LABOR READY, INC., ET AL. V. WANDA SUE JOHNSTON
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2007-SC-000419-DG
LABOR READY, INC. ; LABOR READY GPCO;
AND SYLVANN C. HUDSON, III.
V.
APPELLANTS
ON REVIEW FROM COURT OF APPEALS
CASE NO . 2005-CA-001587-MR
JEFFERSON CIRCUIT COURT NO . 03-CI-011343
APPELLEE
WANDA SUE JOHNSTON
OPINION OF THE COURT
AFFIRMING
In United States Fidelity 8s Guaranty Company v. Technical Minerals,
Inc . , 934 S .W .2d 266 (Ky. 1996), the court held that a company that contracted
with a temporary labor service for temporary employees was a contractor for
the purposes of Chapter 342 . Thus, KRS 342 .690(1) immunized the contractor
from a temporary employee's tort action. This case presents the converse
situation . It concerns whether a contractor's permanent employee may
maintain a tort action against the temporary labor service and its employee for
an injury that occurred while working for the contractor .
The trial court granted summary judgment to the defendants, noting that
KRS 342 .690(1) would deem the workers to be co-employees if the temporary
employee were injured and limit the temporary employee's remedy to
compensation . Convinced that permanent and temporary workers performing
the same work should be deemed co-employees regardless of which is injured,
the court determined that KRS 342 .690(1) immunized the subcontractor and
temporary employee from the permanent employee's tort claim.
The Court of Appeals reversed on the grounds that no statute immunizes
a subcontractor and its employees from a tort claim by an up-the-ladder
contractor's employee and that the temporary employee and contractor's
employee were not co-employees because KRS 342 .615(5) deems a temporary
help service to be a temporary employee's employer . We affirm for the reasons
stated herein .
Wanda Sue Johnston, an employee of Mid-America Auto Auction,
sustained a work-related low back injury on February 12, 2002, when struck
by an automobile driven by Sylvann C . Hudson, III. Hudson was employed by
Labor Ready, a temporary labor service . Mid-America employs eight to twelve
permanent employees and conducts two or three auctions per week. The
business supplements the permanent workforce on auction days by ordering
the number of temporary workers that it deems necessary from Labor Ready.
Mid-America checks the temporary employees' drivers' licenses when they
arrive and sends back those who have safety or work-related issues .
Mid-America's permanent employees prepare vehicles for sale and drive
them to and from the sales arena. They also supervise the temporary workers,
whose primary duty is to help move vehicles during the auction . They may
recommend that a temporary worker who performs inadequately be asked to
leave. Temporary workers return to Labor Ready when the day's work is
completed . Labor Ready pays them, handles tax withholding, and provides
workers' compensation coverage.
Johnston settled her claim for workers' compensation benefits with MidAmerica' and then filed a civil suit against Labor Ready, alleging that her
injury resulted from its employee's negligence . When she discovered that
Hudson was the employee who was involved in the incident, she amended her
complaint to add him as a defendant. Labor Ready and Hudson moved for
summary judgment, asserting that Labor Ready had no independent liability
and that they were immune from tort liability for Hudson's alleged negligence
because Hudson was Johnston's co-employee for either of two reasons. First,
both of them were working at Mid-America's auction when the accident
occurred and, second, Hudson worked for Mid-America as a loaned employee .
The trial court granted the motion and dismissed Johnston's claims.
Noting that KRS 342 .610 and KRS 342 .690 provided Mid-America with up-theladder immunity from a civil suit by a Labor Ready employee, the trial court
held that Hudson and Johnston must be viewed as being co-employees. The
court reasoned :
1 The parties settled the claim on June 12, 2003, for a lump sum that represented a
permanent partial disability based on an 11% permanent impairment rating . The
settlement holds Mid-America liable for future injury-related medical expenses.
3
[I]f . . . a permanent employee of a contractor-employer were
allowed to receive workers' compensation benefits from her
employer and also assert a tort claim against the subcontractoremployer, then a substantially greater right would be possessed by
the permanent employee than the temporary employee, despite the
possibility that both might be performing exactly the same work. . .
. Such a disparate result simply cannot be the correct application
of the law and would quite possibly violate one or more of the due
process, equal protection or other constitutional rights of the
temporary worker and constitute an arbitrary exercise of power in
violation of Section 2 of the Kentucky Constitution . (emphasis
original) .
