practical purposes, only to one of reimbursement rather than purely subrogation.  In short, in the absence of a claim made by the injured plaintiff personally against the tortfeasor, the workers' compensation carrier must very carefully prosecute its claim to recover its paid benefits.  As far as concerns the presumably rarer instances when a workers' compensation carrier unilaterally asserts its subrogation lien for paid workers comp benefits against a tortfeasor, that claim cannot succeed unless the injured plaintiff worker

asserts his own claim (or commences his own action) against the tortfeasor;

is named as a party plaintiff in the action filed by the workers comp carrier;

joins the action filed by the workers comp carrier; or

assigns his cause of action in tort to the workers comp carrier.

It bears noting that the proof of the torfeasor’s negligence, and that that negligence caused the injuries for which workers comp benefits were paid, must still be shown.  Brubacher Excavating v WCAB, 774 A.2d 1274, 1279 (Pa.Commw. 2001) (“Section 319 of the Act requires causation between the injury and the act or omission of a third party to facilitate subrogation.”), aff’d, 575 Pa. 168, 835 A.2d 1273 (2003); Edder v WCAB, 767 A.2d 617, 619 (Pa.Commw. 2001) (“in order to establish a right of subrogation the employer must show he is compelled to make payments by reason of the negligence of a third party.”).

Also, the statute of limitations on any claim against a tortfeasor runs to two years from the date of the injury, just as in a normal personal injury claim.  In other words, the workers comp carrier has no longer a time frame within which to assert the claim under the statute of limitations than the injured employee would have.

Please contact Tom Tyler of the firm Davis Parry & Tyler, P.C., should you have any comments or questions regarding these developments.

Thomas E. Tyler, Esquire

Davis, Parry & Tyler, P.C.

1525 Locust Street, 14th Floor

Philadelphia PA 19102-3732

Telephone (215) 732-3755, Ext. 207

Email: tetyler@dpt-law.com

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 © Thomas E. Tyler, Davis Parry & Tyler, P.C.

 


Insurance Federation of Pennsylvania Gives Major Assist in Supreme Court Victory for Statutory Employers & Their Insurers

On March 26, 2014, the Supreme Court of Pennsylvania announced its unanimous decision in the case of Patton v. Worthington Associates, ___ A.3d ___ , 2014 WL 1236499 (Pa. 2014), reversing decisions in the lower courts and forcefully reaffirming the Statutory Employer Doctrine of the Pennsylvania Workers Compensation Act.  In its decision, the Court frequently and favorably cited the amicus brief prepared by Tom Tyler of Davis Parry & Tyler, counsel for amici Insurance Federation of Pennsylvania, Inc., and Shoemaker Construction Company. 

According to the Workers Compensation Act of Pennsylvania, at 77 P.S. § 52, the Statutory Employer Doctrine fixes responsibility to provide workers compensation benefits to injured workers.  The statute provides that responsibility is imposed not only on the injured worker’s immediate employer, but also, in case that employer defaults, on any superior contractor up the vertical contractual ladder that contracted with that employer.  In return for the imposition of such workers compensation liability (even if a superior contractor has not been called upon to actually pay such benefits), these “statutory employers” are immune from tort liability to the injured worker.  77 P.S. § 481.  According to the seminal 1930 Supreme Court decision of McDonald v. Levinson Steel Co., 302 Pa. 287, 153 A. 424, the following 5 elements must be shown for a general contractor to be deemed a “statutory employer”:  (1) the general contractor is under contract with an owner or one in the position of an owner; (2) the construction site premises are occupied by or under the control of the general contractor; (3) there is a subcontract made by such general contractor with a subcontractor on the job; (4) the work entrusted by the general contractor to the subcontractor is required of the general contractor under the contract with the owner; and (5) the injured worker is an employee of such subcontractor.  In 2012, the Superior Court’s ruling in the Patton case effectively eviscerated the Statutory Employer Doctrine, with predictable adverse consequences for general contractors and their insurance carriers. 

In 2013, Tom Tyler published an article at his firm’s website, critical of the lower courts’ decisions in Patton.  Appellant counsel in Patton invited Tom to use the article as the basis for an amicus brief in the appeal to the Supreme Court, which Tom then wrote on behalf of client Shoemaker Construction Company.  After reading Tom’s draft brief, the Insurance Federation of Pennsylvania (Pennsylvania’s largest trade association of commercial insurers, with over 200 members) asked to join Tom’s brief, now found at 2013 WL 7176295.  

The Federation’s resulting amicus brief characterized the lower court’s opinion as particularly ill-founded:  rather than rely on the well-settled and straightforward McDonald Supreme Court precedent dating from 1930 and re-affirmed as recently as 1999, the Superior Court instead

proceeded to strike out in search of a false choice, derived from muddled analysis, that misconstrues the relevant terms, relies on inapposite and unsupportive case law, calls for a jury determination that should be judicially decided, and leaves for that jury determination a “Heads-I-Win, Tails-You-Lose” option between two choices, neither of which in fact can possibly result in statutory employer liability to the general contractor.

Amici Curiae Brief of Shoemaker Construction Co. and Insurance Federation of Pennsylvania, Inc., in Support of Reversal,  2013 WL 7176295, at 19.  In his opinion reversing the lower court’s decisions, 2014 WL 1236499 at 3, Justice Saylor (writing for the full Supreme Court) noted the Federation’s argument that the Superior Court’s confusion lay with its incorrect reliance on the common-law definitions of the relevant terms employer, contractor and control, 2013 WL 7176295, at 20, 21 and 23, rather than their statutory definitions expressly stated in the workers compensation law, and well-settled since the 1930 McDonald decision.  

The Federation’s amicus brief observed that the Superior Court’s “precipitous and poorly-reasoned” treatment of the Doctrine “leaves informed observers, at the least, concerned about the capacity of the judicial system to understand the statutory employer doctrine and the near-century long precedents that have sustained it,” 2013 WL 7176295 at 11, 32.  Grasping these contentions, Justice Saylor wrote that the amici “find the approach of the trial and intermediate courts here to be so ‘precipitous and poorly-reasoned’ as to raise concerns about the competency of the judicial system.”  2014 WL 1236499 at 3, citing 2013 WL 7176295, at 11, 32.  

