Scott v. Edwards Transportation Co.

807 S.W.2d 75, 1991 Mo. LEXIS 41, 1991 WL 51111

• Court: Supreme Court of Missouri
• Decided: April 9, 1991
• Docket: 72916
• Status: Published

Opinions

HOLSTEIN, Judge.

Claimant Jackie W. Scott sought workers’ compensation from Medwick Johnston and Edwards Transportation Company, Inc. (Edwards). The Labor and Industrial Relations Commission (Commission) affirmed the administrative law judge’s award of compensation against Johnston and a denial of the claim against Edwards. Scott and Johnston appealed to the Missouri Court of Appeals, Southern District. Following opinion, this Court granted transfer. Rule 83.03; Mo. Const, art. V, § 10. Affirmed.

In a single point, Scott asserts that under the facts of this case he should be deemed a statutory employee of Edwards. Johnston’s brief on appeal claims 1) he was not individually bound by an election of the “Rainbow Buildings” partnership to be subject to the Workers’ Compensation Act, and 2) he did not have a sufficient number of employees to be an employer as defined in the Act.

As the issues are presented, appellate review is limited to questions of law and whether the award is supported by sufficient competent evidence in the record. Section 287.490.1.¹ In reviewing fact questions, this Court considers the evidence in the light most favorable to the findings of the Commission. Sellers v. Trans World, Airlines, Inc., 752 S.W.2d 413 (Mo.App.1988).

On April 22, 1987, Scott was helping construct a partially completed steel frame building when he fell from the roof and sustained severe injuries. Scott had been employed by Medwick Johnston. The property on which the building was being constructed was owned by Edwards.

On March 19, 1987, Edwards accepted a bid of Medwick Johnston submitted on a proposal form of Rainbow Buildings. According to the proposal, Rainbow Buildings undertook to provide the labor and materials to construct a building for Edwards for a set price. Next to the printed words “authorized signature” appears the signature of Medwick Johnston. Johnston was the only person with whom Edwards negotiated the contract. To the left of Johnston’s signature was a declaration that “Our workers are fully covered by Workmen’s Compensation Insurance.”

Sometime prior to entering into the contract, Johnston had been in business with Fred Storey, doing business as Rainbow Buildings. On October 22, 1985, certificates were filed with the Division of Workers’ Compensation reflecting the purchase of workers’ compensation insurance by Johnston and Storey, doing business as Rainbow Buildings. Neither Johnston nor Storey rescinded any acceptance of the Workers’ Compensation Act. Johnston testified that he had ceased doing business with Storey several months prior to April 22,1987. The insurance had expired by the date of Scott’s injury.

Edwards is a trucking company in the business of hauling goods for hire. Edwards was not engaged in the business of constructing, repairing or demolishing buildings.

During the course of construction and prior to Scott’s injury, Johnston had employed six or seven different persons. However, there is no evidence that Johnston had more than four employees working for him at any one time on or prior to April 22, 1987.

On this evidence, the Commission concluded that Edwards was not a statutory employer of Scott pursuant to § 287.040. Thus, Edwards was held not to be liable.

The Commission found two grounds justifying an award against Johnston. The first was that, notwithstanding the dissolution of the partnership,

Johnston, by his actions, intended to be covered by the Act. He used a bid form which stated he was covered by the Act. Johnston continued in the same type of business as that engaged in by the partnership, building steel buildings. He held himself out as “Rainbow Builders” [sic] by using the same bid forms as the partnership had used and represented he was covered under the Act.

The second basis was that Johnston employed a total of six or seven employees during the course of the construction, thus attaining the threshold number of employees to qualify as an employer under the Act.

I.

Scott’s appeal takes issue with the Commission’s application of § 287.040 to these facts. The relevant portion of the statute provides:

1. Any person who has work done under contract on or about his premises which is an operation of the usual business which he there carries on shall be deemed an employer and shall be liable ... to such contractor ... and their employees, when injured or killed on or about the premises of the employer while doing work which is in the usual course of his business.

