The Scope of a Principal Employer’s Duty to an Independent Contractor’s Employee

WDC Journal Edition: Winter 2012
By: Ariella Schreiber, Rural Mutual Insurance Company

I. Introduction

A client calls you up with the following factual scenario: the client hired an independent contractor to transport a metal grain bin from one area to another. In the course of transporting the grain bin, the independent contractor’s employee was electrocuted. After the accident, the injured employee received worker’s compensation benefits, and the employee’s lawyer is now threatening to sue your client under Wis. Stat. § 102.29(1). Your client wants to know whether he or she bears any liability under these circumstances. The short answer to this question is that, under most circumstances, the client does not bear any liability for the employee’s injuries.

A principal employer is generally not liable in tort for injuries sustained by an independent contractor’s employee while the employee is performing the contracted work. This rule arises out of public policy principles and worker’s compensation exclusivity, even though Wis. Stat. § 102.29(1) permits an injured employee to sue a negligent third party that caused the employee’s injuries. This article examines the line of cases articulating this general rule, how to determine if the injured employee’s employer is an “independent contractor,” and the two exceptions to the general rule.



II.
In General, an Independent Contractor’s Injured Employee Cannot Sue a Principal Employer in Tort.

A principal employer is liable in tort for injuries sustained by an independent contractor’s employee in only two circumstances: (1) if the principal employer committed an affirmative act of negligence; or (2) if the employee was injured while engaged in an extrahazardous activity.[i] So, using the example presented in the Introduction, if the employee’s injury arises out of the transportation of the grain bin in question, the principal employer is not responsible for the employee’s injuries unless there is no principal employer/independent contractor relationship, or one or both of these exceptions applies.

Wisconsin Stat. § 102.03(2) provides that an employee’s right to recover worker’s compensation benefits shall be the employee’s exclusive remedy against the employer. But the so-called “exclusive remedy rule” does not prevent an injured employee from suing a person who is not his or her employer. Wisconsin Stat. § 102.29(1) provides that an employee’s claim for worker’s compensation against the employer does not affect the employee’s right to bring an action in tort against “any other party.” Therefore, under §§ 102.03(2) and 102.29(1), it appears that an injured employee[ii] can bring suit against a principal employer because the principal employer is not the injured employee’s direct employer.

In this special circumstance, however, the Wisconsin Supreme Court has determined that public policy and worker’s compensation principles preclude an injured employee from recovering from the principal employer.[iii] Wisconsin’s rationale for adopting this rule is that the principal employer has already paid for the injured employee’s worker’s compensation premium because the contract price between the principal employer and the independent contractor incorporates that cost.[iv] Further, in this circumstance, the principal employer has already assumed indirect financial responsibility for the employee’s injuries. The principal employer’s payment to the independent contractor indirectly constitutes the injured employee’s wages, benefits and entitlement to worker’s compensation, thereby precluding tort liability.[v] “Since the principal is the indirect employer of its contractor’s employees, to make the principal liable in . . . tort . . . would be inconsistent with the bedrock principle that worker’s compensation rights are exclusive of common law rights.”[vi]

Said otherwise, principal employers immunized from tort liability under this rule do not actually escape liability even when injured employees are precluded from maintaining tort actions.[vii] The principal employer has already assumed financial responsibility for injuries to the employees because the contract price between the principal employer and the independent contractor includes a payment for worker’s compensation coverage. Because the principal employer has indirectly paid for worker’s compensation, the principal employer has an incentive to assure that the independent contractor takes sufficient safety precautions and that the injured employee is compensated.

The supreme court and court of appeals have repeatedly emphasized that this rule does not leave an injured employee without recourse: “[T]he injured employee is not without a claim; rather his or her claim sounds in worker’s compensation, not tort.”[viii] Further, the injured employee is still free to sue any other responsible third party in tort under Wis. Stat. § 102.29(1). This rule only precludes suits against the principal employer.

