Skilled Craftsmen v. Texas Workers' Comp.

Decision Date03 February 2005
Docket NumberNo. 03-04-00073-CV.,03-04-00073-CV.
PartiesSKILLED CRAFTSMEN OF TEXAS, INC., Appellant, v. TEXAS WORKERS' COMPENSATION COMMISSION and Richard F. Reynolds, Executive Director, Appellees.
CourtTexas Court of Appeals

Jane Lipscomb Stone, Erin Hacker Shanley, Stone, Loughlin & Swanson, LLP, Austin, for appellant.

Brenda E. Brockner, Don Walker, Assistant Attorneys General, Administrative Law Division, Austin, for appellees.

Before Chief Justice LAW, Justices B.A. SMITH and PEMBERTON.

OPINION

BEA ANN SMITH, Justice.

The issue in this case is whether portions of the Texas Hazardous Employer Program (the Program) that call for the designation of hazardous private employers are preempted by the federal Occupational Safety and Health Act (OSH Act). Appellant, Skilled Craftsmen, argues that the Program is preempted because it allows appellee, Texas Workers' Compensation Commission (the Commission), to implicitly regulate occupational health and safety standards already addressed by the OSH Act. The district court held that the Program is not preempted by federal law and that it is administered pursuant to valid rules. Because we agree with Skilled Craftsmen, we reverse the district court's ruling and render judgment that the Program is preempted by the federal law.

BACKGROUND
The Hazardous Employer Program

The Workers' Health and Safety Division (the Division) of the Commission is statutorily directed to develop a program that identifies hazardous employers and analyzes injury frequency. Tex. Lab.Code Ann. § 411.041(b) (West Supp.2004-05). The Division determines that an employer is hazardous when its rate of workplace injuries exceeds the rate reasonably expected for its business or industry. See 28 Tex. Admin. Code § 164.1 (2004). To effectively identify hazardous employers, the Division developed a formula that compares an employer's normalized injury rate with the expected injury rate for that type of employer; if the ratio of normalized to expected injuries exceeds a pre-determined threshold ratio, the employer is designated hazardous. Id. § 164.1(c).

Once the Division designates an employer as hazardous, it notifies the employer and its workers' compensation insurance carrier. Tex. Lab.Code Ann. § 411.042 (West Supp.2004-05); 28 Tex. Admin. Code § 164.2(a) (2004). The notice must inform the employer (1) of the facts giving rise to the designation, (2) of any actions that must be taken as a result of the designation, (3) that an administrative review by the Division may be requested, and (4) that any information or documents provided by the employer are subject to disclosure under the Open Records Act. 28 Tex. Admin. Code § 164.2(b). An employer may also request a full hearing before an administrative law judge to contest a hazardous designation. Id. § 164.2(b)(5).

In 1996, we held that the Program, as it was then administered, was preempted because it regulated workplace safety issues already addressed by the OSH Act. Ben Robinson Co. v. Texas Workers' Comp. Comm'n, 934 S.W.2d 149, 158 (Tex.App.-Austin 1996, writ denied). In response, the legislature amended the program by deleting all portions that contained occupational and health standards for which a federal standard was in effect. See House Comm. on Bus. & Indus., Tex. H.B. 2514, 76th Leg., R.S. (1999). Because the OSH Act applies only to private employers, the amendments and new rules established different guidelines for private employers while the Program remained essentially the same for public employers. Under the amended Program, private employers were still identified as hazardous but were no longer required to develop accident prevention plans. The Commission's intent was to comply with both Ben Robinson and the legislative directive to develop a system of identifying hazardous employers. See Tex. Lab.Code Ann. § 411.041 (West Supp.2004-05); see also 23 Tex. Reg. 11812 (1998) (to be codified as amendment to 28 Tex. Admin. Code §§ 164.1-.18) (proposed August 21, 1998).

Skilled Craftsmen

Skilled Craftsmen is an agency that supplies temporary help to the manufacturing and industrial trades, such as electronics, welding, assembly, and machinists. Persons placed by Skilled Craftsmen remain its employees while they are working at a client company's work site. Thus, these employees are covered under Skilled Craftsmen's workers' compensation insurance. Between April 1, 2000, and March 31, 2001, the applicable audit period designated by the Commission for identifying hazardous employers, three of Skilled Craftsmen's employees suffered injuries that resulted in more than seven days of lost time.1 As a result of these three injuries, Skilled Craftsmen was identified as a hazardous employer.

