Supreme Court Rejects Independent Contractor Status for Temp Staffing Worker

The Texas Supreme Court has held the exclusive remedy provision in the Texas Workers’ Compensation Act prevented an employee of a temporary staffing agency from suing the staffing agency’s client. The decision in Stevenson v. Waste Management of Texas, Inc. (No. 19-0282) April 30, 2021, reversed the court of appeals and rendered judgment for the client company/employer. The opinion is an important guide in distinguishing between independent contractors and employees, particularly in the context of temporary staffing arrangements.

Stevenson was hired by a temporary staffing agency to work for a client company, Waste Management of Texas, Inc. The temporary assignment was subject to a “Master Agreement,” between the staffing agency and the client company. In May 2014, Stevenson was injured when a Waste Management employee backed a truck over Stevenson’s leg and foot, seriously injuring him. Both companies carried workers compensation coverage; Stevenson applied for and received benefits under the staffing agency’s policy. He also sued Waste Management and its driver, alleging common-law negligence.

The client company and its driver moved for summary judgment, arguing that the exclusive-remedy provision of the Workers’ Compensation Act barred Stevenson’s claims. They argued that Stevenson was, for workers compensation purposes, Waste Management’s employee at the time of the accident. Stevenson argued in a cross-motion for summary judgment that no evidence existed that he was Waste Management’s employee.

Stevenson relied primarily on the Master Agreement, which states that temporary laborers like Stevenson “shall be independent contractors in respect of Waste Management.” The trial court granted summary judgment for Waste Management. The court of appeals reversed and remanded, holding that a genuine fact issue existed on whether Stevenson was Waste Management’s employee. Stevenson v. Waste Mgmt. of Tex., Inc., 572 S.W.3d 707, 715 (Tex. App.—Houston [14th Dist.] 2019).

The Texas Supreme Court accepted review and heard arguments October 28, 2020. The court issued its opinion April 30, 2021.

In reversing the lower court, the Supreme Court wrote that a written contract that identifies a worker as an independent contractor, “cannot defeat employee status where the evidence of the actual events surrounding the work conclusively establishes that the client had the right to control the temporary worker, who was therefore ‘in the service of’ the client for purposes of the Workers’ Compensation Act.” The court wrote that this approach:

which considers the factual, on-the-ground realities of whether the client company directed the activities of the staffing agency’s employee—without deferring automatically to the terms of a written contract between the companies purporting to dictate employment status—flows from the language of the Workers’ Compensation Act. The Act provides “express definitions of ‘employer’ and ‘employee’ that should be given effect when applicable, even if that results in an employee’s having more than one employer for purposes of workers’ compensation.” The Act’s definitions encompass workers operating under a written contract, so long as they are “in the service of” the employer. And as this Court’s precedent in the dual-employment context indicates, whether a worker was “in the service of” the client company depends not exclusively on contractual labels but rather on the extent to which the defendant exercised the right to control the plaintiff’s daily work. (Citations omitted.)

The court noted that it had historically construed the Act liberally in favor of finding coverage as a means of affording employees the benefits and protections found in the Act.

Declining to automatically defer to contractual agreements between two potential employers ensures these rights cannot be denied to workers by contracts over which they have no control. Although this longstanding preference for finding workers compensation coverage developed to ensure employees receive compensation, it applies with equal force when, as here, the effect of finding coverage is to protect the employer from lawsuits.

While in this case Stevenson does not want the Act to apply to him, many other temporary workers may want the certainty and prompt payment of benefits the Act provides without the need for litigation. If Stevenson were correct that a contract between his direct employer and its client can dictate whether he is entitled to workers compensation through the client, he might benefit in that he could proceed with his lawsuit against Waste Management. Other workers in similar circumstances could be harmed, however, by a rule that allowed two companies to execute a contract—over which the worker has no influence—dictating whether the worker is covered by either company’s workers compensation coverage.

Although this case was decided in the context of a negligence suit against a potential employer, it will apply to claims filed by injured workers in the future and will expand workers’ compensation liability for comp carriers that insure clients of temporary staffing agencies. Such carriers are well advised to ensure that the staffing agencies have workers’ compensation coverage in place as well in order to avoid risk-shifting to the client company’s insurer.