Court Chips Away at Workers' Comp Exclusivity

Workers' Compensation

 The New Jersey Supreme Court, in a landmark decision that was a year in the making, has taken a big step toward dismantling the exclusivity doctrine of the Workers’ Compensation Act, which immunizes employers from tort liability. The 3-2 decision last Wednesday came in the case of a laborer for a nonunion shop who died when he was run over by a dump truck driven by a worker from a union shop owned by the same principals. The justices said the laborer’s widow can sue the shop that loaned the truck driver even though he is immunized from suit. 

The majority held in Volb v. GE Capital Corp., 651 A. 2d 1002 - NJ: Supreme Court 1995, that the immunity of a special employee to a tort action brought by an employee of the special employer does not extend to the general employer who loaned out the special employee. Normally the Court’s turnaround time is six months; this decision took twice that time. 

"The significance of what the Court is saying is that they are really expanding tort liability to make sure that a person injured out there has recourse against employers, not only for workers’ compensation benefits, but third-party liability," says Eric Ludwig, a partner at Princeton’s Stark & Stark who represents the plaintiff in the case. "They’ve greatly expanded the parameters on which employees of interrelated companies can sue, thereby exposing employers to additional liability." 

The case involved Charles Volb, a 40-year-old laborer from Hamilton Township who died on July 17, 1989, when he was run over by a dump truck driven by Ronald Lee. The men were employed by two related entities owned by the same principals—a unionized company, T.D.E. Services, and a nonunion company, J.H. Reid. T.D.E. was set up as a payroll company to hire unionized workers and then loan those workers to J.H. Reid, which handled construction projects. 

The high court found that Volb’s widow, Linda, was neither directly nor indirectly barred from suing Lee’s employer, T.D.E., because her husband was not employed by the entity and Lee’s fellow-employee immunity did not extend to his employer. 

Since 1911, when the workers’ compensation system went into effect in New Jersey, recovery for injured workers has been minimal, based on a statutory scheme that limits an employer’s liability. The system has never permitted injured workers to recover against employers for negligence. In its decision in Volb, the majority also explicitly warned construction contractors against engaging in the common practice of "double-breasting." That arrangement involves the creation of multiple companies as a way of shielding owners from liability and limiting the salaries they pay employees. 

Recovery Expanded 
The high court’s ruling, written by Justice Gary Stein, who was joined by Chief Justice Robert Wilentz and Justice Alan Handler, is a major defeat for that so-called exclusivity bar. The majority clearly expanded recovery against employers beyond workers’ compensation and rejected the lower courts’ conclusion that an employee’s statutory immunity extends to an employer. As a result, the Court reinstated Volb’s widow’s tort action against T.D.E. 

"The case law persuasively demonstrates that T.D.E. cannot claim tort immunity derivatively on the basis of its employee Lee’s Workers’ Compensation Act immunity," Stein wrote. "Nor is T.D.E. entitled to tort immunity based solely on its affiliate relationship with J.H. Reid, Volb’s employer." Stein wrote that the "precise question" in Volb had not been before the Court before. But he noted that the uniform holdings of cases from other jurisdictions are consistent with general agency principles in New Jersey case law. "In short, the Workers’ Compensation Act does not indirectly bar the Volb estate’s suit against T.D.E., because Lee’s fellow-employee immunity does not extend to his employer," Stein wrote. 

And the general rule in suits brought by injured employees against corporations that are parents, subsidiaries or affiliates of the plaintiffs’ employers, Stein noted, has been to "deny workers’ compensation immunity on the ground that the separate corporate identity of affiliated corporations should not be disregarded." 

But in the dissent, written by Justice Stewart Pollock and joined by Justice Marie Garibaldi, noted that J.H. Reid, Lee’s special employer, had exclusive control over Lee when he backed the truck over Volb. They reasoned that Volb is barred from suing T.D.E. because the entity had neither provided the truck Lee drove nor supervised him at the job site. 

Justice Daniel O’Hern did not participate in the decision; neither did Justice James Coleman Jr., who was not on the bench when the case was argued. Safety Issue Disputed 

The dissent rejects the notion that workplaces will become safer by pinning liability on T.D.E. "If the underlying purpose of tort law is to make the workplace safe, the responsibility for worker safety belongs to Reid, which provided the truck and exclusively controlled it, the driver, and the site," wrote Pollock. "To impose tort liability on T.D.E distorts reality. T.D.E. exists so Reid can bid for union work. Realistically, T.D.E. never could have controlled Lee and did not control him at the time of the accident." 

As a result of the Court’s ruling, Linda Volb’s wrongful death action against T.D.E. as a third-party tortfeasor will be reinstated in Mercer County Superior Court. 

She stands to expand her scope of recovery into the arena of negligence. Volb is currently receiving a workers’ compensation award from Reid, which is limited to no more than 50 percent of her deceased husband’s wages, not to exceed $342 a week. Workers’ compensation expert Jon Gelman, a solo practitioner in Wayne, says the high court’s ruling puts employers on the alert to be more careful and will ultimately make workplaces safer. "I consider the Volb case to be a landmark decision which constitutes a major step in the erosion of the exclusivity doctrine established by the New Jersey Workers’ Compensation Act," says Gelman, author of a West Publishing Company treatise on New Jersey workers’ compensation law. 

"You can’t drive trucks over people and get away with it. You’re going to see an increase in safety on the job now that employers are subject to punitives. In telling employers to be more careful, the Court is saying: ‘You can’t set up fictitious, insulating companies because we’re going to pierce that veil." 

