Tuesday, September 06, 2005

Important Supreme Court of Texas Opinion regarding the immunity from suit of businesses that use leased employees.

Jose Garza v. Exel Logistics, Inc. and Interim Services Pacific, LLC; Case No. 04-16156; Supreme Court of Texa. Decided February 18, 2005


Jose Garza v. Exel Logistics, Inc. and Interim Services Pacific, LLC; was decided by the Supreme Court of Texas on February 18, 2005. The case involves issues regarding workers’ compensation, immunity from suit, and the Texas Staff Leasing Services Act. In this case, temporary employment agency Interim Services Pacific, LLC, employed Jose Garza as a general laborer and assigned him to Exel Logistics, Inc., one of Interim’s clients. Garza was injured performing a task at the directive of a supervisor from Exel. Garza collected his workers’ compensation and then sued Interim and Exel. The trial court granted Iterim’s and Exel’s joint motion for summary judgment, and the appeals court confirmed, holding that both companies were entitled to summary judgment based on the exclusive remedy provision, and that Exel was covered by Interim’s workers’ compensation insurance policy based on the provision in the contract that required Exel to pay Interim for costs incurred in maintaining the insurance. The Supreme Court upheld the portion of the judgment holding that the leasing company was immune from suit, but reversed the portion of the judgment that found Excel to be immune from suit, , and sent the case back to the trial court for additional findings, ruling that Exel did not conclusively establish that it was covered by Interim’s workers’ compensation insurance coverage.


The Supreme Court looked at each aspect of this case in detail, concluding that the relief available to Mr. Garza depended on whether Exel was:
• His employer and covered by workers’ compensation insurance, in which case Garza’s only remedy would be recovery of workers’ compensation insurance;
• His employer and not covered by workers’ compensation insurance, in which case Garza would be required to prove that his injuries were caused by Exel’s negligence, and reducing the number of defenses available to Exel; or
• Not his employer, in which case Garza would have all causes of action available to him, and Exel would have all defenses available to it
Exel contended that it was indeed Garza’s employer, and that it was covered by workers’ compensation insurance. Since the case was decided by summary judgment, Exel had to establish its contentions as a matter of law.

The Supreme Court first looked at whether Exel established that it was Garza’s employer. Using the provisions of the Workers Compensation Act, coupled with the undisputed evidence submitted at trial, it was established that at the time he was injured, the court held that Exel was Garza’s employer because Garza was “working on Exel’s premises, in the furtherance of Exel’s day-to-day business, and the details of his work that caused his injury were specifically directed by Exel.”

Turning to the question of whether Exel was covered by workers’ compensation insurance, Exel contended that, since its contract with Interim required it to pay “markup”, and said markup was to be used to purchase workers’ compensation insurance, that Exel was, by extension, covered by Interim’s workers’ compensation insurance policy.

The Supreme Court disagreed, holding that “the (Workers Compensation) Act does not permit a temporary employment agency like Interim to obtain coverage for a client simply by obtaining coverage for itself. There must be explicit coverage for the client.” (emphasis added.) Additionally, the court noted that the Staff Leasing Services Act and the Labor Code specifically bar agreements between two companies that one workers’ compensation insurance policy will name only one company, but cover both.

Even if such agreements were acceptable, there was no evidence that any such agreement between Interim and Exel existed. There were provisions in the contract between the two companies that Exel would be named as an “additional insured” with regard to Commercial General Liability, Automobile Liability, and Commercial Blanket Bond, but not workers’ compensation.

Section 4006.002 of the Workers Compensation Act governs how an employer must elect to obtain coverage. Under the provisions set forth in this section, the court concluded that there was no evidence that Exel contracted with any company to acquire coverage, separate from Interim’s. Therefore, the court concluded, Exel did not establish that it was covered by any workers’ compensation insurance policy, reversed the appeals’ judgment in favor of Exel, and remanded the case to the trial court to determine whether Exel was covered by workers’ compensation insurance. This does not mean that the court found that Excel had no immunity; rather that Excel needed to provide more evidence at the trial court level on this issue.


The Supreme Court made clear that simply having a contract provision requiring a client company to pay for costs associated with the leasing company’s compensation insurance was not sufficient to extend coverage (and immunity from suit) to the client company. In order to be immune from a workers suit, a company leasing employees must:
(1) establish by contract and in fact that it is the employer of the leased employees; and
(2) have workers compensation coverage by
(a) purchasing its own separate workers’ compensation policy; or
(b) having the leasing contract state that the workers comp policy will have an endorsement making the employer an “alternate employer”. The leasing company should secure this endorsement.

In this particular case, despite Exel’s assertions to the contrary, no such workers’ compensation policy, either procured by Interim and with an endorsement naming Exel as an “alternate employer”, or obtained by Exel for its own benefit, was made part of the record.