Court Calls Workers’ Comp Penalties Against Nonemployers ‘Absurd’

A company cannot be penalized for failing to comply with the Workers’ Compensation Act if it is not later defined as the claimant’s employer, a split Commonwealth Court panel has ruled in an issue of first impression.

A three-judge panel of the court held in Ayerplace Enterprises v. Workers’ Compensation Appeal Board (Royal) that, although Ayerplace Enterprises failed to make certain workers’ compensation payments after the company was initially determined to be an employer, Ayerplace could not be penalized under the Workers’ Compensation Act for the delay, since it was later determined on appeal not to be the claimant’s employer.

The decision reversed a ruling from a workers’ compensation judge and appeal board, which held that success on the merits of the employment issue did not excuse the company’s initial violation of the act.

According to Commonwealth Court Judge Robert Simpson, the only way for penalties to be assessed is for the company to be an employer, and therefore subject to the act.

“It is axiomatic that penalties for noncompliance with the act may only be imposed on litigants that are subject to the act, and more specifically, subject to the penalty provision,” Simpson said. “To construe the act otherwise would lead to an absurd result, like that here, where a litigant that is neither an insurer nor employer under the act, and has no liability for benefits, is required to pay penalties.”

Commonwealth Court Judge Patricia A. McCullough, however, filed a dissent, contending that Ayerplace had intentionally violated the act after it had been deemed to be an employer by the judge, and so the penalty should still apply, regardless of the outcome on appeal.

“The workers’ compensation judge concluded in her original June 30, 2009, decision that Ayerplace was decedent’s co-employer. … At that point in time, Ayerplace had a duty to commence payment of compensation to claimant,” McCullough said. “Ayerplace admittedly violated the act by not making payments of compensation, thereby subjecting itself to penalties.”

Susan Lea, who represented Ayerplace, noted that the case has been in litigation since 2008, and said she was surprised that the claimant continued to pursue the penalty after Ayerplace was determined not to be an employer.

“I’ve never seen an employer caught in the web of the Workers’ Compensation Act for almost a decade,” Lea said.

According to Simpson, the claim arose after claimant’s decedent, Frederick Royal, sustained a work injury in 2007. By June 2009, the workers’ compensation judge found Ayerplace and American Road Lines to be jointly and severally liable for the claim. By October, the claimant filed penalty petitions against both companies for nonpayment of litigation costs, funeral costs of Royal, who had died, and Royal’s lost earnings.

The board subsequently reversed the workers’ compensation judge’s liability decision, holding that American Road Lines was the sole employer and solely liable for the benefits. But, despite that ruling, the workers’ compensation judge granted the claimant’s penalty petition, finding Ayerplace violated the act because it did not comply with her liability decision.

According to Simpson, the issue largely came down to Ayerplace’s insistence from the beginning of the litigation that it did not employ Royal. Simpson said all the cases the judge and board cited dealt with employers who acknowledged that the act applied to them.

“Here, Ayerplace consistently disputed its status as an employer,” Simpson said. “In cases where there is a dispute as to whether a litigant is an employer subject to the act in the first instance, the board and the workers’ compensation judge err in presuming a litigant is an ’employer’ subject to penalties.”

Barry Shabbick of Shulman & Shabbick, who represented the claimant, declined to comment.

Max Mitchell can be contacted at 
215-557-2354 or Follow him on Twitter @MMitchellTLI. •

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