VICARIOUS LIABILITY: WORKER NOT 'LOANED' UNLESS EMPLOYER CUT ALL STRINGS

June 1, 2004

Steven P. Garmisa
Hoey & Farina Attorney
garmisa@hoeyfarina.com
1-888-425-1212

Proper analysis of a "loaned employee" argument depends on whether you are dealing with a workers' compensation case or a tort claim.

"The distinction is important because the standard for demonstrating that an employee has been loaned differs depending on the context," U.S. District Judge William J. Hibbler recently recounted in a lawsuit governed by Illinois law. Korzak v. Sedeman, 2004 WL 765213 (N.D. Ill., April 8).

Applying the loaned-employee analysis for negligence cases, Hibbler denied a defendant's motion for summary judgment because there was evidence that the employee was not "wholly free from control" of the loaning-employer.

The judge also analyzed the Illinois rules on vicarious liability for negligence by an employee who had already clocked-out at the end of the day.

A Fatal Accident

Negligent driving by Faizel Sedeman allegedly resulted in the death of Frances Korczak and her unborn child, Baby Doe Korczak.
The corporate defendants argued that they are not vicariously liable for Sedeman's negligence. And one of the defendants argued it was off the hook because it allegedly loaned Sedeman to one of the other defendants. As Hibbler explained:

"Faizel Sedeman worked for International Heat Treatment, a subsidiary of CRC- Evans, and was a citizen and resident of South Africa.

"In 2001, Thermal Solutions asked IHT to supply it with heat-treatment technicians for a contract that it had with an Illinois Citgo refinery. As a result, IHT contracted with Thermal Solutions to send six employees, all of whom, including Sedeman, were citizens of South Africa, to Thermal Solutions to work from its Griffith, Ind., location.

"According to the parties' arrangement, IHT billed Thermal Solutions $19/hour for the workers' time, while Thermal Solutions billed Citgo $22/hour for their time. Sedeman, however, received his pay, based on the number of hours that he worked at the Citgo refinery, directly from IHT.

"Thermal Solutions paid for Sedeman's travel from and back to South Africa. Thermal Solutions also paid for Sedeman's food and lodging while he remained in the United States.

"During the time Sedeman worked at the Citgo refinery, he was supervised by Phil Robinson, Thermal Solutions' Citgo job site project manager. Robinson told Sedeman when to report to work, when to leave, and gave other orders and directions regarding his work. Robinson also had the authority to discharge Sedeman.

"At the same time Sedeman's contract with IHT specified that it had the absolute discretion to set and change Sedeman's working hours. Further, Sedeman's contract gave IHT the right to terminate Sedeman and directed Sedeman to follow IHT's grievance procedures should he have a dispute regarding his employment.

"When Sedeman arrived at the Citgo refinery, Thermal Solutions supplied him with a minivan to drive while he was in the United States. Sedeman had an international driver's license. Thermal Solutions did not, however, supply all of the South African workers with minivans, instead renting only three vans for general work use. According to Sedeman, he received one of the minivans because he was 'the best driver out of the whole lot.'

"Thermal Solutions occasionally directed Sedeman to drive Robinson and other Thermal Solutions employees to and from the airport, the motel at which the South African workers stayed, the Citgo refinery, and the Griffith, Ind., shop. Each day Sedeman drove three or four of the South African workers to the job site from the hotel at which they stayed. Furthermore, Sedeman admitted in his deposition that it was his responsibility, even if he wanted to go somewhere else, to drive Tarkwin Enrick, another South African worker, back to the hotel, because there was no public transportation and Enrick had no other way to return to the hotel from the job site.

"Although Sedeman did not bill for travel time, Thermal Solutions reimbursed him for all gas expenses.

"On Nov. 11, 2001, Sedeman had signed out for the day, and was driving Enrick to the hotel when the accident occurred. The accident occurred shortly after Sedeman pulled out of the Citgo gate."
Scope of Employment

Here are some highlights of Hibbler's opinion (with various omissions not noted in the quoted text):

"Both Thermal Solutions and CRC-Evans argue that Sedeman was not acting as an agent at the time of the accident. The crux of the corporate defendants' argument is that Sedeman had clocked-out for the day and at the time of the accident was traveling to the hotel at which he stayed.

"Under Illinois law, for an employer to be vicariously liable for an employee's torts under the doctrine of respondeat superior, the torts must have been committed within the scope of the employment. Whether such a relationship exists is a factual question, and summary judgment is inappropriate when scope of employment is at issue. In other words, if reasonable people could draw different conclusions regarding whether a person acted within the scope of his employment, summary judgment is not proper.
"Illinois does not precisely define 'scope of employment,' and instead draws from the Restatement (Second) of Agency."

Section 228 of the Restatement sets forth three criteria to consider when determining whether an agent's conduct falls within the scope of employment:

"Conduct of a servant is within the scope of employment if, but only if:

"(a) it is of the kind he is employed to perform;

"(b) it occurs substantially within the authorized time and space limits;

"(c) it is actuated, at least in part, by a purpose to serve the master."

