Statutory Employers: What Could Go Wrong? Charlie Jeffreys v. The Uninsured Employer’s Fund, et al.
A historic building in Virginia is to be renovated. A historical society in Virginia, directed by someone living in California, operating as an “auxiliary” of a church in Virginia, hires an unlicensed contractor who then hires a second worker. What could possibly go wrong? Here is what went wrong: a worker is injured on the job then files workers’ compensation claims against the director, the historical society, and the church — none of whom have insurance. The Supreme Court of Virginia (SCVA) addressed the issue of statutory employment and one such scenario, in the case of Charlie Jeffreys v. The Uninsured Employer’s Fund. (____ S.E.2d ____) 2019 WL 620314.
The facts, summarized: The Harvey School Historical Society (“the Historical Society”) was founded and directed by Ms. Annie Mosby, a California resident. The Historical Society’s mission was to “purchase, restore, preserve, and maintain” the Harvey Colored School in Pittsylvania County, Virginia. The Mount Lebanon Missionary Baptist Church (“the Church”) allowed the Historical Society to meet in the Church, but provided no financial support nor exercised any control over the Historical Society. Mosby hired Mr. William Johnson, an unlicensed contractor, to renovate the school. Mosby was briefly on site at the beginning of the project but did not exercise any control over Johnson’s activities. Johnson hired Mr. Charlie Jeffreys with Mosby’s permission, but Johnson was exclusively the manager of Jeffreys. Jeffreys was injured on the job site and filed a workers’ compensation claim against: (1) Mosby, (2) the Church, and (3) the Historical Society – but not Johnson. NONE of the three defendants had workers’ compensation insurance so the Uninsured Employers’ Fund was made a party. Jeffreys contended each defendant was his statutory employer per Code §65.2-302 because he had been performing work within their trade, business, or occupation.
After some back and forth between the Commission and the Court of Appeals, none of the defendants were found to be Jeffreys’s direct employer or statutory employer. Jeffreys appealed the issue of statutory employment to the SCVA, which, upon analyzing the statutory employment provision of the Code, affirmed the Court of Appeals’ decision.
The statutory employment relationship is addressed in Code §65.2-302. There are three relevant sections, summarized below:
A). When any person (“owner”) undertakes to perform work which is a part of his trade, business or occupation and contracts with any other person (“subcontractor”), for performance of work normally undertaken by the owner, the owner shall be liable for workers’ compensation benefits for the subcontractor. Section A is also known as the “normal-work test,” which asks the question of whether the activity of the subcontractor is normally done by employees of the owner rather than a subcontractor or independent contractor. The example given by the SCVA in this regard was a roofing company hiring an independent contractor to fix a roof. In this scenario, the roofing company is the statutory employer of the independent contractor.
B). When any person (“contractor”) contracts to perform work for another which is not part of the trade, business or occupation of the other person and contracts with any other person (“subcontractor”) for execution of that work, then the contractor shall be liable for workers’ compensation benefits for the subcontractor. Section B is also known as the “subcontracted-fraction test,” meaning the original business is not in the same “trade, business or occupation” as the hired contractor/subcontractor. The example given by the Court in this scenario is a bank contracting with a general contractor to build a home, and the general contractor relies on subcontractors (such as carpenters, masons, plumbers, etc.) to complete the task. The general contractor, not the banker, is the statutory employer of the subcontractors’ employees.
C.) When a subcontractor in turn contracts with another (sub-)subcontractor for part or all of the work undertaken by the first subcontractor, then the owner or contractor shall be liable for workers’ compensation benefits in the same way imposed in sections A and B.
This case focused primarily on subsection A of Code §65.2-302. In analyzing statutory employment under this section, one must identify the nature of the owner/contractor and whether they are a governmental/public utility entity or a private entity. The SCVA writes that a “private entity, unlike a governmental entity or a public utility, has broad discretion to choose its activities and, thus, to define its own unique nature […] whereas a private business entity is essentially self-defining in terms of its trade, business, or occupation, a public utility has duties, obligations, and responsibilities imposed upon it by statute, regulation, or other means.” This may then make the assessment regarding what the trade, business, or occupation of a private entity more difficult than that of a governmental entity or a public utility.
Here, the SCVA affirmed the Court of Appeals’ findings that, though the Historical Society’s purpose was to restore the school, the members only raised funds and awareness of the project and encouraged community support. None of the members intended to actually move, construct, or restore anything. It was not part of the Historical Society’s “trade, business or occupation” per Code §65.2-302. Therefore, Jeffreys could not prove that the Church, Mosby, and the Historical Society were in the “trade, business, or occupation” of construction.
Takeaway: when looking to establish whether there is a potential statutory employer per Code §65.2-302, you must first assess whether the original contracting entity is public or private, and then whether it is engaging in its usual “trade, business or occupation.”
For more information about this article, please contact Jennifer Helsel at 571.612.5932 or jhelsel@fandpnet.com.
