Subcontracting In The Construction Industry And Who Is Responsible For The Injured Employee?

Ryan M. Hathcock | Drew Eckl & Farnham, LLP | December 5, 2018

The current trend in the construction industry involves the acquisition of specialized laborers and contractors to perform the various tasks required to complete each aspect of a given project. General contractors obtain the services of subcontractors as a common business practice to help construction projects become completed more efficiently. Often, these subcontractors are more capable of performing the specialized work, and in many ways, the construction industry is a subcontractor-driven industry.

The addition of subcontractors to a construction project brings additional workers hired by each subcontractor. In the event a subcontractor’s employee is injured in the performance of the work at the construction site, a question arises of who may be held responsible for payment of workers’ compensation benefits for those injuries.

Statutory Employment

A “statutory employer” is an entity that may be held liable for workers’ compensation benefits for injuries to a subcontractor’s employees. O.C.G.A. § 34-9-8(a) specifically lists the entities that may be considered statutory employers under the Workers’ Compensation Act and may liable for workers’ compensation benefits to an injured employee. That list includes principle contractors, intermediate contractors, and subcontractors. After identification of the appropriate immediate and statutory employers that may be held liable, the next question is determining which party is responsible for payment of any workers’ compensation benefits.

Under O.C.G.A. § 34-9-8(c), the immediate employer remains primarily liable for compensation, and the statutory employer is secondarily liable. In order to obtain workers’ compensation benefits from the statutory employer, a claim for benefits must first be brought against the immediate employer. If the immediate employer is uninsured or insolvent, the injured employee may then seek benefits from the statutory employer. In those situations where the statutory employer is held liable, the Georgia Workers’ Compensation Act allows the liable statutory employer to recoup their losses “from any person who, independently of this Code section, would have been liable to pay compensation to the injured employee or from any intermediate contractor.” O.C.G.A. § 34-9-8(b). Although there is an avenue for recovery for the statutory employer to recoup its losses, it may be impossible to recoup any losses from an insolvent immediate employer.

Employer/Employee Relationship Requirement

The Workers’ Compensation Act requires most employers with three or more employees to carry valid workers’ compensation insurance. Too often, one or more subcontractor fails to obtain and carry workers’ compensation insurance. Even if a subcontractor does not have three or more employees and does not obtain workers’ compensation insurance, the general contractor can be held liable for workers’ compensation benefits as a statutory employer. In those circumstances, the general contractor assumes liability for workers’ compensation coverage for the subcontractor’s employees injured on a general contractor’s project.

The polarity of that is O.C.G.A § 34-9-8 will only apply if the injured individual is an employee of his actual employer. While it has been determined that O.C.G.A. § 34-9-8(c) allows an employee to recover workers’ compensation benefits from the statutory employer if he is unable to recover those benefits from his direct employer, the injured individual cannot recover those benefits if he is not an actual employee. Thus, an injured individual will be unable to recover benefits from the statutory employer if he was working for his direct employer as an independent contractor.

Statutory Employer Tort Immunity

The Georgia Workers’ Compensation Act allows for medical treatment and lost wages to an injured employee without the need to prove fault of the employer (who may not be at fault at all). As a result, the injured employee gives up the right to sue his immediate employer and all other statutory employers for the injuries sustained on the job.

The obligation to pay workers’ compensation benefits provides immunity from tort claims arising from the same accident to all entities upward in the contractual chain between the principal contractor and the immediate employer. With that said, immunity does not extend to employees of the principal contractor. Immunity protection to a statutory employer is prompted by the statutory employer’s potential liability for workers’ compensation benefits even if the statutory employer (i.e. principal contractor) does not ultimately have to pay any benefits in connection with the workers’ compensation claim.

