Workers' Comp Exclusivity

Under California's workers' compensation system, the employer assumes liability for workplace injuries, regardless of fault. In exchange, the injured employee receives "relatively swift and certain payment of benefits to cure or relieve the effects of the industrial injury." Also, the employer surrenders the right to contest liability via the civil justice system, while the employee "gives up the wider range of damages potentially available in tort." (Shoemaker v. Myers, 52 Cal. 3d 1, 16 (1990).)

Where the conditions for payment of workers' compensation (WC) benefits exist, the employee's statutory right to such benefits is an exclusive remedy, supplanting all other statutory and common law remedies and depriving the civil courts of jurisdiction over the matter. (See Cal. Lab. Code §§ 3600-3602 (all further references are to the Labor Code); Moise v. Owens, 96 Cal. App. 2d 617, 618-619 (1950).)

It should be noted at the outset that the exclusivity issue is jurisdictional. If an employee sues his or her employer in tort, the employer does not waive the exclusivity rule by failing to assert it as an affirmative defense. The issue may be raised at any time before or at trial. (See Luchich v. City of Oakland, 19 Cal. App. 4th 494 (2003).)

The exclusivity rule applies when: the worker suffers a physical injury or death; the injury or death arises out of, and in the course of, the employment and was proximately caused by the employment; the employer carried WC insurance or self-insured against WC claims; and no exception (discussed below) applies. (See §§ 3207, 3600, 3601, 3602, 3700.)

Many attorneys are familiar with this rule and at least some of its exceptions, but detecting them can be difficult. The following scenarios should help attorneys recognize which facts give rise to workers' compensation exclusivity and thus to tort immunity, and which facts tend to help an injured worker escape the damages limits imposed by the exclusivity rule.

Employment Relationship
The first key is detecting the employment relationship. A hypothetical case may help to illustrate this principle. Assume that Henry Homeowner hires Larry Upgrade, a licensed general contractor, to remodel his house. The project involves electrical work, which Larry subcontracts to Susan Volt. Susan, a licensed electrician, has no full-time employees, so she brings along Neil Smith, who is visiting from Nevada, to assist. She agrees to pay him $20 an hour for his help. Neil has no formal training as an electrician. Susan explains the job to Neil but does not advise him regarding safe practices with respect to electricity. While Susan is working in another room, Larry directs Neil to run an electrical wire through a wall using fish tape (a metal device for stringing wire). Neil is electrocuted and dies, leaving behind a wife and daughter. The wife and daughter want to know whether they can file suit, and if so against whom.

As a preliminary matter, the fact that Neil is a Nevada resident does not matter. Both California residents and out-of-state residents are covered by California's WC system if the work giving rise to the injury occurred here. (§§ 3600.5(a), 5303.)

What matters most is whether Neil will be considered an employee or an independent contractor. The distinction is crucial because while employers are not subject to suit for workplace injuries, those who hire independent contractors can be sued under negligence theories (discussed below).

Although neither Larry nor Susan may have considered Neil to be an employee, there is a rebuttable presumption that an unlicensed worker performing services for which a license is required is an employee. (§ 2750.5.) This also means that if Susan were unlicensed, Neil would be presumptively considered an employee of Larry, even if Susan had WC insurance to cover Neil's injuries. (See Hernandez v. Chavez Roofing, Inc., 235 Cal. App. 3d 1092 (1991).)

To defeat this presumption, Neil's family must prove that he had the right to control the manner in which he performed his work, was customarily engaged in an independently established business, and was genuinely an independent contractor - "and not [attempting] subterfuge to avoid employee status." (§ 2750.5.)

Even if licensure were not an issue, the proof of independent-contractor status necessary to defeat WC exclusivity lies primarily in evidence that the worker had the right to control the method and performance of his or her work. Secondary factors include: The worker engages in a distinct occupation and has an independently established business or substantial investment involved; the worker cannot quit without incurring liability for failure to complete the job; the worker supplies his own tools or instrumentalities; payment is by job as opposed to by the hour; the worker hires others to assist with the work; the working relationship is brief; and any other evidence that tends to prove that the parties did not intend to create an employment relationship. (See §§ 2750.5, 3353; S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341, 349 (1989); Germann v. Workers' Comp. Appeals Bd., 123 Cal. App. 3d 776, 783 (1981).) The relative skill, education, and bargaining power of the worker also may be considered. (Germann, 123 Cal. App. 3d at 784.) Applying these factors, Neil appears to have been injured while working as Susan's employee.

