By Jeremy Vermiliyea
The Oregon Legislature has acted to eliminate substantial uncertainty that arose when the Oregon Court of Appeals decided Cortez v. Nacco Materials Handling Group, Inc. Senate Bill 678 has passed both chambers and is now awaiting Governor Kitzhaber’s signature.
I discussed the case in detail in March 2012 here: http://bit.ly/122INrr . In brief, the Court of Appeals determined that the legislature, when it created the Limited Liability Company form of corporate entity, had neglected to include LLC members within the class of entities and individuals that are protected under the Worker Compensation Act’s so-called “exclusive remedy” provisions. That section of statute protects employers, as well as corporate “officers and directors” against suits by injured employees if the employer carries worker compensation insurance and the insurance carrier settles a claim with an injured worker on the employer’s behalf.
In other words, if a company has worker compensation insurance, the injured worker’s only remedy against his or her employer is via a worker comp claim – the employee cannot later bring a suit against the employer or its “officers and directors” for the same injury.
The court decided in Cortez that members of LLCs were not protected because they were not expressly listed in the statute. Even though members of LLCs long had been understood to be protected by the Workers’ Compensation Act’s exclusive remedy provisions, the Court held that LLC members were subject to potential tort claims by injured workers – even if the worker had already been paid by the company’s insurance carrier for that injury.
After the initial ruling, two things happened. First, the defendant in the case petitioned the Oregon Supreme Court for review, and a number of trade organizations joined in the petition, which was granted. Essentially, the parties have asked the court to rule that the Court of Appeals read the exclusive remedy statute too narrowly, thereby incorrectly stripping members of LLCs from the protections that the statute affords other corporate shareholders, officers, directors, etc. That case is currently pending before the Oregon Supreme Court and a ruling is not expected for several months.
The second thing that happened is that a number of bills were introduced in the legislature to “correct” what was, depending on whom one talked to, either an incorrect ruling by the Court of Appeals, or an oversight by the legislature when it created the LLC form of entity. The bill that survived the legislative process is SB 678.
The new law does two simple but important things. First, it expands the existing safe harbor from future lawsuits in ORS 656.018(3) to include “partners, limited liability company members, general partners, limited liability partners, [and] limited partners.” Second, it created a statutory exception to the safe harbor provision – one that was likely already in existence in common law – for circumstances where the conduct giving rise to the injury was “outside the capacity that qualifies the person for exemption.” In other words, if an LLC member, corporate shareholder, or other member of the class engages in conduct that is outside the scope of their corporate duties, and therefore causes and injury to an employee of the company, that person is not exempt from a lawsuit by the employee, even if there is a successful worker compensation claim.
The best way to explain this concept is by example. In the first example, imagine that a corporate officer or LLC member is on his or her way from the company office to an important company-related meeting, and is running late. The person is speeding, and runs a red light, causing an accident with another vehicle. In the vehicle is an employee of the company who was running errands on behalf of the company. The employee is injured and brings a worker compensation claim. In that circumstance, the worker compensation claim would be the employees “exclusive remedy” against both the company and the corporate officer or LLC member, because the officer/member, although speeding, was in the midst of performing duties inside the scope of his or her role as an officer or member of the company. In other words, the employee could not bring a separate action against the company officer/member
In the second scenario, imagine that the officer/member is at a bar, on the weekend, and has left the bar to drive home, intoxicated. The officer/member runs the red light, causing an accident with the employee who is running errands for the company, which is open on the weekends. In that scenario, the employee would have a worker compensation claim against the company because the accident happened during the course of the employee’s duties for the company. However, unlike in the first scenario, the employee would also have a separate claim against the officer/member, because in the second scenario the officer/member was not performing duties on behalf of the company – the negligent behavior took place on the person’s own time and was outside the scope of his or her role with the company – and therefore he or she would not be protected by the “exclusive remedy” provision in the statute.
The final issue, now that the bill has passed and will soon become law, is what will become of the Cortez case currently pending before the Oregon Supreme Court? The answer is that the bill does not put an end to the case, because the bill does not affect any claims that arose prior to the date that the bill becomes law. So there are potentially several claims like the claim in Cortez that could still be affected by the Court of Appeals’ ruling. Therefore, it is necessary to have the Oregon Supreme Court decide on the law as it existed prior to SB 678, and make a final determination whether the first ruling was correct – that there is no “exclusive remedy” protection to LLC members under the prior version of the law – or whether the Court of Appeals’ ruling was too narrow.
Going forward, companies that are organized as LLCs (and their members – as well as limited liability partnerships and their partners) can take comfort that the law now treats them the same, for purposes of worker compensation claims, as corporate shareholders.
