July 01, 2007

Loaning Employer Denied Reimbursement from Borrowing Employer Because of an “Agreement to the Contrary”

July 01, 2007

Loaning Employer Denied Reimbursement from Borrowing Employer Because of an “Agreement to the Contrary”

Surestaff, Inc. v. Azteca Foods, Inc No. 01-06-1994

Customarily, the respective liabilities of loaning and borrowing employers are determined by agreement. Most loaning employers are day labor services. Even in the absence of an agreement, most borrowing employers tend to expect that the labor services provide workers’ compensation benefits. On rare cases, the loaning employer, after paying the benefits, will seek to impose the liability on a borrowing employer, often to the borrower’s great surprise. Such a situation arose in the recent case of Surestaff, Inc. v. Azteca Foods, Inc.

At the time of Rodrigo Mina’s hand injury, he was employed by Surestaff, a temporary employment agency, which provided labor to Azteca Foods, Inc. pursuant to an oral agreement. Under Section 1(a)(4) of the Workers’ Compensation Act, Surestaff was the “loaning employer” and Azteca was the “borrowing employer.” Surestaff paid the benefits and later filed suit, seeking reimbursement from Azteca. Azteca responded by raising an affirmative defense contending that there existed an “agreement to the contrary” which had been entered into by the parties in that “Surestaff orally agreed to be responsible for the workers’ compensation coverage for the temporary workers it provided.” Section 1(a)(4) of the Act provides, in relevant part:

Where an employer operating under and subject to the provisions of this Act loans an employee to another such employer and such loaned employee sustains a compensable accidental injury in the employment of such borrowing employer and where such borrowing employer does not provide or pay the benefits or payments due such injured employee, such loaning employer is liable to provide or pay all benefits or payments due such injured employee under this Act and as to such employee the liability of such loaning and borrowing employers is joint and several, provided that such loaning employer is in the absence of agreement to the contrary entitled to receive from such borrowing employer full reimbursement for all sums paid or incurred pursuant to this paragraph together with reasonable attorneys’ fees and expenses***. (Emphasis added)

The sole issue at trial was whether Azteca could establish the existence of an “agreement to the contrary” by which Surestaff’s right to reimbursement had been waived. The jury instruction provided in relevant part:

In this case the defendant has asserted the affirmative defense that Surestaff and Azteca Foods, Inc. made an agreement that Surestaff would pay workers’ compensation benefits to injured workers entitled to benefits that were loaned by Surestaff, Inc. to Azteca Foods, Inc. The defendant has the burden of proving this affirmative defense.

The jury returned a verdict in favor of Azteca and found by special interrogatory that the parties had agreed Surestaff would provide workers’ compensation benefits for its loaned employees injured at Azteca’s job sites.

On appeal, Surestaff argued that the trial court should have instructed the jury that in order to avoid liability, Azteca had to prove:

Surestaff, in contracting with the defendant, had made an agreement to the contrary, agreeing to waive its right to reimbursement from Azteca for any workers compensation benefits paid out by Surestaff.

In affirming the jury decision, the court stated:

We find no basis to conclude that the parties were required to refer to the Act or any specific language contained therein in order for the jury to find there was an agreement to the contrary. The case law and a plain reading of the statute support the trial court’s conclusion that if there was an oral agreement whereby Surestaff agreed to pay the workers’ compensation benefits for its loaned employees, then there was an “agreement to the contrary,” which waived its right to reimbursement as a matter of law. A specific reference in the parties’ agreement to the Act or the phrase “waiver of the right to reimbursement” would be ideal for determining intent, but it is not required in order for a trier of fact to determine whether there was an agreement to the contrary.

Editor’s Note: As noted, the court did not require any specific language as to the waiver. The oral statement by Surestaff that it had insurance was considered to be “an agreement to the contrary.” Despite this finding, your Editor would recommend that any borrowing employer obtain a written commitment from the loaning employer that the loaning employer would carry workers’ compensation on all “loaned employees” protecting the borrowing employer, as well as the loaning employer.

Surestaff, Inc. v. Azteca Foods, Inc. No. 01-06-1994, decided June 26, 2007

Frank J. Wiedner, Editor Wiedner & McAuliffe, Ltd One North Franklin, #1900 Chicago, IL 60606 (312) 855-1105