Thursday, January 18, 2007, 11:20 AM

COA Applies Workers' Comp. Statutory Employer Law To Purchase And Lease Agreements

Under NC workers' compensation law, a contractor who has to perform work for another may sublet work to a subcontrator. But the contractor will be liable for workers' compensation benefits to the subcontractors' injured workers if the contractor failed to obtain a certificate stating that the subcontractor had workers' compensation insurance. N.C. Gen. Stat. ยง 97-19.

At issue in Masood v. Erwin Oil Co., filed Tuesday, was whether Erwin Oil was a contractor under a purchase agreement, and whether Abassi, Erwin's tenant, was a subcontractor under a lease agreement, such that Erwin was liable to Abassi's injured employee, the plaintiff.

Erwin was a gas wholesaler; it bought gas from Amoco and resold it. Erwin's contract with Amoco for purchasing gas included broad marketing language: The contract required best efforts for the marketing of Amoco's gas, as well as the sale of Amoco's gas.

Erwin was also a lessor of gas stations and gas station equipment, and Abbasi was one of its tenants. Under Abassi's lease with Erwin, Abassi was required to maintain the station according to Amoco image standards and to operate the station for a certain number of hours each day. The contract apparently contained no specific gas marketing and sales requirements.

The Majority held that the broad marketing language in the gas purchase contract between Amoco and Erwin made Erwin a contractor regarding the gas it bought from Amoco, and the maintenance and operating hours requirements in the lease between Erwin and Abassi were sufficient to make Abassi Erwin's subcontrator regarding the Amoco gas. Therefore, under section 97-19, Erwin was the statutory employer of Abassi's injured worker and liable for workers' comp. benefits to him.

Judge Bob Hunter dissented from the majority, stating that the majority was expanding section 97-19 beyond its intended scope by applying it to a purchase agreement and a lease agreement. Judge Hunter would have held that Erwin was not a principal contractor, Abassi was not a subcontractor, and 97-19 was inapplicable.

Wholesalers and other "middlemen," whose purchase contracts may include broad marketing language and whose contracts with distribution points may include operating hour, display, or other requirements, could be statutory employers under Masood and will surely be interested in how this case plays out at the Supreme Court, assuming the defendants appeal.


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