As further support for the decision, the trial court noted that the contract
set forth in paragraph 5 of the "Work Ticket" required Mid-America to
indemnify Labor Ready "from any claims and all liability" caused by a Labor
Ready employee and "from any claims for bodily injury (including death) made
by [Mid-America's] employees ." The contract also provided that Mid-America
agreed "to waive any immunity provided by workmen's compensation or other
industrial insurance laws." Noting that Mid-America might be required to pay
both workers' compensation benefits and damages if Johnston were permitted
to proceed against Labor Ready, the court determined that such a result was
unreasonable and contrary to the purposes of the Workers' Compensation Act
because it would effectively abrogate the Act's limitation of tort liability.
The standard for reviewing a decision to grant summary judgment is
whether the movant was entitled to judgment as a matter of law because there
was no issue of material fact.2 The trial court must consider the evidence in
2 Pearson ex rel. Trent v. National Feeding Systems, Inc. , 90 S.W.3d 46, 49 (Ky. 2002) .
the light most favorable to the plaintiff and grant summary judgment only if the
plaintiff could not possibly produce evidence at trial to warrant a favorable
judgment .3 The trial court erred in the present case because the defendants
failed to show that they were entitled to judgment as a matter of law.
This appeal concerns the application of four statutes : KRS 342 .690(1),
KRS 342 .610(2), KRS 342 .700, and KRS 342 .615.
Known commonly as the "exclusive remedy" provision, KRS 342.690(1)
immunizes an employer who secures the payment of workers' compensation
benefits from tort liability for an employee's work-related accident and limits
the employer's liability to worker's compensation benefits. The statute includes
within the term "employer" a "'contractor' covered by subsection (2) of KRS
342 .610," without regard to whether the subcontractor has actually secured
workers' compensation coverage. As a consequence, KRS 342 .690(1)
immunizes a contractor from tort claims by its subcontractors' employees as
well as by its own employees because it extends an employer's immunity to its
carrier and to all of the employer's employees, officers, or directors unless
unprovoked physical aggression by the party seeking immunity caused the
worker's injury.
KRS 342 .610(2) holds a contractor liable for the payment of
compensation to its uninsured subcontractor's employees and permits the
contractor to recover the amount paid from the uninsured subcontractor. As
3 Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991) .
5
applicable to these facts, the term contractor includes a business that
contracts with another to perform work of a kind that is a regular or recurrent
part of the business's work .
KRS 342.700(1) permits an employee who sustains a work-related injury
"under circumstances creating in some other person than the employer a legal
liability to pay damages" to receive workers' compensation benefits from the
employer and proceed against the other person to recover damages, in which
case the employer has a right of subrogation . KRS 342 .700(2) holds a
contractor liable for paying workers' compensation to its subcontractor's
employee if the subcontractor fails to do so .
KRS 342 .615 concerns employee leasing companies and temporary help
services .
The parties do not dispute that temporary workers performed work that
was a regular and recurrent part of Mid-America's business. Thus, MidAmerica was a contractor under KRS 342 .610(2) and Labor Ready was a
subcontractor.4 As a contractor, Mid-America had potential workers'
compensation liability for injuries to Labor Ready's temporary workers and KRS
4 Technical Minerals , 934 S.W.2d 266, relied on Fireman's Fund Insurance Company v.
Sherman 8s Fletcher , 705 S.W.2d 459 (Ky. 1986), with regard to the definition of the
term "contractor ." It overruled M .J . Daly Co. v. Varney, 695 S.W.2d 400 (Ky. 1985),
implicitly insofar as the Daly court relied on a previous definition of the term to find
that Daly did not have a contractor/ subcontractor relationship with the temporary
employee's direct employer. It did not disturb the Daly court's analysis of whether
the loaned servant doctrine provided other grounds for considering Daly to be the
temporary employee's employer .
342 .690(1) would grant Mid-America immunity if a temporary worker were to
file a tort claim. As a subcontractor, Labor Ready had no potential workers'
compensation liability to Mid-America's employees under KRS 342 .610(2) .
IMMUNITY
The Workers' Compensation Act is social legislation, a product of
compromises by workers and employers. Workers agree to forego common law
remedies in exchange for statutory benefits awarded without regard to fault.
Employers agree to pay such benefits and to forego common law defenses in
exchange for immunity from tort liability.
