State News

“have fun stormin da castle”; SALADWORKS VERSUS SIX L’S

By

Kevin L. Connors, Esquire

Channeling Miracle Max from the infamous Princess Bride Movie, Circa. 1987, inSaladworks v. WCAB, decided on October 6, 2015, the Commonwealth Court has, in effect, stormed the liability-deflecting fortress that the Uninsured Employers Guaranty Fund has erected around the Pennsylvania Supreme Court’s milestone decision in Six L’s v. WCAB, 44 A.3d 1148 (Pa. 2012) in which decision the Supreme Court broadly expanded the scope of “statutory employer” liability, from its traditional matrix, as defined by the Supreme Court’s 1930 decision inMcDonald v. Levinson Steel Company, 153 A. 424, under which “statutory employer” liability for workers’ compensation coverage traditionally attached to a nexus of vertical privity between a construction site owner and the employee of an uninsured subcontractor performing work entrusted to the general contractor by the construction site owner.

In Saladworks, the Claimant, Frank Gaudioso, an employee at a Saladworks franchise restaurant, was injured in 2011, while walking out of the back of the Saladworks restaurant to throw away a box, with the Claimant falling and sustaining work-related injuries.

Filing a Claim Petition against the Saladworks franchise, corporately registered as G-21, which, coincidentally, was uninsured for workers’ compensation claims.

For that reason, the Claimant filed a second Claim Petition against the UEGF, alleging that UEGF was secondarily liable for the Claimant’s workers’ compensation benefits by virtue of the Claimant’s employer, the Saladworks franchise, being uninsured for workers’ compensation benefits.

Always seeking a tertiary target, the UEGF filed a Joinder Petition against the main Saladworks corporation, which was a franchising operation, selling and marketing franchises to franchisees; UEGF alleged, however, that Saladworks should be jointly and severally liable for any workers’ compensation benefits awarded by the WCJ to the Claimant, claiming that Saladworks was, in effect, a “statutory employer” for the Claimant.

To clear up the elusive fiction being painted by this tale of woe and weave, it is best exposed in the light of the exchange between Princess Buttercup and the Man in Black in the Princess Bride, when Princess Buttercup, in flawless diction, insisted: “You mock my pain”; to which the Man in Black reposted: “Life is pain, My Highness.  Anyone who says differently is selling something.”

What are we selling in this repository, beyond that, correct or incorrect, Six L’s continues to be an invaluable weapon in the UEGF’s arsenal, in the course of deflecting secondary liability against it to tertiary parties, either with direct or indirect involvement in the underlying employment status of the Claimant seeking workers’ compensation benefits, with Six L’s now being an established lexicon in the legal nexus that we refer to as the topography of our workers’ compensation universe in Pennsylvania.

Turning back to the UEGF’s Joinder Petition, Saladworks, in response, argued that the Joinder Petition should be dismissed and stricken, as Saladworks had no direct relationship with the Claimant, was simply a franchisor, granting certain rights to G21 to use as registered trademarks and system pursuant to the terms and conditions of its Franchise Agreement, which was introduced into evidence.

Seeking the dismissal of the Joinder Petition, Saladworks presented testimony from its Director of Franchise Administration, with that testimony setting forth the following:

·         “We only sell franchises to prospective franchisees to open up their businesses with Saladworks’ concept”;

·         “Franchises are sold under Franchise Agreements”;

·         “Saladworks, as the corporate franchisor, has no information regarding the identity of employees at franchise locations”;

·         “Saladworks, again as the corporate franchisor, does not do any of the hiring or firing of the employees at franchise locations”;

·         “Saladworks, as the corporate franchisor, does not dictate how many hours an employee might work at a franchise location, nor does it provide any training for the day to day operational employees of a franchise”.

