Section Review

“Retained Control” and Enterprise Liability: Managing the Risk of Harm to Independent Contractors

In a recent opinion a federal district court judge, ruling on principles of Massachusetts law, granted summary judgment to the defendant commercial property manager, Equity Office Management, in a $5 million negligence action brought by an employee of an independent contractor who fell while washing exterior windows of an office building.

The Court's opinion reiterates Massachusetts' bright-line rule for determining when a landowner will be liable for personal injuries sustained by independent contractors or their employees performing contracted services on the owner's property. In brief, liability will not attach unless the owner retained control over the contractor's work and failed to exercise that control with reasonable care. The purpose of this article is to examine the concept of "retained control" to clarify the boundaries of this important rule.

Lopez v. Equity Office Management, LLC, 597 F. Supp. 2d 189 (D. Mass. 2009) (Stearns, J.). The plaintiff, Carlos Lopez, whose claimed injuries included fractures, nerve damage, and brain trauma, contended Equity should have supervised him and taken action to ensure that his window washing work complied with OSHA standards. Lopez claimed that Equity breached its duty by failing to supervise him, by failing to take action to protect him from injury, and by deviating from the established standard of care of customary industry and trade practices.

Duty to Protect Employees of Independent Contractor Arises Only Through "Retained Control" over Contractor's Work.

Massachusetts courts agree that the duty and standard of care a property owner owes to the employee of an independent contractor is the same as that owed to all lawful visitors.

Poirier v. Town of Plymouth, 374 Mass. 206, 228 (1978). The landowner owes the contractor only the duty to maintain the premises in a reasonably safe condition and to warn of dangers of which the owner is or reasonably should be aware. O'Sullivan v. Shaw, 431 Mass. 201, 206 (2000). In granting summary judgment to Equity in the Lopez case, the court found no evidence that Equity had deviated from ANSI I-14.1, the industry standard for designing, installing, inspecting, testing and maintaining a certified roof anchor system used to tie back portable outriggers. Lopez, 597 F. Supp. 2d at 196. The court rejected Lopez' claim that by identifying the location of the roof anchors to be used in exterior window washing operations, Equity had "controlled" the means and methods of his work. Id.

Under Massachusetts law, a landowner who hires an independent contractor to perform work on his or her property cannot be held

A property owner may incur

The Superior Court applied the corresponding principle in

vicariously liable for injuries due to the contractor's negligence. Lyon v. Morphew, 424 Mass. 828, 834 (1997); Corsetti v. Stone Co., 396 Mass. 1, 9 (1985). This rule applies even where the work performed under the contract is deemed to be "inherently dangerous." Vertentes v. Barletta Co., 392 Mass. 165, 168 (1984).direct liability, however, for its own negligence in connection with work performed by an independent contractor, if it has "retained at least some degree of control over the manner in which the work is done." Lyon, 424 Mass. at 834. This principle is well-established in Massachusetts. For example, the Restatement (Second) of Torts § 414, provides that "[o]ne who entrusts work to an independent contractor, but who retains the control of any part of the work, is subject to liability for physical harm to others...caused by his failure to exercise his control with reasonable care." (emphasis added). The SJC appears to have adopted this articulation. See Corsetti, 396 Mass. at 9-10, quoting Prosser, Torts § 71 at 469 (4th ed. 1971) and Restatement (Second) of Torts § 409, Cmt. b (1965). Bayliss v. Hannan Construction Corp., finding that a homeowner with no construction experience owed no duty to direct or supervise the work of an independent contractor roofer, and thus could not be liable for injuries sustained by the contractor's employee. Bayliss v. Hannan Construction Corp., No. 0404636J, 2007 WL 738925 (Mass. Super. Feb. 14, 2007). This is consistent with the District Court's decision in Bouchard v General Elec. Co., 849 F. Supp. 103, 107 (D. Mass. 1994) where the court found that for tort liability to attach, a premises owner must exert "operational control" over the area in which an accident occurs. In Bouchard, the court rejected the idea that the owner's general right to order that work stop or resume, to inspect the progress of work, or to receive reports, meant that the owner controlled the "operative detail" of the contractor's work. Id. See also Farren v. General Motors Corp., 708 F. Supp. 436, 446 (D. Mass. 1989) (maintaining in dictum that "If the only evidence produced were that [the property owner] had the right to point out safety violations and to remove any contractor that did not take care of a safety problem, [the owner] would be entitled to summary judgment on the issue of its liability under § 414").

