Horse-Trading Employees: One Company’s Liability for the Operations of Another Company and Unexpecte
It is very common for corporate groups or joint ventures to “lend” employees from one company to another to meet certain temporary demands on resources. The borrowing company usually pays the employee wages (either in the joint venture name or the borrowing company’s name) and, ideally, a papering of the transaction has been done somewhere with human resources. But what if that employee is terminated from the project? Or… what if that employee negligently causes damage to the project or injures someone? The damage might be insured, and insurance might payout on the claim, but that doesn’t mean the insurer won’t be looking to the lending company to get reimbursed, which is exactly what happened in Shamac Country Inns. Ltd. V. Sandy’s Oilfiled Hauling Ltd. et al, ABQB 518 (“Shamac”). In Shamac, the plaintiff and defendants were all related companies of the same corporate group. The plaintiff was a plaintiff due to an insurance company attempting to enforce alleged subrogated rights against the other corporate entities after a worker of one of the corporations. The worker negligently started a fire in a building that was covered by an insurance policy held by the plaintiff. The de facto employer of the worker was an issue in the case, being was the worker a “borrowed” employee or a “common” employee. After paying out on the policy, the insurance company turned to the worker (and the defendant through vicarious liability) to recover its payout amount under, what the insurance company claimed, were its subrogation rights. Simplified: a worker had a technical association with one of a group of companies (payroll and benefits – call it Company A), but did handyman work for all of them. The worker was doing work for another company under the same corporate umbrella (say, Company B – the Plaintiff in this case) at the time he negligently started a fire. Company B was the insured, so the insurer was attempting to recover from Company A just like it would against any other third party. The Court held that the worker was a common employee of the plaintiff and the defendants, noting factors such as that the worker would do handyman work for various buildings owned by different companies within the group, he would receive instructions from different companies and the nature of the industry (hospitality) gave rise to a common employee working for the group as a whole. Of particular importance, however, is that, had the facts themselves been different, one of the corporations of the same corporate group could have had to indemnify the insurance company for another one of its corporate group’s loss, meaning that, despite the insurance policy, the corporate group (and ultimately the shareholder’s pockets) were self-insuring. Some points to note from Shamac are:
Make sure all of the group of companies are named or unnamed insureds – examine the policy, certificate of insurance and discuss with your insurance broker and legal counsel;
When temporarily transferring workers to other entities, especially unrelated entities, be very clear about which party will be liable for that workers actions and supervision in the transfer contract;
Similarly, in the joint venture context, be very clear about the obligations of, and the liability arising from, “borrowed” workers in the joint venture agreement.
Please contact Corey Sandquist at Sandquist Law & Construction Project Consulting to discuss options for the temporary transfer of workers to other entities, potential liability that can arise and options to help protect your group of companies.