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Recent Texas Decision Illustrates the Strength of the Importance of the Exclusive Remedy Rule – Protects the Contingent Workforce Model

One benefit provided by a contingent workforce is the ability to avoid the impact of worker’s compensation claims from new, temporary or other contingent workers. However, those who use contingent workers would be less likely to do so if either: (1) the worksite customer (borrowing employer) were responsible for paying the worker’s compensation benefits of contingent workers, or worse, (2) they could be sued by contingent workers for injuries suffered on the job.  A recently reported decision from Texas illustrates these concerns.  However, the result of the case does not appear to require a change in the way staffing firms in that state will do business, nor does it create new liabilities for customers of staffing firms.

The Texas Supreme Court decision in Port Elevator Brownsville v. Casados, 314 S.W.3d 529 (Texas 2012) addressed whether a contingent worker could sue a customer (borrowing employer). The temporary employee was assigned by a staffing firm to work at Port Elevator-Brownsville, and was killed in an accident on that assignment. He sued Port Elevator and was awarded over $2 million in the trial court and court of appeals. The Texas Supreme Court reversed as discussed below.   

The Texas Supreme Court was presented in Port Elevator with the question of whether the Texas worker’s compensation act barred the claim by a contingent worker’s family for the death of the employee, not against the staffing firm, but against the staffing firm’s customer. This claim gave rise to an analysis of the purpose sought to be achieved by worker’s compensation laws.  Generally speaking, the primary principle behind worker’s compensation laws is a “trade off” in which worker’s trade the right to sue, in exchange for specified guaranteed benefits provided under the worker’s compensation law of the state. This is often referred to as the “exclusive remedy rule.”  

Of course, each individual employee does not enter into an agreement to accept this trade off.  That has been done by the state through the adoption of the worker’s compensation law. And sometimes employees do not like the bargain that has been struck, especially when a personal injury claim might net a much bigger payout. From time to time cases are presented to the courts attempting to avoid the impact of the exclusive remedy rule.  

Contingent workers have been the source of many personal injury cases challenging the exclusive remedy rule. These cases present questions such as the following:  Who pays for injuries to a contingent (leased) employee under worker’s compensation? Is it the work site (borrowing) company or the staffing (loaning/leasing) company?  Can one or both be sued for the injuries outside of worker’s compensation? The Texas court was asked to examine these questions in the Port Elevator case. 

This case is somewhat unique because of a wrinkle in Texas law. Most states require that employers participate in the worker’s compensation system by mandating the purchase of insurance coverage. Under Texas law employers are allowed to opt out of worker’s compensation. But, by opting out of worker’s compensation, they lose the exclusive remedy rule protections – they can be sued.

Most employers do not opt out. In particular, staffing firms usually do not opt out of worker’s compensation coverage, because their customers expect that part of what they are paying for is the protection against being sued provided under the worker’s compensation laws. If the customer (borrowing employer) knew that he or she might be sued by a contingent worker, it is unlikely that customer would contract with the staffing firm for contingent workers. 

In the Port Elevator case, Port Elevator provided worker’s compensation insurance for its work force, and so did the staffing firm that employed the deceased worker. However, Port Elevator did not specify in its insurance that it covered contingent workers, nor did the codes for the regular workers for which it paid insurance premiums, match the appropriate codes for the type of work being performed by the deceased contingent worker. While the staffing firm that employed the deceased worker provided worker’s compensation insurance, and the family of the deceased employee received benefits under that insurance, Port Elevator was not named as an additional insured under the worker’s compensation insurance policy of the staffing firm.

The family of the deceased staffing firm employee sued Port Elevator. They claimed that since Port Elevator did not pay for worker’s compensation insurance for the deceased staffing firm employee, and since Port Elevator was not a named insured under the staffing firm’s policy, Port Elevator essentially opted out of worker’s compensation for that employee, by not insuring him. Therefore, argued the family, the exclusive remedy rule should not bar the personal injury claim. As noted above, the trial court and Texas court of appeals agreed, and the family obtained an award of over $2 million. 

The Supreme Court reversed the award. It held that, since Port Elevator purchased worker’s compensation insurance, that insurance covered all workers’ compensation liability. The Texas court reasoned that Texas law prohibits “split insurance” in which the employer only covers part of the workforce. The court, therefore, further reasoned that the coverage was complete, including coverage of contingent workers, even if Port Elevator did not pay insurance premiums for coverage of contingent workers like the deceased staffing firm employee. In other words, whatever the terms of the insurance policy might have been, Texas law would reform the policy to provide full coverage for all workers, since split coverage was not allowed by law. 

This case was reported in many articles, journals and magazines. Some of the articles suggest that a staffing employee may make a claim against the worksite customer (borrowing employer) under its workers compensation insurance. While that certainly is one of the outcomes that could arise in a case where the staffing firm does not purchase worker’s compensation insurance that did not occur in this case. The Texas Supreme Court did not hold that the worksite customer (borrowing employer) insurance is primarily responsible to pay worker’s compensation benefits.  

In the Port Elevator case, the staffing firm did provide insurance and that insurance paid worker’s compensation benefits. Had the staffing firm failed to provide worker’s compensation coverage, then the worksite customer (borrowing employer) would likely have the responsibility to pay those benefits. This makes sense because the public policy of Texas, and most other states, is to assure there is worker’s compensation coverage for work related injuries, so that the employee gets the benefit of the trade off struck under the worker’s compensation law. 

Because most states do not provide the option to opt out of worker’s compensation, the arguments in the Port Elevator case are not likely to arise again in another state in the same way. Moreover, because reputable staffing firms purchase worker’s compensation coverage for the contingent worker’s they lease to customers, that worker’s compensation coverage generally will be the source of worker’s compensation benefits when a contingent worker is injured. The Port Elevator case stands for the principle that the contingent worker cannot sue the worksite customer (borrowing employer) for personal injury, because the worker’s compensation laws prohibit personal injury actions under the exclusive remedy rule.



About this Author

Charles Palmer, Michael Best Law Firm, Employment Law Litigation Attorney
Managing Partner

Chuck is a go-to lawyer for complex cases involving employment law, including independent contractor and joint employment matters. Clients rely on his years of experience in dealing with state and federal enforcement agencies to develop human resource, safety and environmental policies and practices that prevent problems and save them significant expense.

Chuck has defended employers in more than 1,000 Occupational Safety and Health Administration (OSHA) citation cases over the past 26 years, including multiple six-figure and/or fatality...