Borrowed Servants on Virginia's Waterfront: A Muddied Predicament for Employers

Third party access to waterfront property has become a norm and necessity for most waterfront businesses.  Preventing third party access often results in lost business opportunities and profits.  In some cases, prevention can result in breach of contract or tortious interferences with business suits brought against the property owner and/or operator.  Yet, allowing third party access complicates employment relationships at the worksite and the legal responsibilities of the business determined by a court to be a controlling employer.  

An intersection of federal and state jurisdictions and their corresponding laws such as the Virginia Workers Compensation Act, the Jones Act, the United States Longshore and Harbor Workers Compensation Act (“LHWCA”), the Admiralty Extension Act, the Savings to Suitors Clause as well as federal and state common laws complicate the definition of employer-employee relationships for those companies conducting business along waterfronts in Virginia. Uncertain employment status can lead to expensive liability suits under either state or federal law or to long term workers compensation claims under state or federal law that waterfront businesses could have avoided with careful planning in their contractual and insurance negotiations and drafting.  One particular area of confusion within the employer-employee relationship involves the different interpretation and application of the LHWCA by the United States Court of Appeals for the Fourth Circuit and the Supreme Court of Virginia.  This current legal dichotomy affects a wide variety of industries that drive our Commonwealth’s economic engines.

Water borne commerce obviously plays a major role in economic development for states found within the jurisdiction of the Fourth Circuit.  The East Coast’s third and fourth most productive ocean marine cargo terminals, the nation’s largest naval base, the nation’s most productive coal marine terminal, public and private shipyards and numerous other waterfront industries along rivers and bays operate within this jurisdiction.  It has always been prudent for emerging and established waterfront business in Virginia to consider the Fourth’s legal precedent to develop, institute, and apply business plans and models.  However, this precedent does not create a crystal ball especially when state courts within the federal circuit do not adopt the Fourth’s interpretation and application of federal law. 

The LHWCA incorporates a concept known as the borrowed servant doctrine.  In a nutshell, this doctrine can force a waterfront business to assume employer status of a third party's employee.  The Fourth Circuit incorporates a streamlined contract centric analysis to determine borrowed servant status.  The Virginia Supreme Court, on the other hand, has adopted a nine part control balancing approach that originated in the United States Court of Appeals for the Fifth Circuit years ago.  The Fourth Circuit has specifically rejected the Virginia Supreme Court’s analysis of federal law because the nine factor calculus “provides insufficient guidance to prospective litigants about the application of a legal standard.”  Because the Virginia Supreme Court does not have to adhere to Fourth Circuit opinion, the continued use of the nine factor probe makes predicting employment relationships on the waterfront perfectly muddy.

While the clear break in Fourth and Fifth Circuit analysis and the Virginia Supreme Court’s current reliance on older Fifth Circuit authority makes the borrowed servant puzzle ripe for appeal to the United States Supreme Court, Virginia waterfront businesses are left torn in the middle until our highest court resolves the issue.  Other federal circuits have recognized the dichotomy in employment analysis and have begun adopting approaches more in line with the Fourth’s contract centric approach so that businesses within those jurisdictions will have a beacon to which they can adjust their courses.  Until the United States Supreme Court takes the case that will resolve the conundrum, Virginia’s waterfront employers should carefully consider the extent of control they exert over third party employees on their property and draft contractual terms and purchase insurance coverage according to how much control they intend to exert.  Too little control opens the waterfront employers to expensive and sometimes crushing liability claims and too much control opens these employers to lifetime workers compensation coverage for another’s direct employee.

Third party access to waterfront property in Virginia has become a norm in an uncertain employment arena.  The uncertainty will continue to exist until the Virginia Supreme Court adopts Fourth Circuit analysis or the United States Supreme Court resolves the conflict.  Until that time, contractual clauses and the appropriate insurance should be used to lessen the uncertainty of employment relationships and allow waterfront business to thrive as owners and operators intended.  

Tom Berkley is a Pender & Coward shareholder focusing his practice on waterfront and maritime law matters.