Montana: Both Parties to Employee Leasing Arrangement Enjoy Exclusive Remedy of State’s Workers’ Compensation Act

Constitutional Provision Protecting Only “Immediate” Employers Does Not Limit Immunity

In a decision that has important implications for Montana firms that utilize professional employer organizations (“PEOs”) for their labor forces, the state’s Supreme Court, in Ramsbacher v. Jim Palmer Trucking, 2018 MT 118, 2018 Mont. LEXIS 143 (May 8, 2018), held that both parties — the employee leasing firm and its client — are immune from tort liability for injuries sustained by a leased employee in spite of language within the Montana Constitution that provides such immunity only to a worker’s fellow employees and his or her “immediate” employer [see Article II, § 16]. The plaintiff, an injured truck driver hired under Montana’s Professional Employer Organization law, could not, therefore, maintain a tort suit against a trucking firm that utilized his services after signing a PEO contract with an employee leasing company.

Background

JPT entered into a written contract with PPC, a licensed PEO in Montana, pursuant to which JPT agreed not to hire employees directly and instead, to utilize workers that were hired by PPC and “assigned” to JPT. Under the terms of the agreement, PPC agreed to assume responsibility for administrative duties, including payroll, payroll taxes, unemployment compensation, and workers’ compensation.

The contract specified that both PPC and JPT had some right of control over the leased employees. PPC, for example had the right to hire, terminate, discipline, and reassign. JPT maintained sufficient control as was necessary for it to conduct its business. JPT could cancel the assignment of any assigned employee. JPT paid PPC a percentage of each assigned employee’s gross compensation to compensate PPC for providing workers’ compensation coverage. Aside from the contractual arrangement, JPT did not purchase or maintain workers’ compensation insurance for its assigned employees.

The plaintiff was involved in a work-related injury while trying to repair a JPT truck that had broken down. He reported the injury to PPC, whose carrier paid benefits. Subsequently, the plaintiff filed a tort action against JPT, alleging his injuries occurred because of JPT’s failure to provide a safe workplace. The trial court granted JPT’s motion for summary judgment on exclusivity grounds.

Constitutional Issue

The plaintiff contended Mont. Code Ann. § 39-8-207(8)(b)(i), which extends the exclusive remedy of the Act from a PEO to its client, violated Article II, § 16 of the Montana Constitution by depriving an injured worker of full legal redress. The Court noted that the issue came to the forefront following the Court’s decision in Ashcraft v. Mont. Power Co., 156 Mont. 368, 480 P.2d 812 (1971) — a fairly typical “contractor-under” situation.

There, Ashcraft worked for a construction company that Montana Power Company (MPC) hired for construction activity. The contract designated the construction company as an independent contractor, and the construction company agreed to carry workers’ compensation insurance on its employees, including the plaintiff. The plaintiff suffered injuries when a power pole, owned and maintained by MPC, fell while he was working on it. The construction company’s workers’ compensation insurer paid the workers’ compensation claim. The plaintiff then filed a negligence claim against MPC. The Supreme Court upheld the District Court’s dismissal of the negligence claim, holding when an employee’s immediate employer is an independent contractor who is required to carry workers’ compensation insurance, the general employer is also immune from a third-party claim.

Following Ashcraft, the framers of the 1972 state Constitution expressly overruled the decision by granting immunity only to “immediate” employers who provide workers’ compensation coverage.

Analogous to Ashcraft?

The plaintiff here argued the case was analogous to Ashcraft, that to the extent the Workers’ Compensation Act allowed someone other than the injured worker’s immediate employer to benefit from the exclusivity defense, it was unconstitutional. The Court said the present facts were clearly distinguishable from Ashcraft, however. Unlike the situation in Ashcraft, JPT participated in the plaintiff’s hiring. JPT took on other employer-related duties, dictating the plaintiff’s day-to-day job activities. The Court agreed that if JPT was anything other than the plaintiff’s immediate employer, it was not protected from third-party liability.

There Can Be More than One “Immediate” Employer

Citing Papp v. Rocky Mountain Oil & Minerals, 236 Mont. 330, 769 P.2d 1249 (1989), the Court indicated there could be more than one “immediate” employer. In Papp, the Court held that two joint venturers were both entitled to the exclusive remedy. Papp was one instance in which an employee could have more than one immediate employer; the current fact pattern represented another.

Did the Client Company Provide Workers’ Compensation Insurance?

The plaintiff argued that even if PPC was deemed to be an immediate employer, it had not provided workers’ compensation coverage — the second requirement for immunity under Article II, § 16. Returning to Papp, the Court observed that in that case, both employers were held to be immediate employers who “provided” workers’ compensation coverage: one employer was responsible for obtaining and maintaining workers’ compensation insurance coverage for the employee while the other employer contributed to the premiums by reimbursing the payor in proportion to its stake in the joint venture.

Here, the cost of the plaintiff’s workers’ compensation insurance coverage was factored into the PEO agreement between PPC and JPT. The calculation was even based on what it would have been if JPT had purchased the coverage directly. The Court concluded that in contracting with PPC, JPT provided the plaintiff with coverage. In as much as JPT was an immediate employer and provided the plaintiff with workers’ compensation coverage, it was entitled to immunity.