Workers Compensation Panel April 7, 2016

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2 Workers Compensation Panel April 7, 2016 Carla R. Hounshel Kelli M. Block Lynn Gravley

3 Workers' Compensation Panel Workers Compensation: What is it all about?

4 Workers' Compensation: The Grand Bargain

5 Workers' Compensation: The Grand Bargain Employers No civil lawsuits with jury trials No pain and suffering awards Employees Immediate medical care Few employer defenses

6 Workers' Compensation: The Grand Bargain Benefits include: Medical treatment Disability benefits at a reduced rate Impairment/disability rating

7 Workers' Compensation: Jurisdiction What state law matters?

8 Workers' Compensation: Jurisdiction Where employee principally performs work Where employee enters contract of hire Where employee incurs alleged injury

9 Workers' Compensation How could a freight broker be liable for a Driver s WC benefits if WC applies to employer/employee relationships?

10 WC Case Involving Broker Cardenas v. Kanco Hay, KS WC App. Board (2014) One-man/one-truck motor carrier entered agreement with broker to haul freight for broker s customer Motor carrier ( MC ) owner was injured at customer s facility MC had no WC coverage MC owner alleged broker and shipper were liable for WC benefits as his direct employers under Kansas law

11 WC Case Involving Broker Cardenas v. Kanco Hay (continued) Test for employment under Kansas law for WC purposes: Whether alleged employer had right to direct manner and details of work to be performed ( Control Test ) Board deemed MC owner to be IC of freight broker: Owner operated his own trucking company Owner financed, insured, and maintained his own truck Owner contracted with different brokers who simply told him where to pick up and deliver loads HELD: Broker NOT deemed liable for WC benefits because WC law does not apply to ICs

12 Workers' Compensation: Statutory Employment What is all of this talk about statutory employment?

13 Workers' Compensation: Statutory Employment General Contractor Subcontractor # 1 Subcontractor # 1 s Employees Subcontractor # 2

14 Workers' Compensation: Statutory Employment What is statutory employment? In most states, general contractor may be held liable for WC benefits owed to a worker engaged by a subcontractor if the subcontractor does not have WC coverage under certain circumstances This is often referred to as up-the-ladder liability or upstream liability

15 Workers' Compensation: Statutory Employment What most commonly triggers statutory employer liability?

16 Workers' Compensation: Statutory Employment Liability may be more likely to shift upstream when subcontractors primarily engage ICs to provide labor (rather than employ workers) Liability typically comes down to the test applied by state for purposes of determining: Whether general/sub-contractor relationship existed in the first instance; or Whether the work performed is part of the general contractor s business.

17 Workers' Compensation: Statutory Employment How could statutory employment impact freight brokers?

18 Workers' Compensation: Statutory Employment Freight Broker Motor Carrier MC s Employee Drivers ICs Engaged by MC

19 Workers' Compensation: Statutory Employment Scenario 1 Freight broker enters agreement with MC MC s employee driver is injured while moving freight broker s load MC does not have WC insurance coverage Freight broker could be deemed statutorily liable for WC benefits owed to employee depending upon applicable test and facts in play

20 Workers' Compensation: Statutory Employment Scenario 2 Freight broker enters agreement with MC MC engages independent contractor ( IC ) IC is injured while moving freight broker s load IC is deemed employee of MC MC does not have WC insurance coverage Freight broker could be deemed statutorily liable for WC benefits owed to IC depending upon applicable test and facts in play

21 Workers' Compensation: Statutory Employment Do freight brokers face a real risk of liability?

22 WC Cases Involving Brokers Collins v. Seko, South Carolina Supreme Court (2015) Seko, a MC, occasionally acts as a broker or freight forwarder Seko engages West Expedited, another MC, to make deliveries 2-3 times /month Seko and West DID NOT enter any written contract West s driver was fatally injured in accident while hauling load for Seko West had no WC insurance coverage Driver s estate alleged Seko was liable for WC benefits as statutory employer

23 WC Cases Involving Brokers Collins v. Seko (continued) Test for statutory employer liability under SC law: Whether activity of subcontractor is important part of general contractor s trade or business; Whether activity performed by subcontractor is necessary, essential, and integral part of general contractor s business; or Whether identical activity performed by subcontractor has been performed by employees of general contractor.

24 WC Cases Involving Brokers Collins v. Seko (continued) Held: Seko deemed liable as statutory employer of West s driver Seko itself is in cargo delivery business and driver s work was important part of that business Interstate deliveries are essential and integral part of Seko s business Seko s own employee drivers performed same work

25 Do you have language in your Broker Carrier agreement that contractually requires the Carrier to provide Workers Compensation?

26 Do you have language in your Broker Carrier agreement that contractually requires the Carrier to provide Workers Compensation?

