Assignment argument lacks merit in face of subcontractor dispute

In Louisiana, where a general contractor has contracted to perform work and subcontracts all or a portion of the work to another entity in exchange for a portion of the proceeds, that agreement is a classic subcontracting arrangement, not an assignment.

Case name: Groover, et al. v. Scottsdale Insurance Co., et al., No. 08-31051 (5th Cir. 10/30/09).

Ruling: The 5th U.S. Circuit Court of Appeals held that the workers' compensation scheme shielded the companies from tort liability and affirmed summary judgment for the companies.

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What it means: In Louisiana, general contractors are usually exempt from work-related tort liability to a subcontractor's employee. Where a general contractor has contracted to perform work and subcontracts all or a portion of the work to another entity in exchange for a portion of the proceeds, that agreement is a classic subcontracting arrangement, not an assignment, and will be governed by the workers' compensation law.

Summary: After Hurricanes Katrina and Rita, a Louisiana parish hired a general contractor to assist with cleanup. The contractor subcontracted demolition and debris removal and tree services. A tree cutter died when his equipment contacted a power line. His family sued the companies for civil liability. The companies argued the family's recovery was limited to workers' compensation. The 5th Circuit affirmed the grant of summary judgment for the companies. The court pointed out that general contractors are typically required to pay only workers' compensation to a subcontractor's employee who is injured on the job. It rejected the family's argument that the relationship between the general contractor and other companies was an assignment rather than a subcontracting agreement. It noted the plain language of the contract between the companies did not represent a contract of sale, as required for an assignment, but was a classic subcontracting agreement. It held the companies were shielded by the workers' compensation law.

The court noted a general contractor is considered to be a subcontractor's "employer" in two situations. In this case, the general contractor was hired by the parish to perform a service. In order to fulfill its obligation to the parish, the contractor entered a second contract with another company for work to be performed. Thus, contrary to the family's argument, the contractor did not sell its interest in the contract to a subcontractor but instead agreed to pay the subcontractor a percentage of the proceeds received from the parish in exchange for the subcontractor's performance of the work under the contract. Therefore, the general contractor operated as the employer, and the family was limited to pursuing remedies under the workers' compensation scheme.

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January 4, 2010

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