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Galvao v. G.R. Robert Construction Company

179 N.J. 462, 846 A.2d 1215 (2004)

WORKERS COMPENSATION; GENERAL EMPLOYER; SPECIAL EMPLOYEE—The new two part test for whether to hold a general employer vicariously liable for the alleged negligence of a special employee is to inquire whether the general employer controlled the employee, and if so, whether the special employee furthered the business of the general employer.

An employee was injured on his job site. The negligent company was an affiliate of the employee’s employer, and both companies had employees working at the site. Both companies were wholly owned subsidiaries of a larger company. Each supplied employees to the parent company and each received reimbursement for their expenses. They could not refuse to supply employees, nor could they do business on their own.

The employee filed a third-party claim against the other subsidiary company, asserting liability under the doctrine of respondeat superior. The employee had already filed a workers compensation claim against the parent company and had received benefits. The lower court dismissed the complaint because it held that all the companies shared a single purpose of furthering the business interests of the parent company, and that that parent company, not its subsidiaries, had exclusive control of all the employees. Therefore, it held that no third-party claim against the other subsidiary company should proceed.

The Supreme Court held that if control over an employee can be demonstrated, the employer should be vicariously liable because the tort common law interest in deterrence would be furthered, i.e. liability would be imposed on the party responsible for choosing task methodologies because that party is able to alter such tasks if they prove injurious. The two most common tests for determining whether a general employer may be held vicariously liable for the negligence of a special employee are the control test and the business-furtherance test. The control test “seeks to place responsibility for the servant’s tort upon the employer having the right of control at the time the tortuous act occurs.” The idea behind this test is to impose liability upon the employer who is in the best position to prevent the injury. The business-furtherance test seeks to find whether the employee is advancing the general business’s employer. The idea behind this test is that the employer who seeks to profit from its workers should be the one that is liable and is the one better able to spread the loss through higher prices.

Instead of selecting a single test, the Supreme Court combined them. Thus, to determine whether a general employer may be held vicariously liable for the alleged negligence of its special employee loaned to a special employer, it must pass a new two-step test. First, a court must determine whether the general employer controlled the special employee, i.e. did it direct the manner in which the business shall be done? This need not be by direct control. A court can infer control based on the method of payment, by who supplied the equipment, and by who had the right to fire the employee. If any of these scenarios is fulfilled, the first prong is satisfied.

If the first prong is satisfied, then a court must decide whether the special employee furthered the business of the general employer. A special employee furthers the business of the general employer if the work being done is within the general contemplation of the general employer, and the general employer derives an economic benefit by loaning its employee. If this prong is met, then the general employer may be held vicariously liable for the negligence of a special employee.

Here, the Court held the insured employee did not satisfy either prong. As to the first prong, the actual employer did not have the type of broad influence over the project which might infer the right to control, such as paying its own employee’s salary, furnishing materials, retaining the right to hire forepersons or assigning employees to specific aspects of the project. Nor was there any evidence the employer directed on-site work. In addition, the special employer did not derive any economic benefit by providing special employees to the parent company. It was the parent company that created both subsidiary companies, and it was the parent company that was paid for the work done.

Therefore, the Court held that the other subsidiary could not be held vicariously liable under the respondeat superior doctrine because neither the control prong nor the business-furtherance prong of the new test was met.


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