The Supreme Court of Pennsylvania recently changed the definition of who can be considered a “statutory” employer in Pennsylvania Workers’ Compensation cases in its recent Decision in Six L’s Packing Company v. WCAB (Williamson), (Decided May 29, 2012).

Pursuant to Section 302(a) of the Workers’ Compensation Act (“Act”), certain “contractors” bear secondary liability for compensation to injured workers employed by their “subcontractors.” 1

Specifically, this section also states that one who contracts with another to have certain work performed—including work “of a kind which is a regular or recurrent part of the business of such person”—is deemed a “contractor” for purposes of the conferring statutory employer status. As such, the other party to the agreement is deemed a “subcontractor.”2

Other work implicating a contractor-subcontractor relationship under Section 302(a) of the Act includes removal, excavation, or drilling of soil, rocks, or minerals and the cutting or removal of timber from the land.3

The appellant, Six L’s Packing Company Inc. (Six L’s), grows, harvests, processes, and distributes tomatoes and other produce throughout North America using various facilities. In 2002, Six L’s contracted with F. Garcia and Sons (Garcia) to perform various services, including transporting tomatoes from a warehouse in Pennsylvania to a processing plant in Maryland. The claimant was employed by Garcia as a truck driver. He suffered injuries in a motor vehicle accident on a Pennsylvania roadway while transporting tomatoes belonging to Six L’s.

The claimant filed Claim Petitions against Garcia and Six L’s. It was determined during the course of litigation that Garcia did not maintain workers’ compensation insurance. In its defense, Six L’s submitted evidence that it did not own the trucks or employ the drivers. Instead, they used independent contractors, such as Garcia, for transportation services. As such, Six L’s argued that it was not the claimant’s employer. The claimant, however, asserted that Six L’s was the “statutory employer” per Section 302 of the Act, citing the McDonald case, wherein liability may be established where a claimant proves the following five elements:

1. the entity is under contract with an owner or one in the position of an owner;
2. the entity occupies or is in control of the premises where the injury occurred;
3. the entity entered into a subcontract;
4. the entity entrusted a part of its regular business to the subcontractor; and
5. he injured party is an employe of such subcontractor. McDonald v. Levinson Steel Co., 302 Pa. 287 (1930).

Six L’s argued that since the claimant was injured on a public highway, and not on the premises occupied or controlled by Six L’s, the burden set forth in McDonald was not met. Notwithstanding the argument, the Workers’ Compensation Judge determined that the McDonald test was met, and found Six L’s to be liable for workers’ compensation benefits under Section 302 of the Act.

Six L’s appealed the Judge’s Decision to the Workers’ Compensation Appeal Board (Board or WCAB), and in its March 2009 Decision, the Board upheld the Judge’s Decision, although for a different reason. The Board did not agree that the McDonald test was met; rather, the Board reasoned that McDonald did not pertain to statutory employers under Section 302(a) of the Act, and that Six L’s would be considered a statutory employer for other reasons.

In arriving at its conclusion, the Board relied upon Delich v. WCAB (Lyons), 661 A.2d 936 (Pa. Comwlth. 1995), which found that a claimant did not need to prove that the McDonald factors were present to establish that an entity was a statutory employer where the statutory elements of Section 302(a) were not met. (In Delich, the injured worker was an employee of an uninsured subcontractor engaged by a contractor to remove timber from the land). Specifically, the Board found that Delich determined that the legislatureintended that a contractor be excluded from the requirement that it occupy or control the premises where the injury occurred when it wrote Section 302(a) of the Act.

Moreover, the Board found that Six L’s contracted with Garcia to have work performed of a kind that was a “regular” part of Six L’s business. Therefore, Six L’s should be regarded as a contractor under Section 302(a) of the Act and Garcia as the subcontractor. Because the claimant was an injured employee of Six L’s subcontractor, Garcia, Six L’s was clearly the claimant’s statutory employer.

On further appeal, the Commonwealth Court of Pennsylvania affirmed on essentially the same reasoning as the WCAB. In its review, the Supreme Court of Pennsylvania affirmed the Commonwealth Court, recognizing a “degree of ambiguity inherent in the definitions for contractor as used in various provisions of the Act (notably the substantial overlap between Sections 302(a) and (b); and the differences in the concept of “statutory employment” as between the Act’s liability and immunity provisions).4

Moreover, the Supreme Court took into consideration the Legislature’s intentions when they wrote Section 302(a). Specifically, they found the “soil/rocks/minerals/timber limitation” to be inappropriate.

Lastly, viewing the statutory scheme as a whole and employing liberal construction, the court found any person or business contracting out work that is a “regular or recurrent part of their business,” must assure that the employees of those others are covered by workers’ compensation insurance, on pain of assuming secondary liability for benefits payment upon a default.

1Section 302(a) of the Workers’ Compensation Act prescribes:

A contractor who subcontracts all or any part of a contract and his insurer shall be liable for the payment of compensation to the employees of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided in this act. (77 P.S. §461).

2Id.

3Id.

4Section 302(b) of the Workers’ Compensation Act prescribes the following:

An employer who permits the entry upon premises occupied by him or under his control of a laborer or an assistant hired by an employe or contractor, for the performance upon such premises of a part of such employer’s regular business entrusted to that employe or contractor, shall be liable for the payment of compensation to such laborer or assistant unless such hiring employe or contractor, if primarily liable for the payment of such compensation, has secured the payment thereof as provided for in this act. (77 P.S.§462).

What It Means to You

There are a significant number of employers in the Commonwealth who, although not traditionally viewed as a “statutory employer,” will now be considered one. As such, it is important to make sure that all employers double check that their subcontractors are carrying workers’ compensation insurance, as the definition of statutory employer has been broadened significantly.