The Federation’s amicus brief also frankly acknowledged that “many interests (certainly the plaintiffs bar but also cross-claiming defendants), as well as many courts of Pennsylvania, have apparently continued to chafe at the tort protections available” to general contractors not called upon to actually pay workers compensation benefits.  2013 WL 7176295, at 11.  Justice Saylor, recognizing this candor, continued:

Shoemaker Construction Co. and the Insurance Federation of Pennsylvania, Inc., have filed an amici brief elaborating upon the essential points made by Worthington. These amici also note that the immunity created by the Act has encountered criticism and been treated with circumspection by the judiciary. See Brief for Amici Shoemaker Constr. Co. and Ins. Fed. of Pa., Inc., [2013 WL 7176295,] at 8–11.

2014 WL 1236499 at 3.  The Court substantially adopted the reasoning of the amicus briefs by reaffirming the Statutory Employer Doctrine, noting with respect to the Federation’s amicus brief, that “[t]he courts cannot abide the sort of distortions which occurred here as a counterbalance to previous decisions with which some may disagree. Were we to do so, we would not quell the sorts of apprehensions about the competency of the justice system expressed by several of Worthington’s amici.”  2014 WL 1236499 at 6.

Clients, Insurers and Contractors whose interests are affected by the Court’s decision, should consider the following:

The Supreme Court’s opinion is a full-throated return to the statutory employer doctrine:  in short, general contractors or contractors who are defendants in suits involving injury to an employee of their subcontractor, and who meet the 5 McDonald criteria, should carefully examine whether their circumstances warrant a summary judgment motion. 

The Statutory Employer Doctrine’s return, however, does represent something of a double edged sword from the standpoint of insurers that write coverages for both general contractors and subcontractors:  general (or superior) contractors meeting the 5 criteria of the reinstated doctrine should, under this decision, be immune not just from tort claims of injured workers, but also from cross-claims of defendants such as subcontractors that are outside the contractual “vertical ladder” between the plaintiff’s employer and the general contractor.  Thus, when an insured is a general contractor, the Supreme Court’s decision is a good result.  On the other hand, when the insured is a subcontractor without any contractual relationship with the injured worker’s employer, then likely the doctrine’s immunity will represent increased exposure to that insured who neither enjoys the immunity, nor can it recover against those who do enjoy the immunity.  For these reasons, all contracts that an insured has entered into should be carefully examined in order to determine what effect the Statutory Employer Doctrine may have as to that party.

Supporters of the lower courts’ treatment of Patton, such as the plaintiffs’ bar in Pennsylvania, have long argued that a general contractor should only be able to employ the statutory employer tort immunity defense if the GC actually paid workers compensation benefits (not surprisingly, cross-claiming defendants such as other subcontractors, or equipment or materials suppliers, make this argument as well).  In fact, in his concurring opinion, Justice Baer, who agreed in full with the lead opinion, nevertheless called on the legislature to change the law to limit the availability of the tort immunity defense to that extent (as it is the case in New Jersey).  The Pennsylvania legislature, however, is unlikely to change the law, in our view.

An additional issue underlying the Patton decision, and which insurers and contractors still need to be mindful of, is the effect of so-called “Independent Contractor” clauses.  A principal point of confusion for both the trial court and the Superior Court was whether, or how, the facts of Patton were to be treated under an “independent contractor” status, rather than merely the “statutory employer” status.  As Justice Saylor observed, “The trial court’s substantive concern was with the principle that a general contractor is not a statutory employer relative to employees of an independent contractor,” citing Lascio v. Belcher Roofing Corp., 704 A.2d 642, 645 (Pa.Super.1997).  In fact, construction contracts frequently contain a provision that expressly calls for a subcontractor to be deemed “an independent contractor” of the General Contractor; the contract in Lascio had such a provision, while the relevant contract in Patton did not.  Justice Saylor, relying on the dissenting Judge Bender’s observations in the Superior Court decision, noted that in the cases such as Lascio considering such independent contractor clauses, “the general contractors in those matters attempted to contractually evade their statutory responsibilities to injured employees of their subcontractors through a declaration that the subcontractor was independent.”  2014 WL 1236499 at 2.  “In such scenarios, the dissent [of Judge Bender in the Superior Court] highlighted, the courts had essentially suggested that an estoppel theory may apply to foreclose immunity defenses to tort claims. See Patton, 43 A.3d at 496 (Bender, J., dissenting).”  2014 WL 1236499 at 2.

Because the “independent contractor” versus “statutory employer” statuses were the ostensible focus of the Superior Court’s erroneous analysis, the Supreme Court took the opportunity to bring additional clarity to those issues, despite recognizing that an independent contractor clause as in Lascio was not even present in the Patton contract. The Supreme Court confirmed that the “conventional relationship between a general contractor maintaining control of a jobsite and a subcontractor implicates the statutory employer concept relative to employees of the subcontractor working there.”  2014 WL 1236499 at 4.  While the Court recognized 

that statutory employment does not extend to employees of “independent contractors,” it has clarified that the use of this phrase for the relevant purposes in connection with [workers compensation liability] is unique, as it pertains to contractors having a relationship with the owner which is not a derivative one and, accordingly, excludes conventional subcontractors.  

Id.  In other words, as Justice Saylor explained, as far as concerns workers compensation liability, an “independent contractor” is “one having a distinct and independent contract with the owner,” distinguishable from the contractual relations in McDonald’s 5-part statutory employer analysis.  

The effect of the Supreme Court’s Patton decision suggests that, if there is any question whether an “independent contractor” status applies, the first resort is to examine whether the 5 elements of the Statutory Employer doctrine apply; if they do, then it appears that, even if there is an Independent Contractor clause in the contract, that clause will not be given effect, but rather the statutory employer analysis will prevail.  However, as Justice Saylor observed, precedent suggests that construction contracts with an “independent contractor” clause may represent “an estoppel . . . to foreclose immunity defenses to tort claims.”  Because this issue remains uncertain, we recommend that the construction contracts be reviewed by counsel in order to properly assess the effects of such provisions, since they will very likely be controlled by case-specific facts.

Copies of the Supreme Court’s opinion, as well as Tom’s brief, are available for distribution.  Simply email Tom at tetyler@dpt-law.com, or call him at (215) 732-3755.

Tom and Davis, Parry & Tyler, P.C. have established a proven winning record in dealing with insurance and construction law as well as other issues associated with work site litigation, including interpretation of contractual defense and indemnification provisions, and comparable risk transfer issues.  If you have comments or questions, please contact Tom at

Thomas E. Tyler, Esquire

Davis, Parry & Tyler, P.C.

1525 Locust Street, 14th Floor

Philadelphia PA 19102-3732

Telephone (215) 732-3755, Ext. 207

Email: tetyler@dpt-law.com

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 © Thomas E. Tyler, Davis Parry & Tyler, P.C.