Scott seizes on certain facts to assert that Edwards was acting as a general contractor on its premises, and is thus liable as a statutory employer pursuant to § 287.040.1.² The facts relied on are that Edwards contracted separately for electrical work, directed the “roughing in” of plumbing, did part of the finish work, had a representative regularly checking the work, supplied the financing and exchanged employees with Johnston. As Scott would have the Court construe § 287.040.1, any landowner who engages a contractor to perform part, but not all, of the work on a project is in the usual business of a general contractor. That reading of the words “usual business” is extremely broad and is not supported by the Missouri cases construing the statute.

Scott cites four cases that he claims support his argument, Viselli v. Missouri Theatre Bldg. Corp., 361 Mo. 280, 234 S.W.2d (1950); Tokash v. General Baking Co., 349 Mo. 767, 163 S.W.2d 554 (1942); Shaver v. First Union Realty Management, Inc., 713 S.W.2d 297 (Mo.App.1986); and Ratliff v. Cargill, Inc., 680 S.W.2d 233 (Mo.App.1984).

In Viselli, the corporate owner of a commercial building contracted to have windows washed. This Court held an employee of the window washing service was a constructive employee of the corporation that owned and managed the commercial building. It was stipulated that a window cleaning service was an integral and necessary part of the maintenance and operation of the corporation’s commercial building business. 234 S.W.2d at 566.

Shaver is factually similar to Viselli. There the corporation owned and managed commercial real estate. The claimant was an employee of a separate corporation that had contracted with the owner to maintain a commercial building. The claimant was a maintenance engineer and was checking on the operation of a sump pump when he was injured. Under those “essentially undisputed” facts, the claimant was held to be a statutory employee of the owner. 713 S.W.2d at 300.

In Ratliff, the court held that an employee of a pest control company was a deemed employee of the owner of a feed manufacturing plant. There it was admitted that decontamination of the plant was part of the feed manufacturer’s usual and essential manufacturing process. 680 S.W.2d at 234.

In Tokash, a baking company regularly employed a painter who, at the direction of the baking company manager, hired a second painter to assist in painting the exteri- or of the baking company building. The second painter was injured on the job. The holding in Tokash was that the injured painter was under the control of the baking company and was an actual employee of the company, not merely a constructive employee by operation of the statute. 163 S.W.2d at 556.

In the first three cases relied on, it was admitted, stipulated or undisputed that the independent contractor’s employee was engaging in some duty or activity that was routinely performed in the operation of the owner’s usual business. None of those cases involved the construction of an entirely new building. The fourth case, To-kash, did not involve the application of § 287.040. The cases do not support Scott’s argument.

There is no infallible test for determining if a particular act by a contractor’s employee was part of the landowner’s usual business. However, the facts must show that the work included some duty or activity routinely performed in the operation of the owner’s usual business conducted on the premises. McGuire v. Tenneco, Inc., 756 S.W.2d 532, 535 (Mo. banc 1988). The facts of this case do not mandate a finding that in the usual course of operating its trucking business on its premises, Edwards routinely constructed buildings. On the contrary, the Commission could and properly did conclude that construction of the building was merely incidental or ancillary to the trucking business. Under such circumstances, the decision of the Commission will not be disturbed. Viselli, 234 S.W.2d at 566; Saale v. Alton Brick Co., 508 S.W.2d 243, 248 (Mo.App.1974); Scott v. Morrison Truck & Tractor Co., 422 S.W.2d 353, 357 (Mo.App.1967); Morehead v. Grigsby, 234 Mo.App. 426, 132 S.W.2d 237, 241 (1939). Scott’s point on appeal is without merit.

II.

