New standard in Texas as to when an owner can assert a statutory employer defence?

The 13th Court of Appeals in Edinburg, Texas issued an opinion in February 2018 that would eliminate the statutory employer protection for general contractors in certain circumstances if allowed to stand (Halferty v. Flextronics America, LLC (2018 WL 897979).

The facts of the Halferty case are that Flextronics was a general contractor who contracted with a subcontractor, Titan Datacom, Inc., ("Titan") to perform various technical installs, layouts, designs, etc. at a Flextronics' facility in Austin, Texas. Titan, in its contract with Flextronics, agreed to provide, pay for and maintain worker's compensation insurance. Titan then contracted with yet another subcontractor, Outsource, LLC (Outsource) to assist with the work. There is no dispute that Titan and Outsource complied with the worker's compensation provision of their agreement to cover employees of Outsource, including Outsource's employee, Halferty.

Halferty, as part of his work, was on top of a stepladder. As he descended the ladder, a roll-up door was opened by a Flextronics' employee that caused Halferty to fall to the floor, resulting in various injuries to Halferty. Halferty sued Flextronics for negligence and gross-negligence. Flextronics filed both a traditional and no-evidence motion for summary judgment arguing that the Texas Workers Compensation Act would bar Halferty's claim against it, and that Halferty's exclusive remedy for recovery was through workers compensation (see TEX. LABOR CODE ANN. § 408.001(a)).

The first step of the process that provides general contractors with the statutory employer defense is that the general contractor and subcontractor must enter into a written agreement under which the general contractor "provides" workers' compensation insurance coverage to the subcontractor and the employees of the subcontractor (See TEX. LABOR CODE ANN. § 406.123(a)).(1) This agreement makes the general contractor (Flextronics) a statutory employer of the subcontractor's employees for purpose of the workers' compensation laws. As the statutory employer, Flextronics would have been entitled to immunity from common-law tort actions brought by the Outsource's employee (Halferty), and a covered employee's exclusive remedy for work-related injuries is workers' compensation benefits.

The trial court granted Flextronics' traditional motion for summary judgment, agreeing that Flextronics provided the WC coverage through its subcontractor. Halferty appealed. The 13th Court of Appeals (Edinburg, TX), in reversing the lower court ruling, ruled that Flextronics was NOT entitled to protection because it did not "provide" those benefits to Halferty. As part of its determination, the 13th COA reviewed the Texas Supreme Court case, HCBeck, Ltd. v. Rice, 284 S.W.3d 349 (Tex. 2009).

The 13th COA differentiated the Halferty fact pattern from the HCBeck case. The owner (FMR) in HCBeckagreed to pay for the worker's compensation coverage through an Owner Controlled Insurance Plan ("OCIP"). The contract further provided that if FMR failed to maintain that coverage, then HCBeck, the general contractor, was required to secure the coverage at the FMR's cost. In Halferty, there was no requirement that Flextronics (general contractor) was required to provide WC coverage, rather it was Titan, Flextronics' subcontractor, who agreed to provide the worker's compensation coverage in its contract with Flextronics. Flextronics did not pay for or ensure that worker's compensation coverage would be remain in place.

As such, the 13th COA determined that Flextronics did not "provide" workers compensation coverage. It held that in order to avail itself to the statutory employer defense, provided for in section 406.123(a), Flextronics, as the general contractor, had to do something more than pass the onus of obtaining workers compensation coverage to its subcontractor.

Whether or not the Halferty opinion out of the 13th COA will be an issue in the future is yet to be determined. Flextronics filed a petition for review with the Texas Supreme Court on May 1, 2018 which was forwarded to the Court on May 8th. As a side note, Outsource did provide workers compensation coverage, to which Halferty availed himself, but the 13th COA stated that the subcontractor's provided coverage was not relevant to the requirement provided for in Section 406.123(a) of the Workers Compensation Act. In the meantime, general contractors may need to rethink how they provide for workers compensation coverage.

For further information on this topic please contact Paul Catalano at Kilpatrick Townsend & Stockton LLP by telephone (+1 281 809 4100) or email (pcatalano@kilpatricktownsend.com). The Kilpatrick Townsend & Stockton LLP website can be accessed at www.kilpatricktownsend.com.

This update has been reproduced in its original format from Lexology – www.Lexology.com.

Endnotes

(1) 406.123(a) A general contractor and a subcontractor may enter into a written agreement under which the general contractor provides workers compensation insurance coverage to the subcontractor and the employees of the subcontractor.