A company that hires a subcontractor doesn’t become the subcontractor’s statutory employer if it outsources the work for legitimate business purposes rather than to simply avoid paying workers’ compensation costs for the contractor’s employees, a narrowly divided South Carolina Supreme Court has ruled.
The Aug. 11 decision overrules prior cases that had analyzed the issue of whether a worker was a statutory employee by broadly considering only whether the workers were performing work that was part of the employer’s “trade, business or occupation.”
But that view had already begun to narrow over recent decades, Justice John Few wrote for the court’s majority, culminating with the state’s Court of Appeals 1998 decision in Abbott v. The Ltd., Inc., which held that even though work is important to a business, it isn’t necessarily part of the business.
“Today, following our more recent decisions on the statutory employee doctrine, we apply the doctrine in light of the General Assembly’s original purpose for enacting it: ‘to prevent owners and contractors from subcontracting out their work to avoid liability for injuries incurred in the course of employment.’”
Who’s the boss?
Dennis Seay died in 2014, not long after being diagnosed with mesothelioma, a rare and particularly aggressive form of cancer caused almost exclusively to exposure to asbestos. From 1971 to 1980, Seay had worked for Daniel Construction Co. doing maintenance work at a manufacturing plant in Spartanburg, where he worked on asbestos-insulated piping. The plant’s owner, which would later become known as CNA Holdings, had contracted DCC to provide all its maintenance and repair workers. DCC was required to purchase workers’ compensation insurance for its workers, and the plant’s owner reimbursed Daniel for the premiums.
Seay’s estate sued CNA, alleging negligence in using asbestos and failing to disclose its dangers. In 2015, a Spartanburg County jury awarded the estate $14 million in damages. CNA appealed, arguing that Seay had been CNA’s statutory employee, and so his claims were thus remedied exclusively by workers’ compensation. In 2019 the state’s Court of Appeals disagreed and affirmed the verdict, which CNA appealed again.
Writing for the Supreme Court’s majority, Few said that the statutory employee doctrine was enacted in 1963 as part of the South Carolina Workers’ Compensation Law, out of lawmakers’ concern that employers would try to escape direct employment relations by using subcontractors, leaving them without remedy. Under the doctrine, which the majority found applicable in Seay’s case, “an owner” who undertakes work that’s part of his “trade, business or occupation” is liable for any compensation that he would’ve been liable for had the subcontractor been his immediate employee.
Few noted that the scope of “trade, business or occupation” was once viewed broadly to include “any work deemed necessary to the owner’s business,” but that things have changed since the Supreme Court in 1939’s Marchbanks v. Duke Power Co. and 1940’s Boseman v. Pacific Mills found the subcontractor plaintiffs in those cased to be statutory employees.
In Marchbanks, the plaintiff had been electrocuted while painting power poles. The plaintiff in Boseman had died when the water tower he was painting exploded. The court held that the painting was essential in the operations of each company, so the work was part of its “trade, business or occupation.” A long line of decisions followed, finding that maintenance workers at manufacturing businesses are statutory employees.
A brand new life around the bend
But in 1973, jurisprudence began to trend away from those cases, and the high court began to interpret the doctrine differently, Few wrote. In 2003, the court found in Olmstead v. Shakespeare that the Abbott ruling had changed what constitutes an owner’s “trade business or occupation,” overruling all prior cases conflicting with Abbott.
“If a business manager reasonably believes her workforce is not equipped to handle a certain job, or the financial or other business interests of her company are served by outsourcing the work, and if the decision to do so is not driven by a desire to avoid the cost of insuring workers, then the business manager has legitimately defined the scope of her company’s business to not include that particular work,” Few wrote.
Further, the majority said, the doctrine wouldn’t be served by making CNA an additional workers’ compensation benefits provider—benefits the DCC had already provided—or by granting CNA immunity for its wrongful conduct.
Chief Justice Donald Beatty and Justice Kaye Hearn concurred with the decision.
Justice George James, joined by Justice John Kittredge, dissented, arguing that the majority had misread Abbott and Olmstead, and that these cases were limited to transportation cases. Each ruling had stated that while transporting goods is important to most businesses, the transportation by a carrier, without more, does not qualify as part of the owner’s “trade, business, or occupation” as long as the transportation of goods is not the company’s primary business.
James also argued that Seay was a statutory employee according to three tests established by the high court in 1997’s Glass v. Dow Chem. Co. Seay’s work was integral to plant operations, James wrote, because “if these components didn’t operate, the plant wouldn’t run.” Once a year, portions of the plant were shut down so that Seay could perform necessary repairs; CNA provided all of Seay’s supplies; and Seay’s daily instructions were passed along by a Daniel supervisor, but determined by a supervisor from CNA’s predecessor company.
One of the estate’s attorneys, Bert “Skip” Utsey of Clawson Fargnoli Utsey in Charleston, declined to comment on the ruling, citing CNA’s intention to petition for rehearing.
Mitch Brown, Matt Bogan, and Blake Williams of Nelson Mullins in Columbia represented CNA. They did not respond to a request for comment.
The 20-page decision is Keene v. CNA Holdings, LLC (Lawyers Weekly No. 010-049-21). The full text of the opinion is available online at sclawyersweekly.com.