Third-Party Property Owner Liability

A property owner is not ordinarily a “statutory employer” under the Workers’ Compensation Act. However, an owner or an entity in control of the premises where an employee is injured may be subject to workers’ compensation liability as a statutory employer, “in the isolated situation where the party also serves as a contractor for yet another entity and hires another contractor to perform the work on the premises.” Creeden v. Fuentes, 296 Ga.App. 98(1), 673 S.E.2d 611 (2009) (citation and punctuation omitted). In other words, an owner or entity in control of property may be subject to statutory employer liability if that entity also functions as a contractor for another entity and hires a subcontractor to perform work on the premises. The corollary of this is that where the owner is potentially liable as a statutory employer, the owner is also entitled to tort immunity due to the exclusive remedy doctrine.

Practical Considerations for General Contractors

The Georgia Workers’ Compensation Act provisions regarding contractor-subcontractor relationships are designed to create a safety net for any injured worker to assure benefits will be paid by someone. General contractors are responsible for providing workers’ compensation coverage to their own employees, but they may also have additional exposure in instances where their subcontractors have not obtained coverage for the subcontractor’s employees. For a general contractor (i.e. statutory employer) to avoid being held financially responsible for another entity’s employees, it is essential that the general contractor protect itself by requiring every lower tier contractor to carry workers’ compensation coverage. In addition to statutory requirements, workers’ compensation coverage can also be contractually required. This verification process often fails through the life of a construction project as numerous subcontractors come and go. However, the cost to upstream contractors in the event of a workplace injury can be substantial.

The Nation Council on Compensation Insurance (NCCI) maintains an active list that allows for verification of workers’ compensation coverage for any company. General contractors are often not aware of the service provided by NCCI that could greatly limit their exposure in workers’ compensation matters. Aside from regularly checking the NCCI database, general contractors could ensure compliance by contractual language requiring for verification of coverage by providing valid certificates of insurance at each subcontractor pay request. Certificates of insurance should not be consider absolute verification of valid insurance, given that inaccurate or fraudulent certificates of insurance may be prepared. Checking directly with the insurance carrier to confirm proper insurance is held is always the best practice.

Work injuries in the construction industry are more common than in any other industry. Requiring all subcontractors down the contractual chain to obtain valid workers’ compensation insurance will prevent situations in which the general contract will be forced to accept responsibility for claims and reduce the number of instances in which they will tap their own insurance for coverage. In theory, a contractual requirement for subcontractors to present workers’ compensation coverage seems simple. In complex construction projects with numerous subcontractors and an ever approaching deadline, the need for skilled and efficient labor sometimes overrides a thorough examination of a subcontractor’s insurance coverage. Unfortunately, that mistake can become extremely costly as general contractors will assume liability for workers’ compensation benefits for injuries to an employee it did not directly hire.

How Utah Evaluates a Worker’s Entitlement to PTD Benefits

Ryan B. Frazier | Kirton McConkie | August 28, 2017

Have you ever thought about how the word “limit” de­fines our perceptions of and interactions with the world around us? The concept of a “limit” engenders thoughts of a bound­ary, an edge, or an end. When we say something is limited, we are suggesting that it is restricted, constrained, or regulated. Something that is limited is imperfect or incomplete. We speak of pushing things to the limit when we are going to the edge of our abilities, or we declare the “sky’s the limit” to indicate that things are unrestricted.

The word “limit” also carries an abundance of meaning when it’s used in the context of analyzing a worker’s ability to perform basic work activities and whether an injured worker is entitled to permanent total disability (PTD) benefits under Utah’s workers’ compensation statutory scheme. The way the word is used in Utah law was key in a recent decision by the Utah Supreme Court addressing whether a construc­tion worker who was injured on the job was entitled to PTD benefits.

Decision makers go back and forth

Mark Oliver was working for D. Tyree Bulloch Con­struction on March 27, 2000. While he was on a Bulloch construction site, he fell from a suspended porch and was injured. For years after the injury, he worked in a variety of jobs, including as a construction worker, landscape de­signer, and delivery truck driver. In 2007, he stopped work­ing altogether.

Several years after he was injured on the job, Oliver applied to the Utah Labor Commission for PTD benefits under Utah’s Workers’ Compensation Act. The parties presented conflicting medical and vocational evidence to the commission. Both Oliver and Bulloch had medi­cal experts who provided opinions on Oliver’s ability to work. Dr. Mark Passey opined that Oliver is able to perform “just about any activities he wishes to do.” By contrast, Dr. Jacob Corry opined that he suffers from constant attention difficulties because of his pain and is severely restricted in his ability to walk, balance, and crouch.

