Peck v. Delaware County Board of Prison Inspectors

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

Justice NEWMAN.

We granted this appeal to determine whether the Delaware County Board of Prison Inspectors (“the Board”) is the “statutory” employer, pursuant to Section 203 of the Workers’ Compensation Act (“the Act”),¹ of John Peck (“Appellee”), a corrections officer at the Delaware County Prison (“Prison”), employed by the Wackenhut Corrections Corporation (“Wackenhut”). We hold that the Board is not the statutory employer of Appellee.

FACTUAL AND PROCEDURAL BACKGROUND

The Board is the entity statutorily empowered to oversee the operations of the Prison. Prior to September of 1995, the corrections officers at the Prison, including Appellee, were employees of the Board. In August of 1995, the Board “privatized” the management and operation of the Prison by entering into an agreement with Wackenhut. Subsequent to this agreement, the Board dismissed all of the Prison corrections officers, including Appellee. See Delaware County v. Delaware County Prison Employees Independent Union, 552 Pa. 184, 713 A.2d 1135, 1136 (1998). Wackenhut immediately employed most of these corrections officers, including Appellee. Id. at 1136. On September 10, 1996, in the course of his duties, Appellee slipped in a puddle of water and fell while attempting to close a heavy door. The fall caused injuries to Appellee’s left shoulder, which required two surgeries. Appellee filed a workers’ compensation claim against his employer, Wackenhut, and was awarded benefits.

The instant matter arises from a tort action that Appellee brought against the Board, which Appellee alleges was negligent for failing to maintain the Prison in a safe condition. The Board moved for summary judgment on the grounds that it enjoyed immunity from suit pursuant to Section 203 of the Act because, the Board claims, it qualifies as Appellee’s statutory employer. The trial court granted summary judgment, finding that the Board is the statutory employer of Appellee and, therefore, immune from suit. On appeal, the Commonwealth Court reversed, holding that the Board is not the statutory employer of Appellee because: (1) the Board does not meet the statutory employer test articulated in McDonald v. Levinson Steel Co., 302 Pa. 287, 153 A. 424 (1930), and (2) Appellee is an employee of an independent contractor, Wackenhut. We granted allocatur to examine the statutory employer doctrine in the context of the privatization of a service that was once exclusively a public function: the operation of local prisons. In other words, did the Board, which formerly employed Appellee as a prison corrections officer when it operated and managed the Prison, lose its immunity from suit under the Act when it contracted with Wackenhut to operate and manage the Prison? We hold that it did and, accordingly, affirm the Commonwealth Court.

DISCUSSION

We begin our analysis with an explanation of the “statutory” employer doctrine. What is a statutory employer? “A statutory employer is a master who is not a contractual or common-law one, but is made one by the Act.” McDonald, 153 A. at 425. There are two primary provisions in the Act that define the rights and responsibilities of a statutory employer: Sections 203 and 302(b).

Section 302(b) explains the obligations of the statutory employer:

Any 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 such employer’s regular business entrusted to that employe or contractor, shall be liable for the payment of compensation to such laborer or assistant unless such hiring employe or contractor, if primarily liable for the payment of such compensation, has secured the payment thereof as provided for in this act....

77 P.S. § 462. The purpose of this provision is clear: 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. See, e.g., Fonner v. Shandon, Inc., 555 Pa. 370, 724 A.2d 903, 907 (1999) (Section 302(b) “provides that a statutory employer can be held liable for benefits. under the Act in reserve status”); Smith v. Workmen’s Compensation Appeal Board (Miller), 152 Pa. Cmwlth.77, 618 A.2d 1101, 1103 (1992), petition for allowance of appeal denied, 537 Pa. 636, 642 A.2d 489 (1994) (Section 302(b) evidences “a clear intent to place primary responsibility for payment of worker’s compensation benefits upon the first financially responsible employer in the subcontractor chain, even if that employer is not the one primarily liable”).

Section 203 provides the rights enjoyed by the statuto- ■ ry employer:

An employer who permits the entry upon premises occupied by him or under his control of a laborer of 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.

77 P.S. § 52. Although not apparent from its express terms, the language from Section 203 stating that the statutory employer “shall be liable to such laborer or assistant in the same manner and to the same extent as to his own employe” confers upon the statutory employer immunity from suit. This is because Section 303(a) of the Act, 77 P.S. § 481(a), makes the workers’ compensation system the exclusive remedy for an injured employee seeking redress from an employer for an on-the-job injury. Section 203, by placing the statutory employer in the same position as the “contractual” or “common law” employer of the injured worker for tort liability purposes, entitles the statutory employer to the same immunity from suit that would be enjoyed by the “contractual” or “common law” employer.

But who is the statutory employer under the Act? More than seventy years ago, we addressed this question in McDonald. We offered the following formula:

To create the relation of statutory employer under section 203 of the act ... all of the following elements 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 intrusted [sic] to such subcontractor. (5) An employee of such subcontractor.