Like KRS 342.700(1), Section 9 of the 1916 Act permitted an injured
worker to collect workers' compensation benefits and also recover damages for
the negligence of "some other person than the employer," in which case the
worker's employer had a right of subrogation. 5 At its inception, the Act based
immunity from tort liability solely on the potential for workers' compensation
liability. Like KRS 342 .690(1) and KRS 342 .610(2), Sections 3 and 10 of the
1916 Act required a contractor to assume the workers' compensation liability of
an uninsured subcontractor and immunized both from tort claims by the
subcontractor's employees . 6
Early cases involving exclusive remedy immunity focus on the meaning
of the term "some other person than the employer ." The court explained in
5 Book v. City of Henderson , 176 Ky. 785, 197 S.W. 449 (1917) .
6 McEvilly v. L.E. Myers Co . , 211 Ky. 31, 276 S .W. 1068, 1071(1925) .
7
McEvilly v. L. E. Myers Co .7 that a principal contractor is immune from a tort
claim by a subcontractor's employee if both are operating under the Act and
that the term refers to a third party with "no connection to the general work
being performed and whose negligence is wholly disconnected from that work."8
Relying on McEvilly , the court extended tort immunity to workers employed by
the same employer in Miller v. Scott. 9 The legislature ratified the decision
when revising Chapter 342 in 1972 and enacting KRS 342.690(1), which
extends an employer's immunity to its employees . 10 Although workers bear no
workers' compensation liability, most states view co-employee immunity as
being part of the quid pro quo for accepting the Workers' Compensation Act. i i
The court has refused to extend employer immunity further except in
instances where the loaned servant (i.e . , loaned employee) doctrine applies. Of
particular interest in the present case is Dillman v. John Diebold 8s Sons Stone
Co., 12 which was decided under an early version of the Act. In Dillman the
court refused to limit the meaning of "some person other than the employer" in
order to immunize a subcontractor's employee from a tort claim by the
id.
8 See also Simmons v. Clark Construction Company, 426 S.W.2d 930 (Ky. 1968);
Jennings v. Vincent's Adm'x . , 145 S.W.2d 537 (Ky. 1940) .
9 339 S .W.2d 941 (Ky. 1960) . See also Jackson v. Hutchinson , 453 S .W.2d 269 (Ky.
1970) ; Black v. Tichenor, 396 S .W .2d 794 (Ky. 1965) .
10 1972 Acts, ch . 78, § 9. The amendment also immunized the employer's workers'
compensation insurance carrier and all officers and directors.
11 Arthur Larson and Lex K. Larson, Larson's Workers' Compensation Law § 111 .03
(2008) .
12 241 Ky. 631, 44 S .W.2d 581 (1931).
7
principal contractor's employee . Distinguishing McEvillv, the court rejected
explicitly an argument that the exclusive remedy provision treated all
employees working on the same job equally. The court determined that a
subordinate contractor remained "some person other than the employer" whom
the principal contractor and its employees could sue if injured unless the
statute providing for contractor/ subcontractor liability took the right of action
away. The court explained that it did not. Noting that the statute exposed an
up-the-ladder contractor to potential liability for workers' compensation
benefits in exchange for depriving a subcontractor's employees of the right to a
tort claim but gave the principal contractor's employees no right of
compensation from its subcontractors, the court refused to construe the
statute "as taking away their right to sue and putting nothing in its place." 13
The court refused to limit the meaning of "some person other than the
employer" more recently in Peters v. Radcliff Ready Mix Concrete, Inc. , holding
that the employees of one subcontractor were not immune from tort claims by
the employees of another subcontractor. 14 Relying on Dillman, the Peters court
reasoned that the subcontractors had no contractor/ subcontractor
relationship although they worked on the same project and that McEvillv and
Miller should be limited to their facts.
Id. at 583.
14 412 S .W.2d 854 (Ky. 1967) . See
also R. E. Gaddie, Inc. v. Evans, 394 S.W.2d 118(Ky.
1965) (state highway inspector's work was not such an integral part of project as to
make him a fellow employee of a subcontractor's employees) .
13
The views expressed in Dillman and Peters are consistent with those
found in Professor Larson's treatise . Larson's, supra at § 111 .04(2) explains
that "the great majority of jurisdictions" consider a subcontractor. and its
employees to be third parties whom the principal contractor and its employees
may sue in tort. The reason for refusing to grant immunity is that a
subcontractor has no potential liability to the principal contractor or its
employees under the workers' compensation statutes. In other words, an
employer's immunity follows its liability for workers' compensation benefits.