Cross-examination of the Saladworks administrator revealed that Saladworks does train the owner of the franchise, and that its Marketing Department assists the franchisees with marketing, and it also provides assistance to the franchisee prior to the opening of the location, thereafter conducting operational performance reviews of franchisees, while retaining the authority to terminate a franchise if a franchisee fails to comply with the Franchise Agreement and a Confidential Business Manual, instructing franchises in the operational details of running the business.

The Franchise Agreement also requires the franchisee to maintain certain types of insurances, to include insurance for workers’ compensation benefits.

After hearing the testimony of Saladworks’ administrator, the WCJ granted Saladworks’ Motion to Dismiss/Strike the Joinder Petition, as the WCJ found the administrator’s testimony to be credible, further finding that Saladworks, as the corporate franchisor had no direction or control over individual franchisee’s employees, as direction and control was reserved for the franchisee location.

Not surprisingly, the UEGF appealed the denial of its Joinder Petition, arguing that Saladworks should have been considered to be the Claimant’s statutory employer, an argument that the Workers’ Compensation Appeal Board agreed with, reversing the Judge’s denial of the Joinder Petition, with the Appeal Board finding that the Pennsylvania Supreme Court’s Decision inSix L’s applied to the case at hand, and that notwithstanding that Saladworks did not own or occupy the premises where the Claimant was injured, Saladworks could nevertheless be held liable as the Claimant’s statutory employer, based upon the franchisee, G21, being uninsured for workers’ compensation benefits.

So holding, the Appeal Board held that Saladworks’ Franchise Agreement imposed upon it the contractual obligation to insure that G21 carried the appropriate workers’ compensation insurance coverage, to protect Saladworks from liability, and to insure coverage for work-related injuries to franchisee employees.

Concluding that Saladworks had not fulfilled its contractual obligation under its Franchise Agreement, the Appeal Board held that “the purpose of the statutory employer doctrine is to place responsibility for payment on the first entity in a contractor chain when an injured employee’s direct employer, subcontractor, fails to secure workers’ compensation insurance … our determination that Saladworks is a statutory employer supports that purpose as well as the humanitarian purposes of the Act.”

Time for another epistle from the Princess Bride, with Princess Buttercup, again confronting dire circumstances, as she did throughout the movie, blurted out: “We will never survive”; to which the Man in Black, ultimately cool no matter how desperate things looked, rebutted quietly with “Nonsense, you are only saying that because no one ever has before.”

As indicated earlier, Six L’s was a landmark ruling by the Pennsylvania Supreme Court in 2012, as it significantly expanded the previously-held scope of what a “statutory employer” might be under the Pennsylvania Workers’ Compensation Act.

Prior to Six L’s, the status of being a “statutory employer” under the Pennsylvania Workers’ Compensation Act was seemingly controlled by the Pennsylvania Supreme Court’s Decision inMcDonald v. Levinson Steel Company, 153 A.424 (Pa. 1930), setting forth the following conditions necessary to establish “statutory employment”, including:

·         That a contractor had a contract with a property or premises owner;

·         That the contractor under contract with the property owner was occupied and was in control of the premises where the work injury took place;

·         That the contractor entered into a subcontract with a subcontractor;

·         That the contractor entrusted a part of his regular business to the subcontractor; and,

·         That the injured employee was an employee of the subcontractor, whether insured or uninsured.

In Six L’s, the employee seeking workers’ compensation benefits was an injured truck driver, employed by an independent contractor, with the Claimant’s injury occurring on a public highway, not on premises owned or controlled by the contractor that had contracted with the subcontractor, the Claimant’s employer, with the WCJ, finding that theMcDonald “statutory employer” test had been satisfied, such that the contractor hiring the subcontractor was the Claimant’s statutory employer under Section 302(a) of the Act, as that provision provides:

“Any employer permits the entry upon premises occupied by him or under his control of a laborer or an assistant hired by an employee or contractor, for the performance upon such premises of a part of such employer’s regular business entrusted to that employee or contractor, shall be liable for the payment of compensation to such laborer or assistant unless such hiring employee or contractor, if primarily liable for the payment of such compensation, secured the payment thereof, as provided for in this act.”

