This article originally appeared in the September 26, 2016, edition of the Daily Journal of Commerce
If a well-drafted construction contract does one thing for your business, it should unambiguously insulate you from catastrophic liability. Looking back at my career as a project engineer, I am not sure I fully appreciated this core purpose. Working in construction, it is too easy to view contract terms as simply dictating the: who, what, when, and how of a project. As a litigator, I now see that scope and procedural terms exist to provide certainty and, ultimately, security from harm.
Of course, before you can draft your killer contract, clear in every respect, you have to be aware of new laws that can make a previously rock-solid contract full of potential hazards. Recently, the Oregon Supreme Court’s decision in Yeatts Whitman v. Polygon N.W. Co., 360 Or. 170 (2016) created just this sort of problem by broadening liability for general contractors and owners under Oregon’s Employer Liability Law (“ELL”), which could compromise the protection your construction contract currently provides against third-party liability. If a subcontractor’s worker is injured on your project, are you liable? Does your contract adequately shift this risk downstream? The answer after Yeatts is likely “no.”
Oregon’s ELL imposes liability on “all owners, contractors or subcontractors and other persons having charge of or responsibility for work” involving a risk or danger. The concept is that the company responsible for supervising dangerous work is in the best position to make it as safe as possible for its worker, and the ELL is written to incentivize this effort. However, this means a general contractor may be responsible for a subcontractor’s direct employees if the two entities engage in a common enterprise, the general contractor maintains actual control over the work, or the general contractor retains the right to control the subcontractor’s work.
Prior to Yeatts, the general contractor was deemed NOT to have retained the right to control the work and was not liable under the ELL, as long as the general contractor’s involvement or oversight did not create an additional risk of danger to workers by causing their direct employers to be less diligent. For example, a framing contractor might be less diligent in inspecting guardrail fall protection if the general contractor shares this responsibility, or the subcontractor thinks the general contractor shares this responsibility. This more restrictive approach to ELL liability required a plaintiff to show that the general contractor’s involvement, either contractually or practically, resulted in less diligence by the direct employer.
In Yeatts, a subcontractor’s employee brought an action against the general contractor after falling while framing a townhome when the protective guardrail failed. The employee claimed that the general contractor retained the right to control this activity, and the Court agreed, citing the fact that the contract: 1) allowed the general contractor to inspect safety procedures as it saw fit, 2) permitted the general contractor to require additional safety precautions as necessary, and 3) had no express provision that purported to make the subcontractor alone responsible for the safety of its direct employees. The Court reached this result even though it also found that the contract made the subcontractor “primarily responsible for the safety measures for the framing work and required it to protect [the general contractor] from liability for injuries that might befall [the subcontractor’s] employees for doing that work.”
In light of this seeming contradiction, what must general contractors and owners do to be shielded from third-party ELL liability while still maintaining control over the project? Certainly contracts need to clearly state that the subcontractor alone shall be responsible for the safety of its direct employees, but the absence of this type of language was only one factor in the Yeatts decision, and simply adding this clause to an existing contract may not be enough. Contracts should also be reviewed wholesale to ensure that the general contractor does not retain the right to control safety measures, with a focus on the right to inspect and the right to require additional safety measures.
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