Court of Appeals Holds All Three Criteria in MCL 418.161(1)(n) Must Be Met Before a Person Can Be Considered an “Independent Contractor” as “Opposed to an Employee” Under Workers’ Compensation Insurance Policy

In  a published decision released yesterday, Auto Owners Ins Co v. All Star Lawn, et al Auto Owners Ins Co v. All Star Lawn, et al, the Court of Appeals concludes that all three criteria in MCL 418.161(1)(n) of the Workers Disability Compensation Act (WDCA) must be met before a person can be considered an “independent contractor” as opposed to an “employee” subject to the provisions and protections of the WDCA.

MCL 418.161(1) defines, in relevant part, “employee” as:  (l) Every person in the service of another, under any contract of hire, express or implied . . . .  Subsection (1)(n) further provides “Every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service [1] does not maintain a separate business, [2] does not hold himself or herself out to and render service to the public, and [3] is not an employer subject to [the WDCA]. (brackets added).

The Court holds that since the claimant did not meet all three criteria, he was an employee, rather than an independent contractor and therefore the workers’ compensation insurance carrier was on the risk and the claimant was entitled only to those benefits, as opposed to benefits asserted on claims of liability outside of a workers’ compensation claim, e.g., personal injury claims that could be pursued in circuit court as opposed to in the workers’ compensation agency.   The Court noted that although the claimant met two of the criteria, he could not meet the third, as he could not be considered an “employer” under the act.

The court points out later in its opinion that the criteria are separated by the conjunction “and” rather than the disjunctive “or” and therefore all three criteria are required by the plain language of the statute to be satisfied.

Thus, the general liability insurer did not owe coverage under its policies, as they contained an exclusion if the claimant was covered by workers’ compensation.

This opinion overrules Amerisure Ins Cos v Time Auto Transp, Inc, 196 Mich App 569; 493 N.W.2d 482 (1992), which held that if any of the three criteria were shown the employee could be considered an independent contractor.

This is a conflict resolution case.  In the prior opinion the panel ruled as it did only because prior Court of Appeals precedent (the Amerisure case) required it to do so under Michigan Court Rule (MCR) 7.215(J).  However, the panel requested impaneling a conflict resolution panel by the Court of Appeals to address whether its own holding remains good law in light of Michigan Supreme Court precedent suggesting that a contrary result should now issue. MCR 7.215(J) obligates a Court of Appeals panel to follow precedent in opinions issued by it after November 1, 1990.  MCR 7.205(J)(3) allows the Chief Judge to poll the judges of the Court of Appeals to determine whether the particular question at issue is outcome determinative and warrants convening a special panel to rehear the case for the purposes of resolving the conflict that would have been created but for the provision of subrule (1) (the provision requiring the Court in the issuing opinion to follow prior decisional case law).

This is a favorable decision in instances in which insurers are seeking to absolve their liability policies from the risk, and have the claim sound only under the applicable workers’ compensation insurance policy.  It is not a favorable opinion in instances in which the employer and or workers’ compensation insurance carrier is seeking to prove they do not owe workers’ compensation benefits because the person performing work was allegedly an independent contractor.

Judge Borello, joined by Judge Fort-Hood and Michael J. Kelly, dissents from the majority opinion.  He argues Amerisure should remain good law and that each one of the criteria do not have to be satisfied to consider a person an independent contractor.  Since the Court found the claimant in this case was working for the employer under a contract of hire, did maintain a separate business, and did hold himself out to the public to perform such services, he was an independent contractor.

Judge Borello does not discuss the third criteria, that the claimant must also be considered an “employer” under the act.  That latter term carries with it significant definitional complexity in and of itself under the WDCA and therefore must be analyzed under its own meaning and interpretation.

Practice Note:  The jurisprudential significance of this decision does have a finite shelf life.  The rule enunciated by the Court only applies to cases in which the employment and injury of the individual occurred before January 1, 2013.  Injuries occurring during employment on or after January 1, 2013 are to be considered under a new “test”.  MCL 418.161(1)(n) was amended by 2011 Public Act 266 and now employs the “20-factor test” used by the Internal Revenue Service to determine whether an employer-employee relationship exists in the given case.

If you have any questions about this case and its impact on general liability and workers’ compensation insurance coverage determinations please call Carson J. Tucker, Chair of the Appeals and Legal Research Group at Lacey & Jones, LLP, a Birmingham law firm serving clients since 1912.  Mr. Tucker can be reached at (248) 283-0763.