A. Independent Contractor Versus Employee

In order to apply this rule, there must be a general contractor/independent contractor relationship between the contracting parties.[ix] Therefore, the first inquiry in any situation where this rule might apply is whether the relationship between the principal employer and the injured employee’s employer constitutes an independent contractor relationship. The issue of whether an independent contractor relationship exists is an issue of law that the court must decide.[x]

“An independent contractor is a person or entity that contracts to perform services for another, but is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.”[xi] Whether the party is labeled an independent contractor in the contract is of no consequence because the test looks beyond labels to factual indicia of control or right to control.[xii] “The single most important criterion in determining whether a person is an independent contractor is the degree to which the owner, rather than the independent contractor, retains the right to control the details of the work.”[xiii]

For example, in Tatera v. FMC Corp., a recent decision from the Wisconsin Supreme Court, Walter Tatera’s wife and Estate (collectively Tatera) sought to impose liability on FMC Corp. (FMC) as a result of Walter’s death from mesothelioma.[xiv] Walter’s death was allegedly the result of his exposure to asbestos from industrial electric brakes that took place during the course of his employment.[xv] At all times material, B&M Machine Products (B&M) employed Walter full-time. FMC occasionally outsourced some of its machining work to B&M, and Walter’s employment with B&M placed him in a position where he was exposed to the industrial brakes that contained asbestos.[xvi]

In their attempt to impose liability on FMC, plaintiffs argued that the relationship between FMC and B&M was not that of principal employer and independent contractor, but instead that of bailor and bailee.[xvii] The Wisconsin Supreme Court rejected this argument and instead concluded that B&M was FMC’s independent contractor because B&M “retained control with respect to performing” the work, the work was conducted at B&M’s shop, and FMC did not instruct B&M how to perform the work.[xviii]

If an owner retains the right to control the details of the work, then no true independent contractor relationship exists between the owner and the person or entity the owner hires to do the work.[xix] In that case, the “‘general rule’ of owner non-liability simply does not apply.”[xx] But once a court determines—or the parties stipulate—that an owner relinquished control of the details of the work to an independent contractor, the inquiry’s focus shifts to whether an exception to the general rule of owner non-liability exists.



III.
Exceptions to the General Rule of Non-Liability

There are two exceptions to the general rule of non-liability, either of which is sufficient to impose liability on a principal employer. First, a principal employer may be liable to the independent contractor’s employee for injuries caused by the principal employer’s affirmative act of negligence.[xxi] Second, a principal employer may be held vicariously liable for the negligence of an independent contractor when the contractor’s employee is injured while performing an extrahazardous activity.[xxii] Unless one of these exclusions applies, however, a principal employer is not liable in tort for the injuries sustained by an independent contractor’s employee.[xxiii]

A. Affirmative Acts of Negligence

Under the first exception, a principal employer may be liable to an independent contractor’s employee for injuries caused by the principal employer’s affirmative act of negligence.[xxiv] This exception was first applied in 1976 in Barth v. Downey Co., Inc., in which the Wisconsin Supreme Court concluded that “something extra”—meaning an affirmative act of negligence that increases the risk of injury—is necessary to sustain an action against a principal employer brought by an independent contractor’s employee.[xxv]

The cases addressing this issue take pains to distinguish between acts of commission and acts of omission (or between acts of “misfeasance” and acts of “nonfeasance”).[xxvi] Although the distinction is “not always clear,” a “passive inaction or a failure to take steps to protect” the employee from harm is insufficient to constitute an affirmative act of negligence.[xxvii] Allegations that the principal employer failed to do something are therefore generally insufficient to meet this burden because a failure to act “cannot be seen as active misconduct constituting an affirmative act.”[xxviii]

In Wagner v. Continental Casualty Co., the Wisconsin Supreme Court concluded that a general contractor’s allegedly negligent hiring of an independent contractor to perform demolition work did not constitute an affirmative act of negligence, but rather an omission.[xxix] The general contractor’s failure to check the independent contractor’s credentials was not “active” misconduct, but rather was “passive inaction or a failure to protect” the injured employee from harm. Similarly, in Danks v. Stock Bldg. Supply, Inc., the court of appeals held as a matter of law that the principal employer’s failure to warn the injured employee about the dangers of a hanging truss before that truss ultimately injured him was “at most passive misconduct, not an affirmative act of negligence that increased the risk of harm” to the injured employee.[xxx]

There are no cases in Wisconsin that have placed liability on a principal employer as a result of the principal employer’s affirmative act of negligence. In every case addressing this issue, the Wisconsin appellate courts have held that the allegations against the principal employer were allegations that the principal employer failed to do something, and the injured employees therefore failed to meet their burden to show something other than passive misconduct.

