FIRST CHOICE TEMPORARY, Applicant/Employer

METLIFE INS CO OF CT, Applicant/Insurance Carrier

MM SCHRANZ ROOFING INC, Respondent/Employer

TRANSPORTATION INS CO, Respondent/Ins. Carrier

First Choice Temporary and Metlife Insurance Company of Connecticut, c/o Travelers (applicants) submitted a petition for commission review alleging error in the administrative law judge's Findings and Order issued in this matter on April 30, 2009. M.M. Schranz Roofing, Inc. and Transportation Insurance Company (respondents) submitted an answer to the petition and briefs were submitted by the parties. At issue is the applicants' reverse application, which claims reimbursement due from the respondents for all worker's compensation the applicants paid for the conceded work-related injury sustained by the now deceased Eddie Crews on May 22, 1995.

The commission issued a decision in this matter on November 9, 2009, but respondents recognized an error in the commission's findings regarding the effective date of enactment for Wis. Stat. § 102.04(2m), and submitted a request for reopening of the decision. Pursuant to its authority under Wis. Stat. § 102.18(4)(b), the commission set aside its decision in an order issued on December 2, 2009. Additional briefing was requested from the parties, and this briefing has now been received and reviewed by the commission.

The commission has carefully reviewed the entire record in this matter, and hereby issues the following decision which reverses the administrative law judge's Findings and Order. The commission makes the following:

On July 23, 2004, Metlife and First Choice filed a reverse application claiming that full reimbursement is due from M.M. Schranz Roofing, Inc. (Schranz) and its insurance carrier, Transportation Insurance Company (Transportation). The reimbursement claim is based on the legal theory that at the time of his work injury, Crews was actually a loaned employee of the special employer, Schranz, making Schranz and Transportation the liable employer and insurance carrier for worker's compensation purposes. Schranz and Transportation argue in response that when Crews was performing work for Schranz on May 22, 1995, First Choice was Crews' statutory temporary help agency employer, and therefore pursuant to the cited statutes, First Choice and Metlife are the liable worker's compensation employer and insurance carrier.

During several years prior to 1995, Schranz had employed Crews as a roofer on an intermittent basis. Crews worked for Schranz as one of its regular employees from April 3, 1995 through April 29, 1995, and this period of employment included the performance of roofing work at Thoreau Elementary School in Milwaukee. Schranz had contracted with Milwaukee Public Schools to perform this roofing work. Schranz's contract with Milwaukee Public Schools required that at least 20 percent of the work be allocated to minority subcontractors. To that end, Schranz entered into a subcontract with P.L. Freeman Roofing, a sole proprietorship operated by Prentice Freeman, a minority individual. Freeman did not want the responsibilities of having employees working for his sole proprietorship, but he agreed with Schranz that he would secure temporary help from First Choice, and then send those temporary help individuals to Schranz so that they could perform the roofing work at Thoreau Elementary.

Consistent with Schranz's and Freeman's plan, Crews was sent to First Choice to apply for temporary employment, and First Choice formally hired him. Freeman then requested temporary help roofers from First Choice, who then assigned Crews and another roofer, Maurice McFadden, to Freeman. Freeman immediately sent Crews and McFadden to Schranz, where they continued to perform the roofing work at Thoreau Elementary that had been contracted by Schranz. Crews continued to perform this work until his injury on May 22, 1995. Schranz and Freeman arranged this ostensible change in employers in order to route Crews through the minority subcontractor, Freeman, so that Crews' and McFadden's employment at Thoreau Elementary could be counted as minority employment. First Choice operated under the mistaken assumption that Freeman had asked for the services of Crews and McFadden in order to perform roofing work for Freeman's sole proprietorship. First Choice was unaware of the fact that Freeman planned to assign Crews and McFadden to Schranz for work on the Thoreau Elementary project. First Choice issued the payroll checks that covered the wages due to Crews for his work at Thoreau Elementary from April 30, 1995 to May 22, 1995. However, Freeman reimbursed First Choice for those wages, together with a "mark up" fee, after Schranz had reimbursed Freeman.

After the work injury, Crews commenced a civil suit against Freeman, Schranz and Transportation (identified in the suit as Transcontinental Insurance), in an attempt to collect damages for alleged negligence. In its unpublished decision issued on March 27, 2001, the court of appeals held that when Crews was injured he was working as a "loaned employee" of the "special employer," Schranz.(1) Accordingly, the court additionally held that Schranz and Transportation were immune from civil suit pursuant to Wis. Stat. § 102.29(7), which provides:

"(7) No employee who is loaned by his or her employer to another employer and who makes a claim for compensation under this chapter may make a claim or maintain an action in tort against the employer who accepted the loaned employee's services."(2)

The court of appeals made the "loaned employee" determination in accordance with the tests and questions set forth in Seaman Body Corp. v. Industrial Comm., 204 Wis. 157, 235 N.W. 433 (1931), wherein the court explained:

"The relation of employer and employee exists as between a special employer to whom an employee is loaned whenever the following facts concur: (a) Consent on the part of the employee to work for a special employer; (b) Actual entry by the employee upon the work of and for the special employer pursuant to an express or implied contract so to do; (c) Power of the special employer to control the details of the work to be performed and to determine how the work shall be done and whether it shall stop or continue.

