Schulte v. American Box Bd. Co., 51

• Decision Date: 24 November 1959
• Docket Number: No. 51,51
• Citation: 358 Mich. 21,99 N.W.2d 367
• Parties: Raymond SCHULTE, Plaintiff and Appellant, v. AMERICAN BOX BOARD COMPANY, a corporation, Defendant and Appellee.
• Court: Michigan Supreme Court

Page 367

99 N.W.2d 367

358 Mich. 21

Raymond SCHULTE, Plaintiff and Appellant, v. AMERICAN BOX BOARD COMPANY, a corporation, Defendant and Appellee.

No. 51.

Supreme Court of Michigan.

Nov. 24, 1959.

Poppen, Street & Sorensen, Muskegon, for plaintiff and appellant.

Varnum, Riddering, Wierengo & Christenson, Grand Rapids (L. K. Varnum and F. William Hutchinson, Grand Rapids, of counsel), for defendant and appellee.

Before the Entire Bench.

KELLY, Justice.

The court granted defendant's motion to dismiss plaintiff's declaration and plaintiff appeals, submitting the following question:

'Where Corporation A, which has compensation insurance covering its employees, enters into a contract to construct a building for Corporation B, and in the course of the work an employee of Corporation A is injured by reason of a defective roof maintained by Corporation B, may such injured employee maintain a common law action against Corporation B as a third-party tort-feasor?

'The lower court answered 'No.'

'Appellant contends the answer should be 'Yes."

Appellant and appellee agree that there is presented a question which has not previously been submitted to this Court.

Summer Sollitt Company contracted to construct a paperboard mill and other facilities for defendant, in Manistee county, and was to be paid a fixed fee of $385,000, plus the 'cost of the work.' Cost included all labor, materials, salaries and travel expenses of field employees, and premiums on workmen's compensation insurance. The cost items were to be invoiced to defendant at regular periods as the construction progressed.

The contract provided that defendant would appoint its own engineer, who would have complete control of design and quality of work; that defendant reserved the right to have removed from the job any Sollitt employee with whom it was dissatisfied either in regard to work or conduct on the job; that defendant 'may at any time terminate this agreement without fault on the part of contractor (Sollitt)'; that defendant had the right to determine whether there should be night or other overtime work and, also, to determine the terms, conditions and sources of purchase of all materials and rental equipment.

The contract further provided:

'The contractor (Sollitt) is also to assume the responsibility for directing and coordinating the work of the separate contractors * * *. The contractor shall work in close co-operation with the engineer. * * * This shall not in any way relieve the contractor of the obligation to expedite, inspect and conclude the work in accordance with the plans and specifications.'

November 27, 1956, plaintiff, a workman employed by Sollitt, ascended onto the roof of defendant's 'sulfur building' to assist in lining up the location of the new building to be constructed nearby. The roof crashed, hurling plaintiff 50 feet to a concrete floor below.

At the time of injury, plaintiff was on Sollitt's payroll, with other Sollitt employees who were working on defendant's building project; plaintiff was paid by Sollitt from payroll funds furnished by defendant to Sollitt and, after his injury, plaintiff received workmen's compensation benefits under the policy for which defendant furnished the money to Sollitt for premium payments.

In granting defendant's motion to dismiss plaintiff's declaration, the court in its opinion stated:

'The contractor's position is comparable to that of a foreman who in place of a salary received a flat fee for his services, since the defendant reserved to itself the right to control the manner in which the work was to be done. * * *

'In this case it seems obvious that the defendant was in fact the actual and legal employer of the plaintiff.'

Question No. 1: Did the court err in finding that the defendant was in fact the actual and legal employer of the plaintiff?

Appellant contends a cost-plus-fixed-fee contract created between defendant and Sollitt, without plaintiff's knowledge or consent, could not deprive plaintiff of his remedy against defendant as a third-party tort-feasor 'if such remedy otherwise existed,' because the relationship of employer and employee, unless created by statute, is a contractual relationship (35 Am.Jur., § 8, p. 450) and nothing Sollitt could do would make plaintiff the employee of defendant without plaintiff's assent (35 Am.Jur., § 18, p. 456).

Appellee claims that the contract had reserved to defendant the right of control over the work and employees of Sollitt and, therefore, under our decisions* was precluded from maintaining his action against defendant.

