Cinnamon v. International Business Machines Corp.

• Decision Date: 22 September 1989
• Docket Number: No. 880325,880325
• Citation: 384 S.E.2d 618,238 Va. 471
• Parties: Michael E. CINNAMON v. INTERNATIONAL BUSINESS MACHINES CORP. Record
• Court: Virginia Supreme Court

Page 618

384 S.E.2d 618

238 Va. 471

Michael E. CINNAMON v. INTERNATIONAL BUSINESS MACHINES CORP.

Record No. 880325.

Supreme Court of Virginia.

Sept. 22, 1989.

Karen A. Crist (Peter C. DePaolis, Koonz, McKenney & Johnson, P.C., Falls Church, on briefs), for appellant.

Benjamin J. Trichilo (E. Stanley Murphy, Lewis, Tydings, Bryan & Trichilo, P.C., Fairfax, on brief), for appellee.

Present: CARRICO, C.J., COMPTON, STEPHENSON, RUSSELL, WHITING and LACY, JJ., and POFF, Senior Justice.

POFF, Senior Justice.

This is an appeal from a judgment dismissing a common-law, personal-injury action on the ground that the plaintiff's exclusive remedy was a claim under the Workers' Compensation Act. The sole issue is whether, as the trial court ruled, a manufacturer who engaged a general contractor to construct a building for use in the conduct of its business was the statutory employer of a worker hired by a subcontractor engaged by the general contractor to paint the building.

International Business Machines Corporation (IBM) engaged John B. Pike and Son, Inc. and Paschen Contractors, Inc., Joint Venture (Pike), to "do all things necessary for the construction and completion of IBM's Semiconductor Manufacturing Building". The 60-million dollar contract represented the first phase of a staged building project estimated to cost 150-million dollars. As conditions to the contract, IBM reserved to its real estate and construction division the rights, inter alia, to prepare plans and specifications, to approve any changes Pike might make in its project manager and general superintendent, to control access to the job site and the amount of dust generated by traffic, to issue and approve change orders, to review job progress reports, and to approve material suppliers and subcontractors. However, upon approval, subcontracts were to be made and executed "in the name of [Pike] and not in the name of IBM."

Pike subcontracted the painting work to O.B. Cannon and Son, Inc. (Cannon). On November 14, 1984, Michael E. Cinnamon, one of Cannon's employees, sustained grievous injuries in a fall from a trestle where he was at work painting pipes.

Cinnamon received workers' compensation benefits from Cannon. In November 1986, he filed a motion for judgment against IBM, Pike, and Cannon alleging, among other complaints, that the defendants had failed to provide a safe workplace and personal safety equipment. Asserting a challenge to the subject-matter jurisdiction of the court, the defendants moved for summary judgment on the ground that the plaintiff's exclusive remedy was a claim under the Workers' Compensation Act. Although Cinnamon agreed that Cannon was his primary employer and Pike his statutory employer, he maintained that IBM was an "other party" beyond the scope of the exclusivity provision of the Act, Code § 65.1-40. The trial court sustained the defendants' motion and dismissed the plaintiff's motion for judgment with prejudice. Cinnamon filed a petition for appeal naming IBM as the sole respondent. We granted an appeal limited to the issue stated above.

We look first to the standard of appellate review. Although Cinnamon is not seeking workers' compensation coverage from IBM, "our consideration of this appeal is nevertheless governed by the principles that apply in a case where coverage is sought." Henderson v. Central Telephone Company, 233 Va. 377, 382, 355 S.E.2d 596, 599 (1987). "The issue whether a person is a statutory employee presents a mixed question of law and fact...." Cooke v. Skyline Swannanoa, 226 Va. 154, 156, 307 S.E.2d 246, 247 (1983). Where, as here, the facts relevant to resolution of a jurisdictional issue are not in dispute, we must determine whether the trial court correctly applied the law to those facts. See Carmody v. F.W. Woolworth Co., 234 Va. 198, 201, 361 S.E.2d 128, 130 (1987).

