That's Not My Employee


The 2004 Shrek 2 brought a great many comedic moments to the screen. One that sticks with me involves Puss-in-Boots being arrested and searched. A package of catnip is uncovered, and Boots is quick to assure the gendarmes "that's not mine." Denial is a staple of the practice of criminal law. A friend of mine that worked in criminal defense once told me he had never had a guilty client; each one assured him that his/her arrest was on false pretenses or mistaken identity. 

I thought of this recently when reading the court's opinon in Ayerplace Enterprises LLC v. Workers' Compensation Appeal Board (Royal), Commonwealth Court of Pennsylvania, case number 452 C.D. 2016, (September 23, 2016). The employer/carrier's defense in this case was similar to Boots', essentially saying of the injured worker "that's not mine." But in this case, the defense held, and another entity was found instead to be the appropriate employer. The case was tried at least twice, reviewed by Pennsylvania's appellate Board twice, and appealed to the Commonwealth Court twice.

Back in 2007, a worker was injured and there was dispute as to the identity of the employer. In 2009 a Pennsylvania workers' compensation judge concluded that two entities were both employers, and "found Ayerplace and American Road Lines (ARL) jointly and severally liable." Joint and several liability is a legal construct under which the injured worker could recover 100% of the resulting damages from either of these two. Being found jointly and severally liable meant that each was fully "on the hook" for any and all damages. 

One of the employers, Ayerplace, appealed and during the appeal provided no benefits to the injured worker. The worker later filed asking for penalties from Ayerplace based on the failure to pay benefits. 

Before the issue of those penalties was heard by the workers' compensation judge, the Workers' Compensation Appeals Board reversed the trial judge's initial decision, concluding that "ARL was the sole employer, and the evidence did not support an employment relationship with Ayerplace." Essentially, the Board agreed with the "that's not mine" defense because Ayerplace had no workers' compensation insurance, and therefore ARL was the "statutory employer." 

The worker's claim for penalties based no non-payment then came to trial before the workers' compensation judge. Although the appellate Board had concluded Ayerplace was not liable for benefits, the trial judge "granted Claimant’s penalty petition against Ayerplace." The judge concluded that "Ayerplace violated the Act because it did not comply with" the original trial order that awarded benefits. So, the trial judge "assessed a 25% penalty against Ayerplace," and interest. The trial judge also awarded the worker $1,500 in fees (split between Ayerplace and ARL) because they "engaged in an unreasonable contest."

Ayerplace took issue with this decision as well. It sought appellate Board review of the penalty award, claiming again that it was not the workers' employer. It alleged that the Board had concluded it was "not an employer" and therefore not liable for benefits. Thus, it argued, if it was not liable for benefits, it should not be liable for penalties from not paying those benefits. 

Deciding this second appeal, the Board reiterated its earlier conclusions that ARL was the worker's "sole employer" and was "solely liable for Decedent’s injuries.” The Board noted that no party appealed the Board's conclusions regarding ARL's responsibility and reiterated that Ayerplace had no liability for benefits. 

Despite that, the Board reasoned that Ayerplace's subsequent “success in appellate forums did not relieve it of its obligations under the Act.” However, the Board found fault with the trial judge's penalty order, and "concluded the WCJ did not issue a reasoned decision, and it vacated the award of penalties against Ayerplace." The penalty claim was thus "remanded" to the trial judge for further action. 

On remand (a reconsideration by the trial judge following appellate reversal), the trial judge specifically rejected Ayerplace’s argument that it was not an employer under the Act," and again granted the penalty petition. This was based on the trial judge's conclusion that "Ayerplace violated the Act by not paying benefits ordered." The judge imposed a 25% penalty, plus 10% interest, and "$4,297.50 in unreasonable contest fees." The logic is simple, essentially the judge concluded that she/he had no authority ("jurisdiction"), that the entity ("Ayerplace") was not subject to the law, but that it had failed to obey the judge's erroneous decision and so was liable for penalties. 

