Frazier v. Preferred Operators, Inc.

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Frazier v. Preferred Operators, Inc. (2003-454); 177 Vt. 571; 861 A.2d 1130

2004 VT 95

[Filed 24-Sep-2004]

ENTRY ORDER

2004 VT 95

SUPREME COURT DOCKET NO. 2003-454

SEPTEMBER TERM, 2004

Charles Frazier } APPEALED FROM:
}
}
v. } Commissioner of Labor and
} Industry
}
Preferred Operators, Inc., }
HBH Prestain, Inc., }
H&H Properties, Inc. and }
Valiant Insurance Co., } DOCKET NO. M-12257
Carriers for HBH Prestain, Inc. }

In the above-entitled cause, the Clerk will enter:

¶ 1. The principal issue in this appeal is whether the
Commissioner of the Department of Labor and Industry erred in determining
that HBH Prestain Inc. is the statutory employer of truck driver Charles
Frazier for purposes of Vermont's workers' compensation law. We find no
error and thus affirm the Commissioner's decision granting Frazier's motion
for summary judgment.

¶ 2. The material facts are not in dispute. On December 9, 1998,
Charles Frazier was working as a truck driver for Preferred Operators, Inc.
when he allegedly fell and injured himself while placing a tarp over lumber
that had been loaded onto his truck trailer by HBH employees. The accident
occurred at HBH's yard, which had been leased from H&H Properties, Inc.

¶ 3. HBH is engaged in the business of pre-priming and staining
lumber for wholesalers and retailers. The company was formed by brothers
Frederick and Edward Hawley in 1988. In 1993, the brothers formed H&H to
acquire property for lease to HBH. The brothers also formed Preferred
Operators in 1994 to haul products to and from HBH's plant. Thus, the
three businesses-HBH, H&H, and Preferred Operators-were closely held
corporations with overlapping ownership.

¶ 4. Frazier filed a superior court action against Preferred
Operators and its officers because the company had allowed its workers'
compensation insurance coverage to lapse. See 21 V.S.A. § 618(b) (allowing
workers injured on job to bring civil action against employers lacking
workers' compensation insurance); § 687(b)(1) (imposing personal liability
for work-related injuries on officers and majority stockholders of
corporations lacking workers' compensation insurance). Frazier also made
claims against HBH, alleging theories of alter ego, undercapitalization,
and de facto merger, among others. The superior court proceedings were
stayed, however, pending a decision by the Commissioner on the issue of
whether HBH qualified as Frazier's "statutory employer" under 21 V.S.A. §
601(3). Before the Commissioner, both Frazier and HBH argued that HBH was
Frazier's statutory employer, but Valiant Insurance Company, HBH's workers'
compensation carrier, opposed such a finding. In response to the parties'
cross motions for summary judgment, the Commissioner ruled that HBH was
Frazier's statutory employer because Frazier was engaged in an integral
part of HBH's work at the time he was injured, and because HBH directed
Frazier in his work. The Commissioner certified two questions for this
appeal: Did the Department have jurisdiction to decide the "statutory
employer" issue, given the facts in this case? Assuming jurisdiction
existed, was HBH Frazier's statutory employer?

¶ 5. Valiant first argues on appeal that the Department lacked
jurisdiction to "pierce the corporate veil" of Preferred Operators and
determine that HBH was claimant's statutory employer. According to
Valiant, by effectively piercing Preferred Operators' corporate veil,
despite the company's separate identity and business goals, the
Commissioner considered a common-law legal issue and granted equitable
relief, thereby exceeding his limited statutory grant of authority over
administrative matters. Valiant concedes that the Commissioner is
empowered to determine whether an employer is a statutory employer under 21
V.S.A. § 601(3), but contends that in this case the Commissioner acted
outside the statute by misapplying the common-law principle of "piercing
the corporate veil" to establish HBH as a statutory employer. (FN1)
Valiant further contends that, even if the Department had jurisdiction to
consider the issue, most courts across the country have refused to pierce
the corporate veil of companies that have failed to provide workers'
compensation coverage for their employees.

