The South Carolina Supreme Court recently issued a landmark decision, Keene v. CAN Holdings, LLC (August 11, 2021), narrowing the statutory employee doctrine and increasing the likelihood companies can be held liable in tort for injuries suffered by their contractor or subcontractor workers. 

Keene involved Dennis Seay, an employee of Daniel Construction who ultimately died from asbestos exposure related to contract maintenance and repair work performed at a polyester fiber plant in Spartanburg, South Carolina.  Seay sued the plant, which claimed he was a statutory employee and the Workers’ Compensation Act provided the exclusive remedy for any claims.

Prior to Keene, South Carolina’s statutory employee doctrine precluded “statutory employees” – or contract workers who (1) were an important part of the trade or business of the employer; (2) were necessary, essential, and integral part of the business of the employer; or (3) had been previously performed by employees of the employer – from suing their employer in tort. Rather, such workers were subject to South Carolina’s exclusivity doctrine and were limited to recovery under the Workers’ Compensation Act.  As a result, many employers have enjoyed immunity from suit by asserting the statutory employee doctrine as an affirmative defense to tort claims.

In Keene, the Court decided that the longstanding three-part test was confusing, difficult to apply, and did not reflect the realities of our “modern economy in which subcontracting work a company could do with its own employees is such an important and legitimate business practice.”  The Court also indicated that prior interpretation of the doctrine focused more on providing the benefit of immunity to employers than its original intent: preventing employers from contracting out work for the sole purpose of avoiding liability. 

The key question parties must answer when deciding whether the doctrine applies is whether the work contracted out is part of the owner’s trade, business, or occupation.  To bring application of the doctrine in line with its intent, the Court disregarded the three-part test and adopted a form of the business judgment rule: 

If a business manager reasonably believes her workforce is not equipped to handle a certain job, or the financial or other business interests of her company are served by outsourcing the work, and if the decision to do so is not driven by a desire to avoid the cost of insuring workers, then the business manager has legitimately defined the scope of her company’s business to not include that particular work.

In short, Courts will honor the company’s decision to have the work performed by someone other than an employee, the doctrine will not apply, and the company can be sued in tort for injuries suffered by the worker. 

Notably, the Court discussed an arguably-competing public policy mandate – that all workers be covered by the Workers’ Compensation Act.  A long line of authority argued that if a non-employee worker was covered by the Workers’ Compensation Act, there was no need to allow recovery in tort.  In Keene, the Court emphasized that immunity is a collateral benefit of the doctrine and should not be considered its purpose. Where a non-employee worker is covered by the Workers’ Compensation Act, the public policy favoring coverage under the Workers’ Compensation Act is satisfied and is not further served by providing immunity to the employer. 

Though Keene is a new decision and its full effects have yet to be seen, its ruling is significant and employers should understand that the doctrine may no longer act as a shield against tort liability for injuries suffered by contract workers.