Kirkland v. Riverwood Intern. USA, Inc.

• Decision Date: 13 September 1996
• Parties: 95-1830 La
• Court: Louisiana Supreme Court

Page 329

681 So.2d 329

95-1830 La. 9/13/96

Roger KIRKLAND v. RIVERWOOD INTERNATIONAL USA, INC.

No. 95-C-1830.

Supreme Court of Louisiana.

Sept. 13, 1996.

Rehearing Denied Nov. 15, 1996.

[95-1830 La. 1] LEMMON, Justice. ^*

In this personal injury action arising out of a workplace accident, this court is called upon to interpret the standard for determining, under La.Rev.Stat. 23:1061 as amended in 1989, whether contract work falls within the trade, business or occupation of an alleged principal who is asserting a statutory employer defense.

Facts

At the time of the accident, plaintiff was an employee of Republic Contractors, a subcontractor on a modernization project at a pulp mill operated by Riverwood International USA, Inc. Riverwood, which was engaged in the business of producing paper products at its mill, contracted with Republic for construction work in various [95-1830 La. 2] phases of Riverwood's project to modernize its facilities.

Riverwood's mill produced and recycled white liquor, an essential ingredient used in the processing of wood chips to make paper, through two identical systems. Each system contained a lime conveyor that delivered lime to the slaker. Riverwood contracted with Republic to remove the existing conveyors and to replace them with state-of-the-art electronically controlled conveyors. The contract price for this work was $72,871.71.

During the first phase of the project, Republic replaced one of the conveyors while production at the mill was shut down. When the first phase was completed, the mill resumed production. The second phase then began, with only one of the mill's dual lines operating. During this second phase, plaintiff was injured while performing part of the contract work.

At the time of his injury, plaintiff was working as one of Republic's four-man crew replacing the second conveyor. He lost his footing, falling approximately thirty feet from the tank on which he was standing and rolling into a mixture of white liquor and alkali that had accumulated on the ground. He broke two vertebrae in the fall and suffered severe burns from his contact with the spilled substances.

Plaintiff filed this tort action against Riverwood, alleging both strict liability and negligence. Riverwood filed a motion for summary judgment, asserting that plaintiff was performing work that was an integral part of Riverwood's trade, business or occupation so as to render plaintiff a statutory employee whose exclusive remedy was workers' compensation.

The trial court granted the motion and rendered judgment in favor of Riverwood. On plaintiff's appeal, the court of appeal reversed. 26,741 (La.App.2d Cir. 6/21/95), 658 So.2d 715. We granted Riverwood's application for certiorari, 95-1830 (La.11/3/95), 661 So.2d 1370, because the case presented a significant [95-1830 La. 3] unresolved issue of law for which this court should provide guidance to lower courts and litigants, and because there were conflicting decisions among the state courts of appeal. La.Sup.Ct.R.X, §§ 1(a)(1) and 2.

History of Statutory Employer Doctrine

Prior to the 1989 amendment, La.Rev.Stat. 23:1061, which had remained virtually unchanged since the 1914 adoption of the Workers' Compensation Act, provided:

Where any person (in this section referred to as principal) undertakes to execute any work, which is a part of his trade, business, or occupation or which he had contracted to perform, and contracts with any person (in this section referred to as contractor) for the execution by or under the contractor of the whole or any part of the work undertaken by the principal, the principal shall be liable to pay to any employee employed in the execution of the work or to his dependent, any compensation under this Chapter which he would have been liable to pay if the employee had been immediately employed by him; and where compensation is claimed from, or proceedings are taken against, the principal, then, in the application of this Chapter reference to the principal shall be substituted for reference to the employer, except that the amount of compensation shall be calculated with reference to the earnings of the employee under the employer by whom he is immediately employed.

Where the principal is liable to pay compensation under this Section, he shall be entitled to indemnity from any person who independently of this Section would have been liable to pay compensation to the employee or his dependent, and shall have a cause of action therefor. (emphasis added).

Because compensation responsibility is keyed to the existence of an employment relationship, the Act from its inception addressed the possibility of an employer's interposing an independent contractor or sub-contractor between itself and its injured worker in order to avoid compensation liability. The statutory solution, adopted by most state compensation laws, was to deem an entity that attempted to evade compensation responsibility to be a statutory employer and to impose contingent compensation responsibility on that entity. Wex S. Malone & H. Alston [95-1830 La. 4] Johnson, III, Workers' Compensation Law and Practice, 13 Louisiana Civil Law Treatise, § 121 (3d ed. 1994).

