In a case decided on February 29, 2012, the Oregon Court of Appeals, in Cortez v. Nacco Materials Handling Group, Inc. (A144045), ruled that the exclusive remedy provision of the worker’s compensation law, ORS 656.018, does not protect the individual members of an LLC from tort liability.
Section 1(a) of the statute says:
The liability of every employer who satisfies the duty [to provide worker compensation insurance] is exclusive and in place of all other liability arising out of injuries, diseases, symptom complexes or similar conditions arising out of and in the course of employment that are sustained by subject workers, the workers’ beneficiaries and anyone otherwise entitled to recover damages from the employer on account of such conditions or claims resulting therefrom, specifically including claims for contribution or indemnity asserted by third persons from whom damages are sought on account of such conditions, except as specifically provided otherwise in this chapter.
Section 3 of the statute extends the exemption from liability to the employer’s “agents, employees, officers and directors.”
In Cortez, the worker was employed by an LLC firm and was injured in a fork lift accident. The worker filed a workers’ comp claim against the LLC and received benefits. The worker then sued various parties in a so-called “action-over” claim under the Oregon Employer Liability Law (“ELL”). One of the parties the worker sued was the sole member and owner of the LLC. The member itself is a corporation.
The trial court dismissed the lawsuit, citing the workers’ comp exclusive remedy provision. The Court of Appeals reversed, taking a narrow read of the meaning of “officers and directors” of the employer, and deciding that the legislature did not intend to include the members of an LLC when it created the exclusive remedy portion of the worker compensation statute. The court said that the statute does not expressly refer to an “LLC member or owner,” and that the legislature could have easily included LLC members when it created the LLC form of entity, but did not do so. Therefore, the court held that even though the exclusive remedy provision protects an LLC itself, as an “employer,” the statute does not protect an individual “member” of that LLC.
For construction contractors that are formed as LLCs – and more particularly their individual members – this decision creates some uncertainty and potential risk, given the nature of construction work. It is a reasonable assumption that at some point the legislature may decide to close this apparent gap in the exclusive remedy section of the worker compensation law, but that is not a certainty. There is also the possibility that the decision could be appealed to the Oregon Supreme Court and overturned, but that will depend on whether the parties to the lawsuit elect to seek review – which the Court may or may not decide to grant.
Until one of those events occurs, companies organized as LLCs would be wise, at a minimum, to review their liability insurance policies to ensure that individual members are adequately covered for ELL claims. It may also be wise to review the form of entity in light of the Cortez decision.
