Builders and Contractors Exchange
Weekly Bulletin: 05 Dec 2005
Statutory Employment: When Can My Employee Recover From The Project's Owner?
By: Richard P. Hadorn, Jr.
Virginia's Workers' Compensation Act ("VWCA") grants to employees the right to be compensated for accidental personal injuries that occur during their employment. In exchange for this guaranteed payment, actions for additional damages are barred by the VWCA, protecting not only the actual employers who sign the paychecks, but also any "statutory employers."
Under the Virginia Code, an owner is a statutory employer if the work contracted out is part of the owner's "trade, business or occupation," the extent of which is determined by the "normal-work test": whether the subcontractor's activity is, in the owner's business, "normally carried on through employees rather than independent contractors." Shell Oil Co. v. Leftwich, 212 Va. 715, (1972).
The Virginia Supreme Court further delineated the normal-work test in Construction Law cases involving business owners who strive to avail themselves of this VWCA liability bar. When IBM wanted to be named the statutory employer of a subcontractor hired to construct a building, the Court ruled against them, noting that "[a]s a general rule, the several trades involved in construction work are not part of the business of manufacturing products for sale." Cinnamon v. IBM Corp., 238 Va. 471 (1989). However, the Court provided an exception to this general rule in cases where "the owner has created and utilized [a discreet group of employees] to perform its own construction work as part of the conduct of its business operation."
Recently, the Court crystallized this exception when Ford Motor Company asserted statutory-employer status when a worker was injured during the renovation of one of its plants. Stone v. Door-Man Manufacturing Co., 260 Va. 406 (2000). Even though Ford employs workers who normally conducted similar construction work, the Court ruled that statutory-employer status is project specific: "[t]he 'magnitude of the job' determines whether Ford does the work with its own employees or engages outside contractors. . . . Ford's normal work indisputably did not include in-house performance of projects of the scope and size of the [renovation project]."
For the VWCA to apply to an owner, thus providing an escape to a contractor's employee's personal injury claim, the owner must attain statutory-employer status by proving that the project was part of its trade, business, or occupation. In applying the "normal-work test," the Virginia Supreme Court holds owners to a high standard when deciding whether to bestow statutory-employer status. Contractors should note that courts may require owners to show not only that they utilize a discreet group of employees to perform construction work as part of the conduct of their business operations, but also that this group of employees normally performs such construction work of similar size and scope as the project at issue.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.