LABOR & EMPLOYMENT NEWSLETTER - Temporary Workers: Risky Business?

The Texas Workers’ Compensation Act (“Act”), like workers’ compensation statutes in other states, is intended to provide prompt medical treatment and remuneration to employees who sustain injuries in the course and scope of their employment. The Act also relieves employees of the burden of proving their employer’s negligence, and instead provides timely benefits for injuries sustained on the job regardless of fault.

In Texas, workers’ compensation coverage is generally optional for private employers, unlike other states where workers’ compensation insurance is generally mandatory. If any Texas employer elects not to obtain workers’ compensation insurance or become a certified self-insurer (i.e., be a “non” subscriber to the Texas Workers’ Compensation system), that employer is subject to common-law negligence claims by its employees (i.e., “non” subscriber claims) and may not assert certain defenses, including contributory negligence, assumed risk, or that the injury or death was caused by a fellow employee. Tex. Lab. Code Ann. § 406.033. Contrastingly, the exclusive remedy provision in Texas Labor Code § 408.001¹ applies to an employer that has workers’ compensation insurance coverage, allowing subscribing employers to generally escape liability for claims of negligence by worker injured during the course and scope of their employment.

Therefore, whether or not an employer is an “employer” of an injured worker as defined by the Texas Labor Code is a critical determination in Texas. Further, once an entity is determined to be an “employer” of an injured worker, whether the employer is a workers’ compensation subscriber can determine what claims, if any, an employee may potentially have against its employer after an injury, as well as what defenses an employer may assert.

Two recent Texas Supreme Court cases discussed injured workers who were employees of a temporary employment agency, working onsite at the client company. In such cases, the temporary worker is often considered the “borrowed servant” of the client company, thereby making the client company an “employer” for workers’ compensation and liability purposes. Is the client company protected from a negligence suit by the injured worker if there are workers’ compensation benefits available to the worker?

In Wingfoot Enterprises v. Alvarado, the Court determined whether an employee claimant could have more than one employer for the purposes of the Texas Workers’ Compensation Act. 111 S.W.3d 134 (Tex. 2003) (the so-called “dual employer” doctrine). In Garza v. Exel Logistics, Inc., the Supreme Court was asked to determine whether the client company of the temporary employment agency was an “employer” and if so, whether it was a subscriber to workers’ compensation coverage. 161 S.W.3d 473 (Tex. 2005).

Generally, an employee of a temporary employment agency who is injured while working under the direct supervision of a client company is conducting the business of both the general employer (the temporary employment agency) and that employer’s client. The injured employee should be able to pursue workers’ compensation benefits from either, and if either has elected not to provide coverage, but still qualifies as an employer under the Act because it has the right to control the details of the employees’ work, then theoretically that employer should be subject to common law liability without the benefit of the defenses enumerated in § 406.033.

The Court in Garza held that claimant was an employee of the client company, but the client company did not establish that it had workers’ compensation coverage for the injury, which was a prerequisite to the application of the exclusive remedy provision in the Act. Therefore, the client company was deemed to be potentially subject to common law liability and could not rely on the exclusive remedy provision in the Act, and a summary judgment for the client company was reversed.

The injured worker in Garza was employed by a temporary agency and was injured when he responded to direct instructions by a supervisor at the client company. Based on the fact that the claimant was working on the client company’s premises, in the furtherance of the company’s day-to-day business, and the details of his work were directed by the client company, the claimant was held to be an employee of the client company under the Labor Code. However, the client company did not have a workers’ compensation policy that it obtained for itself; instead, it contended that part of its fees to the employment agency were to be used by the temporary agency to purchase workers’ compensation insurance that would cover the temporary employees while working for the client company. In fact, the temporary agency did have workers’ compensation coverage for its temporary workers. Additionally, the contract between the temporary agency and the client company did require the client to pay the agency for the costs of workers’ compensation coverage. Nevertheless, the Texas Supreme Court stated that the Act does not permit a temporary employment agency to obtain coverage for a client, simply by obtaining coverage for itself where its policy did not name the client as an additional insured. Further, the client company had not obtained coverage as governed by the Act as an additional insured under the temporary agency’s policy or under a separate policy. Accordingly, the Court held that the client company did not establish it was covered by workers’ compensation coverage, which was a prerequisite to the exclusive remedy provision in section 408.001(a) of the Texas Labor Code.