Enacted after Dillman and Peters, KRS 342 .690(1) extends an employer's
immunity to its employees and deems a contractor as defined in KRS_
342 .610(2) to be an employer "whether or not the subcontractor has . . .
secured the payment of compensation ." At issue presently is whether KRS
342 :690(1) overruled Dillman legislatively and extended a contractor's
immunity to its subcontractor and the subcontractor's employees. We
conclude that it did not.
Since the 1972 revision of the Act, KRS 342 .690(1) has deemed a
contractor covered by KRS 342 .610(2) to be an employer "[flor the purposes of
this section." The apparent purpose of the provision is to codify McEvilly and
its progeny by extending immunity to an employer's employees as part of the
quid pro quo for workers' compensation coverage and to up-the-ladder
contractors in exchange for providing coverage . As in Dillman , no statute holds
a subcontractor liable to pay compensation to a contractor's employees . Nor
10
does any statute deem a subcontractor to be their employer or immunize the
subcontractor and its employees from their tort claims. Furthermore, MidAmerica had no potential workers' compensation liability to Hudson in the
present action because he was not the injured party. Thus, KRS 342 .690(1)
did not deem Mid-America to be his employer for the purposes of this action
and Johnston was not his co-employee.
LOANED EMPLOYEE DOCTRINE
KRS 342 .640(1) bases a worker's status as an employee on the existence
of an express or implied contract of hire between the worker and putative
employer . The loaned employee doctrine permits the direct employee of one
business (general employer) to be considered an employee of another business
(special employer) and, thus, a co-employee of its employees if three basic tests
of an employment relationship are present: 1 .) an express or implied contract of
hire exists between the employee and the special employer ; 2 .) the employee
performs work for the special employer ; and 3 .) the special employer has the
right to control the work that the employee performs . 15 The doctrine was
instituted to protect injured workers and does not permit a special employer to
be thrust upon them against their will or without their knowledge, thereby
depriving them of the right to sue for damages. 16 Allied Machinery, Inc. v.
Wilson17 noted, however, that the more recent cases18 had broadened the scope
is Larson's , supra at § 67.01 .
16 Rice v. Coney, 414 S.W .2d 138, 141 (Ky. 1967) . See
17 673 S.W .2d
728
(Ky. App. 1984) .
also Larson's , su ra, §67.02(1) .
of a putative employer's immunity by focusing on its right to control the details
of the work being performed at the time of the injury rather than on the
existence of a contractual relationship with injured worker.
In the present case, a temporary worker and his direct employer (a
subcontractor) rely on the doctrine to defend against a tort claim by the
contractor's permanent employee . Hudson and Labor Ready assert that he was
loaned to Mid-America and was immune from Johnston's tort claim because he
was Mid-America's employee and her co-employee . We disagree .
Professor Larson's treatise notes that temporary employees comprise
between one and two percent of the American labor force and that the closest
loaned employee cases involve a general employer whose very business is to
furnish equipment and employees to others . 19 Although most cases consider
the worker to be the employee of the special employer when the general
employer arranges for labor only, some jurisdictions address the question by
statute.20 Kentucky is among those jurisdictions .
Enacted in 1996, shortly after the court rendered the decision in
Technical Minerals,21 KRS 342 .615(1) creates two classes of workers (leased
employees and temporary workers) and two classes of employers (employee
1s
19
20
21
See United Engineers and Constructors, Inc . v. Branham, 550 S.W .2d 540 (Ky.
1977); Brown v. Tennessee Gas Pipeline Co . , 623 F.2d 450 (C.A. Ky. 1980) . See
also Beaver v. Oakley, 279 S .W.3d 527 (Ky. 2009) .
Larson's , supra , § 67.05(3).
Id.
934 S.W.2d 266 .
12
leasing companies and temporary help services) . Employee leasing
arrangements are arrangements in which two or more entities allocate
employment responsibilities .22 KRS 342 .615(4) requires the lessee to secure
workers' compensation coverage for all leased employees or contract with the
employee leasing company to do so, and it requires the premium to be based
on the lessee's exposure and experience. A temporary help service hires its
own employees and assigns them to clients for finite periods to supplement the
client's workforce during special situations such as employee absences,
temporary skill shortages, and seasonal workloads.23 KRS 342 .615(5) states
explicitly that the temporary help service "shall be deemed" a temporary
worker's employer and "shall be subject" to Chapter 342 .