The Louisiana provision for imposing compensation responsibility on such devious employers is La.Rev.Stat. 23:1061. The original purpose of Section 1061 clearly was to preclude a principal from contracting out "the essential economic activities of an enterprise to impecunious sub-contractors so as to exculpate himself from compensation liability." Meche v. Farmers Drier & Storage Co., 193 So.2d 807 (La.App. 3d Cir.), cert. denied, 250 La. 369, 195 So.2d 644 (1967). To achieve that purpose, Section 1061 created an additional source of compensation recovery for the injured employee, subjecting any person (called a principal or statutory employer) to compensation liability when that person undertakes work that is part of his trade business or occupation by means of a contract with another or when that person contracts to perform work and sub-contracts a portion of that work to another. Moore v. RLCC Technologies, Inc., 95-2621 (La.2/28/96), 668 So.2d 1135 (citing Malone & Johnson, supra, § 128).

Nothing in the Act expressly provided, or even suggested, that a principal was entitled to any tort immunity, even if the principal actually had to pay compensation benefits to an injured employee. Indeed, the only provision in the original Act that conferred any tort immunity was La.Rev.Stat. 23:1032, and that provision did not mention a principal. ¹ Moreover, a principal was able to avoid compensation exposure completely by requiring that any contractor carry workers' compensation insurance for the contractor's employees (although that might raise the cost of the contract) or by indemnity against the contractor under La.Rev.Stat. 23:1063 for any compensation paid.

[95-1830 La. 5] In 1950, this court, and not the Legislature, granted tort immunity to a principal for the first time. In Thibodaux v. Sun Oil Co., 218 La. 453, 49 So.2d 852 (1950), without any discussion of the absence in Section 1061 or 1032 of any grant of tort immunity to a principal, or of a principal's apparent ability to avoid any compensation liability, or of the question whether immunity should be conferred only if a principal actually pays compensation, this court maintained an exception of no cause of action which limited an injured employee's remedy against a principal to workers' compensation.

In the view of some respected commentators, the Thibodaux decision distorted Section 1061, which was "intended to broaden the scope of recovery available to laborers," but which "has in fact been applied to limit this recovery." George W. Pugh, Jr., Judge Albert Tate, Jr. and the Employee Personal Injury Action: An Overview, 47 La.L.Rev. 993, 1004 (1987). In any event, the Thibodaux decision shifted the use of Section 1061 from its intended compensatory purpose of providing an injured worker with an additional source of compensation to a defensive use of the statutory employment concept which precluded an injured worker's tort recovery without any quid pro quo from the principal who, because of his ability to avoid compensation liability, effectively became immune both in tort and in compensation.

This shift from the original purpose of Section 1061 is significant from both a procedural and a policy standpoint. Procedurally, this shift changed the burden of proof from the plaintiff seeking compensation to the defendant seeking to invoke the statutory employment relationship as an affirmative defense. As a policy matter, Section 1061, when invoked to further its intended compensatory purpose that an injured worker's true employer would be responsible for compensation, was accorded a liberal construction because of the beneficial purpose of the Workers' Compensation Act. Williams v. Shell Oil Co., 677 F.2d 506, 508 (5th Cir.), cert. denied, 459 U.S. [95-1830 La. 6] 1087, 103 S.Ct. 570, 74 L.Ed.2d 933 (1982); Malone & Johnson, supra, § 126. However, when Section 1061 began to be used defensively by a principal seeking to avoid tort liability to the employee of a contractor, the same policy concerns were not applicable. ² Malone & Johnson, supra, § 126. Indeed, when Section 1061 is used defensively, strict construction is arguably warranted. See Rowe v. Northwestern Nat'l Ins. Co., 471 So.2d 226, 229-30 (La.1985)(Lemmon, J., concurring).

Despite these policy considerations, the Thibodaux decision, in judicially expanding tort immunity to a principal, also established a liberal interpretive analysis of the central issue of the statutory employment relationship, i.e., whether the contract work was part of the alleged principal's trade, business or occupation. The Thibodaux decision enunciated a liberal "integral relationship" standard for defining the scope of the statutory employment relationship.

In Thibodaux, Sun Oil, an oil producer,...