¶ 6. We find no merit to Valiant's jurisdictional arguments. In
determining that HBH was Frazier's statutory employer, the Commissioner
examined the statutory definition of employer contained in § 601(3) and
considered our case law construing the statute and applying the
nature-of-the-business and right-to-control tests. Further, the
Commissioner explicitly stated that he did not need to consider, in the
context of this case, issues of corporation law such as piercing the
corporate veil. We agree that the concept of piercing the corporate veil
was not at issue in this case, and therefore we need not consider whether
the Commissioner has the authority to apply the concept in workers'
compensation cases. The term "piercing the corporate veil" refers to a
common-law equitable remedy by which a court imposes personal liability
upon otherwise immune corporate officers, directors, or shareholders for a
corporation's wrongful acts. Black's Law Dictionary 1168 (7th ed. 1999).
In the context of this administrative proceeding, Frazier is not attempting
to pierce HBH's corporate veil to hold individuals liable for the acts or
omissions of Preferred Operators. Rather, he is claiming that HBH is his
statutory employer under § 601(3) because of the relationship between him
and HBH.

¶ 7. That is precisely the relationship that the Commissioner
considered in determining that HBH was Frazier's statutory employer. The
Commissioner neither considered the relationship between the corporations
and stockholders involved nor ruled that the corporate identity of any of
those corporations should be pierced to make their officers or stockholders
personally liable. Rather, the Commissioner applied the definition of
employer contained in § 601(3) to find that HBH had legal obligations to
Frazier under the workers' compensation statute. Because § 601(3)
contemplates a broader definition of employer than that established by the
common law, see King v. Snide, 144 Vt. 395, 400, 479 A.2d 752, 754 (1984)
("[Section] 601(3) creates a statutory relationship of employer and
employee, where no such relationship existed at common law."), that
definition may, under certain circumstances, include indirect corporate
employers. Nonetheless, the Commissioner is not precluded by any
jurisdictional barrier from finding a statutory employer relationship under
such circumstances. See Norse v. Melsur Corp., 143 Vt. 241, 243, 465 A.2d 275, 277 (1983) ("The Commissioner is given original jurisdiction to hear
and determine controversies involving claims for workers' compensation.");
DeGray v. Miller Bros. Constr. Co., 106 Vt. 259, 268, 173 A. 556, 560
(1934) (Legislature intended Commissioner to "have original jurisdiction to
hear and determine all controverted questions of fact and law arising in
the administration of the [workers' compensation] act"). As for the
out-of-state cases cited by Valiant, most of them are not on point, and
none of them involves interpreting a statutory definition of employer
similar to the one contained in § 601(3).

¶ 8. Having rejected defendants' jurisdictional arguments, we now
turn to the question of whether the Commissioner erred by finding that HBH
was Frazier's statutory employer. Generally, we "defer to the
Commissioner's construction of the workers' compensation statute absent a
compelling indication of error." Wood v. Fletcher Allen Health Care, 169
Vt. 419, 422, 739 A.2d 1201, 1204 (1999). "The Commissioner's decision is
presumed valid, to be overturned only if there is a clear showing to the
contrary." Id. In making its decision here, the Commissioner examined our
case law construing § 601(3), which provides that an employer for purposes
of the workers' compensation act includes any person or corporation "who is
virtually the proprietor or operator of the business there carried on, but
who, by reason of there being an independent contractor or for any other
reason, is not the direct employer of the workers there employed." As we
have noted on several occasions, the legislative intent behind this
definition was "to impose liability for workers' compensation benefits upon
business owners who hire independent contractors to carry out some phase of
their business." Edson v. State, 2003 VT 32, ¶ 6, 175 Vt. 330, 830 A.2d 671. Thus, as the Commissioner stated, "the critical inquiry in
determining whether an employer is a 'statutory employer' under § 601(3) is
whether the type of work being carried out by the independent contractor is
the type of work that could have been carried out by the owner's employees
as part of the regular course of business." Id., ¶ 7; accord Vella v.
Hartford Vt. Acquisitions, 2003 VT 108, ¶ 7, 838 A.2d 126.

¶ 9. "Whether the work contracted for by the owner or proprietor
with the independent contractor is a part of, or process in, the trade,
business or occupation of the owner or proprietor must be decided on a case
by case basis." King, 144 Vt. at 401, 479 A.2d at 755. "Due consideration
must be given to the customary practice of the owner or proprietor in
carrying out his usual business and to the terms of the contract between
the employee and independent contractor." Id. Employing this test in past
cases, we found no statutory employer relationship between (1) a creamery
business and a person injured while working for an independent contractor
hired by the creamery to construct a new creamery building, Packett v.
Moretown Creamery Co., 91 Vt. 97, 99, 101-01, 99 A. 638, 638-40 (1917); (2)
a retired grocery store owner managing his daughter's wood lot and a person
injured while working for the independent contractor hired by the wood lot
manager to log the lot, King, 144 Vt. at 401, 479 A.2d at 755; and (3) a
commercial landlord and a person injured while working for a busing company
that leased the property where the accident occurred from the landlord,
Vella, 2003 VT 108, at ¶¶ 8-10. On the other hand, we found a
statutory employer relationship between (1) a state agency engaged in
selling and distributing liquor and a person injured while working for the
business contracted by the state to transport the liquor, Edson, 2003 VT
32, ¶ 9; and (2) a manufacturer of sounding boards and an employee of the
independent contractor hired by the manufacturer to haul lumber to the
manufacturer's factory for use in manufacturing the sounding boards,
O'Boyle v. Parker-Young Co., 95 Vt. 58, 61, 112 A. 385, 386 (1921).

