Defense Digest

Will The Real Employer Please Stand Up? - The Appellate Division's Most Recent Look At Special Employment Status Under The New Jersey Workers' Compensation Law

In several recent decisions being considered for publication, the Appellate Division has re-visited the issue of "special employee/employer" under the New Jersey Workers' Compensation Law. Like most other states, New Jersey provides for limited benefits to injured workers in the form of medical treatment and lost wages. Unlike a regular tort action, an injured worker does not need to prove negligence on behalf of the employer to receive these benefits. In return, the employer cannot be sued for "pain and suffering," as in a tort case. This trade off of rights and available remedies is commonly referred to as the "exclusive remedy" doctrine.

An issue that frequently arises when the employment involves a staffing agency or a contractor/subcontractor scenario is that of "special employee/employer" status. For example, when an employee is assigned by a staffing agency to another business's job site pursuant to a contract between the staffing agency and the business, that employee is considered to be an employee of both the staffing agency and the assigned business. The business employing the worker through the staffing agency is referred to as a "special employer." Both entities, the staffing agency and the special employer, are responsible for providing workers' compensation coverage, sometimes under an apportionment method, to an injured worker. An injured worker is precluded from suing the special employer in a tort case, even if their negligence caused the injury. The special employer, like the direct employer, is also protected from a tort action under the exclusive remedy doctrine.

The court has developed a five-pronged test to determine whether an entity is a "special employer" and, thus, protected from a tort action. Kelly v. Geriatric and Med. Serv., 287 N.J. Super 567 (App. Div.), aff'd, 147 N.J. 42 (1996). In analyzing whether the plaintiff in Kelly was a special employee, the court examined the following issues: (1) whether the employee has an express or implied contract; (2) whether the work being done by the employee is essentially that of the special employer; (3) whether the special employer has the right to control the details of the work; (4) whether the special employer pays the employee's wages; and (5) whether the special employer has the power to hire, discharge, or recall the employee.

In three unpublished cases, the Appellate Division has reaffirmed the use of the five-pronged test in Kelly to determine special employment status. In Ronald Branch v. Earth Tech and Charles Keegan, Docket No. A-1562-03T2 (October 27, 2004), the plaintiff sustained injuries while working as a construction laborer for Onsite Environmental Services (and its affiliate, Duluth Environmental Services). The plaintiff brought a tort action against the general contractor, Earth Tech. Earth Tech had contracted with Onsite to obtain laborers, including the plaintiff. On appeal from the summary judgment dismissal of Earth Tech, the plaintiff argued that the special employee doctrine should not apply to employees in the construction industry. Although the agreement between Onsite and Earth Tech stated that Onsite's employees are not deemed to be employees of Earth Tech, the court, in relying on the detailed fact analysis set forth in Kelly, found that the plaintiff was an employee of both Onsite and Earth Tech and upheld the summary judgment. The court found no basis to treat construction employees differently and re-affirmed that the purpose of the workers’ compensation statute is "to place the cost of work-connected injury upon the employer who may readily provide for it as an operating expense." Tocci v. Tessler & Weiss, Inc., 28 N.J. 582, 586 (1959).

In Florence Joan Quinn v. Joule Temporaries, Docket No. A-4846-03T2 (February 14, 2005), the plaintiff sustained injuries while working for a temporary placement agency. The plaintiff sustained injuries while on an assignment with Polo Ralph Lauren in September 1995. Joule accepted liability for the workers’ compensation claim, and the plaintiff filed a tort action against Polo. In that litigation, Polo’s motion for summary judgment, premised on the special employee doctrine, was granted in August of 1997. Joule was aware of the plaintiff’s tort claim and did not seek to implead Polo following the summary judgment. Thereafter, Joule and the plaintiff entered into an Order Approving Settlement (OAS) on June 25, 1998. Then, more than three years later, Joule moved to reopen the claim to implead Polo, which was denied by the Judge of Workers' Compensation, who held that the statue did not allow a respondent to reopen a case, except for commutations. N.J.S.A. 34:15-25. On appeal, the court affirmed, holding that, although the Division had the jurisdiction to possibly apportion liability against Polo, that jurisdiction was extinguished once Joule and the plaintiff entered into the OAS.

In Desiree Paton v. Purepac Pharmaceutical Co., Docket No. A-4933-03T3 (March 15, 2005), the plaintiff sustained injuries while working for a temporary employment agency, Integro. The plaintiff sustained totally and permanently disabling pulmonary injuries while working at Purepac Pharmaceutical Company in 1994. In the ensuing workers’ compensation claim, Purepac was impled but was later dismissed by a consent order. A judgment was entered against Integro in January of 2002. Thereafter, the plaintiff filed a tort action against Purepac. Purepac filed for summary judgment, relying on the exclusive remedy doctrine. The plaintiff argued that Purepac was barred from raising the exclusive remedy doctrine defense because Purepac had been dismissed from the previous workers’ compensation action on the grounds that no employment relationship existed. After concluding under Kelly that Purepac was the plaintiff’s special employer, the court then upheld Purepac’s dismissal in the tort action on the basis that the consent order was not the same as a judicial determination that Purepac was not a special employer. The trial court and the Appellate Division were critical of the actions of the plaintiff and Integro in the workers’ compensation litigation. The trial court referred to the consent order as "a setup if nothing else," and the Appellate Division suggested that the plaintiff and Integro were in collusion to pursue Purepac in a tort action. The court further held that, since Purepac was a special employer, and since the plaintiff received all of the workers’ compensation benefits she was entitled to, the plaintiff was not hurt by dismissing the case against Purepac.

The cases above evidence the court’s desire to maintain the protection afforded under the special employment doctrine. As indicated, the special employee/employer analysis is very fact sensitive. Accordingly, an immediate and comprehensive investigation of the employment relationship is essential. Obtaining documentation, such as contracts, job descriptions, employment handbooks, payroll records, and even incorporation/partnership documents, can help in analyzing whether there is special employment. Likewise, early identification and interviews of the appropriate managers and/or contractors can further assist in determining the degree of control an entity had over an injured worker, which is the most important factor in determining special employment. Finally, if special employment is not applicable, then employers should investigate whether an injured worker is pursuing a tort action (and compel if necessary) so that the employer can exercise its statutory lien against any tort settlement or judgment the injured worker may obtain. As in almost all cases, successful litigation results involving specials employment issues will often start with successful claims handling.

*Bob is an associate in our Cherry Hill, NJ office. He can be reached at (856) 414-6009 or rfitzgerald@mdwcg.com.