Court Notes Requirements for Joint Employment Relationship

By Don R. Sampen, published, Chicago Daily Law Bulletin, June 16, 2020

The U.S. District Court for the Northern District of Illinois recently provided guidance for what constitutes “co-employment” in the context of a dispute between insurers over workers compensation coverage for injured employees.

The case is Starr Indemnity & Liability Co. v. Technology Insurance Co., Inc., 16 C 9533, 2020 U.S. Dist. Lexis 09533 (May 22). Starr was represented by Michaels Schulwof & Salerno P.C. Karbal Cohen Economou Silk & Dunne represented Technology. Johnson & Bell represented the alleged co-employer, Administrative Employer Services, Inc.

Midwest Steel Inc. was the employer of four employees injured on a construction site in Chicago in 2014. Midwest was a subcontractor of Lend Lease Construction, Inc., the general contractor on the project.

Starr issued workers’ compensation insurance to Lend Lease through a contractor-controlled insurance program that Lend Lease set up to provide such coverage for all construction workers on the project. Lend Lease required all subcontractors to enroll in the program and Midwest had done so.

In their applications for workers’ compensation benefits, however, each of Midwest’s injured employees identified two entities as their employer, Midwest and Administrative Employer Services Inc. AES was a Minnesota-based “professional employer organization” that contracted with Midwest and other employers to provide certain administrative and personnel services.

A 2010 service agreement between Midwest and AES described the administrative services AES was to provide. It recited, among other things, that AES would have control over hiring, supervising and firing of Midwest’s employees and would furnish and keep in force workers’ compensation coverage for Midwest. In fact, these particular requirements of the service agreement were never observed between Midwest and AES, and Midwest actually purchased its own workers’ compensation policies.

In 2015, after the accident involving the four employees, Midwest and AES entered into a revised service agreement stating that Midwest would have, and always had, control of its own employees and provided its own workers’ compensation coverage. Even the 2015 version of the service agreement, however, continued to identify AES as a co-employer with the authority to implement and supervise personnel policies relating to the covered employees.

On receiving notice of the injury claims in early 2015, and also being advised of the co-employment relationship, Starr denied coverage on the ground that AES was a co-employer, had not enrolled in the contractor-controlled insurance program and had agreed with Midwest to provide workers’ compensation coverage. Starr thus contended that Midwest workers’ claims should be filed with AES’s workers’ compensation insurer, which was Technology.

Subsequently, Starr agreed to provide coverage and paid $583,000 for the injured workers’ claims, although it received reimbursement for a part of that as a deductible. At the same time, Starr reserved the right to seek contribution from Technology for contribution and it filed the current lawsuit for that purpose.

Analysis

Upon cross-motions for summary judgment, Judge Andrea R. Wood found in favor of Technology. At the outset she observed that the right to contribution as between insurers under Illinois law requires, among other things, an identity between the policies as to parties and insurable interests and risks. The dispute here concerned whether the technology policy issued to AES covered the same parties as Starr’s policy.

She also found that Illinois common law governed whether AES could be deemed a co-employer in the workers’ compensation context. She noted that Illinois courts have recognized a variety of factors for determining a joint employment relationship, but the most important single factor is the right to control the work. Thus, two employers can be considered joint employers when they share control of the employee and both benefit from the work.

Wood further observed that the terms of the written contracts between Midwest and AES were not conclusive of the nature of the relationship. Rather, she said, the existence of an employer-employee relationship under Illinois law depends upon the actual practices followed by the parties. And in this case it was undisputed that AES was not a subcontractor on the construction project, did not control the manner in which Midwest’s employees performed work and never even visited the project.

AES’s primary involvement with the injured workers, moreover, was payroll administration. And although the checks were issued on AES’s bank account and bore AES’s name and logo, the payments were immediately reimbursed by Midwest. In addition, reading the two AES-Midwest agreements together, the only right of control AES had was the authority to implement and supervise AES personnel policies and procedures.

Midwest thus had the right to control the work the employees performed. And although AES derived a benefit from the fact of the employers’ employment, it did not benefit from their construction work because it did not advance AES’s payroll processing and other human resource duties.

Accordingly, Wood found that AES was not a joint employer, and she entered summary judgment in favor of Technology.

Key point

A joint employment relationship between two employers for workers’ compensation purposes requires that the joint employers share actual control of the employee and benefit from the work performed.