Notwithstanding the WCJ’s Decision in Six L’s being overturned and reversed by the Appeal Board, the Judge’s Decision was then affirmed by both the Commonwealth Court, and by the Pennsylvania Supreme Court, which held that theMcDonald test did not apply to Section 302(a) of the Act.

Turning back to Saladworks, the Commonwealth Court determined that UEGF’s appeal was predicated upon whether the work performed by G21, the franchisee, under the Franchise Agreement was a regular or a recurrent part of the business, occupation, profession, or trade of Saladworks, the franchisor.

However, the Commonwealth Court ruled in Saladworks, that Saladworks’ main business was the sale of franchises to franchisees, in the course of which its corporate trademark and systems, as well as marketing expertise, were utilized by the franchisees.  Although Saladworks provided certain services to independent franchisees like G21, it was not in the restaurant business, nor was it in the business of selling salads, as its business was limited to selling franchises to franchisees.

For those reasons, the Commonwealth Court held that Six L’s was inapplicable to the facts inSaladworks, and that the Claimant was not, therefore, an employee of Saladworks, such that the Judge’s denial and dismissal of the UEGF’s Joinder Petition was correctly decided based upon the evidence presented by Saladworks as to its business operations as a franchisor licensing franchises to franchisees.

Illustrative, yes.

Important for what reason?

Well, first, it represents a rare instance in which the UEGF was turned away from deflecting liability against it, utilizing tangential evidence that another party should be held liable as a statutory employer of a Claimant seeking workers’ compensation benefits for a work-related injury while working for an uninsured employer.

This Decision also represents an appellate wall, potentially unscalable in affirming the separation of the contractual rights and responsibilities between a franchisor and a franchisee, in terms of secondary liability for workers’ compensation coverage and claims.

No less true, it provided an opportunity to link in unrelated and quixotic quotes from one of our favorite movies,The Princess Bride (1987).

ConnorsO’Dell LLP

Trust us, we just get it!  It is trust well spent!

We defend Employers, Self-Insureds, Insurance Carriers, and Third Party Administrators in Workers’ Compensation matters throughout Pennsylvania.  We have over 100 years of cumulative experience defending our clients against compensation-related liabilities, with no attorney in our firm having less than ten (10) years of specialized experience, empowering our Workers’ Compensation practice group attorneys to be more than mere claim denials, enabling us to create the factual and legal leverage to expeditiously resolve claims, in the course of limiting/reducing/extinguishing our clients’ liabilities under the Pennsylvania Workers’ Compensation Act.

Every member of our Workers’ Compensation practice group is AV rated.  Our partnership with the NWCDN magnifies the lens for which our professional expertise imperiously demands that we always be dynamic and exacting advocates for our clients, navigating the frustrating and form-intensive minefield pervasive throughout Pennsylvania Workers’ Compensation practice and procedure.

Carl A. Nelson & Company and Zurich North American Ins. Co., v. Byran Sloan, Court of Appeals of Iowa, No. 15-0325

At the agency level, the parties stipulated Claimant, Byran Sloan, sustained an injury to his back in the course and scope of his employment on August 15, 2011, while lifting concrete forms out of a trench. Claimant was treated for what was described as a back strain, and he was returned to full-duty work with no restrictions on August 24, 2011. The dispute in this case centered on what effect an incident that occurred on October 30, 2011, had on that stipulated work injury.

On October 30, 2011, Claimant was assisting a friend move some go-kart frames into a trailer. When Claimant tried to slide a frame that had been placed on the trailer by a bobcat, he felt a sudden onset of pain and numbness in his back and legs. Claimant described the pain as being similar to what he experienced when the initial injury occurred. When conservative treatment for this injury failed, Claimant underwent back surgery and was subsequently released at maximum medical improvement on January 14, 2013. 

