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The statutory employer defense, in its present application, is an anachronism. It has outlived its historical purpose in the modern construction workplace and has evolved into a doctrine of immunity for general contractors that is contrary to the basic tenets of American jurisprudence. Its purpose has been transformed from that of securing the payment of workers’ compensation benefits for injured workers to that of a shield against liability for negligent or grossly negligent acts of general contractors, who repeatedly avail themselves of this defense knowing they do not have a contractual obligation to provide workers’ compensation insurance to a subcontractor’s injured employee. More important, it is the casual application of the statutory employer defense that mitigates against general contractors prioritizing construction site safety. The status of statutory employer was created under Section 203 of the Workmen’s Compensation Act, which provides, “An employer who permits the entry upon premises occupied by him or under his control of a laborer or an assistant hired by an employer or contractor, for the performance upon such premises of a part of the employer’s regular business entrusted to such employer or contractor, shall be liable to such laborer or assistant in the same manner and to the same extent as to his own employer.” The purpose of this legislative provision was to ensure a financially responsible party’s obligation to pay compensation to injured workers’. The party selected was the first whose duty it was to assume control of the work, i.e., the general contractor in a construction setting, on the notion that the owner would contract only with a financially responsible party. The general contractor was the first in the field and in the contracting scheme of work, the head of the endeavor, the person to whom an employee would naturally look for protection. The act intended to place the burden upon the general contractor, being the entity that secured the original contract from the owner, so that any employees working on its job site would always be protected in compensation claims, as in Qualp v. James Stewart Co. Eventually, however, the statutory employer provision, which had been enacted for the purpose of extending workers’ compensation coverage to employees whose immediate employers were not covered, was seized upon by general contractors as a defense against common law negligence liability. General contractors sought this advantage recognizing that the language from Section 203 confers upon the statutory employer immunity from suit. This is because Section 303(a) of the act, 77 P.S. Section 481(a), makes the worker’s compensation system the exclusive remedy for an injured employee seeking redress from an employer for a work-related injury. Section 203 of the act places the statutory employer in the same position as the direct employer of the injured worker for tort liability purposes, entitling the statutory employer to the same immunity from suit that is enjoyed by the direct employer. In recognition of this development, the Pennsylvania Supreme Court, in McDonald v. Levinson Steel Co., set forth five strict requirements under Section 203 of the act that an employer must meet to establish that he is a statutory employer and thus avoid liability at common law. They are: (1) an employer who is under contract with an owner or one in the position of an owner; (2) the premises occupied by or under control of such employer; (3) a subcontract made by such employer; (4) part of the employer’s regular business entrusted to such subcontractor; and (5) an employee of such subcontractor. It is the five McDonald elements that the courts of this commonwealth have historically applied and continue to apply to determine whether a general contractor is entitled to statutory employer immunity in the typical construction industry setting (where a property owner hires the general contractor who hires a subcontractor to do specialized work on the job site and an employee of the subcontractor is injured in the course of his employment). Prior to 1974, an employer could opt against securing workers’ compensation insurance, thereby rejecting application of the act. A subcontractor on a construction work site could, therefore, elect not to purchase such insurance for its employees. It became the obligation of the general contractor, under such circumstances, to provide workers’ compensation insurance to the employees of the subcontractor. The general contractor, in so doing, was accorded “statutory employer” status by the Legislature, making the general contractor immune from civil liability for injuries sustained by the subcontractor’s employee in the course of his employment. The act, however, was amended in 1974, specifically Section 302(b), eliminating the “elective compensation” language from the act, thereby prohibiting a subcontractor from rejecting application of the act. This amendment also served as the basis for the state Supreme Court’s conclusion in Fonner v. Shandon Inc. and Jendoco Construction Corp., in which the general contractor stands in “reserve status” for the payment of workers’ compensation benefits. The impetus for this change was the protection of injured workers through mandatory workers’ compensation insurance procured by employers (subcontractors). It is axiomatic that in the modern construction workplace, a subcontractor must provide the general contractor with proof of workers’ compensation insurance before the subcontractor may bid and be hired for the job. A general contractor should not be permitted to escape civil liability where it has not purchased and maintained workers’ compensation insurance for the employees of subcontractors on the job site. The reality of the modern construction workplace is that the subcontractor is not hired without proof of insurance, protection that the general contractor, therefore, does not have to purchase, except for its own employees. (The general contractor, on most modern construction job sites, has one employee on site, the job foreman who is simply overseeing the work performed by the employees of the subcontractors.) It is, in fact, a contractual obligation on the part of the subcontractor to provide proof of coverage, thereby enabling the general contractor to utilize a contractual mechanism to ensure that it is not financially responsible for payment of workers’ compensation benefits to the employees of the subcontractor. Once the subcontractor procures and delivers a certificate of insurance, the general contractor does not obtain such insurance for the subcontractor’s employees. The modern general contractor, therefore, does not realistically stand “in reserve status,” contrary to the assumption which underlies the Supreme Court’s