Heads I Win; Tails You Lose:  Patton v. Worthington Associates, Inc. and the Destruction of the Statutory Employer Doctrine

By Thomas E. Tyler, Esquire, Davis Parry & Tyler, P.C. 

February 20, 2013


In March 2012, a 2-1 Superior Court panel rendered a decision in the construction accident case of Patton v. Worthington Associates, Inc., 43 A.3d 479 (Pa.Super. 2012), that for practical purposes has eviscerated the statutory employer doctrine in Pennsylvania.  A number of weeks later, I strolled back from court to my office with plaintiff counsel in our own construction accident tort case; his reliance on Patton had resulted in the recent denial of my statutory employer defense in the case.  Counsel commented on what he viewed as Patton’s salutary effect, observing that “finally, the Superior Court and the Commonwealth Court are on the same page.”  Counsel’s observation, however, immediately struck me as faulty, since, if the statutory employer doctrine is properly applied, disparate results should be found in the two courts: in a nutshell, where statutory employer liability to pay workers compensation benefits is found in Commonwealth Court, that party’s  statutory employer defense to tort liability should arise in Superior Court.  Conversely, if that party is not a statutory employer, it will be without workers compensation liability in Commonwealth Court, but will face tort liability to the injured party in Superior Court. 

This paper will examine the origins and near-century-long treatment, both legislative and judicial, of the statutory employer doctrine, and the ill-considered practical effects of Patton.  In short, while its reasoning strongly suggests Patton’s presumed goal was to constrain (or even eliminate altogether) the immunities from tort liability that the statutory employer may enjoy (a goal clearly at odds with well-settled Pennsylvania Supreme Court decisional law), its surely unintended consequence is to offer a means by which a statutory employer may in fact escape workers compensation liability to injured workers. 

The History of the Statutory Employer Doctrine

The “Statutory Employer” doctrine, purely a statutory creation, is intended to fix responsibility to provide workers compensation benefits to Pennsylvania workers injured on the job.  As a summary description, in the common (but not exclusive) context of hierarchical construction work in which the statutory employer doctrine is invoked, property owner A enters into a construction contract with general contractor B, who thereby undertakes the construction project and contracts in turn with a number of subcontractors C, D and E, etc., to perform the wide range of tasks required of the general contractor B to complete the construction project, such as site work, steel erection, masonry, carpentry, plumbing, electrical work, and so on.  Workman F, employed by subcontractor C, is injured while working.  The statutory workers compensation expectation is that F’s immediate employer C has primary responsibility for ensuring the provision of workers compensation benefits to its injured employee.  However, if C is without either assets or workers compensation insurance coverage to pay those benefits, F may look to the general contractor B to pay the benefits.  Thus, only for purposes of liability for workers compensation benefits to F (but not necessarily common law tort liability), B may be considered the employer of F, simply because the statute places that secondary workers compensation liability on B; B is therefore considered the “statutory employer” of F.

This scheme was set forth in section 203 of the Pennsylvania Workers Compensation Act, codified at 77 P.S. § 52.  The statute, originally enacted in 1915 and amended in 1974, provides as follows (inserting the identifying letter references noted from our exemplar paragraph above):

An employer [B] who permits the entry upon premises occupied by him or under his control of a laborer or an assistant [F] hired by an employee or contractor [C], for the performance upon such premises of a part of the employer’s [B’s] regular business entrusted to such employee or contractor [C], shall be liable to such labor or assistant [F] in the same manner and to the same extent as to his own employee.

 

77 P.S. § 52 (1974). See also, McDonald v. Levinson Steel Co., 302 Pa. 287, 294-95, 153 A. 424, 426 (1930). 

In return for this extension of workers compensation liability to the general contractor as statutory employer, the Pennsylvania legislature provided immunity to the statutory employer from common-law tort liability to the injured worker.  In short, an injured worker who could claim workers compensation benefits (either from his immediate employer or a statutory employer) could not sue that same statutory employer in a common law tort claim for that statutory employer’s negligence in causing the worker’s injuries.  This was effected by the Pennsylvania Workers Compensation Act at 77 P.S. § 481, which provides as follows:

(a) The liability of an employer under this act shall be exclusive and in place of any and all other liability to such employes, his legal representative, husband or wife, parents, dependents, next of kin or anyone otherwise entitled to damages in any action at law or otherwise on account of any injury or death as defined in section 301(c)(1) and (2) or occupational disease as defined in section 108.

 

(b) In the event injury or death to an employe is caused by a third party, then such employe, his legal representative, husband or wife, parents, dependents, next of kin, and anyone otherwise entitled to receive damages by reason thereof, may bring their action at law against such third party, but the employer, his insurance carrier, their servants and agents, employes, representatives acting on their behalf or at their request shall not be liable to a third party for damages, contribution, or indemnity in any action at law, or otherwise, unless liability for such damages, contributions or indemnity shall be expressly provided for in a written contract entered into by the party alleged to be liable prior to the date of the occurrence which gave rise to the action.

 

77 P.S. § 481.  Thus, while an injured worker’s immediate employer (the subcontractor C in our example above) could pay workers compensation benefits and be immune thereby from tort liability, that tort immunity was effective as well against the party B (typically the general contractor) who contracted with the owner for the construction project and in turn contracted with C to perform certain work required of B under the general construction contract.  The general contractor B’s immunity from tort liability was expressly preserved by the Pennsylvania Supreme Court in its seminal case addressing statutory employer immunity under the Workers Compensation Act, McDonald v. Levinson Steel Co., 302 Pa. 287, 153 A. 424 (1930).  In McDonald, the Supreme Court set forth the following five elements which are essential to the creation of a “statutory employer” relationship so that the statutory employer would be immune from a suit for negligence (again inserting the identifying letter references noted from our exemplar paragraph above):

(1)   an employer [B] who is under contract with an owner or one in the position of an owner;

(2)   premises occupied by or under the control of such employer [B];

(3)   a subcontract [with C] made by such employer [B];

(4)   part of the employer’s [B’s] regular business entrusted to such subcontractor [C]; and

(5)   an employee [F] of such subcontractor [C].

 

McDonald, 302 Pa. at 294-5, 153 A. at 426.  Thus, McDonald ensured that when a general contractor subcontracts to a subcontractor a portion of the general contractor’s obligations under the general contract it has with the owner, and the general contractor remains on, or in overall control of, the job site, the general contractor is treated for purposes of liability for workers compensation benefits as if it were the employer of the subcontractor’s employees, should one of the subcontractor's employees sustain injury on the job.  