McDonald, 153 A. at 426. 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. See Cranshaw Construction Inc. v. Ghrist, 290 Pa.Super. 286, 434 A.2d 756 (1981) (general contractor immune from suit as statutory employer of injured employee of carpentry subcontractor). In those situations, the general contractor who meets the five-part McDonald test qualifies as the statutory employer of the subcontractor’s employee, and is immune from suit by that employee.

In determining whether a party is a statutory employer, courts should construe the elements of the McDonald test strictly and find statutory employer status only when the facts clearly warrant it. The Superior Court has explained the basis for close scrutiny of claims of statutory employer immunity: Travaglia v. C.H. Schwertner & Son, Inc., 391 Pa.Super. 61, 570 A.2d 513, 515 (1989), petition for allowance of appeal denied, 527 Pa. 618, 590 A.2d 758 (1990) (quoting Stipanovich v. Westinghouse Electric Corp., 210 Pa.Super. 98, 231 A.2d 894, 898 (1967)).

[V]ery great care ... must be exercised before allowing an employer to avoid his liability at common law by asserting that he is a statutory employer. Section 203 of the [Act], which was designed to extend benefits to workers, should not be casually converted into a shield behind which negligent employers may seek refuge.

Courts should hesitate to afford the “shield” of statutory employer immunity, particularly in light of our decision in Fonner. In Fonner, we considered whether the 1974 amendment to Section 302(b) of the Act amended Section 203 by implication. Prior- to the 1974 amendment, Section 302(b) of the Act contained “elective” compensation language, which allowed a statutory employer to opt out of the workers’ compensation system with respect to employees of subcontractors. Fonner, 724 A.2d at 905. A statutory employer who opted out of the workers’ compensation system was relieved of the obligation to pay benefits to the injured worker, but also lost the immunity from suit provided by the Act. Cf. Swartz v. Conradis, 298 Pa. 343, 148 A. 529, 530 (1929). The 1974 amendment to Section 302(b) eliminated this option for statutory employers, however, obliging them to provide workers’ compensation benefits for the injured employees of subcontractors but making them only secondarily liable in the event the subcontractor failed to provide coverage. In Fonner, we decided whether, when the General Assembly amended Section 302(b) in 1974, it intended to similarly amend Section 203 so that a statutory employer would enjoy immunity from suit only when it had actually paid workers’ compensation benefits pursuant to Section 302(b). We rejected this argument. We held that if the General Assembly intended to amend Section 203 to require, as a precondition to statutory employer immunity, that the statutory employer actually have paid workers’ compensation benefits, it would have done so explicitly. We discerned no legislative intent in the 1974 amendment to the Act to alter our caselaw, which held that payment of compensation benefits was not a prerequisite to eligibility for statutory employer immunity. Fonner, 724 A.2d at 906-907 (citing Capozzoli v. Stone & Webster Engineering Corp., 352 Pa. 183, 42 A.2d 524 (1945)).

The consequence of the 1974 amendment to the Act, as interpreted by our Fonner decision, is that the traditional exchange of the workers’ compensation system—payment of benefits to an injured employee in return for immunity from suit—does not apply in the statutory employer setting. Accordingly, a statutory employer “is still entitled to its historic immunity as a ‘statutory employer’ from suit for common law negligence” even though “the subcontractor which directly employed the injured worker carried workers’ compensation insurance which paid benefits for the worker’s injuries.” Fonner, 724 A.2d at 907. In his Dissenting Opinion in Fonner, Mr. Justice Nigro criticized the majority’s interpretation of the statutory scheme, noting the windfall for statutory employers who need not pay workers’ compensation benefits in order to enjoy immunity from suit. Fonner, 724 A.2d at 908. Although we reaffirm our holding in Fonner that the statutory employer provisions in the Act require this result, we are mindful of the criticism that the scheme breaches the generally understood bargain of the workers’ compensation system by permitting a statutory employer the immunity of the Act without having to “pay” for it. Accordingly, we endorse the principle that, for purposes of Section 203 statutory employer immunity, statutory employer status should be found only where all five elements of the McDonald test are clearly met.²

Turning to the instant dispute, we consider whether the Board qualifies as Appellee’s statutory employer. The first element of the McDonald test requires the purported statutory employer to show that it is “an employer who is under contract with an owner or one in the position of an owner.” McDonald, 153 A. at 426. This part of the McDonald test consists of three distinct sub-elements: (1) an employer; (2) a contract, and; (3) an owner or one in the position of an owner. Under this test, an entity cannot serve in a dual capacity as “owner” and “employer.” In McDonald, we rejected the statutory employer claim of the Levinson Steel Company, which owned a leasehold interest in the property on which it constructed a steel crane shed. We stated that “[a]n owner in erecting his own building, does so as an owner, not as a principal contractor or its synonym, ‘employer,’ although his regular course of business may be that of a builder.” McDonald, 153 A. at 426. Consequently, “an owner is not a statutory employer.” Id. Subsequent decisions by our appellate courts have similarly refused to allow dual owner/statutory employer status. See, e.g., Smith, supra; Ashman v. Sharon Steel Corporation, 302 Pa.Super. 305, 448 A.2d 1054 (1982).

