For a variety of reasons, not the least of which is the difficulty faced by many contractors in satisfying bonding requirements for larger projects (especially in the public sector) today joint ventures and other multientity relationships are prevalent in the construction industry in New York.
Often, it is not immediately clear which entity is, for purposes of OSHA compliance, the “employer” of workers at a construction jobsite. The issue is of twofold importance. First, where companies are combining resources to obtain and perform a construction contract, all participants should take care that any entity in a position to be cited for possible OSHA violations is aware of its responsibilities, and in a position to learn of and to correct potential compliance issues as they arise.
Secondly, because only an “employer” has liability under OSHA, a company cited for OSHA violations and its counsel should always examine the question of whether the cited entity is, under the applicable legal standards, the “employer” of affected workers at the site.
The question is not always an easy one. In Secretary of Labor v. Allstate Painting and Contracting Co., Inc., the respondent, Allstate, in part owing to its status as a “disadvantaged business entity,” won a subcontract with Velotta Company (Velotta) to sandblast and paint bridges for the Ohio Department of Transportation.
With Velotta’s assent, Allstate then entered into a “management agreement” with American Painting Company, Inc. (American) whereby Allstate assigned to American its payments on its contract with Velotta, American agreed to do the blasting and painting work, and Allstate agreed to purchase the public liability insurance, and any bonds required under the Velotta-Allstate contract. American undertook to provide payroll, tax withholding and union benefit contributions, to replenish funds if needed, and to provide the services of its principals, Anthony and Michael Katsourakis, to supervise “Allstate’s employees” at the worksite. Allstate was to receive a share of American’s net profits.
Although identified in the management agreement as “Allstate’s employees,” the workers at the site were longtime American employees. The account used to pay them was in Allstate’s name, but was controlled exclusively by American’s principals. The Katsourakis brothers set the workers’ salaries, and had authority to hire and to fire. Assisted by an employee of American, they disciplined workers and ran the job. What Allstate contributed to the arrangement was, essentially, its “disadvantaged” status (of help in winning the contract in the first place) and its provision of the necessary insurance and bonds.
OSHA cited Allstate for violations of health standards limiting exposure to hazardous metals and air contaminants, and for violations fall protection standards. At the hearing before an administrative law judge (ALJ), one defense asserted by Allstate was that American, not Allstate, was the employer. Only an “employer” may be cited for a violation of OSHA, 29 U.S.C. § 658(a), and the Secretary of Labor has the burden to prove that the respondent is the employer of the affected workers at the site.
The ALJ rejected Allstate’s defense. He determined that Allstate was the employer, based on the fact that, under the subcontract with Velotta, Allstate retained ultimate responsibility for the work. In addition, the agreement with American was express that laborers on the project “shall be employees of Allstate.”
The ALJ further found that the Katsourakis brothers, having contracted to provide their supervisory skills, acted as agents of Allstate. Additionally, the employees were paid with checks from Allstate’s account; the management agreement provided that American was to assist Allstate in complying with OSHA requirements, and safety programs and training materials used on the project identified Allstate as the employer.
Based on the foregoing rationale, and the “broad prosecutorial discretion” vested in the Secretary of Labor in determining whom to prosecute for violations of the Act, the ALJ denied Allstate’s motion to dismiss.
Allstate appealed to the Occupational Safety and Health Review Commission (Commission). Under the 1992 U.S. Supreme Court decision in Nationwide Mutual Insurance Co. v. Darden, the Commission noted, whether a respondent is an “employer” depends primarily on whether the party has the right to control the manner and means by which the job was accomplished. Factors pertinent to that issue include:
The skill required for the job, the source of the instrumentalities and tools, the location of the work, the duration of the relationship between the parties, whether the hiring party has the right to assign additional projects to the hired party, the extent of the hired party’s discretion over when and how long to work, the method of payment, the hired party’s role in hiring and paying assistants, whether the work is part of the regular business of the hiring party, whether the hiring party is in business, the provision of employee benefits and the tax treatment of the hired party.
No single factor among those cited in Darden is conclusive, the Commission stated, and “the primary focus is whether the putative employer controls the workers.” Applying the Darden criteria to the facts before it, the Commission found that the ALJ had erred in finding that Allstate was the “employer.” It reversed the ALJ’s finding, and vacated the citations. The Commission said:
The record establishes . . . that Allstate did not control the hiring, firing or disciplining of the workers at the site, did not supervise their work; and did not supply them with equipment or safety gear. The workers were long-term employees of American, not of Allstate, and Allstate had no right to assign any additional projects to them, regulate their arrival and departure time, or determine how they should do their work. Allstate also did not handle the workers’ training, despite the fact that the name Allstate was written on top of the project’s training sheets and safety plan. . . . .
It was not controlling that the payroll account was in Allstate’s name, the Commission found, as all signatories were American personnel, and Allstate had no access to the account funds. The Commission also overruled the finding that the management agreement transformed America’s principals into agents of Allstate. In an agency relationship, the principal has the right to control the agent’s conduct, but the agreement gave Allstate no right to control the Katsourakis brothers, nor was there evidence that Allstate exercised such control de facto.
The Commission emphasized that Allstate’s entire interest in Allstate’s contract with Velotta were irrevocably assigned to American. That fact, and that American’s principals were the sole signatories on the project bank account, convinced the Commission that Allstate had no right to assert control over the workers, or interfere with American’s performance obligations to Velotta. In sum, Allstate had no control over the workers, such that it could be considered their employer.
Two lessons emerge from the above. First, energetic lawyering can make a difference. The ALJ’s decision was plausible, but Allstate and its attorneys did not accept its superficial analysis. Allstate was able to overcome adverse evidence (e.g., the express identification of the workers as Allstate’s employees in the agreement) to obtain the correct result.
The other lesson is that however a joint venture or other agreement might be structured on paper, for OSHA purposes the “employer” is the entity that controls the workers at the site. If parties to an agreement want a particular party to have (or to share) responsibility for OSHA compliance, that party should be vested with control over workers at the site, assigned bona fide responsibilities in respect of the provision of safety training and equipment to the employees, or be given other indicia mentioned in Darden, as mere recitation, in the agreements governing the project, as a party responsible (or co-responsible) for OSHA compliance probably will not suffice.
Thomas H. Welby is a licensed professional engineer, as well as an attorney and managing partner of Welby, Brady & Greenblatt, LLP, a construction law firm with its main office in White Plains. Articles in this series are for general guidance only, and should not be relied upon as providing all information necessary for compliance with OSHA and other legal requirements.