"Retained Control" as Assumption of Enterprise Liability

The concept of "retained control" in these decisions may be explained in terms of the modern enterprise theory of liability and the "resource-allocation" principles thought to justify it. According to enterprise theory the economic loss (cost) resulting from personal injuries should be borne by the individuals or entities (the "enterprise") best able to pass the loss forward to consumers or backward to the factors of production employed in making a product or providing a service.1 This distributes the risk according to enterprise theory. G. Calabresi,

The Restatement (Second) of Torts § 409 links retained control and enterprise liability:

[t]he general rule stated in this Section, as to the non-liability of an employer for physical harm caused to another by the act or omission of an independent contractor, was the original common law rule. The explanation for it most commonly given is that

Cmt. b (emphasis added).3

However, if a landowner who has engaged an independent contractor retains the right to control any of the contractor's work, the landowner becomes a participant in the enterprise, and as one who assumes a share of the responsibility for managing the risk of the enterprise, he or she becomes a potential bearer of loss caused by his or her failure to manage it.

The series of exceptions to this rule spelled out by the Restatement (Second) of Torts in §§ 410-429 further illustrates how one who retains control over the work of an independent contractor is brought into the enterprise and thereby becomes potentially liable for the negligent exercise of that control. In particular, § 414 provides that "[o]ne who entrusts work to an independent contractor, but who retains the control of any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to exercise reasonable care, which is caused by his failure to exercise his control with reasonable care." As explained in Comment c, liability will not attach where one retains merely a general right to order to stop or resume the work, to inspect the progress of the work or to receive reports on it, to make non-binding suggestions or recommendations, or to request alterations and deviations. "Such a general right is usually reserved to employers, but it does not mean that the contractor is controlled as to his methods of work, or as to operative detail. There must be such a retention of a right of supervision that the contractor is not entirely free to do the work in his own way."

The Cost of Accidents: A Legal and Economic Analysis, 53 Yale University Press, 1970.2 The central tenets of enterprise liability are first, that the losses flowing from accidents should be "internalized" or borne by the enterprise supplying the goods or services causing the loss, thereby allowing the price of the goods or services to reflect their real cost. Second, where several individuals or entities are engaged in an enterprise, liability for personal injuries is best borne by the individual or entity able to control the price of goods and services by managing the risk of injury created in producing and offering them. When prices reflect actual costs (including accident costs), products and services that are dangerous will be more expensive relative to market alternatives, and the resulting decrease in demand will serve as a general deterrent to their being offered. Consumers' choices of products and services will be maximized relative to their own desires, and each enterprise will assume all and only those costs associated with it, regardless of fault. G. Calabresi, Some Thoughts on Risk Distribution and the Law of Torts, 70 Yale L.J. 499, 514 (1961) ("Proper resource allocation militates strongly against allocating to an enterprise costs not closely associated with it….But it also militates for allocating to an enterprise all costs that are within the scope of that enterprise"). , since the employer has no power of control over the manner in which the work is to be done by the contractor, it is to be regarded as the contractor's own enterprise, and he, rather than the employer, is the proper party to be charged with the responsibility of preventing the risk, and bearing and distributing it.Id.

Understanding

Lopez v. Equity

 

In

By contrast, in

The Massachusetts Appeals Court's ruling in

By contrast in the

The general enterprise liability principles governing the liability for physical harm to others caused by acts or omissions of landowners retaining control of the contractor's work can be found in the cases on which the District Court relied in granting summary judgment to Equity on Lopez's negligence claims. Corsetti, subcontractor Salvucci Construction Company employed a mason who sued the general contractor, The Stone Company, for injuries he sustained in a fall from scaffolding. 396 Mass. 3. By contract, The Stone Company assumed responsibility for initiating, maintaining, and supervising job site safety. Id. at 12. The control The Stone Company retained over Salvucci's work put it in a position to manage the risk of harm to Corsetti, and it owed a duty to Corsetti to require that he use safety equipment. Id. Thus, the Court found, The Stone Company could be liable to Corsetti for its own negligent exercise of that control. Id. at 24. Foley v. Rust Intern., 901 F.2d 183, 185 (1st Cir. 1990), the First Circuit affirmed the trial court's grant of j.n.o.v. following a verdict for the plaintiff, an apprentice boiler-maker. Id. at 183. Foley was employed by sub-contractor Riley-Stoker Corporation, which the general contractor, Rust International Corporation, had retained. Id. In that case, the Court found that based on the facts, "[t]here was no evidence that Rust retained a right of supervision over Riley such that Riley was not entirely free to do the work in its own way." Id. at 185. In other words, Rust did not retain such control over Riley's work that it brought itself into the enterprise in a way that made it reasonable for Rust to assume liability for failing to manage the risk of Foley's work. Kostrzewa v. Suffolk Constr. Co., illustrates how control retained by Suffolk, the general contractor, brought it into the asbestos removal enterprise of the plaintiff's employer, sub-sub-contractor, Superior Abatement, Inc.4 73 Mass. App. Ct. 377 (2008). Suffolk retained control over means and methods of all work subcontractors performed under the contract. Id. at 379-80. The contract called for Suffolk to take responsibility for initiating and maintaining all safety precautions, for protecting workers and others from injury, and required Suffolk to designate an on-site safety manager. Id. "These various provisions of the contract," wrote the Appeals Court, "indicate that Suffolk was to control the project, including all aspects of safety." Id. at 380. Thus, by contractual obligation, Suffolk brought itself into the enterprise, according to enterprise theory, and agreed to liability for any subsequent failure to adequately manage the enterprise's risk.Lopez case, Equity's responsibility to window washers working on its property was limited to providing a reasonably safe place for the work to be done, and to warn of any hidden dangers. Id. at 196. Equity satisfied its duty as a landowner by creating, testing, and maintaining a certified system of roof anchors for use in exterior window washing work. Id. However, it otherwise retained no operational control over Lopez' window washing work, and thus, Equity was not part of the window washing enterprise. The court rejected Lopez' argument that Equity retained control through a contract provision requiring written confirmation from the contractor that it was in compliance with governmental safety regulations. Id. at 197. Rather, the Court concluded, retention of the right to be assured that safety guidelines were being followed did not bring Equity into the window washing enterprise for which the contractor was hired.5