In Johnston’s brief on appeal, he claims not to have been acting as a partner in Rainbow Buildings, but in his individual capacity when he entered into the contract with Edwards and employed Scott. Relying on Crall v. Hockman, 460 S.W.2d 668 (Mo. banc 1970), Johnston argues that for workers’ compensation purposes, individual employees of one of the partners are not attributable to the partnership, because the partnership is treated as a separate employing entity. Thus, the election to accept the provisions of the Workers’ Compensation Act by the “Rainbow Buildings” entity was not binding on him individually.

Johnston correctly points out that Brother v. Van Alstine, 236 Mo.App. 1233, 163 S.W.2d 109 (1942), relied on by the Commission in its decision, has been overruled by Crall. The question then becomes whether Crall is controlling here. If the Commission’s result is correct on the law and supported by substantial competent evidence, this Court must affirm.

The relevant statutes are §§ 287.030 and 287.090. The word “employer” is defined by § 287.030.1 as:

(1) Every person, partnership, association, corporation, trustee, receiver, the legal representatives of a deceased employer, and every other person ... using the service of another for pay;

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(3) Any of the above defined employers must have five or more employees to be deemed an employer for the purposes of this chapter unless election is made to become subject to the provisions of this chapter as provided in subsection 2 of section 287.090_

Certain employments are exempted from the workers’ compensation law by § 287.090.1, including those employments where the employer has no more than four employees. However, § 287.090.2 provides:

Any employer in this section exempted under subsection 1 of this section may bring himself within the provisions of this chapter by filing with the division notice of his election to accept the provisions, or by the purchasing and accepting by the employer of a valid compensation insurance policy.... The election shall take effect and continue from the date of filing with the division by the employer of his election to accept liability under this chapter, or from the effective date of the insurance policy. Any employer electing to become liable under this chapter may withdraw his election by filing with the division a notice that he desires to withdraw his election, which withdrawal shall take effect thirty days after the date of the filing....

In Crall v. Hockman, supra, this Court was confronted with facts distinguishable from those presented now. Hockman and Wallace were in a partnership business. In a transaction unrelated to the business, Crall was hired by Wallace to set tile in a home being built by Wallace and his wife. Crall was injured on the job and filed a claim against the partnership. Even though Missouri partnership law follows the aggregate rather than the entity theory, the Court construed § 287.030.1 in such a way that an individual partner is treated as a separate employing entity from the partnership for the purpose of attributing the number of employees to a particular employer. Id. at 670. The Court relied on Kalson v. Industrial Comm’n, 248 Wis. 393, 21 N.W.2d 644 (1946). As will be more fully discussed below, Crall has been distinguished, explained or otherwise limited more often than followed since it was decided.

No specific language in the workers’ compensation law creates a legal entity, separate from its owners, known as a partnership. That entity was created by this Court through the process of judicial construction. It is altogether appropriate for this Court to circumscribe the parameters within which the separate entity concept will be recognized. The mere utterance of a rule by our predecessors does not mandate the blind application of the rule, unrestrained by reason and justice.

In this case, Medwick Johnston and Fred Storey, doing business as Rainbow Buildings, voluntarily elected to accept the provisions of the Workers’ Compensation Act “by the purchasing and accepting ... of a valid compensation insurance policy.” § 287.090.2. Although Johnston and Sto-rey ceased doing business together, Johnston continued to engage in the same business (construction of frame buildings), used a partnership form, entered into a contract using the partnership name, represented to the other party to the contract that “our workers”³ were covered by workers’ compensation insurance, and thereafter employed Scott to perform work under the contract. Such facts were not present in Crall.

The facts peculiar to this case present a different question. The issue here is whether circumstances exist justifying a finding that Johnston and the “Rainbow Buildings” partnership were a single employing entity so that the election to accept provisions of the act are binding on Johnston.