In addition, the parties had vocational experts who testified about Oliver’s ability to work. Oliver’s voca­tional expert testified that he likely couldn’t perform basic work activities because of his inability to concen­trate. Bulloch’s vocational expert disagreed, opining that Oliver could perform “medium-duty” work and wasn’t limited in his ability to perform basic work ac­tivities. However, Bulloch’s vocational expert conceded that if Corry’s medical opinion was correct, Oliver likely wouldn’t be able to perform basic work activities.

Because of that conflicting evidence, an administra­tive law judge (ALJ) appointed an independent medical panel to perform an impartial review of the medical evidence. The panel determined that Oliver could per­form medium-duty work as long as he was able to be absent from work occasionally, elevate his legs for five to 10 minutes every hour, and take occasional unscheduled breaks. In addition, the panel concluded that he is able to perform basic work activities. It found that he could con­centrate, commute, communicate, work, remain at work, and cope with the work setting.

The ALJ reviewed the evidence, concluded that Oli­ver was permanently totally disabled, and tentatively awarded him PTD benefits. Bulloch appealed the award of benefits, and the commission reversed the ALJ’s deci­sion on two grounds.

First, relying on the medical panel’s report, the commission concluded that Oliver failed to prove that he was limited in his ability to perform basic work activities. The commission noted that although the panel determined that he might require unscheduled breaks and occasionally need to be absent from work, it found that the “indefinite circumstances do not present a rea­sonable limitation on [his] ability to do basic work activi­ties,” particularly in light of its conclusion that he could work, remain at work, and cope with work changes. The commission also noted that being required to elevate his legs for five to 10 minutes every hour wasn’t enough to show that he was reasonably limited in his flexibility and endurance. Second, the commission disagreed with the ALJ’s determination that Oliver couldn’t perform the essential functions of his work as a delivery truck driver.

The commission denied Oliver’s claim for PTD ben­efits for two reasons:

(1) He was not limited in his ability to perform basic work activities.

(2) He was not prevented from performing the essential functions of the work for which he was qualified up to the time of his on-the-job injury.

Oliver appealed the commission’s decision to the Utah Court of Appeals, which reversed the denial of benefits. The court found that the commission misinter­preted the “basic work activities provision” of the stat­ute applicable to permanent total disabilities. The court also consulted the U.S. Bureau of Labor Statistics’ (BLS) Occupational Outlook Handbook (which wasn’t in the record as evidence during the commission proceedings) and concluded that the commission’s determination that Oliver was qualified to work as a delivery truck driver wasn’t supported by substantial evidence. The court of appeals reinstated the ALJ’s PTD benefits award. Bull­och appealed to the Utah Supreme Court.

Proving entitlement to PTD benefits

The Utah Supreme Court reversed the decision of the Utah Court of Appeals and concluded that the com­mission properly denied Oliver’s application for PTD benefits. To put the issues into context, the supreme court first explained what an employee must prove to qualify for PTD benefits. Under Utah Code Section 34A- 2-413(1), an employee seeking an award of PTD benefits must meet six factors:

(1) He sustained a significant impairment as a result of the work-related injury.

(2) He is not gainfully employed.

(3) He has an impairment or a combination of impair­ments that limits his ability to perform basic work activities.

(4) His impairment or impairments prevent him from performing the essential functions of the work for which he was qualified until the time of the accident.

(5) He cannot perform other work that’s reasonably available.

(6) The industrial accident or occupational disease is the direct cause of his permanent total disability.

The court clearly placed the burden of proving each of those elements by a preponderance of the evidence on the employee. Most of the inquiries focus on the employ­ee’s ability to work. If the employee fails to prove even one of the six elements, his claim for PTD benefits will be denied.

