Cain v. General Electric
“The test is relative, not absolute.”
The Kentucky Supreme Court issued an opinion on August 23, 2007 modifying the “Up the Ladder” Doctrine, which immunizes Kentucky employers from lawsuits by injured employees of independent contractors. See General Electric v. Cain, -- S.W. 3d ---, Nos. 2004-SC-000043-DG and 2005-SC-000242-DGE, Slip Op. (Ky. Aug. 23, 2007) (not yet final) (to be published). The Court issued one (1) opinion deciding two (2) separate appeals—(1) an appeal by General Electric Company from a Kentucky Court of Appeals decision refusing to apply “Up the Ladder” Tort Immunity; and (2) an appeal, from a Kentucky Court of Appeals decision applying the Immunity, filed by an injured employee of an independent contractor that performed work at sixteen (16) Kentucky industrial locations.
In Cain, the Supreme Court considered whether major renovation and construction projects constitute “work performed of a kind which is a regular or recurrent part of the work of the trade, business, occupation, or profession” of the Premises Owners. The Court also weighed the constitutionality of “Up the Ladder” Tort Immunity and whether each Premises Owner satisfied the statutory prerequisite for the Immunity by “securing payment of compensation” for the injured employee of their independent contractor.
1. Regular or Recurrent Work
The Supreme Court in Cain essentially eliminated “capital improvements” from the definition of “regular or recurrent” work found in KRS 342.610(2)(b). Specifically, the Court held that the Premises Owners that used independent contractors to perform demolition, construction, or renovation projects had not proven they contracted for “regular or recurrent” work, and the Legislature did not intend to provide these Premises Owners with “Up the Ladder” Tort Immunity. See Cain, -- S.W. 3d ---, Slip Op. at 10-11. However, the Court did allow “Up the Ladder” Tort Immunity for Premises Owners that contracted for capital improvement work if, and only if, they (or similar businesses) normally used their own employees to perform similar work. See id. at 11, 26-27, 35-36, 40-41.
The Court was clear that the “Up the Ladder” test is “relative, not absolute.” See id. at 10. For example, defendants that contract for work that is customary, usual, or normal to their particular business are “Up the Ladder” contractors entitled to Tort Immunity. See id. Furthermore, work a defendant assumes by contract or is required by law to perform is also “regular or recurrent.” See id. at 6-8. However, many construction projects are not “regular or recurrent” and do not result in Tort Immunity for “Up the Ladder” contractors. See id. at 9-10. Still yet, some construction projects can be “regular or recurrent” if the defendant is accustomed to performing ongoing construction with its own employees, especially if performed by a “construction division.” See id. at 10.
The new rule for finding “Up the Ladder” Tort Immunity is whether the work performed was customary, usual, normal, or performed repeatedly and of a kind the defendant (or a similar business) normally would perform with its own employees. See id. Routine repair and maintenance work will likely be considered regular or recurrent work of the business so as to warrant Tort Immunity. See id. at 11. However, capital improvement projects will likely not be sufficient to invoke the Immunity. See id. at 11. Courts will weigh the following factors when considering whether work is routine repair and maintenance work or capital improvements:
1. Whether the defendant capitalized and depreciated the cost of the work for tax purposes, or whether it treated the costs as operational expenses;
2. The nature, size, and scope of the defendant’s business; and
3. Whether the defendant is equipped with the skilled manpower and tools to perform the work itself. See id. at 10-11.
The plaintiffs in the Cain cases mounted a constitutional challenge of Kentucky’s Workers’ Compensation Act and its “Up the Ladder” Tort Immunity. The Supreme Court soundly and summarily rejected this argument finding the Act and the Immunity wholly constitutional. See id. at 42-44.
3. Jurisdictional Issue
The Kentucky Supreme Court affirmed prior case law holding that the application of Kentucky’s “Up the Ladder” Doctrine is a jurisdictional issue of law for a court, not a jury, to decide. See id. at 11-12. If the Doctrine applies, the circuit courts have no jurisdiction because the injured employee’s exclusive remedy is a claim with the Office of Workers’ Claims. See id. at 11-12.
4. Securing Compensation
The Supreme Court rejected an argument by the injured plaintiffs in Cain that the defendants had failed to “secure payment of compensation” by not providing a policy of insurance for the injured workers. The Court found that a showing by an “Up the Ladder” contractor that it had workers’ compensation coverage is sufficient to show it “secured payment of compensation” in the absence of any evidence to the contrary. See id. at 41-42. Indeed, submitting a Certificate of Compliance from Kentucky’s Department of Workers’ Claims is a prima facie showing of this statutory prerequisite. See id. at 42.
What Has Cain Changed?
- A new rule is applied to determine whether work performed triggers the protections of Kentucky’s “Up the Ladder” Tort Immunity:
- Defendants are immune from tort liability if the work performed by their subcontractor is regular or recurrent work of a kind the premises owner (or a similar business) normally would perform with its own employees.
- Whether the defendants’ employees perform the type of work done by the subcontractor is now a critical consideration in the analysis.
- The tax treatment of costs associated with work performed by subcontractors is relevant to determine whether it is regular or recurrent work of the business.
What Remains the Same?
- The “Up the Ladder” Doctrine is alive and well in Kentucky.
- Kentucky’s Workers’ Compensation Act and its “Up the Ladder” Tort Immunity is constitutional.
- Work a defendant is required by law to perform is regular or recurrent.
- Work a defendant assumes by contract is regular or recurrent.
- Providing proof of workers’ compensation coverage is sufficient to satisfy the “secures payment of compensation” requirement in KRS 342.690.
What Can Kentucky Employers Do to Protect Their “Up the Ladder” Tort Immunity?
- The Cain Opinion represents the Supreme Court’s attempt to correct expansion of the definition of “regular or recurrent” and bring “Up the Ladder” Tort Immunity back in line with the “humane spirit” of Kentucky’s Workers’ Compensation Act. See id. at 9. With the Cain opinion, the Court attempts to strike the right balance between expanded workers’ compensation liability and the reciprocal Tort Immunity for employers.
- Kentucky employers can take steps aimed at protecting their interests by:
- Evaluating the extent to which its employees are performing work similar to that performed by subcontractors; and consider necessary adjustments in this regard.
- Conducting an internal investigation of its tax treatment of subcontractor costs.
- Evaluating current and future contracts with subcontractors to ensure the language is consistent with the Cain Opinion.
- Consistently enforcing its contract protocol, including requiring all contracts to be fully executed and all proofs of insurance to be provided prior to the commencement of the work.
- Educating its management on the issues raised by the Cain Opinion.