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Finding a way to close the loophole
A recent Oregon Court of Appeals decision leaves limited liability corporation owners open to lawsuits associated with on-the-job injuries
Jeff Hancock stands on the dock by the lake on Tognoli’s property. Hancock is wearing his ranch boots, having just finished cutting hay on the ranch. In his spare time, he slalom skis on the lake every chance that he can.
October 11, 2012
A recent Oregon Court of Appeals opinion regarding injury liability for business owners has raised concerns and prompted petition for an Oregon Supreme Court review.
The ruling changed a long-held interpretation of Oregon workers’ compensation law regarding a term known as “exclusive remedy.” Prior to the ruling, under the exclusive remedy provision, when an employee was injured on the job, the employer would agree to pay the medical expenses, typically via workers’ comp insurance. In return, the employer would be protected from that employee filing a lawsuit associated with the injury.
Exclusive remedy faced a challenge, however, when Antonio Cortez, an employee of a limited liability corporation (LLC) was injured in a forklift accident. After collecting a workers’ comp claim, Cortez then sued his employer for damages related to the incident.
The trial court dismissed the case, citing exclusive remedy, however the Court of Appeals reversed the decision, ruling that LLCs do not qualify for exclusive remedy.
Following the Court of Appeals ruling, the Associated Oregon Industries (AOI), a group of 12 state-based business organizations, petitioned the Oregon Supreme Court to review the decision.
“AOI . . . submits that literally tens of thousands of Oregon businesses now find their understanding of ordinary business costs, especially insurance costs, have been undermined, with no way to be sure how to solve the problem,” the petition reads. “If left uncorrected, the Court of Appeals’ error will engender economic doubts about an issue long considered resolved, thereby adding to the challenges already facing the state’s economy.”
Local LLC business owner Brad Bartlett feels that the decision will leave open the possibility for an on-the-job injury to cause irreversible financial harm.
“That (workers’ comp) is our insurance policy basically for all of the employees. For an employee to then think that they can sue the individual that owns the company is dead wrong,” Bartlett said. “If someone can sue you, you stand to lose everything you own.”
Because of the ruling, LLCs remain ineligible for exclusive remedy protection. According to Patrick Allen, director of the Oregon Department of Consumer and Business Services (DCBS), a lower court, faced with similar facts, is now bound by the Court of Appeals decision.
“We certainly would believe that the decision changes our understanding as well as most employers’ and insurance companies’ understanding of how this set of issues is dealt with,” he said.
At this point, an appeal on the ruling has been filed with the Supreme Court and mediation is scheduled for December. While the appeal could eventually result in a reversal, that isn’t the only way to overturn the decision.
The Court of Appeals based their ruling on the actions of the Oregon Legislature when they created LLCs in the mid-1990s.
“The Court basically said that there was a list of business entities that were entitled to exclusive remedy,” Allen explained. “The Legislature, when they created limited liability corporations, didn’t put them on this list. The Court determined that was effectively intentional.”
Because the ruling was based on that omission, the Legislature could change the outcome of the Court of Appeals ruling by adding LLCs to their exclusive remedy businesses list – and action they might take next session.
Oregon Representative Mike McLane (R-Dist. 55) has indicated that the Legislature intends to make the necessary changes to provide LLCs exclusive remedy.
“We are going to fix that loophole,” he said.