Skilled Craftsmen appealed the designation to the State Office of Administrative Hearings.2 Before its administrative hearing, Skilled Craftsmen filed suit in district court seeking a declaration that identifying and labeling private employers as hazardous under the current Program is preempted by the OSH Act. Alternatively, Skilled Craftsmen argued that the formula used to identify hazardous employers is invalid as applied to a temporary help agency. Specifically, Skilled Craftsmen claimed that the results of the formula are arbitrary and unreasonable (1) because it fails to address the differences between employers with static and dynamic workforces, (2) because the Standard Industrial Classification code (SIC code) assigned to Skilled Craftsmen is too broad, and (3) because none of the client companies for whom the employees were working when they were injured was designated hazardous.

In order to better understand Skilled Craftsmen's as-applied challenge, a brief explanation of the formula used to identify hazardous employers is helpful. As we stated above, the formula compares an employer's normalized injury rate with the expected injury rate for that type of employment; if the ratio of normalized to expected injuries exceeds a pre-determined threshold ratio, the employer is designated hazardous. An employer's injury rate is determined by dividing the total number of injuries by the highest employment during any one pay period and then multiplying that figure by one hundred. An employer's expected injury rate is determined by the Bureau of Labor Statistics based on the SIC code assigned to the employer by the Texas Workforce Commission. Skilled Craftsmen was assigned SIC code 7363, entitled Help Supply Services, which includes all establishments primarily engaged in supplying temporary or continuing help on a contract or fee basis. Other types of businesses included in SIC code 7363 are employee leasing services, fashion show model supply services, other modeling services, manpower pools, office help supply services, and usher services.

Skilled Craftsmen argued to the district court that the formula is based on assumptions that do not apply to a temporary help agency. For example, Skilled Craftsmen claimed that the formula fails to take into account its dynamic work force. During the twelve-month period used by the Commission to identify hazardous employers, Skilled Craftsmen employed a total of 414 people. However, the most people it employed in any one pay period was 89. Skilled Craftsmen contends that the formula should take into account the total number of employees that were exposed to possible injury rather than those employed during a single pay period. Skilled Craftsmen avers that the formula functions adequately for most employers because the number of employees remains relatively constant between pay periods. However, a temporary help agency's workforce is highly variable. If the Division had used all 414 employees instead of 89, the formula would not have identified Skilled Craftsmen as hazardous.

Skilled Craftsmen further argued that the SIC code and its corresponding expected injury rate inadequately describe what it does as an employer. The SIC code assumes that Skilled Craftsmen only places employees in clerical or office positions, when in fact its employees are placed in industrial labor positions for client companies that are assigned SIC codes with significantly higher expected injury rates. In this case, two of the three injured employees were working as general shop helpers, while the third was working as a pipe cutter. The three employees were working at two separate job sites. The SIC codes for these work sites were 3498, for Fabricated Pipe and Pipe Fittings, and 3533, for Oil and Gas Field Machinery and Equipment. The expected injury rate for SIC code 3498 was 5 injuries per 100 employees at the time Skilled Craftsmen was designated hazardous. The expected injury rate for SIC code 3533 was 1.4 injuries per 100 employees. The expected injury rate for Skilled Craftmen's SIC code 7363, is 1 injury per 100 employees. Had the Division used the expected injury rates for the work sites where the Skilled Craftsmen's employees were injured, the formula would not have identified Skilled Craftsmen as a hazardous employer.

The Commission contended that the Program, as it pertains to private employers, is not preempted because (1) there is no federal standard for identifying hazardous employers, and (2) the Program does not actually regulate occupational health and safety issues since it does not require an identified private employer to take any action to alleviate the source of the hazard. The district court held that the Program is not preempted by federal law and is being administered pursuant to valid rules. This appeal followed.

Standard of Review

In this case, we must determine whether the Commission's Program is preempted by federal law. Because this determination is pure question of law, we review the trial court's decision de novo. See State v. Heal, 917 S.W.2d 6, 9 (Tex.1996) (stating that questions of law are reviewed without deference to lower court's conclusion).

DISCUSSION

Federal preemption of state...

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