Superior contractors such as a general contractor found that as a practical matter they could avoid workers compensation liability by requiring their subcontractors by contract to maintain workers compensation insurance coverage for the subcontractors’ employees.  Typically proof of such insurance coverage maintained by the subcontractor would be (and is) required to be provided to the general contractor before the subcontractor started work.  Thus, the general contractor took steps to ensure that workers compensation insurance coverage would be provided by the subcontractor, which as a practical matter ensured that the general contractor would not be reached for workers compensation liability.

Notably, 77 P.S. § 52 provides that, even if the subcontractor has its own workers compensation insurance coverage, and the superior, general contractor is never looked to to pay any workers compensation benefits, that superior contractor still is viewed as a statutory employer of the injured worker, and despite not having paid any workers compensation benefits, remains under 77 P.S. § 481 immune from a claim for third party tort liability brought by the injured worker.  See, e.g., Cranshaw Construction, Inc. v. Ghrist, 290 Pa.Super. 286, 295-96, 434 A.2d 756, 760-61 (1981).  In this capacity, the superior contractor has stood effectively in a “reserve” statutory employer status:  it maintains a statutory employer benefit (immunity from tort liability to the injured worker) without any statutory employer practical expense (by ensuring that the subcontractor maintains workers compensation insurance, the superior contractor is not called upon to pay any workers compensation benefits to the injured worker).  See, Fonner v Shandon, 555 Pa. 370, 377, 378, 724 A.2d 903, 906, 907 (1999) (“[T]he general contractor is still liable for benefits under the Act in a reserve status if the subcontractor were to default on his obligation. . . . [W]e must conclude that the General Assembly still intends for a statutory employer who is not directly paying benefits to the injured employee of the subcontractor to be entitled to immunity from a common law suit”).

Almost since its inception, these circumstances have caused the statutory employer doctrine to be viewed suspiciously as an inappropriate basis for the superior contractor’s avoidance of tort liability.  As early as 1930's McDonald decision, by which time already “the law ha[d] been fairly well settled by this court, and zones of liability or nonliability rather well defined,” McDonald, 302 Pa. at 292, 153 A. at 425, the McDonald court still recognized “an oftrecurring difficulty”:

On the one hand, we have persons before us … endeavoring to escape the effect of the initial Compensation Act so that they will not be compelled to pay [workers] compensation [benefits] or carry insurance, and, on the other hand, … when faced with [tort] liability at common-law, they strive vigorously to come under the sheltering protection of the act [as a statutory employer.]

 

McDonald, 302 Pa. at 291-92, 153 A. at 425.  Despite that the Supreme Court, as early as McDonald, recognized and accepted the tension inherent in a superior contractor’s efforts both to ensure its inferior contractor would be good for worker’s compensation benefits, and to maintain its common law tort immunity as a statutory employer in reserve, succeeding commentators have called into question that allowance, notwithstanding that the issue is well-settled.  In 1967, the Superior Court “recognized the very great care which must be exercised before allowing an employer to avoid his liability at common-law by asserting that he is a statutory employer.”  Stipanovich v. Westinghouse Electric Corp., 201 Pa.Super. 98, 106, 231 A.2d 894, 898 (1967).  The Stipanovich court cautioned that the statutory employer provision, “which was designed to extend benefits to workers, should not be casually converted into a shield behind which negligent employers may seek refuge.”  Id.  The argument that a superior contractor should obtain tort immunity only if it actually paid worker’s compensation benefits, however, was eventually considered and rejected by the Supreme Court in Fonner, 555 Pa. at 380, 724 A.2d at 907 (“this 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 workers injuries”).

Despite Fonner’s clear reaffirmation of the integrity of the statutory employer doctrine, many interests (certainly the plaintiff’s bar but also cross-claiming defendants), as well as many courts of Pennsylvania, have apparently continued to chafe at the tort protections available to superior contractors.  That continuing unreceptiveness appears to have culminated in the Superior Court’s precipitous and muddled decision in Patton v Worthington Associates.

The Facts & Legal Reasoning of Patton v. Worthington Associates, Inc.

Earl Patton, a carpenter, was injured while working on a construction site at a church in Levittown, Bucks County, Pennsylvania.  In 2001, the Christ Methodist Church hired Worthington to serve as general contractor for the church project.  Worthington then hired Patton Construction, Inc., wholly owned by Earl Patton, to serve as a carpentry contractor on the project.  On October 26, 2001, Earl Patton prepared to do work to the ceilings of the Church’s Fellowship Hall, for which he rented and used a scissor lift.  Located in the concrete floors of the Hall were large holes, roughly two feet in diameter, that Patton had previously covered with plywood, but which were uncovered the day of the injury.  Although Patton had been in the Hall multiple times, on this occasion he had not been in the hall for a number of days, arriving to discover that elevator equipment had been placed on the hall floor.  While maneuvering the scissor lift around the elevator equipment to ready his ceiling work, a wheel on the lift fell into one of the holes in the Hall floor, causing the lift to fall over. Patton fell fourteen feet and was pinned by the lift, resulting in serious injuries including fractured vertebrae. Patton sued Worthington, alleging that Worthington was negligent in failing to provide a safe work place and for failing to cover the holes in the concrete floor.

In denying Worthington’s contention that it was immune from tort liability to Patton as his statutory employer, the Patton Court assessed how to “properly apply the McDonald  test, [and concluded that] under [McDonald’s] first element, a determination has to be made whether a master-servant relationship existed [as between the general contractor and the plaintiff, an employee of the subcontractor], or whether [the plaintiff] was an independent contractor.”  43 A.3d at 486.  Thus, the Patton court began and ended its muddled treatment of the statutory employer doctrine by considering the first element of the McDonald test: “an employer who is under contract with an owner or one in the position of an owner.”  McDonald, 302 Pa. at 294, 153 A. at 426 (emphasis added).  In its consideration of this first element, the Superior Court endorsed the trial court’s identification of the “threshold issue [as] whether or not [Earl] Patton was an independent contractor” to the general contractor.  Patton, 43 A.3d at 484.  In short, “the issue of whether or not [Earl] Patton is an independent contractor focuses on Worthington’s ability to meet the first prong of the McDonald test, specifically, whether Worthington qualifies as an ‘employer’.”  Id. 

