Wells v. Firestone Tire & Rubber Co.

364 N.W.2d 670, 421 Mich. 641

• Court: Michigan Supreme Court
• Decided: February 11, 1985
• Docket: 65372, (Calendar No. 1)
• Status: Published

Opinions

Cavanagh, J.

The facts in this matter appear undisputed and were succinctly stated by the Court of Appeals:

"The defendant, Firestone Tire & Rubber Company (hereinafter 'Firestone’), is an Ohio corporation with its principal headquarters in Akron, Ohio. Firestone has various retail stores around the country, some of which are run as divisions of Firestone while some are wholly owned or majority-owned subsidiary corporations. In Muskegon, Michigan, Firestone has two outlets; one is operated as a division of Firestone, and the second is Muskegon Firestone Auto Supply and Service Stores, located at 925 Terrace Street, Muskegon, Michigan, hereinafter termed 'Muskegon Firestone’. Muskegon Firestone was a wholly owned subsidiary corporation at the time plaintiff’s cause of action arose.

"Plaintiff James Wells worked at Muskegon Firestone and on October 21, 1971, while acting in the course of his employment changing a tube and tire on a truck rim manufactured by Firestone, the rim blew apart, injuring him seriously. Muskegon Firestone was originally a dealership but was set up as a Michigan corporation around 1930. Defendant Firestone purchased most of its assets at that time, allowing the manager to retain a minority stock interest. Defendant Firestone has owned 100% of the stock in Muskegon Firestone since around 1960. At the time of plaintiff’s accident, all of the subsidiary’s directors were employees of defendant. In early 1977, the corporation, Muskegon Firestone, was liquidated and is now run as a retail division of defendant.

"Firestone carried the worker’s compensation coverage for all of the local branches including Muskegon Firestone. Plaintiff filed for compensation citing Firestone as his employer and commenced receiving benefits from Firestone’s insurance carrier, Liberty Mutual Insurance Company, which continue to be paid at this time.

"Plaintiff, subsequent to receiving benefits from Firestone, commenced the instant third-party product liability suit against Firestone. Defendant Firestone moved for summary judgment on the basis that plaintiff was barred from bringing the action against Firestone by the exclusive remedy provision of the Michigan Worker’s Disability Compensation Act of 1969, MCL 418.131; MSA 17.237(131).

"The trial court found that plaintiff was not an employee of defendant Firestone but of the separate corporate entity Muskegon Firestone. Summary judgment was denied and leave to appeal to this Court was granted on June 18, 1979.”¹ Wells v Firestone Tire & Rubber Co, 97 Mich App 790, 791-793; 296 NW2d 174 (1980).

We must decide whether plaintiff’s products liability action is barred by the exclusive remedy provision² of the Worker’s Disability Compensation Act.³ That determination necessarily turns on whether an employment relationship existed between plaintiff and defendant. Stated more directly, the question is whether defendant was plaintiff’s employer on the date of injury. In answering this question, we initially must determine what test is to be employed. We find direction from this Court’s decision in Nichol v Billot, 406 Mich 284, 293-294; 279 NW2d 761 (1979):

"Prior to Tata v Muskovitz, 354 Mich 695; 94 NW2d 71 (1959), the only test for determining whether a person was an employee or an independent contractor centered on the question of control. The control theory is the traditional common-law test used to delineate the master-servant relationship. The theory, in its delineation of the servant concept, has for its purpose the definition and delimitation of the scope of the master’s liability under the doctrine of respondeat superior. Because most compensation acts contain no specific definition of the term 'employee’, it was generally taken for granted that the common-law definition of employee, or servant, used for purposes of vicarious tort liability was to be used for purposes of workmen’s compensation laws.

"In Tata v Muskovitz, supra, this Court adopted the dissenting opinion of Mr. Justice Talbot Smith in Powell v Employment Security Comm, 345 Mich 455; 75 NW2d 874 (1956), in which he set forth the economic reality test as the proper guide to relevant interpretation of the workmen’s compensation statute. See, also, Schulte v American Box Board Co, 358 Mich 21; 99 NW2d 367 (1959); Goodchild v Erickson, 375 Mich 289; 134 NW2d 191 (1965); Solakis v Roberts, 395 Mich 13; 233 NW2d 1 (1975); Askew v Macomber, 398 Mich 212; 247 NW2d 288 (1976).”

Following our departure from the common-law control test, this Court has consistently utilized the economic reality test when questions have arisen relative to the existence of an employment relationship. While this Court’s earlier applications of the economic reality test dealt with the distinction between an independent contractor and an employee or, as in Farrell v Dearborn Mfg Co, 416 Mich 267; 330 NW2d 397 (1982), with dual employers in a labor-broker situation, we believe it to be appropriate and consistent to utilize the economic reality test in determining in this case which of two separate corporations, parent or subsidiary, was plaintiffs actual employer for purposes of the Worker’s Disability Compensation Act.

The economic reality test was succinctly described in Farrell, p 276:

"The issue of whether employment exists for purposes of the workers’ compensation law has been frequently addressed by our courts. The standard to be used is the economic reality test, a broad approach which, in the oft-quoted language of Justice Talbot Smith, looks to the totality of the circumstances surrounding the performed work.