The workers’ compensation case was tried before a deputy commissioner on April 9, 2013. The deputy denied Claimant’s claim after determining the go-kart incident was an intervening and superseding cause of Claimant’s injury. The deputy further concluded, “There were no competent medical opinions tying [Claimant’s] original work injury to his ongoing back problems.”

 Claimant appealed to the commissioner, who reversed the deputy’s conclusion, finding “the greater weight of evidence supports the finding that claimant’s work injury was a proximate and natural cause of the disability he suffered from at the time of the arbitration hearing.” While the commissioner noted the evidence was “quite compelling” that the go-kart incident substantially worsened or aggravated Claimant’s condition, it did not amount to an intervening or superseding cause because Claimant “was simply engaged in an ordinary activity of daily living, namely helping a friend transport items on a trailer he owned” and not engaged in conduct that was “contrary to any express or implied duty owed to his employer following his work injury.” The commissioner also held the Employer is responsible for the medical treatment Claimant received following the go-kart incident. The bills that were paid by Claimant’s private health insurance “shall be reimbursed directly to [Claimant] as the Iowa Supreme Court has mandated in Ruud.” SeeMidwest Ambulance Serv. v. Ruud, 754 N.W.2d 860, 867–68 (Iowa 2008).

 The Employer filed for judicial review with the district court, who affirmed the agency’s causation opinion, finding, “the commissioner’s determination is clearly supported by substantial evidence in the record.” The court likewise affirmed the agency’s analysis of the intervening and superseding cause, concluding “there is really no point in the court reiterating that discussion when the court has no disagreement either with the commissioner’s judgment regarding the law or his application of the law to the facts.” However, the court modified the agency’s decision with respect to the payment of medical bills that had been covered by Claimant’s private health insurer. The court determined the agency misinterpreted the Supreme Court’s holding in Ruud as mandating direct reimbursement to Claimant. Instead, the district court held the Employer is to either (1) directly reimburse Claimant for the expenses approved by the commissioner as part of Claimant’s claim that were paid by the health insurer; or (2) reimburse the insurer for such amounts and pay any remaining amounts of any such expenses not paid by the health insurer directly to the provider.

 From this ruling the Employer appealed the causation ruling, and Claimant cross-appealed the ruling on the reimbursement of medical expenses paid by his private health insurer.

 The Court of Appeals agrees with the district court that substantial evidence supports the agency’s causation finding. The Court noted that the commissioner reviewed the medical opinions on the issue of causation and determined, of the three experts who offered opinions on causation, the opinion of Kenneth Bussey, M.D., was most persuasive. The commissioner credited Claimant’s testimony and concluded there was “simply no reasonable basis to disbelieve claimant’s uncontroverted, sworn testimony that he was still suffering from back and leg pain (radiculopathy) when he was released” back to work.

 The Court also agreed with the district court that the agency did not misinterpret the law with respect to intervening and superseding cause. The commissioner held the go-kart incident was a direct and natural result of the August 15, 2011 work injury based on the opinion of Dr. Bussey. The action of Claimant was not considered “negligent” so as to break the chain of causation because Claimant’s actions were not rashly undertaken with knowledge of the risk created by the weakened member. The commissioner also noted the action taken by Claimant was not “an intentional violation of an express or implied prohibition” by Claimant’s treating physician. The Court of Appeals therefore affirms the district court’s judicial review decision with respect to the Employer’s appeal.

 With respect to the cross-appeal, the Court of Appeals concluded the district court erred in its interpretation of the controlling case law. The Employer is responsible to make direct payment to Claimant for “past medical expenses paid through insurance coverage”  under Midwest Ambulance Serv. v. Ruud, 754 N.W.2d 860, 867–68 (Iowa 2008). Therefore, The Court affirmed in part and reversed in part the district court’s judicial review decision.

Call Mark Bosscher or Lee Hook with any questions @ 515-243-2100.  We’d be happy to help, whether it be a quick or a complex issue!

