When is a Contractor also the Subcontractor, and are both protected by the Exclusivity Doctrine?

September 17, 2013 by Ellen Adams

A new wrinkle in the area of Statutory Employer/Employee

Whenever I say “statutory employee/statutory employer,” eyes glaze over, expressions become frozen, and

Post by Founding Partner Stan Lacy

people start looking for the door. It is not the most interesting topic to talk (or write) about, but a case has been decided in the Supreme Court that you should know about. So drink some coffee, exercise your smile muscles, and bolt the door from the outside. Here is what you need to know about Poch v. Bayshore Concrete Products/South Carolina, Inc., Supreme Court Opinion No. 27304 (filed August 28, 2013).

First, Columbia workers’ compensation is the exclusive remedy an employee has against an employer for an injury by accident in the workplace. However, there is an exception to that rule, and it’s spelled out in §42-1-540 of the South Carolina Workers’ Compensation Act.

Provided, however, this limitation of actions shall not apply to injuries resulting from acts of a subcontractor of the employer or his employee or bar actions by an employee of one subcontractor against another subcontractor or his employees when both subcontractors are hired by a common employer.

Let me explain this exception with an example. Contractor is building a house. He contracts with Framer, Electrician and Plumber to complete the framing, the wiring and the plumbing. Electrician’s helper is injured when Framer’s employee drops a hammer on his head. The helper collects workers’ compensation benefits from Electrician. Once the helper collects benefits from Electrician, Contractor is also protected by the exclusivity doctrine. If Electrician does not have comp coverage, then Helper can collect benefits from Contractor. However, in this example, Framer cannot claim the exclusive remedy and is subject to a civil suit in negligence by the helper. Why? Simply put, Framer is in no way responsible for payment of workers’ compensation benefits to Electrician’s helper, so Framer should not enjoy the Act’s protection.

Take it one step further. What if the relative positions of the contractor and subcontractors are not so clear? What if Framer is actually a wholly-owned subsidiary and closely intermingled with Contractor and is, in essence, Contractor’s alter ego? Is Framer then protected by the Act because of Framer’s close relationship with Contractor? Poch says, “Yes.” But how do you know if Framer is an alter ego of Contractor protected by the Act or a subcontractor who is subject to suit?

The Court adopted the approach taken in Monroe v. Monsanto Company, 531 F. Supp.426 (D.S.C. 1982), in which the Federal District Court examined a number of factors. Although eight factors were listed, the Court noted the list was not exhaustive. The factors considered were:

(1) Did the two businesses maintain separate corporate identities?

(2) Did the two businesses maintain separate Boards of Directors?

(3) Did the two businesses transact business from different locations under different managers?

(4) Did the two businesses hire and pay their own employees?

(5) Did the two corporations hold themselves out to their employees as two separate identities?

(6) Did the two corporations engage in different business activities?

(7) Did the two corporations maintain separate books, bank accounts and payroll records; and

(8) Did the two corporations file separate tax returns?

Applying these factors to the facts of the Poch case, the Court found one entity was the alter ego of the other; therefore, both were protected by the exclusivity provisions of the Act.

About Ellen Adams

Ellen's 20-year career at Collins & Lacy has involved more than 1,000 cases. She practices in workers' compensation and also has experience in general litigation and professional liability. Read Ellen's Biography