The Patton court surveyed the terms “employer”, “employe” and “contractor” as used in section 203 (77 P.S. § 52).  “Employer,” the court noted, is defined at 77 P.S. § 21 as “synonymous with master”;  “employe” at 77 P.S. § 22 “is declared to be synonymous with servant[.]”  Patton, 43 A.3d at 484.  Finally, “contractor” is defined under the Worker’s Compensation Act as expressly “not [to] include a contractor engaged in an independent business, … but shall include a subcontractor to whom a principal contractor has sublet any part of the work which such principal contractor has undertaken.”  77 P.S. § 25.  

From this, as between a general contractor and the employee of a subcontractor, Patton ventures into an analysis of an employee relationship versus an independent contractor relationship, 43 A.3d at 484-5, relying principally on Joseph v. United Workers Ass’n, 343 Pa. 636, 23 A.2d 470 (1942), a third-party action where the plaintiff, a guest at a summer camp, injured his foot in a hayride wagon.  The summer camp unsuccessfully contended that the hayride was operated by an independent contractor which was not, according to the camp, its agent or servant, and over whom the camp contended it had no control.  343 Pa. at 637, 23 A.2d at 472.  Joseph, however, considered no issue of workers compensation liability, nor of the statutory employer doctrine; indeed, Joseph undertook no interpretation of the Worker’s Compensation statute whatsoever.  Nonetheless, the Patton court concluded that, for its own analysis of workers compensation liability and the statutory employer doctrine,“ascertaining the character of the relationship [i.e., B’s workers compensation liability to F in our examplar paragraph, for which] the basic inquiry is whether the alleged servant [F] is subject to the alleged master [B]’s control or right to control” was required.  43 A.3d at 484, quoting Knepper v. Curfman, 158 Pa.Super. 287, 44 A.2d 852, 853-54 (1945); see also, Joseph, 343 Pa. at 639, 23 A.2d at 472.  Patton then observes “before a contractor may be considered the statutory employer of another contractor’s employees, the five element McDonald test must be satisfied.  Specifically, in order to satisfy the McDonald test a master-servant relationship must exist.  See Joseph, supra at 472.”  43 A.3d at 484 (emphasis added).  Leaving the issue for jury, not judicial, determination, the import of Patton is thus that every case in which the statutory employer doctrine has application (without regard to whether the claim is asserted in tort or as a workers compensation claim), the factfinder now is to determine the anomalous question of the employment status of the plaintiff as to the general contractor.  It is with these observations that the Patton court’s legal analysis, by rejecting McDonald’s stated simplicity, irredeemably breaks down.  Let us consider each failure in turn.

I. Patton’s First Failure: Enunciating a Fallacious Choice

of the Subcontractor’s Employee as an Independent

Contractor or Servant as to the General Contractor     

 

The McDonald test (and especially its first element that Patton’s analysis focuses on, to inform the question of the general contractor’s statutory employer liability) cannot turn on the status of Earl Patton as an independent contractor or servant as to the general contractor. McDonald so asserts this proposition itself, as Patton recognizes: “a statutory employer is a master who is not a contractual or common-law one, but is made one by the Act.  There is no difficulty in determining in most cases whether or not one is a statutory employer.”  McDonald, 302 Pa. at 292, 153 A. at 425 (emphasis added), quoted in Patton, 43 A.3d at 485-86.  Patton’s fundamental flaw thus arises from two confused bases: (1) it deems necessary (for purposes of workers compensation liability) an inquiry into the common-law relationship directly between Worthington and Patton (i.e., B’s workers compensation liability to F in our exemplar paragraph), thus conflating Elements 1 and 5 of the McDonald test, and (2) imports for its assessment of that relationship Joseph’s analysis of the common law duties that arise in an independent contractor relationship, purportedly owed by Worthington to Patton.

Initially, Patton’s analysis focuses on the word employer in McDonald’s first element (“the issue of whether or not [Earl] Patton is an independent contractor focuses on . . . whether Worthington qualifies as an ‘employer’,” 43 A.3d at 484), and then stumbles among the definitions of employer, employee and contractor, all defined by the Worker’s Compensation statute.  However, rather than falling into its common-law analysis of an employee/independent contractor relationship, the Patton court would have been far better served to more closely understand McDonald’s careful assessment of those terms in their statutory, workers compensation definitions (reproduced in footnote 7 below).  Thus, interpreting sections 25 and 52 to make them “workable” (“By holding that an owner is not a statutory employer and that employer and principal contractor are synonymous”), McDonald concludes as follows:  

As thus understood, section [52] would read: “An employer [principal contractor] who permits the entry upon premises occupied by him or under his control of a laborer . . . hired by . . . a contractor [subcontractor], for the performance upon such premises of a part of the employer’s [principal contractor’s] regular business entrusted to such . . . contractor [subcontractor], shall be liable . . . in the same manner . . . as to his own employee.”

 

302 Pa. at 294, 153 A. at 426 (ellipses and brackets in original).  Using our letter designations from our exemplar paragraph, McDonald thus provides that “Employer B, who permits the entry of laborer F, who is in turn hired by subcontractor C, , upon premises occupied by B or under his control, for the performance upon such premises of a part of B’s regular business entrusted to C, shall be liable [to F] in the same manner as to his own employee.”

With apologies for inserting such close statutory analysis into an already dry topic, it does far more to clarify the actual relationship among the parties in Patton, and what the workers compensation obligations are as to those parties, than Patton’s ill-founded inquiry into a common law definition of “employer.”  Disregarding McDonald’s direction that a statutory employer is made one by the Workers Compensation Act, not by contract or by common law, Patton proceeds to strike out in search of a false choice, derived from muddled analysis, that misconstrues the relevant terms, relies on unsupportive case law, calls for a jury determination that should be judicially decided, and leaves for that jury determination a “Heads-I-Win, Tails-You-Lose” option between two choices, neither of which in fact can possibly result in statutory employer liability to the primary contractor.

A. Patton’s Misapprehension of Employer

As noted above, Patton begins its analysis with whether Worthington, the principal or general contractor, is, under McDonald’s first element, Mr. Patton’s “employer”. Our analysis of the McDonald treatment of the statutory language above confirms clearly that Worthington should be deemed Patton’s employer, without requiring further inquiry.  However, Patton decided that “in order to satisfy the McDonald test a master servant relationship must exist. See Joseph, [23 A.2d] at 472.”  As noted supra at 11, Joseph considered no issue of workers compensation liability, nor of the statutory employer doctrine; indeed, Joseph undertook no interpretation of the Worker’s Compensation statute whatsoever.  Contrary to the Patton court’s assertion, there is in fact no mandate in Joseph that, in order to satisfy the McDonald test, a master-servant relationship must exist.  Indeed, McDonald states no such requirement, in any of its five elements, as between the injured employee F of the subcontractor C, and the general contractor B.   Recognizing that statutory employer liability cannot be met where a subcontractor is an independent contractor, Patton concluded that “in order to properly apply the McDonald test, under the first element, a determination has to be made whether a master-servant relationship existed, or whether Patton was an independent contractor.”  43 A.3d at 486.