" 'Control is a factor, as is payment of wages, hiring and firing, and the responsibility for the maintenance of discipline, but the test of economic reality views these elements as a whole, assigning primacy to no single one.’ Schulte v American Box Board Co, 358 Mich 21, 33; 99 NW2d 367 (1959).

"See, also, Tata v Muskovitz, 354 Mich 695; 94 NW2d 71 (1959); Askew v Macomber, 398 Mich 212; 247 NW2d 288 (1976); McKissic v Bodine, 42 Mich App 203; 201 NW2d 333 (1972); Nichol v Billot, 406 Mich 284; 279 NW2d 761 (1979); Solakis v Roberts, 395 Mich 13; 233 NW2d 1 (1975); Allossery v Employers Temporary Service, Inc, 88 Mich App 496; 277 NW2d 340 (1979).

"The economic reality test looks to the employment situation in relation to the statutory scheme of workers’ compensation law with the goal of preserving and securing the rights and privileges of all parties. No one factor is controlling.”

In this case, the Court of Appeals utilized the economic reality test and reversed the trial court because

"[t]he evidence indicates that while Muskegon Firestone was a separate corporate entity at the time plaintiffs cause of action arose, its operation was the same as the other retail divisions. The local store branch managers belonged to a program whereby they participated in the store’s profits or losses; they ordered inventory from defendant on consignment and purchased some items outside the company for resale. The other retail store and Muskegon Firestone were both listed in the local telephone directory as divisions of Firestone. All dollar accounting was handled by the central accounting office of defendant. Local store managers did not issue company checks; they deposited all money in bank accounts in defendant’s name. The local store managers received monthly profit and loss statements regarding their individual stores.

"Defendant calculated the expenses of each store in order to determine its annual operating profit or loss. Expenses charged to the stores included a percentage for worker’s compensation insurance rates and other expenses attributable to payroll, rent, maintenance, etc.

"The evidence further indicated that the employees of Muskegon Firestone were under the supervision of defendant and subject to the rules and regulations thereof. The common practice, however, was for the local managers to do the hiring and firing. Certain of defendant’s employees had the ability to hire and fire the local managers and could, if they chose, hire and fire other local employees. The local store manager acted within the framework of defendant’s regulations. Employees of retail stores did not all belong to the same union as the employees of defendant. In fact, some retail personnel were unionized while others were not. In some cases, retail stores in an entire metropolitan area were organized in the same union regardless of whether they were separate corporations.

"Defendant’s district supervisor, who testified that at the time of plaintiffs injury the employees of Muskegon Firestone were under his supervision and control, denied that retail store employees received different treatment depending on whether the store was a division or a separate corporation. In fact, all the retail employees were entitled to participate on the same basis in defendant’s hospitalization and retirement benefit programs and other fringe benefits.

"Muskegon Firestone filed a separate corporate income tax return and issued its own W-2 forms to plaintiff and its other employees. However, all of these forms were processed at defendant’s central tax department. Employees of Muskegon Firestone received paychecks from defendant through its central accounting office. Records of employment relating to plaintiff and other retail store employees were kept and administered by the personnel department of defendant Firestone.

"In balancing all of these factors for the purpose of applying the economic reality test, we find that defendant Firestone was plaintiff’s employer within the meaning of the Worker’s Disability Compensation Act of 1969. Therefore, the trial judge erred in refusing to grant defendant’s motion for summary judgment on the ground that plaintiff’s exclusive remedy is under the Worker’s Disability Compensation Act.” Wells, supra, pp 794-796.

Our balancing of those same factors persuades us that the Court of Appeals correctly applied the economic reality test to the facts of this case. However, further comment is warranted because the result, in effect, is a "reverse-piercing” of defendant’s corporate veil.

We recognize the general principle that in Michigan separate entities will be respected. See Klager v Robert Meyer Co, 415 Mich 402; 329 NW2d 721 (1982), Finley v Union Joint Stock Land Bank of Detroit, 281 Mich 214; 274 NW2d 768 (1937), and Gledhill v Fisher & Co, 272 Mich 353; 262 NW 371 (1935).

However, the fiction of a distinct corporate entity separate from the stockholders is a convenience introduced in the law to subserve the ends of justice. When this fiction is invoked to subvert justice, it is ignored by the courts. Paul v University Motor Sales Co, 283 Mich 587, 602; 278 NW 714 (1938). This of course means that, in general, even though Firestone is the parent company of Muskegon Firestone, its separate existence will be respected, unless doing so would subvert justice or cause a result that would be contrary to some other clearly overriding public policy. See, e.g., Cinderella Theatre Co, Inc v United Detroit Theatres Corp, 367 Mich 424; 116 NW2d 825 (1962).

Although traditionally the doctrine of "piercing the corporate veil” has been applied to protect a corporation’s creditors, or other outsiders, where the corporate entity has been used to avoid legal obligations, People ex rel Attorney General v Michigan Bell Telephone Co, 246 Mich 198; 224 NW 438 (1929), Michigan courts have recognized that it may be appropriate to invoke the doctrine for the benefit of a shareholder where the equities are compelling. See, e.g., Montgomery v Central National Bank & Trust Co of Battle Creek, 267 Mich 142; 255 NW 274 (1934).

