Michigan Supreme Court Overrules Court of Appeals Decision Defining “Employee” and “Independent Contractor” Under Pre-2011 Workers Compensation Claims

In an opinion without oral argument being held, the Supreme Court in a 6 to 1 decision reversed the Court of Appeals’ interpretation of MCL 418.161, ruling that an individual must only satisfy one of the three criteria to be considered an independent contractor and not covered by workers compensation.  As explained by the Court, each criterion of MCL 418.161(1)(n) must be satisfied for an individual to be considered an employee; conversely, failure to satisfy any one of the three criteria will exclude an individual from employee status. By requiring that all three statutory criteria be met for an individual to be divested of employee status, the special panel majority’s interpretation ignored the word “not” contained in each criterion.

Read the opinion here:  Auto Owners v. All Star Lawn

Below is also a summary I previously prepared of the Court of Appeals ruling.

In  a published decision, Auto Owners Ins Co v. All Star Lawn, et alAuto Owners Ins Co v. All Star Lawn, et al, the Court of Appeals concluded 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 held 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 was 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 did 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, (734) 218-3605.

About cjtucker06

Owner of law firm since July 2014; Handles all types of appellate matters and assists other lawyers with complex litigation and insurance coverage issues; Admitted to the Supreme Court of the United States, the Sixth Circuit Court of Appeals and the State Bar of Michigan; Expertise in prosecuting and defending appeals with several significant successes in the Sixth Circuit Court of Appeals, the Michigan Supreme Court and the Michigan Court of Appeals; Author of briefs amicus curiae in the Michigan Supreme Court for the Michigan Defense Trial Counsel and the Insurance Institute of Michigan; Represents Insurance Companies, Major International Business, Governmental Entities, Law Enforcement Officers and County Sheriffs. Board of Directors, Michigan Defense Trial Counsel Amicus Committee Co-Chair, Michigan Defense Trial Counsel Military - Retired Major in the Judge Advocate General (JAG) Corps of the United States Army, Brigade Judge Advocate and Staff JAG officer for the Maneuver Training Center, Camp Grayling, Michigan; Recipient of the Army's Meritorious Service Medal (the highest medal of honor available to Soldiers serving in non-combat roles); 2012 Graduate of the Judge Advocate Officer Advanced Course, at The Judge Advocate Legal Center and School, Charlottesville, Virginia. United States Navy Reserves, Combat Warfare Qualification, January 1989 to July 2003 Former law clerk to Justice Stephen J. Markman, Michigan Supreme Court, Research Attorney, Michigan Court of Appeals. Insurance Coverage Associate Plunkett Cooney; Environmental Law Attorney at Squire Sanders, now Squire Patton Boggs; Master's Degree in Environmental Law; Environmental Law Scholar, ALI/ABA Washington, D.C., Juris Doctorate, Vermont Law School, Environmental Editor, Vermont Law Review; Treasurer and Finalist, Moot Court Advisory Board.
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