justification for perpetuating the general contractor’s untenable immunity shield in Fonner. Justice Russell M. Nigro, in his dissenting opinion in Fonner, aptly assailed the fiction that the statutory employer defense has become. He stated, “In reality, application of these amendments rarely, if ever, will result in the general contractor assuming responsibility for providing worker’s compensation insurance because in the modern construction workplace, general contractors will rarely, if ever, award a contract absent the subcontractor showing proof of worker’s compensation coverage. Common sense and logic dictate that the general contractor should not reap the benefits of civil liability immunity unless it undertakes responsibility of compensation coverage.” Nevertheless, the Supreme Court continues to require a standard of proof for injured construction site workers that is different from that required of other individuals who are injured due to acts of negligence or gross negligence. The rationale upon which the Supreme Court relies is that the general contractor stands in reserve status for the provision of workers’ compensation benefits in the event of a default by the subcontractor in providing such benefits. Such a scenario rarely, if ever, occurs in the modern construction workplace, rendering the Supreme Court’s rationale suspect. Consequently, when a general contractor, named as a defendant in a third party action for damages, defends on the basis that it is immune from liability as the statutory employer, which means that it was in “reserve status” for the payment of benefits to the subcontractor’s injured employee, the general contractor is being disingenuous if, in fact, it did not purchase and maintain such insurance for the injured employee. A general contractor that claims statutory employer immunity under such circumstances casually converts that which was designed to extend benefits to workers into a liability shield behind which the general contractor seeks refuge. The courts of this commonwealth have steadfastly analyzed every statutory employer defense in accordance with the five McDonald elements. Recently, the Supreme Court in Peck v. Delaware County Board of Prison Inspectors continued to strictly apply the five-part McDonald test; however, the court also echoed the admonition of the Stipanovich and Fonner courts against casually affording the shield of statutory employer immunity to general contractors. This admonition needs to resound with one modification so as to restore the legislative purpose for the statutory employer doctrine, i.e., the provision of workers’ compensation benefits to injured employees in the modern construction work place. This can be accomplished in a way that is mutually beneficial to all interested parties. If, as the Supreme Court concludes, the general contractor of the modern construction work place stands in reserve status in the event of a lapse or default in coverage on the part of the subcontractor employer, the general contractor should be required to affirmatively demonstrate during discovery and, if necessary, at trial, that it purchased and maintained workmen’s compensation insurance covering the injured employee of the subcontractor at the time of his accident. It is the purchase and maintenance of such coverage by the general contractor that should trigger immunity, as with a direct employer. Otherwise, the statutory employer defense remains a fiction. The McDonald test in its present constitution does not eliminate the anomalous situation of an injured worker employed by a subcontractor whose workers’ compensation insurance lapses or does not exist on the day of the accident, causing the injured worker to turn to the general contractor which, likewise, does not have workers’ compensation insurance for the injured worker. Notwithstanding the absence of coverage, there is nothing preventing the general contractor from claiming statutory employer immunity and being accorded the same under the existing five-part McDonald test. This is possible because a general contractor can satisfy each of the five elements of the McDonald test and thereby qualify for statutory employer immunity even if it does not maintain workers’ compensation insurance for the injured employee of a subcontractor. The courts of this commonwealth do not presently evaluate whether the general contractor actually maintains the necessary coverage. The shield of immunity enjoyed by the general contractor, therefore, exceeds that enjoyed by the direct employer. Immunity has replaced workers’ compensation insurance as the objective of the statutory employer doctrine under McDonald. Historically, the statutory employer doctrine was created to provide an even layer of protection to injured workers and an additional layer of accountability on the job site to encourage safe work places. The transformation of this doctrine in the modern construction work place from a benefits mechanism to an immunity shield has facilitated careless general contractors who are only casually concerned with maintaining safe job-sites. The immunity shield enables general contractors to continue to sacrifice safety for speed with only casual concern for the consequences. The realities of the modern construction work place have rendered the original objective of the statutory employer doctrine fictional. This fiction can be reconciled fairly and simply by adding a sixth requirement under the McDonald test: proof on the part of the general contractor that it has purchased and maintains workers’ compensation insurance covering the injured employee. If the general contractor is going to avail itself of statutory employer immunity, it should be required to pay for the same, no different from the direct employer. Absent such proof, the general contractor should not be able to claim statutory employer immunity. The general contractor that purchases and maintains such insurance, truly stands in reserve status and maintains its right to avail itself of statutory employer immunity under the Workmen’s Compensation Act. The workers’ compensation providers stand to gain by selling additional workers’ compensation coverage on each construction site. The cost of additional insurance premiums incurred by the general contractor for “reserve” coverage should be less than the premiums paid by the direct employer. The injured worker is truly protected and the fictional aspect of the statutory employer shield has been vitiated. Robert H. Nemeroff concentrates his legal practice in construction site injury litigation, commercial litigation, personal injury litigation, and municipal law. He is a shareholder at Jaffe Friedman Schuman Sciolla Nemeroff & Applebaum, located in Elkins Park, Pa. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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