Precedents: It’s Nuts! Co-Employment Liability and Defenses

Jesse Robles was employed by a staffing company. He was assigned to temporarily work for a food processing company that produced nuts. Alejandro Galvez, an employee of the nut company, misloaded a large bag of nuts using a forklift which caused a hook apparatus to fall on Robles resulting in his injury.

Robles collected workers’ compensation benefits from the staffing company’s workers’ compensation carrier. He also filed suit against the nut company and its employee, Galvez. The nut company argued that Robles’ exclusive remedy was to recover workers’ compensation benefits from the staffing company’s comp carrier. In effect, it argued that the staffing company’s exclusive remedy defense also applied to it as a borrowing employer.

The court agreed with the nut company, holding that Robles was only entitled to workers’ comp benefits. Robles v. Mount Franklin Food, L.L.C., 591 S.W.3d 158 (Tex. App.—El Paso 2019, pet. denied).

The Robles court explained how the co-employment defense works in Texas, grounding its ruling in the reasoning of a 1996 Houston case. In that case, Brown v. Aztec Rig Equipment, Inc., 921 S. W. 2d 835 (Tex. App. — Houston [14th District.] 1996), William Brown filed a negligence suit against Aztec, an oil and gas drilling and servicing company, and Administaff, for personal injuries he allegedly sustained on Aztec’s premises. Administaff was in the business of staff leasing, employing its client’s work force then leasing them back to carry out the client’s business.

Prior to the date of injury, Administaff had entered into a series of “Client Service Agreements” with Aztec, agreeing to furnish workers’ compensation coverage to all Administaff’s employees it furnished to Aztec. The contract provided for other agreements including that Administaff and Aztec would be considered co-employers over persons furnished to Aztec for purposes of “employer liability under workers’ compensation laws.”

Before his accident occurred Brown had signed “Employment Agreements” with Administaff, agreeing to be assigned to Aztec and to be an employee of both Administaff and Aztec “for the purposes of workers’ compensation coverage.” This agreement further provided that in the event of any injury, Brown’s sole remedy lied in the coverage under Administaff’s workers’ compensation policy under the theory that Administaff and Aztec were co-employers.

After the accident Brown sought workers’ compensation benefits under Administaff’s workers’ compensation policy while also pursuing a negligence suit against both Administaff and Aztec. However, the trial court granted both Administaff and Aztec’s motion for summary judgment on several grounds including that the suit was barred by the exclusive remedy provision of the Workers’ Compensation Act (§408.001). The essential question on appeal was whether both Administaff and Aztec were entitled to assert the exclusive remedy provision as a defense in a negligence action as co-employers.

The court of appeals affirmed the trial court, holding that the Plaintiff’s contention that Aztec did not have workers’ compensation coverage, and thus could not assert the exclusive remedy defense, was incorrect. The Appellate Court noted that Administaff’s agreement with Aztec specifically required it to purchase workers’ compensation insurance covering all employees furnished to Aztec, that both the Client Service Agreements and Employer Agreement expressly provided for co- employer status, and that Administaff purchased workers’ compensation insurance using the service fees paid by Aztec. Thus, both were entitled to the protection of the exclusive remedy provision of the Workers’ Compensation Act.

These cases illustrate a species of co-employment that provides hiring flexibility to employers along with the security of workers’ compensation coverage to their employees. The theory of protection is now codified in the Professional Employer Organization Act, which affords security of coverage to injured workers, protects employers from potential common law liability, and creates an exception to the general rule in Texas that an employer may not “split its workforce” for workers’ compensation coverage purposes.

A threshold requirement for professional employment licensing is that a PEO establish the terms of a professional employer services agreement by written contract between itself and its client company. The PEO must also give notice of the agreement to the employees it assigns to a client’s work site. The contract between the PEO and the client must comply with the Act’s requirements, and in particular, it must provide that the PEO reserves the right of direction and control over assigned employees; retains the right to hire, fire, discipline, and reassign assigned employees; and retains the right of direction and control of the adoption of employment and safety policies and to manage workers’ compensation claims and related procedures.

Contracting parties can take advantage of the Professional Employer Organization Act if they enter into a valid professional employer services agreement. Professional Employer Organizations are required to be licensed under Tex. Lab. Code § 91 et. seq.