Throughout its storied history, Lacey & Jones has distinguished itself from other law firms by maintaining a robust Appeals and Legal Research Group.  Effective appellate representation demands different skills than those required by litigation attorneys.  Our appellate attorneys are adept at analyzing the intricacies of each case from an objective and critical perspective.  From reviewing and preparing the lower court record, identifying appealable errors, and developing a strategy to raise issues that will be addressed by appellate courts, our seasoned appellate team is capable of handling the most complex appeals from the application stage to oral advocacy before the highest courts.  Our research abilities and knowledge of current issues in nearly all major subject-matter areas of the law provide our clients with efficient and immediate assistance with complex and high-exposure cases.   We are experienced at navigating through the Michigan Court of Appeals and Supreme Court to shepherd the appeal in the most expeditious fashion possible so that it can be reviewed and quickly ruled upon.  During the last three decades alone, the Appeals and Legal Research Group at Lacey & Jones has been responsible for over 150 published decisions in the Michigan Court of Appeals and Supreme Court, including seminal decisions in workers’ compensation, governmental immunity, employment and labor law, civil rights law and insurance coverage.  Because of its specialized knowledge and focus on appellate law and its recognized expertise, the Appeals and Legal Research Group at Lacey & Jones has been asked to participate as amicus curiae writing briefs for the Supreme Court or as special counsel to the Michigan Attorney General and other governmental entities in some of the most significant cases in the Court of Appeals and Supreme Court.   Below are some of the recent significant cases in which Lacey & Jones, LLP’s Appeals and Legal Research Group has participated.

  • State Farm v. MMRMA, ___ Mich App ___ (2013), amicus curiae for Oakland County in support of MMRMA application, by Carson J. Tucker
  • Hannay v MDOT, ___ Mich ___ 201_), application granted, amicus curiae to be filed for MTA, et al., by Carson J. Tucker
  • Yono v. MDOT, ___ Mich ___ (201_), oral argument on application granted, amicus curiae for Oakland, Macomb and Wayne County filed by Carson J. Tucker in support of the state’s application
  • Huddleston v. Trinity Health, et al., ___ Mich ___ (201_), oral argument on application granted, amicus curiae with Lawrence Garcia, Esq., for MDTC
  • Ashley, LLC v Pittsfield Twp., 494 Mich 875 (2013), application granted, for Pittsfield Township by Carson J. Tucker (resolved by settlement)
  • Bailey v. Schaaf, ___ Mich ___ (2013), amicus curiae for MDTC by Carson J. Tucker
  • Atkins v. SMART, 492 Mich 707 (2012), oral argument on application, Court of Appeals case reversed by opinion, Carson J. Tucker
  • Hagerty v Manistee, 493 Mich 933 (2013), amicus curiae for Michigan Municipal League, et al., by Carson J. Tucker
  • McMurtrie v Eaton Corp, 490 Mich 976 (2011)
  • Findley v DaimlerChrysler Corp., 490 Mich 928 (2011)
  • Brewer v. AD.Transport Express, Inc, 486 Mich 50 (2010)
  • Stokes v Chrysler, 481 Mich 266 (2008)
  • Brackett v Focus Hope, Inc, 482 Mich 269 (2008)
  • Rakestraw v Gen Dynamics, 469 Mich 220 (2003)

Continuing its tradition of providing highly specialized and unique legal services to an exclusive clientele, Lacey & Jones, LLP, also works with insurance companies and businesses to develop comprehensive insurance coverage strategies for all lines of coverage.  From the simplest review (second look) of an in-house counsel’s coverage determination to complete coverage analysis involving high-exposure, multi-party, multi-jurisdiction, multi-claim events, the firm is capable of assisting its clients in making valuable choices and advising them on the proper course of action.  The firm’s coverage counsel and litigation team is also capable of pursuing coverage determinations and indemnity or subrogation in courts by filing declaratory judgment actions or indemnity and subrogation actions, respectively.

Our attorneys have successfully navigated coverage cases in state and federal courts, involving multiple insurers, multiple claimants and multiple forums to arrive at favorable resolutions for our clients in eight figure exposure cases, including, but not limited to, environmental liability claims, construction claims, professional liability claims, catastrophic personal injury claims, and product liability claims.  Our coverage lawyers speak the language of insurers and understand the intricacies of policy coverage involving multiple insurers, multiple policy forms, and multiple layers and years of coverage.

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    • Workers’ Compensation Claims

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