Conclusion

Under an enterprise liability/resource allocation theory, unless allocated differently by contract or where it is unfeasible to do so, the cost of injuries should be borne by the enterprise whose activity creates them. That cost then should be distributed among all those in a position to manage the enterprise's risk because "the injury is a real cost of those activities." Calabresi,

As Calabresi noted, independent contractor cases may be situations in which the pure loss-distribution theory applies. In such cases, it does not matter who bears the loss initially in the sense that risks are assignable by either contractual party to the activities that create them. Calabresi,

As the

Risk Distribution, 70 Yale L.J. at 505. By definition, an independent contractor is not a landowner's employee; therefore, other than the general duty to maintain his or her premises in a reasonably safe condition, a landowner hiring an independent contractor to perform work will not manage the risk of physical harm to the contractor or its employees. To the extent that the landowner does retain control over the contractor's work, he or she may adjust the price for the contractor's services to reflect the true cost because the landowner then becomes part of the enterprise, and assumes liability of one in a position to manage the risk of physical harm. Risk Distribution, 70 Yale L.J. at 506.6 "However," Calabresi observed, "whenever one party is in fact in a better position to allocate the cost of the particular loss to the appropriate activity or merchandise, allocation of resources requires that party to bear the original burden of the loss." Id. (emphasis added). Lopez Court made clear, contract provisions are critical evidence regarding a property owner's participation in the enterprise for which the contractor was retained. For risk management purposes, property owners who do not wish to assume liability for harm to independent contractors should execute appropriate contract documents. Those documents should explicitly and unequivocally disclaim a duty to supervise the means and methods of the contractor's work, and clearly assign all responsibility for operational control of the work and adherence to safety regulations to the contractor. Although courts will look beyond the contractual language to the actual conduct of the parties, contracts are critical evidence of a property owner's intent to manage the risk of injury to the contractor or its employees, and may tip the scales in legal disputes over liability when independent contractors or their employers are injured.

 

Notes

1.  This is so unless otherwise provided by contract, or where indemnification or exculpatory agreements are unfeasible.

2.  "One cannot conceive of a driver seeking indemnification agreements from every pedestrian he may hit, or, for that matter, a pedestrian seeking an agreement to bear accident loses from every driver who may hit him. In such situations, the law cannot avoid determining how the losses will be divided among the parties to an accident."

3. Cmt. a of § 409 makes clear that the use of "independent contractor" in this context does

4.  As noted in by the Appeals Court, so long as the control retained by a general contractor puts it in a position to manage the risk of loss, it is irrelevant how many layers of subcontractors are involved in the enterprise. 73 Mass. App. Ct. at 379 n. 5.

5.  Lopez appealed the District Court's ruling to the First Circuit. On June 3, 2009, on joint motion of the parties, Lopez' appeal was voluntarily dismissed.

6.  In a pure loss-distribution situation, every consumer has perfect knowledge and is perfectly rational, either contractual party can assign risk, and the cost of insurance does not vary from one consumer to the next. Thus, if the risk is borne by the contractor, the contractor's price for his or her services includes accident costs; if the risk is borne by the landowner, the price he or she pays for the contractors services is reduced by the anticipated accident cost.

not include individuals performing work for another under conditions that would render them servants or employees. By extension, the use of "employment" does not have its usual meaning, but instead indicates the hiring or retaining the services of another, e.g., by contract.

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