Although Gelman believes the high court’s ruling is extremely progressive, T.D.E.’s lawyer, Gary Jakob, a partner at Cherry Hill’s Montano, Summers, Mullen, Manuel, Owens & Gregorio, believes it doesn’t reflect "modern-day insurance realities." Gelman, however, points out that insurance companies should be happier because they’ll sell more liability insurance. 

"Unfair to Business" 
Jakob said that T.D.E.’s only function is to provide a payroll service and that the company shouldn’t be saddled with risk over an employee it didn’t control. "What they’re doing is unfair to businesses, especially in today’s climate of increased deductibles and self-insurance," says Jakob. "They’re making a company that has absolutely no control over the employee Lee responsible for his activities. T.D.E. is burdened with a risk they have no ability to control." 

Jakob said that T.D.E. never did any business. It merely paid the various union and nonunion workers with whom Reid contracts. "In light of this decision, the only way T.D.E. can control the risk is to go out of business because their sole function is to provide employees they never control. All it does is spread the risk to another pocket in this case." 

Volb’s attorney, Ludwig, praised the high court’s concern with policy fairness. 

After Ludwig argued Volb a year ago, he received a letter from the Supreme Court outlining all the relevant out-of-state case law on the exclusivity bar issue. He rewrote his brief and broadened its scope. 

For different reasons, neither Jakob nor Ludwig agree with Gelman that workplaces will become safer as the result of the decision. "I don’t think it makes workplaces any safer because I don’t think T.D.E. is responsible for the activities of a worker it can’t control," says Jakob. 

Based on 20 years of handling workers’ compensation cases, Ludwig says: "In theory, it should make workplaces safer, but it probably won’t. That’s the nature of construction business." 

In November 1991, Mercer County Superior Court Judge Paul Levy dismissed Linda Volb’s wrongful death suit against Lee and T.D.E., ruling that the company was simply a payroll agency and Lee was under the supervision and control of Reid. Thus, Levy found, Lee was a special employee of Reid and a co-worker of Volb’s. Since Volb’s death was caused by the negligence of a co-worker, Volb’s estate had no common-law cause of action. An Appellate Division panel affirmed with no explanation. 

Three-Pronged Test 
The high court majority found that Lee satisfied the three-pronged test used in establishing special-employment relationships: the employee made a contract of hire, express or implied, with the special employer; the work was essentially that of the special employer; and the special employer controlled the details of the work. That determination immunized Lee from suit. 

But Stein found the lower courts were wrong to rely on Antheunisse v. Tiffany & Co., 229 N.J. Super. 399 (App. Div. 1988), and Santos v. Standard Havens, Inc., 225 N.J. Super. 16 (App. Div. 1988), to grant T.D.E. immunity from suit. Both cases involved plaintiffs who had been loaned by their general employers to perform services for the respective defendants. "Those decisions would be controlling if the issue before us concerned the immunity of J.H. Reid to a tort claim asserted by Lee, its special employee, but they do not resolve T.D.E.’s immunity concerning the tort claim asserted by Volb’s administratrix against it, inasmuch as Volb had no employment relationship with T.D.E.," Stein noted. 

Since no New Jersey case law existed on the subject, Stein said the Court looked elsewhere. "Although the precise question appears to be one of first impression in this state, the out-of-state authorities uniformly hold that the immunity of a special employee to a tort action brought by an employee of the special employer does not inure to the benefit of the general employer," wrote Stein. 

The majority cited Campbell v. Harris-Seybold Press Co., 141 Cal. Rptr. 55 (Ct. App. 1977), a case in which an appellate court reversed a trial judge on the grounds that an employee’s immunity did not extend to the general employer, and several other California cases and one from Michigan—all with the same holding. 

Notwithstanding the dearth of New Jersey precedent, Stein noted that out-of-state holdings are consistent with 217(b) of the Restatement of Agency (1957), which says: "The principal has no defense because of the fact that *** the agent had an immunity from civil liability as to the act." Later, he noted: "Intuition might suggest that a broader immunity would be consistent with the underlying objectives of workers’ compensation legislation, and the legislature is at liberty to enact a more comprehensive, enterprise-based immunity. 

"Nevertheless, we have no doubt that companies that elect for sound business considerations to operate their enterprise by using multiple affiliated corporations anticipate the risk of intra-corporate tort liability and therefore purchase liability insurance to offset that risk," Stein wrote. Finally, the Court considered whether T.D.E. may be held liable in tort under the doctrine of respondeat superior. It found that courts throughout the country are divided over the standard to be applied in determining which company takes responsibility and remanded the question to the Appellate Division for consideration. 

"The Supreme Court said it was making no determination as to whether the doctrine of respondeat superior applies because they weren’t sure about the basis the lower court used to grant summary judgment on behalf of T.D.E.," says Jakob. "The workers’ compensation bar doesn’t apply to my argument that there’s no respondeat superior. The general law in the United States is there has to be some degree of control for the doctrine to attach." 

Says Ludwig: "The Court, from a policy fairness standpoint, is concerned about employers putting ill-trained people out into the workplace and never being liable. Mr. Volb left a wife and three young kids ranging in age from 2 to 10. It’s been very difficult. I’m very pleased with the Supreme Court’s ruling." 

...

The author, Jon L. Gelman, practices law in Wayne, NJ. He is the author of NJ Workers’ Compensation Law (Thomson-Reuters) and co-author of the national treatise Modern Workers’ Compensation Law (Thomson-Reuters). For over five decades, the Law Offices of Jon L Gelman  1.973.696.7900  jon@gelmans.com have represented injured workers and their families who have suffered occupational accidents and illnesses.

Recommended Citation: Gelman, Jon L.,  Court Chips Away at Workers' Comp Exclusivity (1995),

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This article is reprinted with permission from the January 30, 1995 issue of the New Jersey Law Journal. c. 1999 American Lawyer Media.