Workers’ Compensation – In Tennessee when is a Business Considered a “Statutory Employer” and Entitled to Immunity from a Tort Claim Under the Exclusive Remedy Doctrine?

Analysis:  The Tennessee Court of Appeals recently decided an interesting case that discussed the exclusive remedy provision under Tennessee law in detail.  The Fayette Janitorial Services and Technology Ins. Co. v. Kellogg USA, Inc., No. W2011-01759-COA-R3-CV, 2013 WL 428647 (Tenn.Ct.App. 2013) decision specifically considered whether the defendant, Kellogg USA, Inc., was a statutory employer within the meaning of T.C.A. § 50-6-113 and therefore whether it was immune from the tort claim filed on behalf of the injured worker to recoup workers compensation payments. 

The worker worked for an entity hired by Kellogg USA, Inc. to perform cleaning and sanitation work at the Kellogg manufacturing plant in Memphis, Tennessee.  Kellogg operates on a 28 day cleaning cycle and shuts down the plant for approximately 16 to 24 hours every 28 days.  During this shut down, the cleaning and maintenance cycle is completed by Fayette Janitorial Services (the direct employer of the injured employee).  On September 27, 2008, one of Fayette’s employees was severally burned by chemicals while cleaning one of the corn cookers at the Kellogg plant therefore resulting in a significant payment of workers’ compensation benefits.  As a result of this payment the direct employer and insurance company who paid workers’ compensation benefits sued Kellogg USA, Inc. asserting a tort claim for negligence and other causes of action for the injuries to the worker. 

Kellogg filed a motion for summary judgment asserting it was a “statutory employer” of the employee pursuant to T.C.A. § 50-6-113 and therefore it was immune from suit due to the exclusive remedy doctrine found in Tennessee Workers Compensation Law.  The trial court granted Kellogg’s motion for summary judgment because it found Kellogg qualified as a statutory employer.

On appeal, the Tennessee Court of Appeals agreed with the trial court and found Kellogg was a statutory employer under T.C.A. § 50-6-113.  T.C.A. § 50-6-113(a) provides as follows:

(a) A principal contractor, intermediate contractor or subcontractor shall be liable for compensation to any employee injured while in the employ of any of the subcontractors of the principal contractor, intermediate contractor or subcontractor and engaged upon the subject matter of the contract to the same extent as the immediate employer.

The Court further noted that under Tennessee law “in exchange for the principal contractor’s exposure to liability under the Workers’ Compensation Law, the principal contractor receives immunity from suit in tort.”  Fayette at 4.  Tennessee Workers’ Compensation law contains an exclusive remedy provision which provides that:

(a) The rights and remedies granted to an employee subject to this chapter, on account of personal injury or death by accident, including a minor whether lawfully or unlawfully employed, shall exclude all other rights and remedies of the employee, the employee's personal representative, dependents or next of kin, at common law or otherwise, on account of the injury or death.

T.C.A. § 50-6-108.  As a result, if an entity is considered the statutory employer, then they can use the exclusive remedy provision to defeat negligence claims brought against them by employees.  Fayette at 4.  The “statutory employer's immunity from tort suits applies even in situations in which the statutory employer was not in fact required to pay workers' compensation benefits to the worker.”  Fayette at 4. 

One of the main issues on appeal was whether Kellogg should be considered as a statutory employer under T.C.A. § 50-6-113.  The Tennessee Supreme Court has previously outlined three different ways a company can be considered a principal contractor/statutory employer under T.C.A. § 50-6-113 as follows:

Generally, a company is considered a principal contractor 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.

Lindsey v. Trinity Communications, Inc., 275 S.W.3d 411, 421 (Tenn. 2009).  The only element that was considered in the Fayette case was the third element.  Ultimately, the court found the work performed by Fayette Janitorial Services fit within option three of the rule outlined in Lindsey requiring that “the work being performed by a subcontractor’s employee is part of the regular business of the company or is the same type of work usually performed by the company’s employees.” Lindsey at 421.  The fact Kellogg had used the same 28 day cleaning cycle for at least 20 years won the day for Kellogg.  This is a fact specific inquiry for each case and this decision provides a good detailed analysis of the types of facts considered to meet the third prong in the Lindsey test.

Ultimately, this is a very good case to consider when dealing with a Tennessee Workers’ Compensation exclusive remedy defense.  This is an important defense that sometimes is not fully appreciated especially due to the broad “statutory employer” parameters found in T.C.A. § 50-6-113.  Under that statute even if a company is not the actual “employer” of the employee the exclusive remedy can still apply due to the “statutory employer” provision and this should be fully considered on the front end of a case to avoid waiving this defense if it is not properly raised.