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Choose Your Adventure: New Case Explains Contractor Prong In Statutory Employer Cases For Owners Who Are Also Contractors

July 01, 2010 BY

            With the number of subcontractors required to complete construction projects, it has become all too common that one of those subcontractors may not have workers’ compensation coverage for their employees. When an injury occurs to an employee of such an uninsured subcontractor,  O.C.G.A. § 34-9-8 provides that the principal contractor may be responsible for workers’ compensation benefits to that injured worker as a statutory employer.  The flip side of this, however, is that when a principal contractor is found to be a Claimant’s statutory employer, they are then immune from tort liability by the exclusive remedy provision of O.C.G.A. § 34-9-11. 

            To prevail on such a statutory employer claim against a principal contractor, the Claimant must prove that the following existed at the time of the Claimant’s accident: (1) a proper “contractor” relationship between the Claimant’s immediate employer and the principal contractor, (2) the principal contractor must be subject to the Workers’ Compensation Act; (3) the Claimant’s injury must have occurred on, in, or about the premises where the principal contractor undertook to execute work or which are otherwise under its control or management; and, (4) the Claimant must have employee status with the immediate employer. 

            Unfortunately, the first element, or “contractor” prong, has provided confusion in situations where a general contractor also owns the premises where an injury occurs.  As a general rule, an owner who is in possession or control of the premise where a workers’ compensation injury occurs, is not typically deemed a Claimant’s statutory employer.  So, what happens when a company serves the dual role of an “owner” and  a “contractor”?  The case law addressing these “dual” situations has provided limited guidance, until recently. 

            The Georgia Court of Appeals provided further clarity in Creeden v. Fuentes, 296 Ga. App. 96; 673 S.E.2d 611 (2009).  In that case, the court of appeals explained what circumstances make an employer who takes on the dual role of “owner-contractor” immune from tort liability as a statutory employer. 

            In Creeden, Highland Custom Homes (Highland), purchased several lots in a subdivision to build residential homes.  Highland subsequently entered into a design contract with an individual, Jacques DeGaule, to build a home based on DeGaule’s specifications on one of these lots.  The purchase and sales agreement between DeGaule and Highland specified that title would be transferred from Highland to DeGaule once the house was substantially completed. 

            As part of the construction, Highland subcontracted with Rich Drywall, Inc. to complete drywall installation in the house.  Rich Drywall, Inc. in turn hired different subcontractors to do each of the three phases of the drywall work (hanging, finishing/taping, and sanding).  Rich Drywall subcontracted with Daniel Rodriguez to perform the final sanding phase.  Rodriguez in turn hired Fuentes as a worker.  While working at this particular home completing the drywall project, Fuentes fell through an elevator shaft and suffered serious injuries.  Fuentes subsequently received workers’ compensation benefits from Rich Drywall, Inc.  However, Fuentes then sued Highland and Highland’s owner, claiming their negligence contributed to his fall and injury.  

            When faced with Fuentes’ negligence lawsuit, Highland filed a Motion for Summary Judgment arguing they were immune from a tort claim as Highland was Fuentes’ statutory employer and could invoke the exclusive remedy provision of O.C.G.A. § 34-9-11.  The trial court denied their Motion, finding Highland was the owner of the premises where Fuentes was injured, and an owner could not be found to be the statutory employer. The trial court specified that although Highland had a contract with DeGaule for the construction for the home, Highland retained sole ownership of the property and the work was being done was for Highland’s own benefits. 

            The court of appeals subsequently reversed the trial court, finding that Highland was, in fact, the Claimant’s statutory employer and immune from tort liability.  In ruling for Highland, the court of appeals explained that although Highland was the owner of the premises where the accident occurred, Highland was also a contractor for DeGaule and their work on the project was for the ultimate benefit of DeGaule.  

            The court of appeals emphasized several key factors in ruling for Highland.  Here, Highland had a greater role than a mere owner of property.  In making this distinction, the court relied on the fact that although Highland retained ownership of the property where the injury occurred, Highland was working at the request of DeGaule, who had specifically contracted with Highland to build his home according to his specifications. Therefore, even though Highland was the owner, it was also acting as a contractor for DeGaule, performing work not only for its own benefit, but also for the express benefit of DeGaule.  As a result,  Highland had certain continuing obligations to DeGaule with regard to property that it owned.  In ruling for Highland , the court of appeals clarified that an owner can obtain contractor status when he also 1) serves as a contractor for another entity; and 2) hires a different contractor to perform work on the premises. 

            The case is both a positive and a negative for companies.  While it does clarify the circumstances under which a company may receive tort immunity, it also shows that employers may otherwise have a harder time defending the statutory employer issue should they be confronted with these situations in a disputed workers’ compensation claim. 

            When faced with these potential situations, the owner-contractor certainly has a dilemma.  To decide the appropriate path, a thorough review of the claim exposure from both a workers’ compensation and tort standpoint is critical.  In some cases, it may make sense for an owner-contractor to pick up a disputed claim on a compromise basis if the threat and exposure of a tort claim is high.  This would allow an Employer/Insurer to avail itself of the tort immunity by becoming a statutory employer.  However, a thorough understanding of the applicable facts is critical as well as the strengths and weaknesses of the underlying tort claim.  As explained inCreeden, the critical factor in determining how to approach such cases is determining whether the owner also owes a duty to another in hiring contractors to complete a job. 

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley
(Editor-in-chief)