27 WC Cases Involving Brokers Collins v. Seko (continued) How could Seko have limited its liability exposure? Entered a written contract placing burden on West to provide WC coverage If Seko had required West to provide proof of WC coverage, it could have petitioned SC Uninsured Employer s Fund for reimbursement of any benefits Seko or its WC insurer paid S.C. Code Ann S.C. Code Reg. R

28 WC Cases Involving Brokers Collins v. Seko (continued) Would the outcome have been the same if Seko had not also operated as a MC? Test for statutory employer liability under SC law: Whether activity of subcontractor is important part of the general contractor s trade or business; Whether activity performed by subcontractor is necessary, essential, and integral part of general contractor s business; or Whether identical activity performed by subcontractor has been performed by general contractor s employees.

29 WC Cases Involving Brokers Atiapo v. Goree Logistics, Inc., North Carolina Court of Appeals (2015) Broker entered written agreement with MC MC assumed responsibility for WC obligations MC engaged IC to move load for broker s customer IC driver suffered injuries while transporting load IC driver alleged he was employee of MC, meaning MC owed IC WC benefits as a result of accident WC commission deemed IC employee of MC MC had no WC coverage Driver contended broker should be held liable for WC benefits as statutory employer

30 WC Cases Involving Brokers Atiapo v. Goree (continued) Held: Broker deemed liable as statutory employer Shipper contracted and paid broker to complete delivery Broker kept difference between amount shipper paid and amount broker paid MC broker hired Broker had discretion in selecting MC Broker controlled not only outcome of task (i.e., delivery of goods), but also method of how task was performed, including, e.g., how frequently MC s driver must report to broker and specifications on temperature

31 WC Cases Involving Brokers Atiapo v. Goree (continued) Problematic statutory language triggered this result! Any principal contractor, intermediate contractor, or subcontractor... who contracts with an individual in the interstate or intrastate carrier industry who operates a truck, tractor, or truck tractor trailer... and who has not secured WC coverage for himself personally and for his employees and subcontractors, if any, shall be liable as a statutory employer for WC benefits N.C. Code

32 WC Cases Involving Brokers Atiapo v. Goree (continued) What makes this statute problematic in general? Industry advocates have worked toward fixing the statute since lobbied into law because language has effect of making MC liable for WC unless IC owneroperators engaged by MC also have MC authority

33 WC Cases Involving Brokers Atiapo v. Goree (continued) What makes this statute particularly problematic here? Statute was intended to apply to relationship between MCs and IC owner-operators If MC engages IC, and IC does not have WC, then MC may be held liable for WC benefits owed to IC or IC s employees Court misunderstood function freight brokers play Court did not consider FMCSR definition of broker

34 WC Cases Involving Brokers Atiapo v. Goree (continued) Would the outcome have been different if broker had not controlled delivery requirements? Worst case scenario, when could this case matter? If MC does not have WC insurance coverage and Injured driver resides in NC; Injured driver entered contract in NC; or Injury occurred in NC. Should freight brokers consider this case an outlier?

35 WC Cases Involving Brokers What is the Good News?

36 Do your require proof of workers comp insurance in your carrier selection checklist or when setting up carriers?

37 Do your require proof of workers comp insurance in your carrier selection checklist or when setting up carriers?

38 Are your folks acting in accord with the definition of broker under FMCSR, specifically dispatching the actual driver?

39 Are your folks acting in accord with the definition of broker under FMCSR, specifically dispatching the actual driver?

40 WC Cases Involving Brokers State Fund v. Collins, KY Court of Appeals (2014) Broker entered written contract with MC MC s employee driver was injured in KY while hauling freight for broker s customer Employee obtained WC benefits in MC s home state of WV and also filed for WC benefits in KY MC did not carry KY WC policy so WC Board characterized MC as uninsured for purposes of KY WC law WC Board shifted liability up-the-ladder to broker as driver s statutory employer On appeal, Court concluded MC properly secured WC coverage under WV law Held: Broker faced no up-the-ladder liability as statutory employer because MC had proper WC coverage

41 WC Cases Involving Brokers Transplace v. Carter, Ark. Court of Appeals (2007) MC entered written agreement with Broker to haul freight for broker s customers MC s employee driver was injured while hauling load for broker s customer MC did not have WC coverage Driver alleged broker was liable for WC benefits as his statutory employer

42 WC Cases Involving Brokers Transplace v. Carter (continued) Test for statutory employer liability under AR law: Prime contractor is liable for WC benefits if subcontractor does not secure WC coverage for its employees Subcontracting occurs if original contractor farms out some or all work contracted to be performed by original contractor HELD: Broker NOT deemed liable for WC benefits because broker not was NOT prime contractor under circumstances at play Broker was not party originally responsible for the work (i.e., transportation of the load); Broker was not obligated to transport any loads for shipper at time of injury, meaning there was no work to farm out; and Broker acted at all relevant times in accord with definition as a broker under the FMCSRs

43 WC Cases Involving Brokers State Fund v. Torres, Fla. Court of App. (1990) Freight forwarder sent customer s freight to facility Facility employee was injured while unloading that customer s freight Question existed as to whether facility had secured sufficient WC coverage for its employees Employee filed WC claims against facility (as direct employer) and freight forwarder as statutory employer HELD: Broker faced no up-the-ladder liability as statutory employer because facility had proper WC coverage in place at time of injury

44 Prior to today, have you heard much about potential upstream liability in respect to your role as a broker, or has this been a concern?