Our disregard of the separate corporate entities of Firestone and its wholly owned subsidiary is premised upon our recognition of the important public policies underlying the Michigan Worker’s Disability Compensation Act and our belief that a contrary determination would be inequitable under the facts of this case. The statutory workers’ compensation scheme was enacted for the protection of both employees and employers who work and do business in this state. The system assures covered employees that they will be compensated in the event of employment-related injuries. In addition, employers are assured of the parameters of their liability for such injuries. By agreeing to assume responsibility for all employment-related injuries, employers protect themselves from the possibility of potentially excessive damage awards. In order to effectuate these policies, the statute has been liberally construed to provide broad coverage for injured workers. See, e.g., Farrell v Dearborn Mfg Co, supra.

If the statute is to be construed liberally when an employee seeks benefits, it should not be construed differently when the employer asserts it as a defense to a tort action brought by the employee who claimed and accepted benefits arising from that employment relationship. There is absolutely no evidence that defendant maintained Muskegon Firestone for the purpose of insulating itself from its workers’ compensation liabilities. Defendant supplied workers’ compensation benefits through its insurance company and accepted responsibility for the work-related injuries of its Muskegon employees. Indeed, under the facts and circumstances of this case, we would not have permitted Firestone to shield itself behind its wholly owned subsidiary in order to avoid payment of workers’ compensation benefits to plaintiff. Cf. Williams v Lang (After Remand), 415 Mich 179; 327 NW2d 240 (1982).

It is also significant that plaintiff did not rely upon the corporate distinction between Firestone and Muskegon Firestone. In fact, plaintiff disregarded this distinction when he asserted that Firestone was his employer for the purpose of obtaining workers’ compensation payments. Plaintiff should not now be permitted to deny the relationship which he asserted and upon which Firestone relied in assuming responsibility for payment of workers’ compensation benefits.

Plaintiff also argues that his cause of action is not barred by the exclusive remedy provision of the Worker’s Disability Compensation Act because his injuries did not arise out of the employment relationship. He maintains that more than one type of relationship existed between himself and defendant at the time he was injured. We reject this attempt to apply the so-called "dual-capacity doctrine.”⁴_

The dual-capacity doctrine recognizes that an employer can, under certain circumstances, occupy a status other than that of an employer with respect to his employee. See, e.g., Mathis v Interstate Motor Freight System, 408 Mich 164, 184; 289 NW2d 708 (1980). However, the doctrine is applicable only in those situations where the employer has a second identity which is completely distinct and removed from his status as employer.

This fundamental requirement for the application of the dual-capacity doctrine is set forth in 2A Larson, Workmen’s Compensation Law, § 72.81, p 14-229:

"An employer may become a third person, vulnerable to tort suit by an employee, if — and only if — he possesses a second persona so completely independent from and unrelated to his status as employer that by established standards the law recognizes it as a separate legal person.”

The great majority of American jurisdictions have held that an employer who manufactured the injury-causing device cannot be held liable to his employee under a products liability theory. Id., § 72.83, p 14-239. Furthermore, the fact that the injury-causing product was also sold to the public is unimportant:

"What matters is that, as to this employee, the product was manufactured as an adjunct of the business, and furnished to him solely as an employee, not as a member of the consuming public. What the employer does with the rest of his output cannot change this central fact.” Id., § 72.83, p 14-246 (emphasis in original).

We conclude that plaintiff was employed by defendant and was injured while acting in the course and within the scope of his employment. We affirm the judgment of the Court of Appeals.

Williams, C.J., and Ryan and Brickley, JJ., concurred with Cavanagh, J.

1 We note that the motion should have been denominated as one for accelerated judgment, pursuant to GCR 1963, 116.1(2), and it will be treated as one because no prejudice to plaintiff is alleged or apparent. See, e.g., Dagenhardt v Special Machine & Engineering, Inc, 418 Mich 520, 525, fn 3; 345 NW2d 164 (1984); Bednarski v General Motors Corp, 88 Mich App 482, 484, fn 1; 276 NW2d 624 (1979), and the authorities cited therein. We also note that the parties properly stipulated that any factual issues raised by defendant’s motion could be resolved by the trial judge. See GCR 1963, 116.3.

2 MCL 418.131; MSA 17.237(131).

3 MCL 418.101 et seq.; MSA 17.237(101) et seq.

4 The Michigan Court of Appeals has rejected several dual capacity claims and found them insufficient to avoid the exclusive remedy provision in situations factually analogous to the instant case. See Neal v Roura Iron Works, Inc, 66 Mich App 273; 238 NW2d 837 (1975), lv den 396 Mich 841 (1976); Peoples v Chrysler Corp, 98 Mich App 277; 296 NW2d 237 (1980); Bourassa v ATO Corp, 113 Mich App 517; 317 NW2d 669 (1982), lv den 414 Mich 966 (1982); Handley v Wyandotte Chemicals Corp, 118 Mich App 423; 325 NW2d 447 (1982).