"The general rule," Hibbler explained, "is that travel between work and home is not within the scope of employment. There are, however, exceptions to this rule, most notably, when employers cause employees to travel away from a regular workplace, when employers provide the transportation, or when the employees' travel is at least partly for their employers' purposes rather than simply serving to convey the employees to or from a regular job site.

"The court finds that reasonable persons could differ as to whether Sedeman was acting in the scope of his employment.

"Here, Thermal Solutions clearly benefited from Sedeman's use of the minivan. First, Sedeman provided transportation to three to four workers on a daily basis. Without relying on Sedeman to provide this service, Thermal Solutions could not have enjoyed the services of the other workers.

"Second, by renting a minivan and relying on one worker to provide transportation for others, Thermal Solutions was able to save money on rental costs and gasoline.

"Moreover, if Thermal Solutions directed Sedeman to provide transportation to other workers, then the act of traveling to and from work is of the kind Sedeman was hired to perform and occurred within the time and scope of his employment. See, e.g., Hindle v. Dillbeck, 68 Ill.2d 309 (1977) (where crew members that depended on company to provide transportation to and from the job site, an injury during a trip to or from work was incurred in the course of employment); Hall v. DeFalco, 178 Ill.App.3d 408 (1988) (employer who supplies a means of transportation to or from work has brought travel to and from work within the scope of employment); see also Anderson v. Falcon Drilling Co., 695 P.2d 521, 524-25 (Ok. 1985) (when employer required employees to car-pool, they were within the scope of employment when traveling to and from work because the travel involved a benefit to employer)."

Loaned Employees

"CRC-Evans offers another reason why summary judgment should be granted in its favor. According to CRC-Evans, its subsidiary, IHT, loaned Sedeman to Thermal Solutions.

"An employee in the general employment of one company may, with his consent, be loaned to another company for a special purpose. When such a transfer occurs, the second employer, not the first, would be liable for the employee's negligence.

"Whether such a transfer has occurred, however, is usually a question of fact, but may become a question of law where the undisputed facts are susceptible to but a single inference.
"CRC-Evans argues that the undisputed facts establish that it loaned Sedeman to Thermal Solutions for the special project at the Citgo refinery, and therefore it is no longer liable for any of Sedeman's alleged negligence. Again, CRC-Evans' characterization of the undisputed facts is inaccurate. CRC- Evans relies heavily on testimony from Sedeman that Robinson, Thermal Solutions' supervisor at the Citgo site, had the authority to direct Sedeman's work and to discharge him.

"CRC-Evans cites a multitude of cases to support its contention that because Thermal Solutions had the right to control Sedeman, he was a 'loaned employee.' "

According to Hibbler, all but one of the cases CRC-Evans cited "examines whether a loaned employee relationship exists under the Worker's Compensation Act, and not in the context of employer liability for the negligence of its employees. The distinction is important because the standard for demonstrating that an employee has been loaned differs depending on the context. See County of Tazewell v. Industrial Commission, 193 Ill.App.3d 309, 315-16 (1989) (noting the difference between the loaned-servant doctrine in the context of workers' compensation and personal injury resulting from an agent's negligence).

"Illinois courts have repeatedly made clear that whether an employee sent by his general employer to another for the performance of special work becomes a loaned employee only if 'he is wholly free from the control of the first employer and wholly subject to the control of the second employer.'

"It is not sufficient that an employee is partially under the control of a third person or even takes day-to-day directions from a third person. To create a loaned employee relation, the original employer 'must resign full control of the employee.'

"Further, when a general employer has the authority to substitute another servant at any time, when the time of the new employment is short, and when the loaned servant is a specialist, Illinois courts have found that an employee is not a loaned employee but instead continues his general employment.

"There is evidence in the record from which a reasonable inference can be drawn that CRC-Evans did not fully relinquish control of Sedeman. Among other things, in the contract Sedeman signed with CRC-Evans' subsidiary, CRC-Evans gave itself absolute discretion to set and change Sedeman's working hours. CRC- Evans also retained the right to terminate Sedeman and directed him to follow its grievance procedures should he have any grievance. Sedeman testified that he understood that IHT retained the right to terminate him at any point.

"These facts are enough to place in dispute the question of whether Sedeman was 'wholly free from the control' of CRC-Evans. Therefore, a jury must decide whether Sedeman was a loaned servant, and summary judgment on that ground is improper.

"Contrary to the defendants' argument, there is a dispute regarding whether Sedeman was free to drive where he chose after work. A reasonable finder of fact could conclude that Thermal Solutions required Sedeman to drive other employees to and from work. Consequently, a reasonable finder of fact could find that transporting employees to and from work was part of Sedeman's job responsibilities and therefore could also conclude that Sedeman was acting within the scope of his employment at the time of the accident, as he was transporting another employee to or from work.

"The defendants' motion for summary judgment on the ground that Sedeman was not acting within the scope of his employment at the time of the accident is therefore denied."

Back to Trial Notebook Main page