Ayerplace again appealed to the Board, which this time affirmed the penalties but reversed the attorney fee award. The Board concluded that "success on the merits did not excuse a violation of the Act." An interesting quote, attributed to many, is "don't confuse me with the facts, my mind is made up." Reading the Board's conclusion, this quote came to mind. 

Ayerplace next appealed to the Commonwealth Court (which had earlier concluded Ayerplace was not an employer). The Court found that the issue presented was "novel," to wit: "whether a litigant adjudicated to be neither an employer nor an insurer under the Act, is nevertheless susceptible to penalties for noncompliance with the Act." Or, more succinctly, "may penalties be assessed against a litigant without a showing that the Act applies to the litigant." 

The injured worker reasoned that at the time benefits were due, that Ayerplace was an employer, because the trial judge had decided (erroneously) it was. And that when Ayerplace thereafter refused to pay the (erroneously) ordered benefits, it was an employer not complying with the order. This was the logic the Board found persuasive in affirming the trial judge's penalty order. 

The Court distinguished precedent in which entities had acknowledged or accepted their status as "employer," and concluded that Ayerplace was essentially arguing jurisdiction (authority) of the trial judge, the Board, and the workers' compensation law. The Court held that "where there is a dispute as to whether a litigant is an employer subject to the Act in the first instance, the Board and the WCJ err in presuming a litigant is an 'employer.'” 

The authority to impose penalties, or award benefits, is derived from the statute. Therefore, the Court explained, the first analysis has to be "whether the entity against which penalties are assessed is within the purview of the Act," because "it is axiomatic that penalties for noncompliance with the Act may only be imposed on litigants that are subject to the Act." The Court aptly noted that to conclude "otherwise would lead to an absurd result, like that here."

Because Ayerplace was not an employer, it was not subject to the law, and therefore not subject to the penalties. Awarding penalties against Ayerplace was "absurd." Holding that the trial judge's remand decision "misapplied the law" and was an "abuse of discretion warranting reversal," the Commonwealth Court reversed. Regarding the imposition of fees, the Court noted that "because Ayerplace was not an employer, it was not unreasonable for Ayerplace to challenge the penalties," and thus not liable for attorney fees either. It is interesting that the Court did not merely conclude that fees likewise flow from the same statute, the one that did not apply regarding penalties and thus did not apply regarding fees. 

So, it turns out that "its not mine" is a valid workers' compensation defense in at least some circumstances, in Pennsylvania. And, more importantly, that defense is absolute if proven. If not the employer, then the provisions of the law do not apply, and benefits, penalties, and attorney fees are not due. 

Remember the part where ARL was found to be the employer, and the joint and several liability? The good news for the injured worker is that ARL was also "on the hook" for all of the awarded benefits, any penalties for nonpayment, etc. So, the injured worker had a viable employer to pursue. Why this pursuit of penalties continued against Ayerplace is curious and interesting. 



David Langham is the Florida Deputy Chief Judge of Compensation Claims. He blogs weekly regarding system issues, regulations and decisions. He has published many articles and delivered more than 1,000 professional speeches.

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    About The Author

    • Judge David Langham

      David Langham is the Deputy Chief Judge of Compensation Claims for the Florida Office of Judges of Compensation Claims at the Division of Administrative Hearings. He has been involved in workers’ compensation for over 25 years as an attorney, an adjudicator, and administrator. He has delivered hundreds of professional lectures, published numerous articles on workers’ compensation in a variety of publications, and is a frequent blogger on Florida Workers’ Compensation Adjudication. David is a founding director of the National Association of Workers’ Compensation Judiciary and the Professional Mediation Institute, and is involved in the Southern Association of Workers’ Compensation Administrators (SAWCA) and the International Association of Industrial Accident Boards and Commissions (IAIABC). He is a vocal advocate of leveraging technology and modernizing the dispute resolution processes of workers’ compensation.

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