Although KRS 342 .615(4) may permit a leased employee to be viewed as
being the lessee's employee rather than the employee leasing company's
employee, KRS 342 .615(5) does not permit a temporary employee to be viewed
as being the client's employee . Hudson clearly was a temporary worker rather
than a leased employee and KRS 342 .316(5) clearly required him to be
considered Labor Ready's employee rather than Mid-America's employee .
Thus, he was not Johnston's co-employee .
22
23
KRS 342.615(1)(d) .
KRS 342.615(1) 0 .
13
INDEMNITY
Noting that Mid-America has already paid workers' compensation
benefits, Labor Ready and Hudson assert that Mid-America may be forced to
compensate Johnston twice if her civil suit proceeds. They base the argument
on common law indemnity and on the terms of Labor Ready's work ticket. We
find no merit in either portion of the argument .
The common law right of indemnity exists when two parties are liable to
an injured party but one is less culpable .24 Labor Ready and Hudson assert
that Hudson's negligence may be attributed to Mid-America, which had the sole
right and obligation to supervise him . In that case, Labor Ready would be able
to seek indemnification from Mid-America and, as a consequence, MidAmerican could be forced to indemnify Labor Ready for damages in addition to
the workers' compensation benefits that it has already paid to Johnston . We
disagree because KRS 342.690(1) provides otherwise .
KRS 342 .690(1) states, in pertinent part, that:
The liability of an employer to another person who may
be liable for or who has paid damages on account of
injury or death of an employee of such employer
arising out of and in the course of employment and
caused by a breach of any duty or obligation owed by
such employer to such other shall be limited to the
amount of compensation and other benefits for which
such employer is liable under this chapter on account
of such injury or death, unless such other and the
24
Union Carbide Corporation v. Sweco, Inc. , 610 S.W.2d 932, 934 (Ky. App. 1980),
citing Brown Hotel Co. v. Pittsburgh Fuel Co. , 311 Ky. 396, 224 S.W.2d 165 (1949) .
14
employer by written contract have agreed to share
liability in a different manner.
KRS 342 .690(1) limits an employer's liability to indemnify a third-party
tortfeasor to the amount of workers' compensation benefits that the employer
must
pay .25
In the event a jury finds that Hudson's negligence helped to cause
Johnston's injuries, KRS 342 .690(1) limits Mid-America's obligation to
indemnify Labor Ready to the amount of workers' compensation benefits that it
paid unless the parties have contracted otherwise.
Another argument is that the work ticket amounts to a contract in which
Mid-America agreed to indemnify Labor Ready for injuries caused by the
negligence of its employees . Labor Ready and Hudson assert that the
indemnification provision would require Mid-America to compensate Johnston
twice for her injury, which is contrary to Chapter 342 .
As the Court of Appeals pointed out, even if the work ticket were found to
constitute a contract, its language does not require Mid-America to pay
Johnston anything. Moreover, KRS 342 .700(1) prohibits her from recovering
both in tort and under Chapter 342 . KRS 342 .690(1) clearly permits employers
such as Labor Ready and Mid-America to agree to share an employer's liability
for damages in a manner different from that set forth in the statute, provided
25
Capps v. Herman Schwabe, Inc., 628 F .Supp. 1353, 1359 (W.D . Ky. 1986) . See also
Burrell v. Electric Plant Bd. of City of Franklin, Ky , 676 S .W.2d 231 (Ky. 1984),
overruled on other grounds in Dix 8v Associates Pipeline Contractors, Inc . v. Key,
799 S .W.2d 24 (Ky. 1990) .
15
they do so by written contract. Thus, we are not convinced that a contractual
indemnity provision must be viewed as being abhorrent to Chapter 342.
The decision of the Court of Appeals is affirmed and this matter is
remanded for further proceedings .
Minton, C .J. ; Cunningham, Noble, Schroder, Scott, and Venters, JJ .,
concur. Abramson, J., not sitting.
COUNSEL FOR APPELLANTS :
Elizabeth U. Mendel
Woodward, Hobson 8v Fulton, LLP
101 South Fifth Street
2500 National City Tower
Louisville, KY 40202-3175
COUNSEL FOR APPELLEE :
Timothy R. McCarthy
Nutt Law Office
Starks Building, Suite 490
455 Fourth Avenue
Louisville, KY 40202
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