The courts and the legislature have not consistently applied the separate employing entity concept when dealing with partnerships in the context of the Workers’ Compensation Act. For example, when a partner is paid a salary for performing duties for a partnership and is injured on the job, it is generally held that the individual partner is not a separate entity from the partnership and thus may not recover as an employee. Larson, Workers’ Compensation, § 54.31 (1990); Chambers v. Macon Wholesale Grocer Co., 334 Mo. 1215, 70 S.W.2d 884, 887 (1934).⁴ Partners are by statute denied benefits for injuries sustained while engaged in the partnership business, absent an individual election to procure insurance coverage. § 287.035. An employee injured on the job may not maintain an action for negligence against the individual partner. Notwithstanding the holding in Crall, the partners and the partnership are not separate employing entities under such circumstances and the employee’s exclusive remedy is under the Workers’ Compensation Act. Anderson v. Steurer, 391 S.W.2d 839, 843 (Mo.1965); Rhodes v. Rogers, 675 S.W.2d 107, 109 (Mo.App.1984).

Another situation has arisen in which courts have generally refused to recognize the individual partner as a separate employing entity under the Workers’ Compensation Act. The most recent example was Waller v. Keene, 276 Md. 605, 349 A.2d 628 (1976), a case with facts analogous to those now under consideration. The Maryland Workers’ Compensation Law defined employer in nearly the same language as § 287.030.1.⁵ Pauza, a carpentry contractor, obtained a policy of workers’ compensation insurance as an individual employer. Thereafter, he entered into a partnership called A & L Contractors, which in turn employed Keene to work on a carpentry project for the partnership. Keene was injured. The question on appeal was whether Pauza’s individual workers’ compensation insurance carrier was liable on Keene’s claim. The court distinguished Crall and Kalson on their facts because those cases involved two separate and dissimilar businesses. Quoting David v. David, 161 Md. 532, 537-38, 157 A. 755, 757 (1932), the court said:

It cannot be denied that in some respects and for some purposes a partnership may be regarded as a legal entity and it has been so held by this court.... But it is equally well settled that it is not such an entity as is a natural person or a corporation, and that its status as an independent entity is limited and incomplete....

349 A.2d at 631. “Because A & L was simply an extension of the business which Pauza had been conducting, we find no reason to justify the notion that A & L should be regarded as a separate entity here ...” Waller, 349 A.2d at 631. In accord, see U. S. Fidelity & Guaranty Co. v. Collins, 231 Miss. 319, 95 So.2d 456 (1957); and Reed v. Industrial Accident Comm’n, 10 Cal.2d 191, 73 P.2d 1212 (1937).

Assuming that Rainbow Buildings is treated as an entity separate from the individual partners, a question arises as to how such entity is terminated. Although the parties do not raise the issue in their briefs, it is suggested that pursuant to the partnership statutes, a division of assets between the partners terminates the partnership. Missouri’s version of the Uniform Partnership Act, Chapter 358 RSMo, does not recognize a partnership as a legal entity separate from the individual partners. Therefore, it is illogical to rely on strict rules of the partnership act as a basis for terminating the existence of a fictional entity which the act never created. The only business enterprise known to our jurisprudence having an existence separate from its owners is the corporation.

Generally, corporations are treated as distinct entities from their stockholders and managing officers. Adelstein v. Jefferson Bank & Trust Co., 377 S.W.2d 247, 251 (Mo.1964). But the corporate entity has. been disregarded under the Workers’ Compensation Act in some instances. A corporate officer who was found to be both chief executive officer and majority owner in actual control of corporate operations was held not to have the status of an employee under the Workers’ Compensation Act. Soars v. Soars-Lovelace, Inc., 346 Mo. 710, 142 S.W.2d 866, 869 (1940).⁶

An instructive case on the question presented here is found in Humphries v. Bray, 271 Ark. 962, 611 S.W.2d 791 (1981). In that case, Humphries employed Bray to work in his service station. Humphries was the owner and manager of two other businesses, one of which was incorporated. Only one other employee worked in the service station business, but by adding up the employees of all three of the businesses, Humphries had five employees. Hum-phries argued on appeal that under the decisions in Crall and Kalson, the employees of the corporation could not be counted as his individual employees. The court examined the manner in which Humphries had operated the three businesses and noted that the evidence reflected that for all practical purposes, the three businesses had been conducted as one. The court concluded that under such circumstances, it was appropriate to ignore the corporate entity and treat all the employees as those of Humphries. 611 S.W.2d at 793. See also Saf-T-Cab Service v. Terry, 167 Md. 46, 172 A. 608 (1934).

