Friday, October 4, 2013

Your Basic Workers' Compensation Bar: It’s Pretty High

Workers' compensation cases typically are not the stuff of high-end legal analysis.  That’s mainly because much of the jurisprudence has been settled for years  Nevertheless, it's nice to see the occasional case that lays out workers' compensation issues as clearly as this one.  Moreover, the stakes on this case were very high, so there was a lot of incentive on the part of the injured party’s counsel to litigate even the most basic workers' compensation issues.

The case arose out of a tragic airplane crash that occurred in January 2006, which killed several financial advisors employed by Morgan Stanley, as well as the owner of the aircraft and a Morgan Stanley customer.  The Morgan Stanley employees were returning from a client pitch in Kansas City. Although the aircraft was not owned by Morgan Stanley, one of the Morgan Stanley passengers was apparently interested in purchasing the aircraft.

The estate of one of the deceased Morgan Stanley employees filed a a wrongful death action, going after Morgan Stanley and the aircraft pilot.  The trial court dismissed the case, finding it preempted by Illinois workers' compensation law and this appeal followed.

Workers' compensation law occupies a unique position in American personnel injury jurisprudence, because it specifically limits the recovery of an injured employee in exchange for strict liability against an employer.  Employees who are injured at work, or pursuant to work activities, are entitled to payment, regardless of fault, under the specific terms and limitations of a state workers' compensation statute.  Usually the employees receive compensation for lost wages at a specified percentage, as well as full payment for medical bills relating to their condition.  Injuries that are covered by workers' compensation statutes have exclusive remedies, in that an employee injured at work can only recover (or is "barred") under the terms of the workers' compensation act.

The trade-off, of course, is that the money paid out to the employee is only a fraction of what could be recovered in a typical personal injury case.  For that reason, injured employees generally look for some way to get around the workers’ compensation “bar” to individual personal injury lawsuits. That’s exactly what was happening in this case.

In Illinois, employee can sue and recover outside the limitations imposed by a workers' compensation statute if she can show that the injury was not accidental, did not arise out of employment, was not incurred during the course of employment, or was non compensable under the statute.  In this case, the estate of the one of the deceased Morgan Stanley employees tried to evade the compensation limitation by claiming that the injury was not accidental, and that the accident arose out of activity by the employer that was not related to its business operations, and therefore it was outside the statue.

The court made quick work of the argument that the accident was in fact an intentional tort by the employer.  The plaintiff was alleging that the employer, because it didn’t have rules in place for employees riding by private aircraft, had somehow intended (or at least was grossly negligent) for one of its employees to fly in what was supposedly an unsafe aircraft.  The court noted that this particular exception to the worker’s compensation bar requires more than even aggravated negligence or being ordered to perform hazardous work – it must show an actual intent to injure the employee on the part of the employer.  The plaintiff, of course had no such evidence.  The plaintiff also argued that Morgan Stanley was acting in the independent and distinct role of providing air transport services, a role that was unrelated to its status as an employer.  Specifically, the plaintiff alleged that Morgan Stanley’s practice of reimbursing its employees travel expenses showed that Morgan Stanley, a financial investment and consultant firm, was running a de facto transportation operation that was totally unrelated to its financial advising business.  Therefore, an accident resulting from that air transport business was outside the normal employer relationship and outside the coverage of the workers' compensation statute.

As I said, the amount of money at stake here made people creative.  Fortunately, it did not make the court that creative.  The appellate court found that the "dual capacity doctrine" voids workers’ compensation coverage when an employer is acting in two distinct capacities, such that the second capacity confers upon the employer obligations that are independent of those imposed on the company as an employer.  In fact, the doctrine requires a separate and distinct legal persona for the employer that was the ultimate source of the injury.  In other words, an employer has to be acting in two separate capacities such that the second capacity confers different obligations than the employer's business--the employer has to have a separate legal persona completely independent from and unrelated to its status as an employer such that by an established standard the law recognizes the other role as a separate legal person.

That obviously was not the case where Morgan Stanley had simply agreed to reimburse its employees for transport expenses.  The court also specifically determined that the fact that Morgan Stanley allowed a small group of its employees who were private pilots to fly to appointments did not constitute a secondary business activity sufficient to avoid the protections of the workers’ compensation statute.

Employers should be aware of these limitations to their workers’ compensation protection, but can draw plenty of comfort from the fact that courts view the workers’ compensation structure as sacrosanct.  Any legal constructions of the law that weaken or circumvent workers’ compensation protection will continue to be limited.

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