Employer Coverage
Even if Neil is deemed her employee, Susan cannot rely on the exclusivity rule to shield her from tort liability unless she obtained workers' compensation insurance or is self-insured for WC claims. (§ 3706; Huffman v. City of Poway, 84 Cal. App. 4th 975 (2000).) If Susan failed to do so, she has violated two of Neil's primary rights - the right to a safe workplace and the right to work for an employer who carries WC insurance. In the absence of WC coverage, Neil's family can bring a civil action for personal injury damages against Susan and simultaneously pursue a WC claim. (§ 3706, 3715; Le Parc Community Ass'n v. Workers' Comp. Appeals Bd., 110 Cal. App. 4th 1161, 1173 (2003).)

In such a case, presumptions work against the employer, provided Neil's family alleges that he was injured in the course and scope of his employment with an employer who willfully failed to procure WC coverage. In that situation, employer negligence is presumed to have caused the injury, and the employer bears the burden of rebutting the presumption. (§ 3708.) The determination about available WC coverage will be made by the court; if the defendant fails to produce such proof, the case may be tried before a jury, which can consider awarding the full range of tort damages to the plaintiff. (Coleman v. Silverberg Plumbing Co., 263 Cal. App. 2d 74, 80 (1968).)

If Neil's family members simply file a negligence claim, without reference to either the employment relationship or the WC system, they must prove the elements of the tort, and the defendant must plead and prove both the employment relationship and the existence of WC insurance coverage in order to invoke WC exclusivity. (If the plaintiff alleges negligence within the employment relationship but fails to allege that the defendant did not have WC insurance, the complaint is subject to demurrer: The defendant can merely assert WC exclusivity, and the plaintiff would have to prove the lack of insurance for the case to survive. (Coleman, 263 Cal. App. 2d at 79.)

To prevent a double recovery, the law provides that the employer gets a credit against WC benefits for any money awarded against it in the civil action. (§§ 3708-3709, 4554, 4555.)

Other Defendants
Neil's heirs could pursue a tort action against Larry (the general contractor) and Henry (the homeowner) if they can show that these hirers negligently exercised control over the job site and that their conduct contributed to Neil's death. (See McKown v. Wal-Mart Stores, Inc., 27 Cal. 4th 219, 222 (2002).) Hirer liability also exists if the hirer actively directed the work in a manner that leads to injury or negligently failed to provide a promised safety measure, the absence of which substantially contributed to the injury. (Hooker v. Dept. of Transportation, 27 Cal. 4th 198, 212 fn 3 (2002); see also Tverberg v. Fillner Const., Inc., 202 Cal. App. 4th 1439, 1448 (2012).) A hirer is not liable for injuries to a subcontractor's employee when the hirer merely failed to require that certain safety precautions be taken. (Hooker, 27 Cal. 4th at 213; Toland v. Sunland Hous. Group, Inc., 18 Cal. 4th 253, 267 (1998).)

Here, Neil's heirs can't point to any control exercised by Henry, but because Larry supplied the dangerous instrumentality that harmed Neil, Larry may be liable in a civil action.

Borrowed Employees
Larry may be able to invoke WC exclusivity to avoid civil liability by claiming that although Susan was Neil's "general employer," Larry was his "special employer." When an employer lends an employee to another entity, and they either share control over the worker's activities or the borrower directs and controls the work, both entities are considered to be employers of the worker, such that WC exclusivity will bar the injured worker's claim against both. This is commonly known as the "borrowed servant," "special employment," or "dual employment" doctrine. The regular employer is the "general employer," and the borrowing employer is the "special employer." (Kowalski v. Shell Oil Co., 23 Cal. 3d 168 (1979); Angelotti v. Walt Disney Co., 192 Cal. App. 4th 1394 (2011).)