The Board presently contends that it is the employer (i.e., general contractor), and that it is “under contract” with the “owner” of the Prison, whom the Board claims is Delaware County. The Board asserts that the “contract” between it and Delaware County appears in the Board’s enabling legislation, which fixes the duties of the Board to oversee the operations of the Prison.³ The Commonwealth Court rejected this argument on the grounds that the Board “stands in the shoes of the owner of the [Prison],” and, therefore, cannot qualify as the statutory employer. Peck v. Delaware County Board of Prison Inspectors, 765 A.2d 1190, 1194 (Pa.Cmwlth.2001). The court held that, for statutory employer purposes, “the name of the agency is irrelevant because the owner of the county prison is the County of Delaware, and it is simply a matter of bureaucratic organization that the Prison Board operates the prison on behalf of the County.” Id. (citing Allen v. United States, 706 F.Supp. 15 (W.D.Pa.1989)). In response, the Board argues that it is an entity distinct from Delaware County with independent obligations and powers, which is not “simply a matter of bureaucratic organization.” The Board notes that it is an indispensable party for any litigation involving management of the Prison, and that Delaware County cannot override the statutorily designated responsibilities of the Board. See Nonemaker v. York County, 62 Pa.Cmwlth. 200, 435 A.2d 675, 677 (1981) (York County Prison Board is “an independent entity which is responsible for the acts of its agents and which may be sued in its own name”); see also County of Butler v. Local 585, Service Employees International Union, 744 A.2d 338 (Pa.Cmwlth.1999), petition for allowance of appeal denied, 563 Pa. 693, 693, 760 A.2d 857 (2000) (contract between Butler County Board of Commissioners and private corrections company to operate minimum security prison invalid because not approved by the Butler County Prison Board). Therefore, because Delaware County, and not the Board, owns the Prison, the Board contends that it does not serve in the prohibited dual capacity of owner and statutory employer.

We agree with the Board that the Commonwealth Court erred by disregarding the status of the Board as a legal entity distinct from Delaware County and concluding that the Board “stands in the shoes” of the owner of the Prison. However, we will affirm the decision of the Commonwealth Court because we find a fundamental element of the McDonald test lacking: a contract between the owner and the purported statutory employer. The Board claims that it is in the position of a general contractor, charged with operation -and oversight of the Prison on behalf of the owner, Delaware County. However, the “contract” that the Board claims exists between it and Delaware County consists of the responsibilities for prison oversight and management conferred on the Board by the General Assembly in the Board’s enabling legislation. Cognizant of the scrutiny that courts should apply to claims of statutory employer status, we cannot find that a contract exists between Delaware County and the Board. It is basic contract law that for there to be an enforceable contract, “the parties themselves must agree upon the material and necessary details of the bargain.” Lombardo v. Gasparini Excavating Co., 385 Pa. 388, 123 A.2d 663, 666 (1956). There is no “bargaining” between Delaware County and the Board: the responsibilities of the Board to oversee the Prison result from acts of the General Assembly and not an independently negotiated agreement between the Board and Delaware County. Even if Delaware County is the owner of the Prison and the Board is something other than the owner, the absence of a contractual relationship between the two is fatal to the Board’s claim of statutory employer status.

CONCLUSION

Because we find that the Board is not the statutory employer of Appellee, we affirm the decision of the Commonwealth Court reversing the grant of summary judgment by the trial court.⁴

Justice NIGRO files a concurring opinion. Justice CAPPY files a dissenting opinion. Justice CASTILLE files a dissenting opinion in which Justice SAYLOR joins.

1 . Act of June 2, 1915, P.L. 736, § 203, as amended, 77 P.S. § 52.

2 . Other courts have followed ihis principle and refused to find statutory employer status, for Section 203 immunity purposes, where all five elements of the McDonald test were not present. See, e.g., Travaglia (third element of McDonald test was not met due to nonexistence of a subcontract between purported statutory employer and subcontractor); Cox v. Turner Construction Co., 373 Pa.Super. 214, 540 A.2d 944 (1988), petition for allowance of appeal denied, 522 Pa. 603, 562 A.2d 826 (1989) (same).

3 . The enabling legislation that created the Delaware County Prison Board of Inspectors no longer appears in either Purdon's Pennsylvania Statutes or Pennsylvania Consolidated Statutes. The original enabling legislation, Act of February 1, 1839, P.L. 5, related to the Chester County prison and set forth the responsibilities of the "board of inspectors” to: appoint "a keeper, matron and physician” for the prison; "direct the manner in which all bedding, clothing, provisions ... shall be purchased”; "determine the quantity and kind of food that shall be furnished”; and, "prevent all oppression, peculation or other abuse or mismanagement of the institution.” By the Act of April 11, 1866, P.L. 562, the General Assembly created the present Board for Delaware County, defining its powers and responsibilities by incorporating the provisions of the 1839 act.

4 . Because we conclude that the Board does not meet the test for statutory employer set forth in McDonald, we need not review the determination by the Commonwealth Court that Appellee is not the statutory employee of the Board because Wackenhut, Appellee’s employer, qualifies as an independent contractor.