Not Your Business: Analyzing the Statutory Employer Test in Virginia

Written by Joseph Smith, Esq.

Edited by Rachel Riordan, Esq.

What remedies does a claimant have when he is injured while working for an uninsured contractor? Can he assert his claim against the owner of the construction project as his statutory employer? Does it matter if the owner has no involvement with the construction other than financing it? In Jeffreys v. the Uninsured Employer’s Fund, et. al., Record No. 171467 (Feb. 14, 2019), the Supreme Court of Virginia (the “Court”) recently considered the issue of whether a historical society could be a statutory employer under the Act.

In Jeffreys, the Harvey School Historical Society (the “Historical Society”), founded by California resident Annie Mosby, sought to purchase a school building in Pittsylvania County to restore it, maintain it, and preserve it as a historical site. Id. at 2. The Historical Society became an auxiliary of the Mount Lebanon Missionary Baptist Church (the “Church”) to obtain a tax-exempt status. Id. The Church allowed the Historical Society to meet on the premises but otherwise provided no financial support to the Historical Society. Id. Mosby hired William Johnson, an unlicensed contractor, to plan and perform the renovation. Id. Mosby was present only briefly at the beginning of the project and she had no construction experience, nor did she exercise control over Johnson or the work being performed. Id.

Johnson initially only worked with one other individual on the project, but later requested permission to hire the Claimant as well. Id. at 2-3. Johnson was considered the “boss” on the job, and he exclusively managed the Claimant’s work. Id. at 3. While working on the project, the Claimant was injured when a beam fell from the roof of the school building and landed on his neck. Id. He filed a claim for workers’ compensation benefits against Mosby, the Church, and the Historical Society but not against Johnson. Id. He argued that all three parties were his direct employers, but in the alternative, that each was a statutory employer because he was performing work within their trade, business, or occupation. Id. The Uninsured Employers Fund (UEF) was also brought into the case because Johnson did not have workers’ compensation insurance.

The Deputy Commissioner initially found that the Claimant was the direct employee of the Historical Society and Mosby, who was the Historical Society’s “agent,” and the Historical Society was a part of the Church, making the Church an “employer” of the Claimant as well. Id. The Full Commission reversed in part, holding that Mosby was not a direct employer of the Claimant because she did not have any control over his work. Id. They also affirmed the award against the Church and Historical Society because no party appealed that decision. Id. The Court of Appeals of Virginia affirmed the Full Commission’s finding that Mosby was not the Claimant’s direct employer, but reversed and remanded the finding that the UEF had waived its arguments regarding the Church and Historical Society. Id. at 3-4. On remand, the Commission found that the Historical Society and Church were not the Claimant’s direct employer. Id. at 4. Because none of the three defendants were direct employers, the Commission considered whether any were statutory employers and held that they were not, as none were in the construction business, and the Court of Appeals affirmed the Commission’s findings. Id.

On appeal to the Supreme Court of Virginia, the Court affirmed that neither the Church nor the Historical Society were the Claimant’s statutory employers. Id. The Court addressed the humanitarian purpose of the Act in conjunction with its analysis of Section 65.2-302 regarding statutory employers. Id. at 7-10. The Court noted the Claimant has the burden of proving that the Church and Historical Society were engaged in the same trade, business, or occupation of his direct employer, which in this case is construction. Id. at 12. The Historical Society and Church had charitable purposes with fundraising and community service outreach efforts as their main mission. Id. As such, the Court found that the Claimant failed to carry his burden that his reconstruction work on the school building was part of the trade, business, or occupation of the Historical Society or Church. Id.

Of note, the Court agreed that the Historical Society and Church did not have the capacity to undertake the school restoration project. Id. at 13. None of the evidence showed that any members of the Historical Society or Church intended to participate in the actual restoration and construction of the school building regardless of the fact that the Historical Society was formed to “restore” the school. Id. It noted that this claim was distinguishable from a case cited by the Claimant, Pfeifer v. Krauss Construction Co. of Va., 262 Va. 262 (2001). In Pfeifer, a developer formed a company with a sole purpose of building condominiums on land it owned, so there was no dispute that the developer’s trade, business, or occupation included building the condominiums. Id. at 14; Pfeifer at 268. Because the Church and Historical Society were not in the trade, occupation, or business of construction, the Court affirmed the finding that the Claimant failed to prove that they were his statutory employers. Id. at 15.

Overall, this opinion provides a useful guide when analyzing statutory employer claims. If you have a claim involving a party contracting work to another whose employee is injured working on the project, do not assume the contracting party is a statutory employer automatically due to ownership status. To prove that the party is the statutory employer, the claimant must establish that the project is within the trade, business, or occupation of the contracting party. Even if the project appears to be an essential part of the business, such as a law firm contracting out construction for a new office, unless the law firm was actively directing or controlling the construction, they should not be liable as a statutory employer.

If you need any assistance in evaluating statutory employer claims, our workers’ compensation team is always ready to help.

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