In assessing the master-servant relationship, Patton resorts to the statutory term employer but ill-advisedly calls upon the jury to assess whether Worthington is the common-law employer of Patton. This choice bars any decision by the jury that Worthington can ever bear statutory employer liability to Patton: if the jury concludes Patton is, under common law standards, not Worthington’s employee, Worthington will bear no workers compensation liability to Patton.  If the jury should conclude that Patton is in fact Worthington’s own employee (an unlikely result, since Earl Patton acknowledged he was employed by Patton Construction, Inc., 43 A.3d at 495 (“the trial court and Patton agreed ‘that if [Patton] were not an independent contractor, Worthington would be a statutory employer because the McDonald test would otherwise be met… .”) (Bender, J., dissenting)), then Worthington would be without tort liability as immediate employer of the injured employee Patton, 77 P.S. § 481(a), and would not be deemed a statutory employer under McDonald.

B. Patton’s Misapprehension of Contractor

The second choice provided by the Patton court to the jury was whether Patton was an independent contractor to Worthington.  Again, without regard to whether the jury finds Patton to be an independent contractor to Worthington, it cannot find Worthington to be Patton’s statutory employer.  See discussion supra, noting that workers compensation liability does not extend to independent contractors.  If Patton is an independent contractor, Worthington has no workers compensation liability, but does have exposure for tort liability; if Patton is not an independent contractor, the choice given by the Patton court leaves the jury to conclude that he is a direct  employee of Worthington, as noted, an unlikely result, and one which also rules out a statutory employer analysis to Worthington.

The one relevant choice, disregarded by the Patton court, is in fact the fifth element of the McDonald test, i.e., determining whether Patton is an employee of a subcontractor to Worthington.  That is in fact the true, undisputed relationship in the case, and the routine scenario seen in virtually every construction case for which statutory employer status is at issue, at which of course is governed and resolved by McDonald:

The law [as to workers compensation liability] has been fairly well settled by this court, and zones of liability or nonliability rather well defined. . . . It will be better for the efficient administration of the Compensation Act to construe it literally as to the obligations created, leaving those under the common law [such as third parties or those not in the vertical contractual chain] that were apparently intended to be so, and under the Compensation Act those intended [such as those defined as statutory employers] it is.

McDonald, 302 Pa. at 292, 153 A. at 425.

Patton exacts unnecessary inquiry into the master/servant relationship, when the Workers Compensation Act, according to McDonald, has already “taken care of [that] elsewhere [in] the act.”  McDonald, 302 Pa. at 293, 153 A. at 425.  Moreover, despite Patton’s unsupportable assertion otherwise, there is nothing in any judicial analysis of the workers compensation statute that a common-law master-servant relationship must exist between the primary contractor and the injured party of the subcontractor, in order to satisfy McDonald’s first element; certainly Joseph does not stand whatsoever for that proposition.

C. Patton’s Misapprehension of Control

Much as Patton’s identification of the injured worker’s relationship to the general contractor supplants McDonald’s Fifth Element, the Patton court’s consideration of control serves to supplant McDonald’s Second Element.  After surveying the indicia of control that informs a master-servant relationship, 43 A.3d at 484-85, the Patton court noted the trial court’s

 charge to the jury on the standards for determining whether one is an independent contractor or employee, relying on Zimmerman v. Commonwealth, Public Sch. Employes' Retirement Bd., 513 Pa. 560, 522 A.2d 43 (1987), notably a case that considered an independent contractor/employee status in the context of eligibility for a pension, and which, like Joseph, did not involve any statutory employer analysis.  As with its other missteps, the Patton court found that a common-law definition of control should govern the jury’s assessment, observing “Broadly stated, if the contractor is under the control of the employer, he is a servant; if not under such control, he is an independent contractor . . . .”  43 A.3d at 485, quoting Weatherly Area Sch. Dist. v. Whitewater Challengers, Inc., 532 Pa. 504, 616 A.2d 620, 622 (1992).  

The common law definition of “control” has no application to the workers compensation analysis called for by McDonald.  Rather, the relevance of “control” in a workers compensation  analysis is governed by 77 P.S. § 52, which contemplates the general contractor’s occupation or control of the premises where the work is to be performed, and by the second element of McDonald, interpreting section 52.  The law with respect to this element of McDonald provides that a defendant need only show that it either occupied or controlled the premises; it need not show both.  Kelly v. Thackray Crane Rental, Inc., 874 A.2d 649, 656 (Pa.Super. 2005); Emery v. Leavesly McCollum, 725 A.2d 807, 811 (Pa.Super. 1999).  A contractor can satisfy the second element of McDonald by demonstrating that it “exercised control” over the premises.  Dougherty v. Conduit & Found. Corp., 449 Pa. Super. 405, 674 A.2d 262, 266, appeal denied, 546 Pa. 644, 683 A.2d 883 (1996).  Notably, McDonald does not require that the contractor’s occupancy or control be “exclusive.”  See McDonald, 302 Pa. at 296, 153 A. at 427; Dougherty, 449 Pa. Super. at 413, 674 A.2d at 266.  Patton’s characterization of control as that by the general contractor specifically over the work of an employee of the subcontractor thus inappropriately subverts McDonald’s well-settled definition of control which is intended particularly for analysis of workers compensation cases.             

II. Patton’s Second Failing:  Employment Status (including Statutory 

Employer Status) Is a Judicial Question, Not a Jury Question                 

Judge Bender, dissenting in Patton, noted that determination of a Statutory Employer status is well-settled to be exclusively the province of the court:  

[The trial] court overlooked the following: “The issue of whether an employer is a ‘statutory employer’ for purposes of the Workmen's Compensation Act is properly the subject of a motion for summary judgment, as ‘whether the facts as they are determined to exist constitute an employment relationship is strictly a question of law.’” Mullins v. Sun Co., Inc., 763 A.2d 398, 399 n. 3 (Pa.Super.2000) (quoting Wilkinson v. K–Mart, 412 Pa.Super. 434, 603 A.2d 659, 661 (1992)).  Accordingly, the determination as to what employment status existed should not have been presented to the jury, but rather should have been decided by the court.  Cherniak v. Prudential Ins. Co. of Am., 339 Pa. 73, 14 A.2d 334, 335 (1940) (stating “[i]t is well settled that if the determination of an issue on trial rests on a question of law, the court determines it.”).