Eight medical professionals and their associates have been charged in federal grand jury indictments
involving a workers’ compensation kickback scheme in Southern California. The bribery plot
resulted in $25 million in improper claims for medical services and devices that were billed to
California Workers’ Compensation insurance companies. Three federal indictments were
announced by the U.S. Attorney’s office, San Diego District Attorney’s office, FBI, and the
California Department of Insurance against the purported conspirators. The indictments allege that
the defendants, which include a chiropractor, a radiologist, a medical equipment provider, a medical
clinic administrator, and a medical marketer, plus six corporations with which they did business,
paid or received tens of thousands of dollars for referrals of workers’ compensation patients to
therapy companies and a medical equipment provider, who, in turn, paid for every patient referral.
The chiropractors prescribed medical equipment, referred patients for MRIs and X-Rays, and
ordered specialized treatments such as Shockwave therapy, which ostensibly uses low energy sound
waves to initiate tissue repair. U.S. Attorney Laura Duffy called the indictments “the first wave of
charges in what we believe is rampant corruption on the part of some physicians and chiropractors.”
Although the amount pocketed by the medical professionals for any given referral could appear
somewhat de minimis (ranging between $50 and $100), in the aggregate the bills submitted by the
defendants to insurers totaled tens of millions of dollars. The Commissioner of the California
Department of Insurance, Dave Jones, called the practice “insurance fraud, which adds crippling
costs to California’s workers’ compensation system.” He elaborated, “When medical providers
defraud insurers, those costs are passed on to California businesses and consumers.

Hey, Speaking of Rule 127.130... – The claimant suffered an eye injury in January 2011, which he
alleged aggravated his pre-existing glaucoma. The designated doctor assigned to examine his eye
condition was a plastic surgeon, not an ophthalmologist, and the claimant argued that as such he
lacked the experience and qualifications necessary to evaluate an eye condition. To support his
argument, the claimant relied on Rule 127.130(b)(6), which states, “To examine injuries and
diagnoses relating to the eyes, including the eye and adnexal structures of the eye, a designated
doctor must be a licensed medical doctor, doctor of osteopathy, or doctor of optometry.” The Court
of Appeals held that Rule 127.130(b)(6) did not apply in this case because that provision pertains
only to injuries sustained on or after January 1, 2013. However, the Court clarified that even if Rule
127.130(b)(6) did apply, the designated doctor, as a licensed medical doctor, would not be
automatically precluded from evaluating an eye injury merely because of his specialty as a plastic
surgeon. Joe Ballard v. Arch Insurance Company and Transforce, Inc., Houston Court of Appeals
– 14th Dist. 2015 WL 6560531.

Errant Errand – The injured worker died as a result of injuries sustained in a motor vehicle accident
while out of town on a business trip. For the duration of his trip, he was under “continuous
coverage”, which provides round the clock coverage for employees sent out of town overnight on
business by an employer. After work one night, the decedent and his son agreed to meet for dinner,
but the pair chose a restaurant twelve miles from the employee’s Dallas hotel. The worker was
injured in a motor vehicle accident occurred on the way to the restaurant. The Hearing Officer and
the Appeals Panel concurred that the decedent remained in the course and scope of his employment
under the continuous coverage doctrine and had not substantially deviated from the business purpose
of the trip. The trial court granted the carrier’s motion for summary judgment that the worker was
not in the course and scope of his employment at the time of injury, and the Court of Appeals affirmed the trial court’s judgment, stating that the travel at the time of the accident was to
accommodate a personal visit and represented a distinct departure from the course and scope of his
employment for a personal errand. Barbara Pinkus v. Hartford Casualty Insurance Company,
Dallas Court of Appeals – 2015 WL 6751059.

