Understanding Pennsylvania’s Statutory Employer Defense

Abraham Lincoln once said, “The best way to get a bad law repealed is to enforce it strictly.” When and whether an injured employee can sue an owner or subcontractor for a work-related injury in Pennsylvania has been a matter of some confusion over the years. It is the latest in a landslide of confusing legal principles and legislation trying to plug the square peg of American civil justice into the round hole of workers’ compensation.

In Pennsylvania, a contractor who subcontracts all or part of a contract is liable for workers’ compensation benefits to the employees of the subcontractor unless the subcontractor (direct employer) has secured payment of such benefits.[1] Section 52 provides as follows:

§ 52. Employers’ liability to employe of employe or contractor permitted to enter upon premises.

An employer who permits the entry upon premises occupied by him or under his control of a laborer or an assistant hired by an employe or contractor, for the performance upon such premises of a part of the employer’s regular business entrusted to such employe or contractor, shall be liable to such laborer or assistant in the same manner and to the same extent as to his own employe.[2]

Regarding the liability of an owner or contractor, who subcontracts work for the payment of compensation to the employees of the subcontractor, § 461 provides as follows:

§ 461. Coverage of employees of subcontractor; subcontractor defined; exception.

A contractor who subcontracts all or any part of a contract and his insurer shall be liable for the payment of compensation to the employes of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided for in this act. Any contractor or his insurer who shall become liable hereunder for such compensation may recover the amount thereof paid and any necessary expenses from the subcontractor primarily liable therefor.

For purposes of this subsection, a person who contracts with another (1) to have work performed consisting of (i) the removal, excavation or drilling of soil, rock or minerals, or (ii) the cutting or removal of timber from lands, or (2) to have work performed of a kind which is a regular or recurrent part of the business, occupation, profession or trade of such person shall be deemed a contractor, and such other person a subcontractor. This subsection shall not apply, however, to an owner or lessee of land principally used for agriculture who is not a covered employer under this act and who contracts for the removal of timber from such land.[3]

If an owner or general contractor meets the requirements of § 461, it becomes a “statutory employer” of the injured worker.[4] The classic statutory employer situation is in the construction industry, where a property owner hires the general contractor, who hires a subcontractor to do specialized work on the jobsite, and an employee of the subcontractor is injured in the course of his employment. Such a statutory employer is “secondarily liable” for workers’ compensation benefits to the injured worker where the subcontractor who is primarily liable has failed to secure benefits.[5] A statutory employer may claim the defense of the Exclusive Remedy Rule and may not be sued as a third party.[6]

A statutory employer is an employer who is not a contractual employer or a common law employer, but an employer as a result of the workers’ compensation law[7] – the statutory employer in the same position as the “contractual” or “common law” employer of the injured worker for tort liability purposes. The purpose of the statutory employer provisions in the Pennsylvania Workers’ Compensation Act is to ensure the payment of compensation benefits by a financially responsible party in the injured worker’s chain of employment from subcontractor to general contractor.[8] The ability of a statutory employer to claim exclusive remedy protection is known as the “Statutory Employer Doctrine.”[9] A statutory employer is entitled to exclusive remedy protection as a matter of law, not simply because it hired the injured worker or serves as its true employer. Pennsylvania law requires a general contractor to be liable for benefits in a “reserved status” should a subcontractor default on his obligation to provide workers’ compensation insurance.[10] To create the relation of statutory employer under § 52, a test known as the “McDonald Test” requires that all of the following elements essential to a statutory employer’s liability must be present:

  1. An employer who is under contract with an owner or one in the position of an owner;
  2. Premises occupied by or under the control of such employer;
  3. A subcontract made by such employer;
  4. Part of the employer’s regular business entrusted to such subcontractor; and
  5. An employee of such subcontractor.[11]

When a third party attempts to defend an action based on the “statutory employer” defense, it has the burden of proving that there is a contract, that its regular business consists of the work which is the subject of the contract, and that it entrusted part of its regular business to the subcontractor/employer of the injured employee.[12]

It should be remembered that the statutory employer defense is a legal fiction, based entirely upon a statute passed in the early part of this century and created to assist the Pennsylvania worker by assuring coverage for that worker under the Workers’ Compensation Act.[13] Although not apparent from the terms of the statute, the language of the statute confers upon the statutory employer immunity from suit. This is because § 303(a) of the Act[14] makes workers’ compensation benefits the exclusive remedy for an injured worker seeking redress from an actual employer[15] or from a statutory employer.[16] In determining whether a party is a statutory employer, courts should construe the elements of the “McDonald Test” strictly and find a statutory employer status only when the facts clearly warrant it.[17]

Immunity For Employees of Sub-Subcontractor. A general contractor can claim the statutory employer defense against a claim brought by the employee of a sub-subcontractor.[18] In other words, there doesn’t have to be a direct contract between the owner/general contractor and the sub-subcontractor in order for the former to take advantage of the statutory employer defense. There is no requirement of an immediate contractual relationship for statutory employer immunity.