 

Patton, 43 A.3d at 497 (Bender, J., dissenting)(emphasis in original).  See also, Universal Am-Can, Ltd. v. W.C.A.B. (Minteer), 563 Pa. 480, 486, 762 A.2d 328, 330-31 (2000) (“a determination regarding the existence of an employer/employee relationship is a question of law that is determined on the unique facts of each case”), citing JFC Temps, Inc. v. WCAB (Lindsay and G & B Packing), 545 Pa. 149, 680 A.2d 862, 864 (1996).   See also, Williams v. W.C.A.B. (Global Van Lines), 682 A.2d 23 (Pa. Cmwlth.,1996) (whether employer/employee relationship exists, for workers' compensation purposes, is question of law, based on findings of fact); Samuel J. Lansberry, Inc. v. W.C.A.B. (Switzer), 649 A.2d 162, 168 Pa.Cmwlth. 64 (1994) (question of whether a party is an employer of workers’ compensation claimant is a question of law based upon findings of fact).  

Given the virtually unbroken appellate case law leaving employment determinations in workers compensation matters to be legal, not factual, determinations, it is remarkable that the Patton court fell not just to a misconstruction of statutory terms that a clear headed reading of McDonald would have rectified, but made a bad judicial result worse, by turning over for a jury not just a question incapable of providing a statutory employer result for Worthington, but a question which McDonald makes clear should never go to a jury.  As Worthington argued in its April 5, 2012 Application to the Superior Court for Reargument:

The McDonald test answers as a matter of law the question of whether the general contractor is an “employer” – that is the test’s entire purpose – but the Panel majority has mistakenly converted this legal question into a fact issue for the jury based on common law standards.  The general contractor's status as an “employer” arises by operation of law through satisfaction of the McDonald test; it is not a fact issue for the jury.  In short, the McDonald test, not the jury, determines whether the general contractor is an “employer.” 

. . . . 

[T]he phrase “employer” in the first McDonald element means the prospective statutory employer, and the majority’s conclusion that the doctrine applies only if the jury finds that the prospective statutory employer is an actual employer inverts the proper analysis and prevents the doctrine from ever applying. 

 

Application of Defendant/Appellant, Worthington Associates, Inc., for Panel Reconsideration or En Banc Reargument, April 5, 2012, at 8, 9 (emphasis in original).

III. Patton’s Third Failing:  Lascio I reliance by Patton disregards Lascio II

Finally, the Patton court looked to Lascio v. Belcher Roofing Corp., 704 A.2d 642 (Pa.Super.1997) (“Lascio I”) to support its conclusion that the court must, presumably in all cases in which the statutory employer doctrine is at issue, make a determination as to whether the subcontractor is an employee or independent contractor to the general contractor.  43 A.3d at 487.  In Lascio I, the trial court granted j.n.o.v. in favor of defendant general contractor Barclay-White, Inc., on the basis that Barclay-White was a statutory employer.  Lascio I remanded the matter because the trial court so ruled “without finding Samuel Lascio was, in fact, an employee rather than an independent contractor.” Patton, 43 A.3d at 487, quoting Lascio I, 704 A.2d at 645 (emphasis added by Patton).  Patton notes that “in order to make such a determination, the trial court would be compelled to conduct an analysis of the independent contractor factors.”  Id.  

Similar to Lascio, the instant circumstances compelled a factual determination as to the relationship between Patton and Worthington.  Specifically, in order to apply the McDonald test, a factual determination was required to determine if Worthington was an “employer.”  The issue of whether Worthington was an “employer” hinged entirely on whether Patton was an independent contractor.

 

43 A.3d at 488.  (Left unremarked upon by the Patton court was the fact that Lascio I did not require the “factual determination” be made by the jury.)   

What Patton failed to recognize in its reliance on Lascio I is that on remand, Judge Goodheart of the Philadelphia Court of Common Pleas again concluded that the general contractor was immune from tort liability to the plaintiff as a statutory employer, because the five McDonald elements had been stipulated to, and particularly as to the fifth element, the plaintiff acknowledged he was an employee of his immediate employer (and, Judge Goodheart reasoned, could not thereby be an independent contractor to the general contractor).  Importantly, the determination by the trial court on remand was affirmed by the Superior Court in an unpublished opinion, see at 748 A.2d 1259 (Pa. Super. 1999) (“Lascio II”). 

The Superior Court’s self-corrective of an ill-advised resort to an independent contractor analysis to defeat statutory employer status has not been limited to the Lascio cases: in Kenney v. Jeanes Hospital, et al., 747 A.2d 425 (Pa. Super. 1999) (“Kenney I”), the Superior Court precipitously concluded, much as it did in Patton as with Lascio I, that a distinction between an employer status and one as an independent contractor creates a genuine issue of material fact with respect to the underlying plaintiff’s employment status.  The Superior Court 

reversed the grant of summary judgment in favor of [the general contractor, Barclay-White], and remanded the case for further proceedings. Upon review of the record and in accordance with Lascio v. Belcher Roofing Corp., 704 A.2d 642 (Pa.Super.1997) (Lascio I ), this Court held as follows:

 

Given Barclay White's contractual insistence that Kenney was an independent contractor and not an employee ‘for purposes whatsoever,’ the trial court was incorrect to rule as a matter of law that Kenney, contrary to Barclay White's prior assertion, was an employee and not an independent contractor. Based on the clear authority of Lascio, we conclude that the independent contractor clause in Barclay White's subcontract creates a genuine issue of material fact as to Kenney's employment status that only can be resolved by a finder of fact.

 

Kenney I, supra at 6.

 

Kenney v. Jeanes Hosp., 769 A.2d 492, 494 (Pa.Super., 2001) (Kenney II).  On remand from Kenney I, the trial court directed additional discovery to be taken and Barclay-White again moved for summary judgment.  Recognizing (unlike in Patton) the issue to be for judicial, not jury, determination, the trial court on remand “found that there is no genuine issue regarding ‘the fact that [Barclay White] was the statutory employer of [Kenney] at the time of the accident and that any claims against [Barclay White] are barred by the statutory employers defense of the Pennsylvania Workers Compensation Act.’” Kenney II, 769 A.2d at 494.  On appeal, the Kenney II Court made its own “independent review of the record [and found] the evidence fully supports the trial court’s finding that appellee established each of the five McDonald elements and, thus, qualifies as a statutory employer.” Kenney II¸ id. at 496.  

