SC Workers’ Compensation Law: What is the Statutory Employee Doctrine?

What is SC’s statutory employee doctrine, and how could it affect your workers’ compensation case?

In the past, employers have been considered immune from lawsuits by the employees of contractors and subcontractors under SC Code § 42-1-400 and 410’s “statutory employee doctrine,” which the SC Supreme Court has, in the past, interpreted as 1) requiring workers’ compensation coverage for contractors and subcontractors’ employees and 2) providing immunity from tort liability when contractors and subcontractors’ employees were injured on the job.

In Keene v. CNA Holdings, decided August 11, 2021, the SC Supreme Court confirmed that they will be analyzing the statutory employee doctrine differently in future cases, making it easier, in some cases, for injured employees of contractors and subcontractors to sue the contracting business for negligence. In Keene, the Court makes it clear that:

1. The public policy the statutory employee doctrine is based upon is not to protect employers from lawsuits, and
2. The public policy the statutory employee doctrine is based upon is to ensure that workers are covered by workers’ compensation insurance.

WHAT IS THE STATUTORY EMPLOYEE DOCTRINE?

Employers often use contract laborers on job sites, sometimes because that is the best business decision under the circumstances, sometimes because the employer’s workforce doesn’t have the required skills to complete a particular job, and other times because the employer wants to avoid the expense of providing workers’ compensation insurance.

SC Code § 42-1-400 says that when an owner of a business hires a contractor to perform a task that is a “part of his trade, business, or occupation,” the owner is liable to pay the contractor’s employees the same workers’ compensation benefits that the worker would have had if the contractor’s workers were employed by the owner:

When any person, in this section and Sections 42-1-420 and 42-1-430 referred to as “owner,” undertakes to perform or execute any work which is a part of his trade, business or occupation and contracts with any other person (in this section and Sections 42-1-420 to 42-1-450 referred to as “subcontractor”) for the execution or performance by or under such subcontractor of the whole or any part of the work undertaken by such owner, the owner shall be liable to pay to any workman employed in the work any compensation under this title which he would have been liable to pay if the workman had been immediately employed by him.

Similarly, SC Code § 42-1-410 makes a contractor liable for workers’ compensation coverage for subcontractors’ employees:

When any person, in this section and Sections 42-1-420 to 42-1-450 referred to as “contractor,” contracts to perform or execute any work for another person which is not a part of the trade, business or occupation of such other person and contracts with any other person (in this section and Sections 42-1-420 to 42-1-450 referred to as “subcontractor”) for the execution or performance by or under the subcontractor of the whole or any of the work undertaken by such contractor, the contractor shall be liable to pay to any workman employed in the work any compensation under this title which he would have been liable to pay if that workman had been immediately employed by him.

This has had two effects on workers’ compensation coverage. First, it furthered the “public policy favoring inclusion under the Workers’ Compensation Law,” providing coverage to employees who may not otherwise have had recourse when they were injured on the job.

Second, it provided an almost blanket immunity for negligent employers who were able to 1) shift the burden of workers’ compensation coverage to contractors through contract provisions and 2) avoid tort liability.

IS THE INTENT OF THE STATUTORY IMMUNITY DOCTRINE TO PROVIDE IMMUNITY TO EMPLOYERS OR TO PROVIDE COVERAGE TO WORKERS?

In Keene, the SC Supreme Court reviewed the Court’s prior opinions, acknowledging that older cases like Marchbanks and Boseman tended to provide blanket immunity to employers who used contractors to complete tasks, but pointing out that, in recent years, the Court has moved away from allowing employers to use the statutory employee doctrine as a shield against liability.

In Keene, CNA Holdings (previously Hoechst) hired Daniel Construction Company to build a polyester fiber plant and then to provide maintenance and repair workers at the plant. Daniel Construction hired Dennis Seay as a maintenance and repair employee. Seay was exposed to asbestos in his job and eventually died from mesothelioma caused by inhaling asbestos fibers.