Appointment With Disappointment– A claimant followed her attorney’s (terrible) advice not to
appear for a designated doctor appointment on June 3, 2014. The Hearing Officer determined that
such counsel constituted good cause for her failure to attend. The Appeals Panel reversed, stating
that “bad advice received from one’s own attorney is not an excuse for the failure to comply with
Division requirements.” The designated doctor examination was reset to October 7, 2014, then
rescheduled upon request of the designated doctor to November 4, 2014 with a different doctor. The
claimant attended that exam. The claimant then argued that the insurance carrier should begin
payment of TIBs as of the date of the first scheduled DD exam, October 7, 2014 since it was not her
fault the exam was delayed until November 4, 2014. However, the Appeals Panel clarified that Rule
127.25(a) requires actual attendance at the designated doctor examination and does not allow for the
suspension of TIBs based on a delay in the subsequent appointment of a designated doctor
examination. Therefore, the carrier was permitted to suspend TIBs through November 4, 2014, the
date the claimant actually submitted to her designated doctor exam. Appeal No. 151718

Rule 132.7 – Death Benefits
In accordance with HB 1094, the DWC published an informal draft rule that amends Rule 132.7 to
provide that a remarried former spouse of a first responder killed on the job is entitled to receive
death benefits for life. Formal proposal of the amended rule is anticipated before the end of 2015.

Rule 132.13 – Burial Benefits
An informal draft rule proposes to amend Rule 132.13 to raise the burial benefits for an injured
employee killed on the job to $10,000.00. The rule amendment is required to implement SB 653
and is expected to be formally proposed by the end of 2015.

Rule 127.130 – Designated Doctor Qualifications
The DWC is considering amendments to the qualification criteria for designated doctors to ensure
that the best-qualified doctor is selected for examinations. The working draft of the rule is expected
to be published on the DWC website prior to year’s end.

The DWC, in its regulatory capacity, is required under Section 402.075 of the Texas Labor Code
to assess the performance of insurance carriers at least biennially. For their 2016 Performance
Based Oversight (PBO) assessment, announced publicly in November, the Division will select
carriers based on the volume of initial payment of Temporary Income Benefit transactions between
January1, 2015 and June 30, 2015. Timely payment of TIBs, timely processing of initial medical
bills or request for reconsideration of medical bills, and timely submission of initial payment and
medical bill processing data are the criteria that comprise the 2016 PBO assessment. Incentives for
insurance carriers to achieve high performance include limited audits, modified or reduced penalties,
and access to the High Performer Logo as a marketing tool.

Jerry Franz, M.D. was fined $2,000.00 for failing to meet the standard of care for chronic pain
management for five patients.
Francisco Batlle, M.D. of Dallas has been ordered by the Division to complete additional medical
education after failing to complete a fair and reasonable evaluation of an injured employee.
By Official Order of the Texas Commissioner of Workers’ Compensation dated October 28, 2015,
Dr. Patrick Chidi Obasi, M.D., of Marshall, TX is prohibited from re-applying for DD or MMI/IR
certifications in the Texas workers’ compensation system for two years.

On November 19, 2015, this new bulletin was posted to alert workers’ compensation participants
of the annual change to the Medical Fee Guideline conversion factors. For 2016, the MEI reflects
a 1.1% increase. A table of conversion factors can be found on the TDI website.

Matt Zurek, Deputy Commissioner for Health Care Management and System Monitoring, urges
insurance carriers to identify all injured employees who have been prescribed Fentanyl Transdermal
Patches and/or MS-Contin, which will both require preauthorization beginning on February 1, 2016.
Mr. Zurek advises sending written notification to the injured employee, prescribing doctor, and
pharmacy informing them of the need for preauthorization to allow adequate time to discuss ongoing
treatment if Fentanyl Transdermal Patches or MS-Contin are currently being prescribed. Sample
notification letters for use by insurance carriers are available through the TDI-DWC website at
https://www.tdi.state.tx.us/WC/pharmacy/index.html.

The Division has hired Mayson Pearson as the new traveling Hearing Officer in the central Austin
office. Her employment with the Division commenced in November. Ms. Pearson graduated from
the University of Texas School of Law and has been licensed to practice law in Texas since
November of 2012.