In a recent case in Nevada, San Juan v. PSC Indus. Outsourcing, the Supreme Court of Nevada ruled that companies employing independent contractors are not liable under the "peculiar-risk doctrine" for injuries suffered by the contractor's employees.
The case arose after an explosion killed one employee and injured four others at an industrial plant owned by Depressurized Technologies Inc. (DTI) in Minden, Nev. Philip Services Corp. ("PSC") hired DTI to empty aerosol cans of dangerous gases such as propane and butane that PSC collected from recycling centers. DTI said that it used a machine to automatically decant the aerosol cans its clients collected.
However, DTI secretly ran a manual decanting operation that was faster and more effective in a hidden, enclosed shipping container. The explosion occurred while employees were manually decanting cans in that shipping container. DTI did not have workers' compensation coverage for its employees. The four injured employees, and the family of the one who was killed, received benefits from the Nevada workers' compensation system through a fund set up for employees of companies that have not paid into the state system.
However, the four injured employees and the family of the deceased employee sued PSC, arguing that PSC was liable for DTI's negligence. The general rule, the court noted, is that the company that hires an independent contractor is not liable for physical harm caused by the contractor or its employees. PSC offered evidence that DTI was an independent contractor and that PSC did not exercise control over DTI's employees.
Neither company held an ownership interest in the other and PSC paid DTI on a per-job basis.
The employees argued that PSC was vicariously liable to them under the "peculiar-risk doctrine." That doctrine holds that when an employer hires an independent contractor to do work that the employer should recognize as inherently dangerous, the employer can then be held liable for harm to the independent contractor's employees should the contractor failed to take reasonable precautions against such danger.
The court explained that exceptions such as the peculiar-risk doctrine are based on public policy concerns. They do not apply to cases such as this, the court said, where the employees are compensated for the risks they undertake by wages, benefits and entitlement to workers' compensation.
The court added that because workers' compensation shields the independent contractor from liability to its employees, applying the peculiar-risk doctrine to the company that hired the contractor would unfairly impose liability on the company that did nothing to create the dangerous situation rather than on the contractor whose negligence did create it.
The court also found "unpersuasive" the employees' argument that the hirer's vicarious liability is dependent on the contractor's solvency. In this case, even though DTI was insolvent, the employees still received benefits through the state's Uninsured Employer's Claim Account. To use the contractor's solvency as a basis for benefits would set the hiring party up as the insurer of the contractor's employees, the court said.
Employers that do not provide required workers' compensation to their employees face prosecution, the court concluded, which is a far more effective enforcement method.
While the hiring company prevailed in this case, the lesson for companies that often outsource dangerous tasks is to exercise caution. Make sure your contractors and staffing agencies follow the rules and are not negligent when it comes to the safety of their employees. Work with your contractor to establish safety precautions and make sure you perform safety inspections on a regular basis.