Daniel Construction was required by contract to maintain workers’ compensation insurance and Seay was (the Court assumes) compensated through Daniel Construction’s workers’ compensation policy. Keene, Seay’s daughter and personal representative of his estate, also pursued negligence, wrongful death, and survival actions against CNA Holdings.

CNA Holdings argued that they were immune from lawsuits under the statutory employee doctrine – since they were required to provide workers’ compensation insurance by law, and Daniel Construction provided the coverage, CNA Holdings argued that they were therefore immune from any lawsuit based on their negligence.

The Court disagreed. Although the Court acknowledged that this would have been the outcome in years past, the Court’s more recent decisions have moved away from this interpretation to find that the statutory employee doctrine was not intended to be a shield for employers – the purpose of the statute was to ensure the workers are covered, not to protect employers from lawsuits.

The Statutory Employee Doctrine is not a Shield for Employers to Avoid Liability

The purpose of the statute is not to provide immunity to employers, and the Court declines to allow it to be used as a shield by employers:

It is also important to note that the public policy at issue here is not to provide civil immunity to employers like Hoechst or their corporate successors like CNA Holdings. In Olmstead, the court of appeals wrote “the underlying rationale” of favoring coverage for workers “is not as pertinent where the statutory employee definition and exclusive remedy provision are used as a shield to prevent recovery under another theory.” Olmstead v. Shakespeare, 348 S.C. 436, 441, 559 S.E.2d 370, 373 (Ct. App. 2002), aff’d as modified, 354 S.C. 421, 581 S.E.2d 483. On review of that statement, this Court “decline[d]” to “adopt[] a different standard of review for cases in which the workers’ compensation statute is used as a shield to liability.” 354 S.C. at 427, 581 S.E.2d at 486. We decline again to do so today.

When there is a finding that a worker is a statutory employee, the workers’ compensation claim can be filed against the owner. When the claim is filed against the owner, the owner has immunity from tort liability under SC’s workers’ compensation laws.

When the workers’ compensation claim is filed against the contractor or subcontractor, however, the public policy in favor of coverage is satisfied, and the contractor or subcontractor then has immunity from tort liability under SC’s workers’ compensation laws.

No public policy nor any language in the statute says that the owner should then enjoy immunity when they did not provide the workers’ compensation coverage:

Certainly, when the public policy behind the statutory employee doctrine leads to a finding that a worker is a statutory employee, the collateral consequence of that finding is the claim against the owner must be filed with the workers’ compensation commission. In that event, the owner collaterally enjoys immunity from tort liability. However, when the public policy favoring coverage is satisfied—as it was here—that policy has nothing to say about providing immunity to the owner. For these reasons, CNA Holdings’ argument that public policy supports its position is misplaced.

The result?

The statutory employee doctrine works as intended – the public policy it was intended to implement is to ensure that workers are covered. When the owner does not provide the coverage, however, they do not get the benefit of immunity from tort liability.

Just as any third-party individual or business can be sued for negligence that causes a worker’s injuries, an owner who does not provide the coverage can be sued for their negligence.

If you are working for a contractor or subcontractor on a task that is “part of [the owner’s] trade, business, or occupation,” you should be covered by workers’ compensation insurance.

When the owner does not provide the coverage themselves, however, and when your injuries were caused by the owner’s negligence, you may be able to collect 1) worker’s compensation coverage from the contractor or subcontractor and 2) damages in a civil lawsuit based on the owner’s negligence (note that you cannot recover twice – workers’ compensation may require reimbursement from the proceeds of any civil settlement for the same injuries).

GOT AXELROD?

If you have been injured on the job in SC, call your Myrtle Beach workers’ compensation attorney at Axelrod and Associates immediately for a free consultation to determine what your next steps are.

Call now at 843-353-3449 or get in touch through our website to talk to a SC workers’ compensation lawyer today.