The vital questions in controversies of this kind are: (1) Did the employee actually or impliedly consent to work for a special employer? (2) Whose was the work he was performing at the time of injury? (3) Whose was the right to control the details of the work being performed? (4) For whose benefit primarily was the work being done?" Id. at 163.

The court of appeals noted that in his deposition, Crews admitted he had been working for Schranz for several weeks prior to his work injury, that he knew of the arrangement between Freeman and Schranz that resulted in his being sent to work for Schranz in order to meet the minority quota, that he consented to this arrangement, and that Schranz's foreman directed his work activities which were performed alongside other Schranz employees. Applying the Seaman Body tests to these facts, the court determined that there was an employer/special employer relationship between Freeman and Schranz,(3) resulting in Crews becoming a loaned employee of Schranz. The court went on to hold that because Crews was Schranz's loaned employee for worker's compensation purposes, Schranz was immune from civil liability. Id. at 16.

Respondents Schranz and Transportation, as well as the administrative law judge, misread the court of appeals decision to hold that for worker's compensation purposes Crews was an employee of First Choice when he was injured. In fact, the court held that for worker's compensation purposes, when he was injured Crews was a loaned employee of the special employer Schranz. Id.. Respondents and the administrative law judge misinterpreted the first two sentences of the following paragraph in the court's decision:

"Crews also related that while he had received pay checks directly from Freeman and Schranz in the past, he was receiving a paycheck from First Choice at the time of his injury. Therefore, he knew he was not a Schranz employee and that he was an employee of a temporary help agency. Thus, he had no obligation to work for Schranz and he could have easily refused or declined to work there. Crews's willingness to continue working for Schranz is evidence of his consenting to being loaned by Freeman to Schranz." Id. at 15.

In this quote and in other parts of its decision, the court discusses the factual background involved in the arranged transformation of Crews from a regular Schranz employee to a minority subcontractor employee. The court describes how Crews willingly acceded to employment with First Choice, but for worker's compensation purposes was willingly and ultimately assigned as a loaned employee from Freeman to Schranz. The reference to Crews knowing "that he was an employee of a temporary help agency," is a reference to Crews' acquiescence to being formally hired by First Choice. However, the court goes on to recount that after the assignment from First Choice to Freeman, Crews also consented to being loaned from Freeman to Schranz. Thus, the court's reference to First Choice as Crews' temporary help agency employer is a reference to an employment that is not relevant to worker's compensation coverage. By the time of the work injury Freeman had loaned Crews to Schranz, and for worker's compensation purposes Schranz was Crews' special or borrowed employer, making Schranz and its insurer liable for his work-related injury.(4)

Contrary to their position taken in the civil action decided by the court of appeals, respondents Schranz and Transportation now argue that First Choice should be seen as Crews' time-of-injury employer pursuant to Wis. Stat. § § 102.01(2)(f) and 102.04(2m).

Wis. Stat. § 102.01(2)(f), defining "temporary help agency" for worker's compensation purposes, was created in its original form in Chapter 92, Wisconsin Laws of 1981. The version of the statute in effect on the date of Crews' injury, which is still current, provides:

"(f) 'Temporary help agency' means an employer who places its employee with or leases its employees to another employer who controls the employee's work activities and compensates the first employer for the employee's services, regardless of the duration of the services."

Wis. Stat. § 102.04(2m), was enacted by 1997 Wisconsin Act 38, and became effective January 1, 1998. It provides:

"A temporary help agency is the employer of an employee whom the temporary help agency has placed with or leased to another employer that compensates the temporary help agency for the employee's services. A temporary help agency is liable under s. 102.03 for all compensation and other payments payable under this chapter to or with respect to that employee, including any payments required under s. 102.16(3), 102.18(1)(b) or (bp), 102.22(1), 102.35(3), 102.57, or 102.60. Except as permitted under s. 102.29, a temporary help agency may not seek or receive reimbursement from another employer for any payments made as a result of that liability."

However, pursuant to Sections 48(1) and 49 of 1997 Wisconsin Act 38, Wis. Stat. § 102.04(2m), does apply to First Choice's/Travelers' claim for reimbursement because that reimbursement claim was initiated in 2004, subsequent to the effective date of Wisconsin Act 38. Section 48(1), and the relevant portion of Section 49 of Act 38 provide:

"SECTION 48. Initial applicability. (1) TEMPORARY HELP AGENCIES. The treatment of section 102.24(2m) of the statues first applies to reimbursement sought or received by a temporary help agency, as defined in section 102.01(2)(f) of the statutes, on the effective date of this subsection, notwithstanding that the reimbursement is of a payment made before the effective date of this subsection.