The relevant statutory law consists of three sections of the Workers' Compensation Act. The first, Code § 65.1-29, specifies when an owner becomes liable to pay compensation to an injured employee of an independent contractor. An owner becomes a "statutory employer" when it "undertakes to perform ... any work which is part of [its] trade, business or occupation and contracts with any other person ... for the ... performance by or under such [person] of the whole or any part of the work undertaken by such owner".

The second section, § 65.1-30, states the conditions under which a general contractor becomes liable to pay compensation to an injured employee of a subcontractor. A general contractor becomes a statutory employer when he contracts with an owner to perform work which "is not a part of the trade, business or occupation of" the owner and engages a subcontractor to perform "the whole or any part of the work undertaken by such [general] contractor".

The third section, § 65.1-31, provides that any owner or general contractor liable for compensation under § 65.1-29 or § 65.1-30 becomes the statutory employer of an employee of a secondary subcontractor engaged by a primary subcontractor to perform "the whole or any part of the work undertaken by the [primary] subcontractor". ¹

We turn now to the case law construing and applying these statutes. In Shell Oil Co. v. Leftwich, 212 Va. 715, 187 S.E.2d 162 (1972), we quoted and applied the following explication of the statutory language:

" '[T]he test is not one of whether the subcontractor's activity is useful, necessary, or even absolutely indispensable to the statutory employer's business, since, after all, this could be said of practically any repair, construction or transportation service. The test (except in cases where the work is obviously a subcontracted fraction of a main contract) is whether this indispensable activity is, in that business, normally carried on through employees rather than independent contractors.' (Emphasis supplied.)"

Id. at 722, 187 S.E.2d at 167 (citation omitted).

Addressing the language within the parentheses, IBM reminds us that the construction work Pike had undertaken in the contract with IBM was the first phase of a staged project estimated to cost $150 million. IBM argues on brief, as it did below, that Pike "was performing construction services for IBM pursuant to a 60 million dollar contract, which was manifestly a fraction of a main contract or a main concern of IBM. Whether construction activities are frequently and normally carried out by employees rather than independent contractors need not be considered where, as here, 'the work is obviously a subcontracted fraction of a main concern.' "

The Shell Oil test, which we have employed as a tool in the application of the statutory test, consists of two prongs. One, the so-called "normal-work test", relates to the determination of statutory-employer status as defined in Code §§ 65.1-29, 65.1-31. As the language of those statutes makes clear, that prong relates to an owner who engages an independent contractor to perform certain work. If the work out of which the industrial accident arose is, in the language of Shell Oil, work "normally carried on through [the owner's] employees rather than independent contractors", it is, in the language of the statute, a "part of [the owner's] trade, business or occupation". In such case, the owner is the statutory employer of the injured worker, whether directly employed by the independent contractor or by a subcontractor.

The other prong, an exception to the first and sometimes labelled the "subcontracted-fraction test", relates to the determination of statutory-employer status as defined in Code §§ 65.1-30, 65.1-31. In the context of the construction business, it relates to a general contractor, the party obligated by the main contract with the owner to complete the whole project. If the work out of which the accident arose was, in the language of Shell Oil, "obviously a subcontracted fraction of [that] contract" and, in the language of the statute, "not a part of the trade, business or occupation of" the owner, the general contractor who engaged the subcontractor to perform that fraction is the statutory employer of the injured worker, whether directly employed by the primary subcontractor or by a secondary subcontractor.

Invoking the subcontracted-fraction prong of the Shell Oil test as proof of its status as Cinnamon's statutory employer, IBM relies principally upon our recent decision in Cooke v. Skyline Swannanoa, supra. Although Cooke applies the test IBM invokes, the decision is inapplicable here. In Cooke, the main contract was a license agreement in which Skyline contracted with Holiday Inn to operate, or cause to be operated, a motel providing food and lodging. Later, Skyline engaged Angus Barn to operate a restaurant in the motel. In a common-law action filed against Skyline by Cooke, a restaurant employee injured on the premises, the trial court ruled that Skyline was Cooke's statutory employer, applied Code § 65.1-40, and dismissed the motion for judgment.

On appeal, we upheld the trial court's ruling on the ground that "the restaurant work Angus Barn contracted to undertake is 'obviously a subcontracted...