Tennessee Companies May Have Increased Protection Against Negligence Claims From Subcontractor Employees But Additional Exposure To Workers’ Compensation Claims

Tennessee Companies May Have Increased Protection Against Negligence Claims From Subcontractor Employees But Additional Exposure To Workers’ Compensation Claims

On May 28, 2010 the Tennessee Court of Appeals issued its decision in Griffith v. Jellico Community Hospital, Inc., holding that Jellico qualified as a principal contractor (and thus a statutory employer) to an employee of a subcontractor (Aramark) that maintained Jellico’s biomedical equipment and dismissing the employee’s negligence claim against Jellico. Pursuant to Tennessee law, a company that qualifies as a “principal contractor” is deemed a statutory employer. A statutory employer may be liable for compensating a subcontractor’s employees for workers’ compensation injuries where the subcontractor fails to provide worker’s compensation insurance. In such instances, the subcontractor’s employees would then be barred from bringing suit against the principal contractor for rights and remedies beyond those provided in Tennessee’s workers’ compensation law.

A company only qualifies as a principal contractor, however, if “(1) the company undertakes work for an entity other than itself; (2) the company retains the right of control over the conduct of the work and the subcontractor’s employees; or 3) the work being performed by a subcontractor’s employees is part of the regular business of the company or is the same type of work usually performed by the company’s employees.” Because the parties did not dispute that Jellico did not undertake work for another entity and the trial court found as a matter of fact that Jellico did not retain the right of control over the service provider’s employees, the determinative issue in this case was whether the plaintiff’s work was part of Jellico’s regular business.

As part of its regular business, Jellico Community Hospital provided diagnostic testing, evaluation, and treatment to patients using biomedical equipment. Such biomedical equipment included ultrasound machines, mammography units, x-rays, etc. To maintain the requisite licenses to operate a hospital, both state and federal regulations required Jellico to conduct periodic inspections of its biomedical equipment. To satisfy these requirements, Jellico contracted with Aramark to maintain, repair, and calibrate its biomedical equipment. Jellico’s agreement with Aramark required Aramark to assume the responsibility to monitor, document testing, arrange repair, provide planned maintenance inspections, and assist in complying with safety regulations and standards for at least 700 pieces of equipment at the Hospital.

Aramark hired plaintiff as the only biomedical equipment technician at Jellico, and the plaintiff performed his duties on a daily and continual basis. After he was injured at work, the plaintiff recovered workers’ compensation benefits from Aramark and sued Jellico for negligence. Aramark intervened to protect its subrogation interests.

The trial court found that the plaintiff’s work was part of Jellico’s regular business and, thus, granted the Hospital’s motion for summary judgment. The Tennessee Court of Appeals affirmed the trial court’s decision, holding the trial court correctly determined Jellico was a principal contractor and that the trial court properly dismissed plaintiff’s negligence claim under the exclusive remedy rule. The Court of Appeals compared this case to several prior decisions, including a 2009 Tennessee Supreme Court decision, Lindsey v. Trinity Communications, Inc. The Court of Appeals explained as follows:

Without safe and functioning biomedical equipment, Jellico would not be able to conduct its business as a hospital. In contrast to Lindsey, where a small company contracted out a major construction project, Jellico, as a hospital, depended on the contracted work with Aramark to ensure that it: complies with Tennessee Licensure requirements; maintains its status as an approved health care provider under Medicare and Medicaid; keeps its accreditation; and provides safe services to patients. Griffith’s argument [that Jellico could not be his “statutory employer” because it does not have employees that perform the same type of work] fails because it ignores the continual nature of the services provided by Aramark. Furthermore, Griffith’s argument does not account for the connection between the maintenance of the biomedical equipment to Jellico’s basic functions as a general hospital.

The Jellico decision further refines prior Tennessee court decisions in the principal contractor/statutory employer area regarding the phrase “part of the regular business of the company,” in the third method of establishing whether an entity is a principal contractor. It is now clear that duties an entity is required by law to perform are part of the regular business of the entity, even where the work solely is performed by a subcontractor’s employees. Under these circumstances, the entity would be entitled to statutory employer status and immunity from the subcontractor’s employees’ negligence suits. However, the entity would also be exposed to the workers’ compensation claims of the subcontractor’s employees where the subcontractor has failed to secure workers’ compensation coverage. For this reason, companies should consider including language in subcontractor contracts requiring the subcontractor to provide workers’ compensation insurance for its employees and to require proof of such insurance.

Finally, before a company decides to assert that it is a statutory employer it should consider that being a statutory employer may implicate other laws such as state and federal wage and hour laws, antidiscrimination laws, and the National Labor Relations Act. Companies should consider the potential impact of these laws when undertaking the statutory employer analysis and take the appropriate steps to protect their interests. As in the case with workers’ compensation insurance, a company who contracts with a subcontractor should address these issues in the contract.