SECTION 49. Effective dates. This act takes effect on January 1, 1998, or on the day after publication whichever is later...."

Wis. Stat. 102.01(2)(f), results in worker's compensation liability attaching to employees of a temporary help agency as defined in the statute, and the concept of temporary help agency is broadly interpreted to include employers who place an employee with or lease or loan an employee to another employer.(5) Wis. Stat. § 102.04(2m), specifically provides that a statutory temporary help agency employer that places an employee with or leases an employee to another employer that compensates the temporary help agency for the employee's services, is the liable employer of that employee for worker's compensation coverage. Respondents Schranz and Transportation argue that by operation of these statutes, for worker's compensation purposes, Crews must be determined to have been First Choice's or Freeman's employee at the time of his work injury.

However, under the unique factual circumstances of this case, neither First Choice nor Freeman acted as a statutory temporary help agency employer of Crews while he worked for Schranz at Thoreau Elementary. First Choice is a temporary help employment agency, but it did not place Crews with Schranz or lease him to Schranz, as would have been required in order for First Choice to have been Crews' statutory temporary help agency employer under either Wis. Stat. § § 102.01(2)(f), or 102.04(2m). First Choice placed Crews with Freeman, believing that Freeman had asked for Crews in order to perform roofing work for Freeman's sole proprietorship. First Choice did issue payroll checks to Crews after First Choice had hired him, but Schranz was the real payor of these wages, accomplished through the middleman, Freeman. The necessary statutory element of First Choice "placing" Crews with Schranz, or "leasing" Crews to Schranz, never occurred. Thus, First Choice was not Crews' statutory temporary help agency employer when he was injured while working for Schranz on May 22, 1995.

Respondents Schranz and Transportation Insurance attempt to dismiss the statutory requirement of "placing" or "leasing" the employee found in Wis. Stat. § § 102.01(2)(f) and 102.04(2m), by arguing that the statutes do not require "privity" between an employer such as First Choice and a worker such as Crews, in order to be applicable. This argument is based on a word not found in the statutes, privity. The argument simply serves to avoid the factual question of whether or not First Choice "placed" Crews with Schranz or "leased" Crews to Schranz. The fact is that no such placing or leasing ever took place.

Consistent with his agreement with Schranz, Freeman loaned Crews to Schranz to work at Thoreau Elementary. Freeman held himself out to be a minority subcontractor, but he never entered into an employment contract with Crews, who was formally employed by First Choice. Thus, Freeman was never an "employer" of Crews, as would have been required to make either Wis. Stat. § 102.01(2)(f), or Wis. Stat. § 102.04(2m), applicable. When Freeman loaned Crews to Schranz he assumed the judicially-created role of loaning employer, while Schranz assumed the role of special employer.(6) For worker's compensation purposes Crews thus became Schranz's loaned employee; and the special employer, Schranz, assumed liability for worker's compensation coverage. (7)

The footnote to Wis. Stat. § 102.02(2)(f), was written in contemplation of an "original employer" who has "loaned or leased" its employee to another employer. Such individual continues to be the employee of the original employer as long as the original employer retains some of the rights or obligations of the "original employment contract." Freeman was not an "original employer" of Crews, because he never entered into an employment contract with Crews. As previously noted, First Choice did not loan or lease Crews to Schranz.

Because the facts of the case demonstrated that neither First Choice nor Freeman acted as a statutory temporary help agency in employing Crews to perform the roofing work at Thoreau Elementary, the court of appeals utilized the Seaman Body tests to determine whether or not the judicially-created relationships of loaning employer/special employer, and special employer/loaned employee, existed between Freeman and Schranz, and between Schranz and Crews, respectively. If First Choice or Freeman had fit within the definition of a statutory temporary help agency, the Seaman Body tests would have been inapplicable.8(8)

Respondents Schranz and Transportation additionally argue that finding them liable for Crews' worker's compensation coverage is contrary to the legislative purpose of eliminating the ambiguity and litigation that has often accompanied application of the loaned employee doctrine and the Seaman Body tests. Respondents correctly note that a primary intent of the footnote to Wis. Stat. § 102.01(2)(f), and of the passage of Wis. Stat. § 102.04(2m), was to simplify the law by assuring that most employers who routinely place their employees with another employer retain statutory liability for worker's compensation coverage. This result is accomplished by defining such placement as the action of a statutory temporary help agency employer, and assigning worker's compensation liability to such statutory employers.