45 Prior to today, have you heard much about potential upstream liability in respect to your role as a broker, or has this been a concern?

46 Workers Compensation Should brokers expect heightened interest in shifting liability upstream?

47 U.S. DOL Misclassification Initiative Intended to prevent, detect, and remedy misclassification of employees as ICs Budget appropriations in support of initiative MOUs with IRS and 26 states to share information and resources Planned survey of worker knowledge of classification issues

48 U.S. DOL Misclassification Initiative DOL Budget Request Evolution 2010: Requested $25 million for initiative 2011: Stated emphasis on investigating misclassification in transportation, construction, and healthcare industries 2013: Requested $12 million, 90 new investigators 2016: $10 million request Key enforcement initiative: The Fissured Workplace

49 U.S. DOL Misclassification Initiative DOL IC-Status Interpretation (July 15, 2015) Advice memorandum from the Wage & Hour Division regarding IC-status under FLSA Tied to DOL s misclassification initiative In sum, most workers are employees under the FLSA s broad definitions. DOL has recast economic realities test into ABC Test Contrast w/ IRS Market Segment Understanding

50 Workers Compensation What states pose the highest/lowest risk for upstream liability as to brokers?

51 Workers' Compensation: Jurisdiction Where employee principally performs work Where employee enters contract of hire Where employee incurs alleged injury

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53 Workers Compensation State Owner-Operator WC Exemptions Alabama Kansas North Carolina* Texas Arkansas Louisiana North Dakota Utah Colorado* Florida Georgia Indiana Iowa Maryland Minnesota Mississippi* Missouri New York* Oklahoma Oregon South Carolina South Dakota Tennessee Virginia Washington Wyoming *Statute does not provide pure exemption for O-Os

54 Workers Compensation Difficult State WC Statutes

55 Workers' Compensation: Statutory Employment Could statutory employment doctrine benefit a statutory employer?

56 Workers' Compensation: Statutory Employment Once deemed a statutory employer, most states limit liability to WC benefits Injured workers cannot pursue costly jury trials for damages related to pain and suffering and the like

57 WC Cases Involving Brokers Brooks v. Quality Moving, Virginia Circuit Court (1985) Freight forwarder entered agreement with MC to haul freight for forwarder s customers MC s employee driver was injured while delivering freight for forwarder s customer Rather than file for WC benefits, driver brought suit against forwarder asserting common law claims for injuries Forwarder raised its status as driver s statutory employer as a defense to the common law claims: If deemed a statutory employer, WC law provides driver s exclusive remedy and renders common law claims moot.

58 WC Cases Involving Brokers Brooks v. Quality Moving (Continued) Test for statutory employment under Virginia law: When contractor engages in work which is part of the trade, business or occupation of an owner, the employees of contractor become statutory employees of owner This is often determined by considering whether the contracted work is normally done by owner s employees HELD: Broker NOT deemed liable for WC benefits because WC Act provided driver s exclusive remedy Court found forwarder was in moving business Court found forwarder contracted portion of work forwarder would otherwise do to MC, meaning MC necessarily performed work which was part of forwarder s business

59 WC Cases Involving Brokers Brooks v. Quality Moving (Continued) Why might a forwarder or broker wish to avoid this approach? What s good for the goose is not always good for the gander Evidence introduced to demonstrate status as statutory employer in one case may be used against forwarder/broker in another case This could be particularly problematic to the extent a driver contends he or she is directly employed by the freight forwarder or broker

60 Takeaways from WC Cases Involving Brokers Brokers that also operate as MCs may have increased risk of statutory employer liability Review broker/carrier agreement Agreement should obligate MC to ensure WC coverage is in place for all labor furnished to deliver freight Agreement should contain broad indemnification provisions Require proof of appropriate WC coverage Such evidence may even obviate statutory employer liability if WC policy lapses before injury occurs Take special care to ensure WC is in place if operate in NC

61 Takeaways from WC Cases Involving Brokers Tread with caution if using MC that primarily engages ICs Take special care if operating in some difficult IC states California Illinois Nevada New Jersey Colorado Massachusetts New Hampshire North Carolina Operate in accord with role as broker under FMCSRs E.g., limit interactions with actual driver to avoid indicia of inappropriate control Carefully weigh benefits/risks associated with raising statutory employment as a defense to tort liability