B. Extrahazardous Activity

The second exception to the rule holds that a principal employer may be liable to an independent contractor’s employee if he or she is engaged in an extrahazardous[xxxi] activity.[xxxii] An extrahazardous activity is “one in which the risk of harm remains unreasonably high no matter how carefully it is undertaken.”[xxxiii]

By contrast, activities classified as “inherently dangerous” do not constitute extrahazardous activities:

We do not regard an activity which is inherently dangerous because of the absence of special precautions to be synonymous with an activity that is extrahazardous. A person engaged in an activity of the first type, i.e., one that is inherently dangerous without special precautions, can take steps to minimize the risk of injury. . . .
By contrast, an activity that is said to be extrahazardous . . . is one in which the risk of harm remains unreasonably high no matter how carefully it is undertaken. Examples would include transporting nuclear waste or working with toxic gases.[xxxiv]

Therefore, a more quantifiable definition of an “extrahazardous” activity is one in which it is impossible to take precautions that would minimize injuries. In order for an activity to be taken out of the realm of extrahazardous, “the risk of injury need not be eliminated, just minimized.”[xxxv]

For example, in Estate of Thompson v. Jump River Electric Coop., the court of appeals held that working with high voltage electricity is inherently dangerous, not extrahazardous.[xxxvi] This was because Thompson—who was electrocuted—could have minimized the danger of injury by wearing rubber gloves, using mechanical equipment to perform part of the work, or covering the pole.[xxxvii] As a result, the extrahazardous activity exception did not apply.

Similarly, in Anderson v. Marathon Petroleum Co., the Seventh Circuit (applying Wisconsin law), held that sandblasting oil storage tanks could not be considered extrahazardous.[xxxviii] Anderson died from silicosis, a lung disease caused by breathing in silicone dust over a long period of time. Tri-Kote, Inc., employed Anderson to sandblast oil storage tanks owned by Marathon Petroleum, and Anderson attempted to hold Marathon responsible for his injuries.[xxxix] The Seventh Circuit refused to impose liability on Marathon Petroleum because Tri-Kote or Anderson could have taken steps to reduce the risk of serious injury, including the use of proper face masks and appropriate breathing equipment.[xl]

Thus, as long as it is possible for the contracted-for work to be made safer, it is unlikely that a court will find that the activity in question is extrahazardous. Wisconsin courts and federal courts applying Wisconsin law have held as a matter of law that the following activities are not extrahazardous because their inherent risks can be minimized with proper procedures: 1) the activity of machining an asbestos-containing friction disk (Tatera) [xli]; 2) working with high-voltage electricity (Estate of Thompson)[xlii]; 3) sandblasting in a confined space (Anderson)[xliii]; and 4) construction, demolition, and excavation (Wagner).[xliv] Thus, the exception to the general rule of principal employer non-liability does not apply in these circumstances. On the other hand, the risks of transporting nuclear waste or working with toxic gases cannot be minimized and those activities are therefore extrahazardous, and the principal employer can be held liable for injuries to the employees of its independent contractors in those circumstances.[xlv]



IV.
Conclusion

So, what about that client who called you to ask about liability? Well, if the only thing that the client did was hire the independent contractor to transport the grain bin, then it’s unlikely that that client has any liability because of the general rule of non-liability. After all, the most that could be said about your client’s alleged negligence is that it was a failure to do something (perhaps to obtain the requisite permits for the transportation of an oversized load). Absent more, the transportation of a grain bin does not involve an affirmative act of negligence on the part of the principal employer, and is also unlikely to constitute an extrahazardous activity.

Before you can rule out application of these exceptions, however, you’ll want to determine whether an independent contractor relationship existed in the first place. Ask for a copy of the contract between your client and the contractor and determine the amount of control your client exercised over the contractor’s work. Assuming an independent contractor relationship existed, you should next examine the activity in question. If there is any way to make the activity safer or less hazardous, then a court can determine as a matter of law that it may have been inherently dangerous but was not extrahazardous. Under those circumstances, your client will not bear any liability for the employee’s injuries.


[i] See Tatera v. FMC Corp., 2010 WI 90, ¶ 15, 328 Wis. 2d 320, 786 N.W.2d 810; Wagner v. Continental Cas. Co., 143 Wis. 2d 379, 421 N.W.2d 835 (1988).

[ii] Although there are no published cases on the issue, injured “employees” also include those classified as “borrowed employees” under Wis. Stat. § 102.29(6)(b)1. I handled this issue on appeal and prevailed, though the opinion was not published. If anyone needs briefs or other information, please feel free to contact me.