¶ 10. The instant case is similar to the latter two cases,
particularly O'Boyle. Among the parties' stipulated findings were the
following: (1) since HBH's first year of operation, it has owned or leased
trucks to carry out its operations, specifically to haul its products; (2)
HBH offered pick up and delivery service to its customers and charged them
for the service; (3) HBH had its own truck drivers to provide delivery
services; (4) HBH began using Preferred Operators to deliver its products
after its truck was destroyed in a crash; (5) Preferred Operators was
established to deliver HBH's products to one of HBH's customers; (6) later,
Preferred Operators transported HBH's products to other HBH customers; (7)
Preferred Operators' trucks began their pick up and delivery runs at HBH's
plant; (8) Preferred Operators or HBH arranged return loads for Preferred
Operators' trucks after deliveries; (9) Preferred Operators used a portion
of HBH's facilities rent-free for parking and maintenance; (10) HBH owned
the office equipment used to operate Preferred Operators; (11) Preferred
Operators' only employees were two truck drivers, including Frazier; and
(12) HBH used one of Preferred Operators' trucks for its own purposes
during Preferred Operators' last year in business. These are only some of
the undisputed facts demonstrating that "the work being done by the injured
employee pertained to [HBH's] business." Edson, 2003 VT 32, ¶ 8; see
Wroten v. Lamphere, 147 Vt. 606, 611, 523 A.2d 1236, 1239 (1987)
(sufficiency of facts are tested from point of view favorable to
Commissioner's award). Indeed, notwithstanding Valiant's argument that
Preferred Operators had customers other than HBH, these facts demonstrate
that Preferred Operators was being operated to carry out some phase of
HBH's business.

¶ 11. The parties' stipulated findings, which were adopted by the
Commissioner, also appear to support its conclusion that Frazier should be
considered HBH's employee under the right-to-control test. See Falconer v.
Cameron, 151 Vt. 530, 532-33, 561 A.2d 1357, 1358 (1989). We need not
consider that question, however, in light of our determination that the
Commissioner did not err in concluding that HBH was Frazier's statutory
employer under § 601(3) and our case law applying the
nature-of-the-business test. See Edson, 2003 VT 32, ¶ 5 (focusing on
language of § 601(3) and prior case law construing statute rather than on
degree of control that alleged employer had over employee).

¶ 12. Finally, we find unpersuasive Valiant's public policy
argument that the Commissioner's decision (1) unjustly exposes employers
and their workers' compensation carriers to liability whenever an employer
seeks to sell its products in the marketplace, and (2) will require those
carriers to insure risks that they have no way of anticipating. Valiant
exaggerates the scope of the Commissioner's decision. The decision does
not impose workers' compensation liability whenever an employer wants to
sell its products in the marketplace, but rather relies on facts
demonstrating that Preferred Operators was an integral part of HBH's
business. Indeed, given our prior case law and the undisputed facts of
this case, it is difficult to see how Valiant would be unable to anticipate
having to insure HBH for injuries sustained by Preferred Operators' two
truck drivers while hauling HBH products.

Affirmed.

BY THE COURT:

_______________________________________
John A. Dooley, Associate Justice

_______________________________________
Denise R. Johnson, Associate Justice

_______________________________________
Marilyn S. Skoglund, Associate Justice

_______________________________________
Paul L. Reiber, Associate Justice

_______________________________________
Frederic W. Allen, Chief Justice (Ret.),
Specially Assigned

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Footnotes

FN1. In response to Valiant's brief, Frazier argues that the Commissioner
has the authority to determine whether an employer is a statutory employer
pursuant to the workers' compensation statute. In its reply brief, Valiant
contends that Frazier misstates its position, reiterating that it has not
argued that the Commissioner can never decide statutory employer issues,
but rather that in this particular case the Commissioner misapplied
common-law principles to determine that HBH was Frazier's statutory
employer. Thus, the parties have not contested the question of whether the
Commissioner has the general authority to determine whether an employer is
a statutory employer, as defined in 21 V.S.A. § 601(3).

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