The Court in Wingfoot, however, held that for purposes of the Act, a claimant could have more than one employer and be covered by more than one employer’s workers’ compensation insurance. Here, an employee for a temporary employment agency was injured on the job while working for a client company of the agency. The Court held that the claimant was an employee of the client company, and that the client company was a workers’ compensation subscriber. Therefore, the claimant was covered by the client’s workers’ compensation policy, and a workers’ compensation claim was the claimant’s exclusive remedy against the client. Additionally, the Court held that the temporary agency fell squarely within the Act’s definition of an employer², which resulted in the claimant being covered by the workers’ compensation policy of the agency, and left the employee with no recovery under the common law through a negligence claim against either the temporary company or the client company. The Supreme Court held that for purposes of the Act, a claimant or employee could have more than one employer where a temporary agency furnished a worker to the client that controlled the details of the work at the time the workers was injured and where there was no agreement between the temporary agency and the client as to workers’ compensation coverage, but both in fact had workers’ compensation coverage.

In both cases, the Supreme Court held that the claimants were employees of both the temporary employment agency as the general employer, and the client company under the “borrowed servant” doctrine. The claimant in Wingfoot was barred from its common law claims against both the temporary employment agency and the client company. However, the claimant in Garza was barred only from bringing common law claims related to his injury against the temporary agency, but could maintain an action against the client company that had not established that it was covered by workers’ compensation coverage.

The cases are distinct in that in Wingfoot, both employers independently carried workers compensation coverage, but in Garza, the client company did not. Rather, it contended it was covered because of the fees it paid the temporary agency to carry workers compensation coverage, but not because it carried coverage itself. So, although the cases involved injured employees in similar situations, the Texas Supreme Court did not reach contradictory holdings. Had the client company in Garza been a subscriber to workers’ compensation insurance, the Texas Supreme Court likely would have held that the injured employee could have more than one employer for purposes of the Act, leaving the claimant with no recovery under the common law as was the case in Wingfoot.

Even more recently, the Texas Supreme Court again considered similar questions in the case of Western Steel Company v. Altenburg. In Western Steel, the Court was presented with an issue regarding the application of the exclusive remedy doctrine in another negligence suit by an injured temporary worker against the temporary employment service’s client. 206 S.W.3d 121 (Tex. 2006). As in Wingfoot, both the temporary agency and the client company had workers’ compensation coverage, but at trial, the jury found that the injured worker was not the borrowed servant of the client company. Thus, the trial court rejected the client company’s exclusive remedy defense and rendered judgment for damages for the injured worker. The client company appealed, but the court of appeals affirmed on the grounds that the client company had failed to introduce its workers’ compensation policy into evidence or otherwise sufficiently prove that it had workers’ compensation coverage. The Texas Supreme Court reversed, holding that the existence of workers’ compensation for the client company was undisputed by the parties, and the court of appeals erred in not accepting this as fact. The Court then remanded the case for consideration of whether the evidence supported the jury’s finding that the injured worker was not the borrowed servant of the client company at the time of his injury.

In summary, a business that uses temporary workers’ cannot assume that it is protected from a suit for negligence by an injured temp just because the temporary employment service has workers’ compensation coverage. The client company must have coverage, too (whether under its own separate policy or as an additional insured under the agency’s policy) in order for the exclusive remedy to apply. The worst case scenario, in terms of exposure to the client business, where the temporary worker is injured, is that it be determined to be the worker’s “employer” under the borrowed servant doctrine, but not have applicable workers’ compensation coverage – thereby exposing the employer to a non-subscriber claim without a comparative negligence defense, nor limits on actual damage.

¹ Specifically, § 408.001 provides, in relevant part, “Recovery of workers' compensation benefits is the exclusive remedy of an employee covered by workers' compensation insurance coverage or a legal beneficiary against the employer or an agent or employee of the employer for the death of or a work-related injury sustained by the employee.”

² The Act defines an employer: “Employer” means, unless otherwise specified, a person who makes a contract of hire, employs one or more employees, and has workers’ compensation coverage. Tex. Lab. Code Ann. §§ 401.001 et seq. For purposes of the foregoing definition, an employer has “workers’ compensation coverage” if the employer has either obtained an approved insurance policy or secured payment of compensation through self insurance as provided under the Act. Tex. Lab. Code Ann. § 401.011(44).