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Volume XXVI, No. 29, December 17, 2014      

From the Law Offices of Garan Lucow Miller, P.C.

From the Editor: Sarah Nadeau 

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THE MICHIGAN SUPREME COURT INTERPRETS THE DEFINITION OF “EMPLOYEE” UNDER THE WDCA, OVERTURNING AN EN BANC DECISION OF THE COURT OF APPEALS, AND POTENTIALLY AFFECTING THE INTERPRETATION OF “EMPLOYEE” FOR PURPOSES OF SECTION 3114(3) OF THE NO FAULT ACT

 

By Frances G. Murphy

The Michigan Supreme Court has spoken on the proper interpretation of “employee” under Section 161(1)(n) of the Workers Disability Compensation Act (WDCA).  In Auto-Owners v All Star Lawn Specialists Plus Inc, — Mich –, No. 149036 (November 25, 2014), the High Court overturned the Court of Appeals’ en banc decision and held that to qualify as an “employee,” as opposed to an independent contractor, under Section 161(1)(n), a “person performing service in the course of [employment]” must satisfy all three of these criteria: (1) the person must “not maintain a separate business”; (2) the person must “not hold himself or herself out to and render service to the public”; and (3) the person must “not [be an] employer.”  Consequently, failure to satisfy any one of these three criteria divests that person of employee status.  In so holding, the Court reinstated the 1992 Court of Appeals decision, Amerisure Insurance Cos v Time Auto Transport, 196 Mich App 569; 196 Mich App 569 (1992).

In All Star, Plaintiff Joseph Derry brought separate actions against All Star Lawn Specialists Plus, Inc. and Auto-Owners seeking damages for injuries he sustained while working on a lawn maintenance crew when a leaf vacuum machine that Derry was using to load leaves into a truck owned by All Star fell over, causing part of the machine to strike him.  Derry sued All Star for negligence—which, due to the exclusive remedy provision in workers’ compensation, he could do only if he was an independent contractor and not an employee of All Star; and he sued Auto-Owners for no-fault insurance benefits—which, due to an exclusion in the No-Fault Act, sec. 3106(2), he could do only if he was not entitled to worker’s compensation benefits as an employee of All Star. Auto-Owners, as both the auto-insurer and worker’s compensation insurer of All Star, brought a declaratory action against All Star and Derry seeking a determination of the parties’ rights and obligations.  Looking to Section 161(1)(n) of the Worker’s Disability Compensation Act (WDCA), the Court of Appeals held that, although Derry held himself out to the public to perform the same lawn services he performed for All Star, an attribute generally ascribed to independent contractors, Derry was an employee at the time of the injury.  The Court of Appeals reasoned that Derry only needed to satisfy one of the 161(1)(n) criteria to qualify as an employee.  As Derry satisfied two of the three criteria, the en banc panel deemed him an employee under the WDCA.

The Supreme Court reversed, effectively expanding the class of those qualifying as independent contractors—at least for purposes of worker’s compensation cases.  Holding that Derry must satisfy all three 161(1)(n) criteria to qualify as an employee, the Supreme Court found that the Court of Appeals’ decision contravened the Legislature’s intent in drafting 161(1)(n) by ignoring the word “and” connecting the three criteria and the word “not” within each criterion.  Because Derry satisfied only two of the criteria under Section 161(1)(n), as he held himself out to the public as performing landscaping services, the Supreme Court held Derry was an independent contractor and thus ineligible for workers’ compensation benefits.

This decision potentially rekindles the issue of how the term “employee” should be construed under the No-Fault Act.  Arguably, the No-Fault approach should be consistent with the workers compensation approach given that Derry’s entitlement to No-Fault benefits (versus workers’ compensation benefits) is determined by whether he is an “employee” entitled to benefits under the WDCA.  While section 3114(3) (the employer-provided vehicle provision in the No-Fault Act’s priority of coverage rules) was not at issue in All Star, it is the only other provision in the No-Fault Act on which coverage turns on whether the claimant is an “employee.”  Since traditionally the No-Fault Act has followed the workers compensation approach to determine “employee” status, arguably, to remain consistent, courts should consider applying the statutory test as stated in All Star.

 

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