These cases do not sustain appellee's contention. Defendant did not hire plaintiff. Defendant did not direct plaintiff in his work. Defendant did not issue plaintiff's pay checks and only retained the right to object to plaintiff's conduct or workmanship. See Rockwell v. Grand Trunk Western Railway Co., 253 Mich. 144, 234 N.W. 159.

The trial court erred in finding that the contract established defendant as the 'actual and legal employer of the plaintiff' and that, therefore, under the terms of the contract plaintiff was precluded from maintaining his action.

Question No. 2: Do the provisions of the Michigan workmen's compensation act deny plaintiff his right of action against defendant?

Section 10, part 1, of the Workmen's Compensation Act (C.L.S.1956, § 411.10 [Stat.Ann.1957 Cum.Supp. § 17.150]) provides:

'(a) Where any employer subject to the provisions of this act (in this section referred to as the principal), contracts with any other person (in this section referred to as the contractor), who is not subject to this act or who has not complied with the provisions of section 1 of part 4 and who does not become subject to this act or comply with the provisions of section 1 of part 4 prior to the date of the injury or death for which claim is made for the execution by or under the contractor of the whole or any part of any work undertaken by the principal, the principal shall be liable to pay to any workman employed in the execution of the work any compensation under this act which he would have been liable to pay if that workman 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 act, 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 workman under the employer by whom he is immediately employed: Provided, That the term 'contractor' shall be deemed to include subcontractors in all cases where the principal gives permission that the work or any part thereof be performed under subcontract;

'(b) Where the principal is liable to pay compensation under this section, he shall be entitled to be indemnified by the contractor or subcontractor as the case may be, but the employee shall not be entitled to recover at common law against the contractor for any damages arising from such injury if he takes compensation from such principal. The principal, in case he pays compensation to the employee of such contractor, may recover the amount so paid in an action against such contractor.'

Section 15 of part 3 of the act (C.L.S.1956, § 413.15 [Stat.Ann.1957 Cum.Supp. § 17.189]), which was the 1952 amendment permitting the employee injured by third-party tort-feasor to pursue his common law remedy without being held to an election, reads in part:

'Where the injury for which compensation is payable under this act was caused under circumstances creating a legal liability in some person other than a natural person in the same employ or the employer to pay damages in respect thereof, the acceptance of compensation benefits * * * shall not act as an election of remedies, but such injured employee * * * may also proceed to enforce the liability of such third party for damages in accordance with the provisions of this section.'

Appellant cites Sweezey v. Arc Electrical Construction Co., 295 N.Y. 306, 67 N.W.2d 369, 166 A.L.R. 809, where a subcontractor had failed to provide compensation insurance and the employee of the subcontractor brought a common law action against the general contractor, it was urged that because of the fact the contractor had become liable for compensation he could not be a third party. The court held otherwise however, saying (295 N.Y. at page 310, 67 N.W.2d at page 370):

"The word 'employee' denotes contractual relationship. Consequently it cannot be held that the employees of Baker & Yettman are also employees of Eklund and, therefore entitled to compensation under a policy covering only the employees of Eklund. The liability of the contractor to employees of his subcontractor is a secondary one imposed upon him by law. That this does not cause the relationship of employer-employee to spring up has been recognized by this court in Clark v. Monarch Engineering Co., 248 N.Y. 107, 161 N.W. 436 * * *."

Appellant also cites Clark v. Monarch Engineering Co., 1928, 248 N.Y. 107, 161 N.W. 436, discussed in 151 A.L.R. 1359, 1360, which arose under a law similar to ours making a contractor liable for compensation to employees of subcontractors unless the subcontractor provides for such compensation, wherein it was held that even though the subcontractor did provide for compensation, the contractor was not removed from the class designated as a 'third party.'

The New York supreme court (129 Misc. 145, 149, 221 N.Y.S. 93, 96, affirmed in 222 App.Div. 713, 224 N.Y.S. 773, and in 248 N.Y. 107, 161 N.E. 436, supra) pointed out 'Such a provision * * * would not create the relation of employee and employer between the general contractor and the employee of the subcontractor where, from the very nature of the definitions of the terms 'employer' and 'employee,' such relationship does not exist.'

Appellee's comment on the two New York cases above mentioned by appellant is...