However, for its own purposes Schranz created a circumstance that was outside the routine placement of an employee with another employer, a circumstance that created its own complications for application of the law. The statutes were never intended to shift worker's compensation coverage liability from an employer such as Schranz, that arranges to route its existing employee through a temporary help agency and middleman in order to serve its business purposes, continues to utilize the services of the employee through a "loaned employee" arrangement with the middleman, and then attempts to shift liability for an injury sustained in its workplace to the temporary help agency that was not made aware of where the employee was actually working, or to the middleman who never actually employed the employee. Not surprisingly, objective application of the facts of this case to the technical requirements of the statutes results in the finding that neither First Choice nor Freeman fits within the statutory parameters of being Crews' statutory temporary help agency employer. The loaned employee doctrine applies and results in liability for Schranz and Transportation.

In summary, the commission finds that when Crews sustained his work-related injury on May 22, 1995, he was working as a loaned employee of the special employer Schranz; and for purposes of worker's compensation liability, he was not employed by either First Choice or Freeman. Respondents Schranz and its insurance carrier, Transportation, are therefore liable for all worker's compensation payments made as a result of the work injury, and they shall reimburse applicant Metlife for the compensation it paid in the amount of $3,017,943.17.

Now, therefore, this

Dated and mailed March 8, 2010
crewsed . wrr : 185 : 6 ND § 2.16-

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

The commission and the administrative law judge reviewed this case based on the stipulated facts. No issue of witness credibility arose, and the commission's reversal is made pursuant to the legal analysis set forth above.

cc: Attorney Catherine Thomas
Attorney Mark Miller
Abby Butler
Jennifer McKinney
Corey Finkelmeyer

Appealed to Circuit Court. Affirmed December 28, 2010.  Appealed to the Court of Appeals. Affirmed December 21, 2011.  MM Schranz v. First Choice and LIRC, 2012 WI App, 338 Wis. 420, 809 N.W.2d 880.  Petition for review denied.

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(1)( Back ) Eddie Crews v. Freeman Roofing, et al., Unpublished Dist. I Ct. App. Case No. 2000AP0423 (March 27, 2001).

(2)( Back ) Wis. Stat. 102.29(7) took effect on January 1, 1990.

(3)( Back ) The court of appeals decision contains a typographical error stating: "Thus, an employer/special-employee relationship existed between Freeman and Schranz." It is evident that in this sentence "special-employee" was intended to be "special-employer," because the reference is to Schranz, an employer. Additionally, to read "special employee" as written would be nonsensical in the context of the facts and the court's decision.

(4)( Back ) The synonymous terms "special employer" and "borrowed employer" each refer to the employer who accepts the services of the "loaned employee," and thus becomes that employee's employer for worker's compensation purposes. Gansch v. Nekoosa Papers Inc., 158 Wis. 2d, 743, 745, 463 N.W.2d 682 (1990).

(5)( Back ) See the footnote to Wis. Stat. 102.01(2)(f), which provides:

 "Leasing agencies that lease employees to other employers would be responsible for worker's compensation benefits in the same way that temporary help agencies are. An employee continues to be the employee of the original employer, though that employee may have been loaned or leased to another employer, if the original employer continues to retain at least some rights or obligations of the original employment contract such as payment of wages or the power to terminate the employee. This corrects the situation that can occur when employees leased to another employer are injured during the leasing period and the employer litigates who is responsible for the benefits while the employee waits for his or her compensation. This clarification also eliminates the double collection of premiums by insurance carriers on the wages of the employee from both the leasing agency and the employer to whom the employee is leased."

(6)( Back ) See Seaman Body Corp. v. Industrial Commission, 204 Wis. at 162-63; and Cayll v. Waukesha Gas & Electric Co., 172 Wis. 554, 558-59, 179 N.W. 771 (1920).

(7)( Back ) As the court of appeals noted in its decision:

 "The record is undisputed that Crews was First Choice's employee, which in turn assigned him to Freeman, which sent Crews to work for Schranz." Id. at 12.

 "By his conduct, Crews impliedly consented to be loaned by Freeman to Schranz to fill its minority contract requirements . . . Crews was a loaned employee." Id. at 16 (emphasis added).

(8)( Back ) See Bauernfeind v. Gell, 190 Wis. 2d 701, 528 N.W.2d 1 (1995), wherein the court explained:

 "We agree with Coleman-Zell and conclude that sec. 102.29(6), Stats., was intended to replace the Seaman test only with respect to the employees of a temporary help agency. The Seaman test remains intact with respect to all other alleged loaned employees who make a claim against a temporary employer. Thus, employees of a temporary help agency are subject to the statutory test, while all persons alleged to be loaned employees remain subject to the Seaman test. Nothing in the legislative history of the temporary help agency statutes expressly or impliedly contravenes this result." Id. at 712 (emphasis added).

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