A case recently decided by a panel of the U.S. Court of Appeals for the 1st Circuit should put employers on notice about when contractors and subcontractors may be viewed as a single entity in terms of liability.
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The panel reviewed a determination by an Occupational Safety and Health Review Commission (Commission) administrative law judge (ALJ) that a contractor and his subcontractor were responsible for an accident in 2014 in which two roofers employed by the subcontractor were injured at a residential construction site when a board on a scaffolding broke; the workers fell over 20 feet and were seriously injured. OSHA assessed penalties totaling $173,500.
The contractor appealed, arguing that OSHA wrongly held it responsible for the acts and omissions of a subcontractor. But the ALJ found that the contractor exercised such an unusual amount of control over the subcontractor’s actions that the two entities must be treated as a single employer. The contractor also argued that he did not have fair notice that he and the subcontractor would be treated as a single employer. The ALJ rejected that argument as well. The 1st Circuit panel affirmed both parts of ALJ’s determination and denied the contractor’s petition for review.
Single-Entity Tests
In its determination, the ALJ noted that the owner of the contracting company and the owner of the subcontracting company had been friends for over 30 years and that in 2015, 95 percent of the subcontractor’s income came from the contractor. The ALJ applied two tests to gauge the extent of the connection between the contractor and the subcontractor. The first is the Commission’s single-employer test in which two businesses are treated as one where there is a combination of most or all of the several factors—a common worksite, a common president or management, a close interrelation and integration of operations, and a common labor policy.
The ALJ also applied the Darden test set forth by the U.S. Supreme Court (Nationwide Mut. Ins. Co. v. Darden, 1992) to determine when a hired party is an employee. In that opinion, the Supreme Court stated that all aspects of the employer-hired party relationship must be assessed and weighed with no one factor being decisive. “However, in most situations, the extent to which the hiring party controls the manner and means by which the worker completes her tasks will be the most important factor in the analysis,” the Court stated.
Contractor’s Control
The ALJ examined in detail the extent of the contractor’s control of the subcontractor. For example, the contractor scheduled the roofing projects and told the subcontractor the order in which they were to be done; arranged for the building materials to be delivered to the worksites; arranged for the only safety training provided to the roofing crew; told the subcontractor when he needed to hire more employees to complete the contracted roofing projects on time; and conducted spot inspections of the contractor’s worksites and instructed him to abate specific safety infractions. Also, the subcontractor paid the roofers after he received payment from the contractor, and the contractor was involved in the hiring and firing of the subcontractor’s workers.
The contractor’s attorney contended that these and similar findings describe only the close coordination often necessary between a general contractor and a subcontractor. The panel conceded that it is fair to say that such coordination often exists between such entities.
“After all, a principal role of the general contractor is to coordinate the work of the subcontractors,” the panel stated. “Here, though, we have a recurring relationship with one general contractor and one subcontractor in which the general exercises control not only over the timing and scope of the work, but also over the details of how the work is performed, and over many internal operations of the subcontractor, particularly the managing of personnel and equipment.”
Fair Notice
The contractor asserted that OSHA had previously treated it and the subcontractor as separate entities and, therefore, did not have fair notice that in this case they would be viewed as a single entity for assignment of liability. The panel points out that the fair notice rule applies in scenarios in which OSHA informs a company (or suggests to it) “that its procedures or processes are safe and satisfactory” but then issues a citation for the “same procedures in a later inspection.” This was not the situation that applied in the case, said the panel, adding:
“OSHA did not represent to [the contractor] that any particular process or procedure complied with its rules. Instead, upon learning new information about the relationship between [the contractor] and [the subcontractor], OSHA found it appropriate to cite the two companies together for violations related to the October 2014 accident. Neither the Commission’s single employer test nor the Darden common law test was a secret to A.C. Castle. And the very fact that those inquiries are so fact-intensive means that for a given worksite inspection, the Secretary of Labor may or may not have grounds to treat two ostensibly distinct companies as one. Thus, we agree with the ALJ that [the contractor’s] fair notice argument has no merit.”
The opinion of the 1st Circuit panel in A.C. Castle Construction Co. v. U.S. Department of Labor is at http://media.ca1.uscourts.gov/pdf.opinions/17-1537P-01A.pdf.