Exceptions
There are several notable exceptions to the exclusivity rule, including:

Parent-subsidiary relationship. If multiple corporations are involved and a subsidiary company is the true employer, there may be no WC exclusivity as to the parent company, provided the parent operated as a separate entity. If the parent engaged in independent, affirmative acts of negligence or misfeasance that proximately caused the plaintiff's injury, a civil claim may lie. (Waste Mgmt., Inc. v. Superior Court, 119 Cal. App. 4th 105 (2004); Gigax v. Ralston Purina Co., 136 Cal. App. 3d 591 (1982).) For example, this could be the case if a parent company manufactures a defective product that injures an employee of a subsidiary entity.

- Power presses. Section 4558 of the Labor Code provides what is known in the WC arena as the "power press" exception. This is a vital rule that applies in the manufacturing industry. If the injury involves "material forming" machinery that utilizes a die that is designed for use in the manufacture of other products, there is no WC exclusivity if the employer knowingly removes, or fails to install, a point of operation guard "under conditions known by the employer to create a probability of serious injury or death."

- Dual capacity. An injured employee can sue his employer in tort for injuries arising from the use of a defective product manufactured by the employer only if the product injures the employee after the employer-manufacturer has sold, leased, or otherwise transferred the product to an independent third party for valuable consideration, and that product is thereafter provided for the employee's use by a third person. (§ 3602(b)(3); Foster v. Xerox Corp., 40 Cal. 3d 306 (1985).)

- Fraudulent concealment. If an employer becomes aware of employee injury resulting from exposure to an unsafe condition, such as the use of dangerous chemicals, and the employer conceals this knowledge from the employee - thereby inducing the employee to continue working and continuing being exposed to the harm - the employee can bring a tort claim against the employer to recover damages for the extent to which the injury was made worse by the concealment. (See Johns-Manville Products Corp. v. Superior Court, 27 Cal. 3d 465 (1980).) However, mere concealment of unsafe working conditions does not bring a work-related injury outside the exclusivity rule. (§ 3602(b)(2).)

- Willful assault. If the injury occurs as a result of the employer's use of force, the "willful assault" exception allows an employee to sue in tort. (§§ 3601(a)(1), 3602(b)(1).) To qualify, the employer's use of force or violence must amount to a willful physical assault or a willful and unprovoked act of aggression. The plaintiff must prove that the employer acted with a specific intention to cause an injury or death - "a conscious and deliberate intent directed to the purpose of inflicting an injury." (Soares v. City of Oakland, 9 Cal. App. 4th 1822, 1824-1829 (1992); §§ 3601(a)(1) and 3602(b)(1).) Related to this concept is the rule that establishes tort liability for employers who ratify assaults on an employee by a co-employee. (See § 3602(b)(1).)

Even though an employer's actions "might be characterized as egregious ... manifestly unfair, outrageous, harassment, or intended to cause emotional disturbance resulting in disability," the exclusivity rule probably applies. (See Shoemaker, 52 Cal. 3d at 15-16.) However, the employee may qualify for a 50 percent increase in WC compensation if the employer's conduct is determined to be serious and willful. (§ 4553; Fermino v. Fedco, Inc., 7 Cal. 4th 701 (1994).)

- Worker's own action. WC benefits will be denied if the injury was caused by the employee's own actions. Thus, there will be no entitlement to WC benefits when the injury was caused by the employee's intoxication or unlawful use of a controlled substance; was intentionally self-inflicted; was caused by the employee's commission of a felony; or was caused by an altercation in which the injured employee was the initial physical aggressor. (§ 3600(a)(4)-(8).)

- Off-duty activity. Also, a worker injured during voluntary participation in an off-duty recreational, social, or athletic activity is not considered to have been injured in the course of employment, as long as the activity was not one that the employee was required nor reasonably expected to participate in, as part of or in conjunction with work-related duties. (§ 3600(a)(9).)

Though these examples cannot cover every possible scenario, they serve to illustrate the core principles that govern California's extensive WC system - one that, at least in theory, is supposed to be both fair and efficient. Whether the system has fulfilled that promise is another question altogether.

Deborah Rosenthal, a shareholder at Simmons Hanly Conroy in San Francisco, primarily litigates asbestos and other toxic tort cases. Craig Peters, a trial attorney with The Veen Law Firm in San Francisco, litigates complex injury cases.

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