Pushing the limits

The Utah Supreme Court first examined the “basic work activities” element of Section 34A-2-413(1)(c)(ii). This element requires employees seeking PTD benefits to prove they have “an impairment or combination of impairments that limit [their] ability to do basic work ac­tivities.” The issue in this case was the meaning of the word “limit” as it is used in the statute.

The court of appeals maintained that employees can show a “limit” on their ability to do basic work activities by producing evidence of any limitation on their abil­ity to work, no matter how slight. In other words, even employees capable of performing basic work activities would be able to establish a claim for PTD benefits if they can show “some limitation” on their performance of basic activities.

The supreme court disagreed with the court of ap­peals’ interpretation, concluding that it was at odds with the “basic work activities” element in the statute. Looking to Provo City v. Utah Labor Commission, a case it decided in 2015, the supreme court explained that it has previously held that “basic work activities” are not just any activities performed in the workplace; rather, they are the activities that are essential to “a broad spectrum of jobs available.” In other words, they are the abilities that allow an employee to perform most jobs, including more sedentary lines of work.

The court then turned to an examination of how “limit” is used in the statute. It acknowledged that “limit” has a variety of possible meanings, but the word is not used in isolation in the statute. According to the court, it’s clear that in the context of the statute, whether an employee is “limited” in his ability to per­form basic work activities depends on whether, irrespec­tive of any impairments, he is meaningfully able to per­form the “core tasks” that are the basic requirements for employment.

Being “limited” in the ability to perform basic work activities is really a question of whether an employee has the abilities and aptitudes necessary for most jobs. If a limitation doesn’t hinder the employee from mean­ingfully engaging in the workforce, he may be limited in performing typical activities, but he isn’t limited in performing “basic” work activities. Thus, the supreme court concluded that the court of appeals incorrectly interpreted the word “limit” in the statute, and the commission correctly interpreted it.

In short, the supreme court concluded that only im­pairments that strike at the heart of the abilities and ap­titudes necessary for most jobs actually limit an employ­ee’s ability to do basic work activities. In other words, an impairment must meaningfully inhibit an employee from performing the core tasks of a wide swath of jobs, making it unreasonable for an employer to ask the em­ployee to perform those tasks.

The supreme court noted that interpretation isn’t consistent with federal disability law. However, federal law doesn’t govern the interpretation of the word “limit” as it’s used in the state’s workers’ comp law. Applying its interpretation, the supreme court concluded the com­mission’s determination that Oliver failed to satisfy the basic work activities element was supported by substan­tial evidence.

Analyzing the essential functions provision

The Utah Supreme Court also analyzed the essen­tial functions provision of the statute when it considered Oliver’s application for PTD benefits. Under the statute, an employee must show that his impairments “prevent [him] from performing the essential functions of the work activities for which [he] has been qualified until the time of the industrial accident.” The commission found that Oliver failed to prove that his impairments prevented him from performing the “essential func­tions” of a delivery truck driver, a job he was qualified to perform at the time of his work-related accident.

The court noted that an employee merely has to present evidence that the only job he is qualified to perform is the job he held at the time of the injury. However, an employer can counter that evidence with proof that the employee is qualified for another job (in this case, deliv­ery truck driver). The employee must then respond with evidence that he cannot perform the essential functions of that position. Oliver couldn’t do that. Accordingly, the court concluded that he failed to meet his burden on the essential functions element of the statute.

The supreme court also noted that the court of ap­peals shouldn’t have considered information about the qualifications of delivery truck drivers from the BLS that wasn’t on the record before the commission. The su­preme court upheld the denial of Oliver’s application for PTD benefits. Oliver v. Utah Labor Commission, Workers’ Compensation Fund, 2017 UT 39 (Utah July 25, 2017).

Lessons learned

This case illustrates that under Utah’s workers’ comp statute, an employee will be entitled to PTD ben­efits only if he is limited in the abilities and aptitudes necessary to perform most jobs. When confronted with a claim for PTD benefits, you should focus on whether the employee has the ability to perform the basic job duties—i.e., the core functions—of the majority of jobs, including sedentary jobs. If you concentrate on satisfy­ing that standard, you will be better able to defeat over­reaching claims for PTD benefits.