No Payment of Benefits Necessary. The exclusive remedy protection afforded by the owner’s status as statutory employer is not dependent on the owner actually providing or paying workers’ compensation benefits. It is afforded this immunity by virtue of statutory employer status alone, such that it is afforded protection even where the statutory employer has not been required to make any actual benefit payments.[19]

Independent Contractors. The first element of the “McDonald Test” requires that an employer be under contract with an owner or one in the position of an owner. This is because an employer cannot claim statutory employer immunity with respect to an independent contractor.[20] In other words, if an injured plaintiff is an independent contractor with respect to the subcontractor or sub-subcontractor, he cannot be a statutory employee of the general contractor or owner.[21] The reasoning is simple. Only employers standing in a direct master-servant relationship with an injured worker may be liable for workers’ compensation benefits under Pennsylvania law. This is determined using the common law test for a master-servant vs. independent contractor relationship, including control of manner work is to be done; responsibility for result only; terms of agreement between the parties; the nature of the work or occupation; skill required for performance; whether one employed is engaged in a distinct operation or business; which party supplies the tools; whether payment is by the time or by the job; whether work is part of the regular business of the employer, and also the right to terminate the employment at any time.[22]

For an overview of similar laws involving statutory employer defenses in all 50 states, please see the detailed chart entitled “Workers’ Compensation Subrogation In Construction Settings For All 50 States,” found on the website of Matthiesen, Wickert & Lehrer, S.C., or click HERE to view. If you have questions regarding workers’ compensation subrogation in Pennsylvania or subrogation across North America, please contact Gary Wickert at gwickert@mwl-law.com.

[1] 77 P.S. § 461 (1994); 77 P.S. § 462 (1974) (employer who permits entry upon his premises by laborer or assistant hired by an employee or contractor, for the performance of work on such premises, is liable for workers’ compensation benefits to such employee); 77 P.S. § 52 (1939) (employer who permits entry upon his premises of a laborer or assistant hired by an employee or contractor, for the performance of work on such premises, is liable for workers’ compensation benefits to such employee).

[2] 77 P.S. § 52. The insistence by some state legislatures on using the incorrect spelling of employee with only one “e” continues to mystify the author. It is time for a first grade class somewhere to write to the Pennsylvania Legislature and tell them that this spelling is not only obsolete, it is wrong.

[3] 77 P.S. § 461.

[4] Dougherty v. Conduit & Found. Corp., 674 A.2d 262 (Pa. Super. Ct. 1996).

[5] Id.; 77 P.S. § 52.

[6] Dougherty, supra.

[7] Peck v. Delaware Cty. Bd. of Prison Inspectors, 814 A.2d 185 (Pa. 2002).

[8] Id.

[9] Peck, supra.

[10] 77 P.S. § 462 (also known as § 302(b) of the Pennsylvania Workers’ Compensation Act); Fonner v. Shandon, Inc., 724 A.2d 903 (Pa. 1999); O’Boyle v. J.C.A. Corp., 538 A.2d 915 (Pa. Super. Ct. 1988).

[11] McDonald v. Levinson Steel Co., 153 A. 424 (Pa. 1930); Peck, supra.

[12] Peck, supra; Cranshaw Constr., Inc. v. Ghrist, 434 A.2d 756 (Pa. Super. Ct. 1981).

[13] The Act provides that “an employer who permits the entry upon premises, occupied by him or under his control, of a laborer or an assistant hired by an employee or contractor, for the performance upon such premises of a part of the employer’s regular business entrusted to such employee or contractor, shall be liable to such laborer or assistant in the same manner and to the same extent as to his own employee.” 77 P.S. § 52 (1939).

[14] 77 P.S. § 481(a) (1939).

[15] Also known as the “contractual” or “common law” employer.

[16] Peck, supra.

[17] Id.; McDonald, supra.

[18] Lascio v. Belcher Roofing Corp., 704 A.2d 642 (Pa. Super. 1997); Qualp v. James Stewart Co., 109 A. 780 (Pa. 1920).

[19] Fonner, supra.; Patton v. Worthington Associates, Inc., 2014 WL 1236499 (Pa. 2014).

[20] Lascio, supra.; Patton, supra.

[21] Rolick v. Collins Pine Co., 925 F.2d 661 (3rd Cir. 1991); Robson v. Martin, 140 A. 339 (Pa. 1928); Strunk v. Keller, 75 Pa. Super. 462 (1921).

[22] Zimmerman v. Public School Employees’ Retirement Bd., 522 A.2d 43 (Pa. 1987).

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.