Continuing the saga of being held responsible as a statutory employer for the acts of a subcontractor’s employee driver, the South  Carolina Supreme Court recently upheld a decision to hold another motor carrier liable for a workers’ compensation claim when a subcontractor’s expedited delivery service driver was fatally injured while returning from a contracted load. The subcontractor did not have adequate workers’ compensation insurance; therefore, the upstream motor carrier was held liable regardless of the fact it exercised no control over the employee once the delivery in Wisconsin had occurred.

In Collins v. Seko Charlotte (Op. No. 27519, Apr. 29, 2015), Gregory Collins was a driver for West Expedited & Delivery Service, Inc. (West Expedited), which as a subcontractor, contracted with Seko Charlotte to deliver certain goods in interstate transportation. On his way back to South Carolina, after completing a delivery in Wisconsin for Seko Charlotte, by way of West Expedited, Collins was involved in a fatal collision. Seko Charlotte and West Expedited were both in the cargo delivery business, but Seko Charlotte engaged in business with West Expedited roughly two  or three times a month for transporting parts. Although there was no written contract for this shipment, Seko Charlotte and West Expedited followed West Expedited’s custom of having Seko Charlotte pay for mileage one way, but West Expedited included the cost of the return trip in the mileage rate. After the fatal incident, Collins’ dependents filed a workers’ compensation claim against West Expedited, but West Expedited did not carry workers’ compensation insurance at the time of Collins’fatal accident. Accordingly, Collins’ dependents also filed a similar claim against Seko Charlotte, Seko Worldwide and its insurance company.

The case was originally heard by the Workers’ Compensation Commission where the  commissioner applied the Voss v. Ramco, Inc., 482 S.E.2d 582 (Ct. App. 1997) three-part test to determine whether Collins was Seko Charlotte’s statutory employee at the time of his death. The three-part test requires the court to consider “whether (1) the activity of the subcontractor is an important part of the owner’s trade or business; (2) the activity performed by the subcontractor is a necessary, essential, and integral part of the owner’s business; or (3) the identical activity performed by the subcontractor has been performed by employees of the owner.” Id. at 586 (emphasis added). The Workers’ Compensation Commission applied the three Voss factors and determined that Collins was a statutory employee. Therefore, Seko Charlotte was found liable.

Seko Charlotte appealed the order and the appeal was heard by the Appellate Panel of the Commission. The Appellate Panel applied the employee/independent contractor test’s four factors and concluded Collins was not an employee of Seko Charlotte on the return trip because West Expedited had “exclusive right of control over [Collins]” after the deliveries were made in Wisconsin. The Appellate Panel reversed the decision. Next, the case was appealed to the Court of Appeals, where the Court found that the Appellate Panel of the Commission had erred when it applied the employee/independent contractor test instead of the statutory employee test. Therefore, the Court of Appeals concluded that Collins was a Seko Charlotte statutory employee. The South Carolina Supreme Court granted the petition for a writ of certiorari to review the decision. 

Seko Charlotte argued the Court of Appeals erred in holding Collins was a statutory employee at the time of the accident because the contract between West Expedited and Seko Charlotte terminated when the delivery was made in Wisconsin. On the contrary, the Uninsured Employers Fund (Fund), brought into the case because West Expedited lacked workers’ compensation at the time of Collins’ fatal accident, claimed that the return trip was “necessarily incidental to [Collins’] statutory employment with Seko.” Additionally, the  Fund claimed that Collins was a “traveling employee,” and did not meet the exception to the rule because he “did not deviate from the most direct route to return him to South Carolina.” 

The South Carolina Supreme Court found that the Court of Appeals was correct in concluding that the statutory employee test should be applied. Seko Charlotte conceded that Collins was a statutory employee on the trip to Wisconsin. The issue then became whether Collins’ status as a statutory employee changed once the delivery was made. The court found that the contract between two parties only provides a “necessary foundation for the creation of the statutory employee relationship.” However, once the statutory employee status attaches, the extent of the status is determined not by the contract itself, but by the nature of the work contracted to be performed. Here, the nature of the work  for Seko Charlotte’s direct employees was the same as that performed by Collins. Collins was providing a “express hot delivery” service from South Carolina to Wisconsin, which in the industry is known as an immediate and direct trip where it is unlikely that a driver will have cargo on the return trip. In this situation, Seko Charlotte frequently used West Expedited’s services, this trip was to solely transport Seko Charlotte’s load and West Expedited typically would not pick up another customers’ loads for the return trip to South Carolina. The court also determined that the nature of the work required immediate travel to Wisconsin and an expected return trip to South Carolina. Furthermore, Collins’ work for Seko Charlotte did not end until he returned to South Carolina.

Finally, the court found that the three-part Voss test further supported Seko Charlotte’s status as a statutory employer, noting that Seko Charlotte is: (1) in the cargo delivery business; (2) interstate deliveries are necessary and integral part of its business; and (3) its drivers made similar deliveries as Collins. Additionally, South Carolina Code states, “the owner shall be liable to pay for any workman employed in the work any compensation under this title which he would have been liable to pay if the workman had been immediately employed by him.” Since Seko Charlotte covered its own employee drivers on their return trips, Collins was entitled to the same coverage as Seko Charlotte’s employees.

As we have advised freight brokers, following the Atiapo v. Goree Logistics, Inc., 770 S.E.2d 684 (N.C. Ct. App. 2015) opinion,1 to minimize their potential exposure to liability for payment of workers compensation damages to drivers of the motor carriers with which they contract, upstream motor carriers should contractually require that the downstream motor carriers with which they contract obtain workers’ compensation insurance and related benefits for their drivers. Additionally, upstream motor carriers should require the downstream motor carriers to have their insurance broker or carrier provide certificates verifying the motor carriers’ workers’ compensation coverage. Furthermore, upstream motor carriers should ensure they have their own “all states” workers’ compensation and employer liability policy in place that will cover their own employees, or depending on the state requirements, an occupational accident policy.

Even if a motor carrier is only paying insurance premiums for its own employees, and not any of its or the downstream carrier’s independent contractor owner-operators, in the event that a driver is subsequently found to have been a misclassified worker, the driver’s injuries would still presumably be covered by the upstream motor carrier’s workers’ compensation policy. While an insurance carrier could subsequently require the payment of additional premiums, following a workers’ compensation claim and insurance audit, the “AP Audit Risk” could end up being well worth the upstream motor carrier’s expense in obtaining a workers’ compensation policy to limit its exposure for the type of liability imposed in the Collins and Atiapo cases.