If this were a case in which Johnston had treated his individual business and the partnership business as separate entities in form and practice, Crall might be controlling. However, Johnston continued to engage in the same business as had the partnership, entered into a contract using the partnership name and represented in the contract that employees were covered by workers’ compensation insurance. Claimant was employed to carry out duties under that contract. In sum, Johnston treated his individual business as a mere extension and continuation of the partnership business. The net effect of Johnston’s conduct was to merge the partnership entity with his individual business, so that the two became one. That Johnston and Rainbow Buildings had become a single entity is reiterated by the understanding of Edwards. As he put it in a concise and common sense way at the hearing, “I thought Rainbow Buildings was Mr. Johnston.” The fiction that a partnership is a separate employing entity from the individual partners will not be honored for the benefit of an employer who has, by words and conduct, disregarded the separateness of the businesses in which he engages.

Johnston also argues that absent proof that he hired employees during the period for which the insurance was written, the fact that a policy was obtained did not constitute an election. In support of that argument he cites Chilton v. Thum, 631 S.W.2d 74 (Mo.App.1982). Chilton contains such language. However, the statute is quite clear that “purchasing and accepting” the insurance policy is all that is necessary to demonstrate an election. Nothing in the statute suggests that hiring an employee before allowing the insurance policy to expire is essential to the election, or that failure to do so constitutes a withdrawal of the election. Therefore, no evidence that an employee was hired during the term of the policy is required to establish the election. It is noteworthy that Chilton did not rely entirely on an erroneous reading of § 287.090.2 to achieve its result. It also relied on Wilkerson v. Potashnick, 226 S.W.2d 402 (Mo.App.1950), in which it was determined that an individual’s election to accept the act in one business was not effective many years later with respect to a different business engaged in by the same individual. To the extent Chilton is inconsistent with this decision and inconsistent with the plain language of § 287.090, it is overruled.

Because the first issue raised in Johnston’s brief is dispositive of his appeal, the Court need not address the second question, in which he takes issue with the determination that he had more than four employees. The award of the Commission is affirmed.

BLACKMAR, C.J., RENDLEN and HIGGINS, JJ., and WASSERSTROM, Senior Judge, concur. ROBERTSON, J., concurs in part and dissents in part in separate opinion filed. COVINGTON, J., concurs in part and dissents in part and concurs in concurring in part and dissenting in part opinion of ROBERTSON, J. BILLINGS, J., not sitting.

1 . All references to statutes are to RSMo 1986.

2 . The issue here is distinguishable from that in West v. Posten Construction Co., 804 S.W.2d 743 (Mo. banc 1991). In that case it was clear that the landowner’s usual business was general construction contracting.

3 . Apparently referring to Rainbow Buildings’ employees.

4 . The dissent asserts that Chambers was overruled by Crall. However, the Crall court did not say it overruled Chambers, and if it did so implicitly, enactment of § 287.035 rescinded the overruling.

5 . Maryland Annotated Code Article 101, § 67(2) (1974 Cumulative Supplement) defines employer:

(2) "Employer" means those persons who fall within the requirements of ... this article including a person, partnership, association, corporation, and the legal representatives of a deceased employer, or the receiver or trustee of a person, partnership, association or corporation employing workmen.

6 . The result in Soars is no longer the law due to legislative amendments. See Lynn v. Lloyd A. Lynn, Inc., 493 S.W.2d 363, 366 (Mo.App.1973).