[iii] See Wagner, 143 Wis. 2d at 397-400. The Wagner court examined four reasons supporting this rule, but adopted only one as the rule’s basis in Wisconsin. Other reasons that the principal employer should not be subject to liability in this situation include: 1) if the principal employer is subject to tort liability when he hires a skilled independent contractor, but is not subject to that same liability when using his own unskilled employees because of the exclusive remedy rule, then imposing tort liability could have unfavorable consequences to the public due to jobs being completed improperly by unqualified workers; 2) because the injured employee is guaranteed compensation through the worker’s compensation system, permitting recovery from the principal employer could result in an unjustifiable windfall; and 3) employees must bear part of the risk of injury because they are “to some extent” able to protect themselves against any danger, whereas a principal employer has no such opportunity. Id. at 397-99.

[iv] Tatera, 328 Wis. 2d 320, ¶ 16; Wagner, 143 Wis. 2d at 399-400.

[v] Tatera, 328 Wis. 2d 320, ¶ 16 (citing Anderson v. Marathon Petroleum Co., 801 F.2d 936, 941 (7th Cir. 1986)).

[vi] Id., ¶ 16 (citing Anderson, 801 F.2d at 941).

[vii] Wagner, 143 Wis. 2d at 399.

[viii] Tatera, 328 Wis. 2d 320, ¶ 16.

[ix] Id., ¶ 19; Danks v. Stock Bldg. Supply, Inc., 2007 WI App 8, ¶¶ 17-20, 298 Wis. 2d 348, 727 N.W.2d 846.

[x] Tatera, 328 Wis. 2d 320, ¶ 20.

[xi] Id. (internal quotations and citations omitted).

[xii] The Wisconsin Supreme Court has applied this rule in the general contractor/subcontractor context, even though the parties used the term “subcontractor” rather than “independent contractor” throughout. See Snider v. N. States Power Co., 81 Wis. 2d 224, 238-39, 260 N.W.2d 260 (1977).

[xiii] Snider, 81 Wis. 2d at 232.

[xiv] Tatera, 328 Wis. 2d 320, ¶ 1.

[xv] Id., ¶ 4.

[xvi] Id., ¶ 5.

[xvii] Id., ¶ 19.

[xviii] Id., ¶¶ 20-21.

[xix] Danks, 298 Wis. 2d 348, ¶ 20.

[xx] Id.

[xxi] Wagner, 143 Wis. 2d at 388 (citing Barth v. Downey Co., Inc., 71 Wis. 2d 775, 239 N.W.2d 260 (1976)).

[xxii] Id. (citation omitted).

[xxiii] Tatera, 328 Wis. 2d 320, ¶ 21.

[xxiv] Wagner, 143 Wis. 2d at 388.

[xxv] Barth, 71 Wis. 2d at 783.

[xxvi] See, e.g., Wagner, 143 Wis. 2d at 389-90.

[xxvii] Id. (quoting Snider, 81 Wis. 2d at 239).

[xxviii] Id. at 390.

[xxix] Id.

[xxx] Danks, 298 Wis. 2d 348, ¶ 33 (internal quotations and citations omitted).

[xxxi] Wisconsin cases interchangeably use the terms “extrahazardous” and “abnormally dangerous.” See,e.g., Wagner, 143 Wis. 2d at 392 (“By contrast, an activity that is said to be extrahazardous or abnormally dangerous . . . .”) (emphasis added). I will use the term “extrahazardous” throughout this article to minimize confusion.

[xxxii] Tatera, 328 Wis. 2d 320, ¶ 32; Wagner, 143 Wis. 2d at 401; Estate of Thompson v. Jump River Electric Coop., 225 Wis. 2d 588, 595-96, 593 N.W.2d 901 (Ct. App. 1999).

[xxxiii] Wagner, 143 Wis. 2d at 392.

[xxxiv] Id. at 392-93.

[xxxv] Estate of Thompson, 225 Wis. 2d at 596; see also Anderson, 801 F.2d at 940.

[xxxvi] Estate of Thompson, 225 Wis. 2d at 596.

[xxxvii] Id.

[xxxviii] Anderson, 801 F.2d at 940.

[xxxix] Id. at 938.

[xl] Id. at 940.

[xli] Tatera, 328 Wis. 2d 320, ¶ 37.

[xlii] Estate of Thompson, 225 Wis. 2d at 596.

[xliii] Anderson, 801 F.2d at 940.

[xliv] Wagner, 143 Wis. 2d at 392.

[xlv] Id. at 392-93.