In short, the Lascio and Kenney case histories both stand for the proposition that, where the five McDonald elements of statutory employer status are demonstrated (as they concedely were in Patton), resort to an inquiry requiring a determination of independent contractor status subverts the appropriate and lawful demonstration of statutory employer status pursuant to McDonald.  Adding to that inappropriate requirement by calling for jury determinations, and making those determinations to be on issues in which statutory employer status cannot conceivably be found, all while disregarding the well-settled bases for demonstrating statutory empluyewr status, leaves informed observers at the least, concerned about the capacity of the system to understand the statutory employer doctrine, and the near century long precedents that have sustained it.  

Conclusion

The Statutory Employer doctrine, at bottom, is an interpretation of the Workers’ Compensation Act, not merely a technicality by which a superior contractor avoids third-party tort liability.  It is intended first and foremost to ensure that an injured worker will have Workers’ Compensation benefits available to him by all the so-called “statutory employers” further up the vertical, contractual ladder from his immediate employer.  “The intent behind the doctrine of statutory employer is ‘to hold a general contractor secondarily liable for injuries to the employees of a subcontractor, where the subcontractor primarily liable has failed to secure benefits with insurance or self-insurance.’” Dougherty v. Conduit & Foundation Corp., 449 Pa.Super. 405, 411, 674 A.2d 262, 265 (1996), quoting Caldarelli v. Mastromonaco, 115 Pa.Cmwlth. 611, 542 A.2d 181 (1988).  See also, Thompson v. W.C.A.B. (USF&G Co.), 566 Pa. 420, 429, 432, 781 A.2d 1146, 1151, 1153 (2001) (“We have consistently held in the past that the purpose of the Act was to provide the employee an exclusive right to benefits without the necessity of proving fault in exchange for abrogation of the employee's common law negligence remedies. . . .  The Workers' Compensation Act balances competing interests. The Act obliges subscribing employers to provide compensation to injured employees, regardless of fault, either through insurance or self-insurance. . . . In exchange, employers are vested with . . . the exclusivity of the remedy of worker's compensation and the concomitant immunity from suit by an injured employee . . .”).

Worthington’s entitlement to Statutory Employer immunity is further demonstrated by asking, in the context of a Workers’ Compensation claim by Mr. Patton against Worthington where Patton Construction, Inc. was not answerable to the claim (due either to a lack of assets, or unavailability of workers compensation insurance), whether Worthington could escape liability for workers compensation benefits by asserting McDonald does not apply, and that Patton is an independent contractor to Worthington?  Quite obviously, the court would unhesitatingly deny these objections to Worthington’s workers compensation liability to Mr. Patton.  

When the plaintiff’s bar, commentators, and courts seek to constrain the application of the statutory employer doctrine, viewing it as an easy, mechanical and ultimately unfair means to evade tort liability, they view the doctrine from only one vantage point: as a tort claim.  But superior contractors that otherwise demonstrate their status as statutory employers are not just evading tort liability: they are demonstrating their liability to pay workers compkensation benefits to the employees of their subcontractors who are injured.  They may not,m in every instance,m be called aupon to pay.  But in order for them to conduct their work on construction sites of varying size, sophistication and complexity, all throughout the Commonwealth, all those general contractors have one thing in common: They have secured, at appreciable cost, workers compensation coverage to themselves, for the protection of their own workers and for the claims of workers they may be responsible for as statutory employers.  

In its unsuccessful Application to the Superior Court for Reargument En Banc, Worthington explained the presumably unintended consequences that would follow under the current statutory scheme, from an allowance that Patton to stand without correction.  

Consequently, the statutory employer doctrine is a two-way street and the Panel majority’s decision nullifies not only the general contractor’s statutory immunity but also its obligation to pay benefits to the injured employees of subcontractors.  Specifically, if the Panel majority’s ruling is allowed to stand, the jury question it approves will be used not only by plaintiffs to nullify a general contractor’s statutory employer immunity, but the question will also be used by general contractors to show that plaintiffs were independent contractors, not employees of subcontractors, so the statutory employers’ obligation to pay benefits never arose.  Injured plaintiffs have as much interest in the continuing validity of the McDonald test as general contractors do, and the mutually beneficial statutory employer doctrine should not have been overturned – especially sub silentio – by the Panel majority. [fn 1]

 

[fn 1:  Again, because neither option in the approved jury question allows the general contractor to be a statutory employer, neither the obligation to pay benefits nor the immunity can arise.  Further, because the question always will be answered with a finding that plaintiff  is an independent contractor, as discussed above, the general contractor will not be obligated to pay benefits because independent contractors are not eligible to receive workers’ compensation benefits.  See Universal Am-Can v. Workers' Comp. Appeal Bd. (Minteer), 762 A.2d 328, 329 (Pa. 2000)(“An independent contractor is not entitled to benefits because of the absence of a master/servant relationship.”); accord, 77 P.S. § 21 (defining “employer” under the Workers’ Compensation Act); and 77 P.S. § 22 (defining “employee”). 

 

Application of Defendant/Appellant, Worthington Associates, Inc., for Panel Reconsideration or En Banc Reargument, April 5, 2012, at 10-11(emphasis in original).  What, then, under Patton’s ultimately short-sighted holding, can be expected of those contractors who, while now facing tort exposure, can reliably predict they will be without workers compensation liability to injured workers because, under Patton, the only sensible determination that can come from every jury deliberation will be that the injured worker is an independent contractor to whom the general contractor now owes no workers compensation liability whatsoever.  Need they obtain workers compensation coverage?  Will coverage be more difficult to obtain?  Do these prospects leave the century-old, time-tested workers compensation scheme in Pennsylvania intact, and effective?  Does it offer reliable predictability to construction operations in Pennsylvania from this point onward?  And lastly, are these not policy inquiries that are appropriately the sphere of the Legislature, and not the sphere of the Judiciary that is charged with only interpreting the legislative enactments?  

Much hangs in the balance, and on the wisdom and foresight hoped to be brought to bear by the Supreme Court in its still-pending review of Worthington’s allocator petition.

 

February 20, 2013 Thomas E. Tyler, Esquire

Davis, Parry & Tyler, P.C.

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Philadelphia PA 19102-3732

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Email: tetyler@dpt-law.com

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