General Contractor Pays Workers’ Compensation Benefits on Behalf of its Subsidiary. Absolved of Further Liability Under the Act? Not So Fast.
On January 21, 2022, the Supreme Court of the State of Illinois issued a decision in the matter of Donovan Munoz v. Bulley & Andrews. At issue, was the ever-evolving exclusive remedy provision under Sections 5(a) and 11 of the Illinois Workers’ Compensation Act.
Under this theory, the injured worker waives his tort claims against his employer in favor of being able to recover under the Illinois Workers’ Compensation Act. This is a trade-off between employee-employer. In exchange for giving up the ability to recover under a tort theory, the employer provides benefits for strict liability Workers’ Compensation claims, meaning no-fault is necessary for an employee to prove compensability under the Act. The exclusive remedy provision is part of the quid pro quo that balances the sacrifices and gains of employees and employers.
In the instant case, a construction worker who was employed by Bulley Concrete was instructed to present to a work site in order to remove blankets from wet cement. While in the course of removing these blankets, the worker injured his back. The Plaintiff’s direct employer, Bulley Concrete, is a wholly owned subsidiary of Bulley & Andrews, the Defendant in the suit and a General Contractor. Bulley & Andrews paid the premiums on the Workers’ Compensation policy, and $78,204.05 in medical and TTD benefits was paid to the injured worker. The Plaintiff then moved to recover from Bulley & Andrews in a personal injury action, alleging that they retained control over the safety of the construction site and supervision of the work completed on the site. The Circuit and Appellate Courts of Illinois sided with the General Contractor, granting their motion to dismiss and noting that they were protected by the exclusive remedy provision. Plaintiff then appealed this decision to the Supreme Court of Illinois.
The dispute in this appeal concerns whether a General Contractor, Bulley & Andrews, who was not Plaintiff’s direct employer, enjoys the immunity afforded by the exclusive remedy provisions of the Act.
In short, the Supreme Court of Illinois found that Bulley & Andrews is not entitled to immunity because they are not the Plaintiff’s direct employer, and further, they are a separate entity from Bulley Concrete that is not required to provide Workers’ Compensation benefits to its employees. Each company had separate tax identification numbers, executives, project superintendents and workers. Therefore, these companies were separate entities, and only Bulley Concrete, the Plaintiff’s direct employer, is entitled to Section 5(a) immunity.
What does this mean? It means that a General Contractor who operates as a separate entity from its subsidiary is not entitled to immunity via the exclusive remedy provision in the Act, regardless of whether or not they paid Workers’ Compensation benefits and/or premiums on the policy on behalf of their subsidiary.
But why is a General Contractor unable to claim immunity if they paid Workers’ Compensation benefits in full to the Plaintiff? In short, Section 5(a) of the Act includes no category granting non-employers of the injured worker the ability to acquire immunity by paying Workers’ Compensation premiums on behalf of the direct employer, or directly to the injured party. Bulley & Andrews’ main problem with their argument is the fact they are a legally separate and distinct entity from the direct employer, Bulley Concrete. Further, they had no direct contract with Bulley Concrete to pay Workers’ Compensation benefits. A contract did exist for this project between the two ventures; however, there was no mention of Workers’ Compensation benefits and as such, Bulley & Andrews was not contractually obligated to pay the benefits. Therefore, Bulley & Andrews was not an agent entitled to avail itself of the Act’s exclusive remedy provision.
This is a disappointing result for all General Contractors in the State of Illinois. General Contractors must be cognizant of the fact that simply paying benefits directly to an injured worker, or paying insurance premiums on behalf of their subsidiary, is not enough to absolve them of civil liability under the Act.
If a General Contractor is faced with the question of how to avoid such a lawsuit, it is important to have a direct contract with the subsidiary outlining the payment of Workers’ Compensation benefits. However, it is unclear if a direct contract to provide benefits is enough to absolve a General Contractor from civil liability if they are still a separate legal entity from their subsidiary. For now, it is best to have a specific contract with the subsidiary outlining payment of Workers’ Compensation benefits. Ideally, a General Contractor will be participating in a joint venture with its subsidiary and operate under the same legal entity.
How is this fair to a general contractor who is willing, and in fact has, paid Workers’ Compensation benefits? It is not. However, the Court must construe the Act using its plain language. The Court is not permitted to draw conclusions that are contrary to the plain language of the Act. In this case, Section 5(a) of the Act makes clear that only the Plaintiff’s direct employer is entitled to immunity. Therefore, whether or not a contract with the subsidiary is executed, if the General Contractor is a separate legal entity from its subsidiary, the Court will likely follow the plain language of Section 5(a) of the Act. That is, only the Plaintiff’s direct employer is able to claim immunity. In this case, the Court chose that the appropriate test to determine a direct employer is whether or not they are a separate legal entity from their General Contractor. For now, General Contractors must live with this reality in the State of Illinois.