Watters Associates v. Superior Court

Citations: 227 Cal. App. 3d 1341; 278 Cal. Rptr. 417; 91 Cal. Daily Op. Serv. 1410; 91 Daily Journal DAR 2236; 56 Cal. Comp. Cases 115; 1991 Cal. App. LEXIS 227Docket: A051688

Court: California Court of Appeal; February 25, 1991; California; State Appellate Court

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In Watters Associates et al. v. The Superior Court of Alameda County, the Court of Appeals of California addressed a case involving an injured temporary employee, Lamont G. Conley, who suffered severe injuries while operating a press brake. Conley filed a civil lawsuit against his employment agency (Watters Associates) and his temporary employer (Gardco Manufacturing, Inc.), alleging that the temporary employer and its employees intentionally removed the safety guard on the equipment, in violation of Labor Code section 4558. This law allows civil actions against employers who knowingly fail to ensure safety measures are in place. However, Conley did not claim that the agency itself removed the guard, leading to a prior ruling (Watters I) that established workers' compensation as Conley's exclusive remedy against the agency. 

Following this ruling, the temporary employer filed a cross-complaint against the agency for issues including equitable indemnity and breach of contract, alleging that the agency failed to provide adequately qualified workers. The agency responded with a demurrer, asserting that Labor Code section 3864 exempted it from liability in this context, as it did not participate in the removal of the safety guard. The court concluded that the cross-complaint was barred by section 3864, reinforcing the principle that the agency could not be held liable for the actions of the temporary employer.

The court overruled the demurrer in this case, leading to the filing of a petition. According to Labor Code section 3864, if an employee brings an action against a third party resulting in a judgment or settlement, the employer is not liable for reimbursement unless there is a prior written agreement. The superior court noted that section 3864 does not specifically address scenarios involving dual employers, indicating that the determination of loss of protected employer status is a factual issue not resolvable at the demurrer stage. The court acknowledged that Labor Code section 4558 could potentially exempt the action against the temporary employer from the workers' compensation exclusive remedy rule. 

The agency contended that the temporary employer's status as a third party subject to civil damages is irrelevant. If Conley satisfies the criteria of section 4558, the temporary employer is deemed a third party liable in tort but cannot seek indemnity from the agency under section 3864. Conversely, if the criteria are unmet, Conley’s civil suit against the temporary employer is barred, negating any basis for the temporary employer’s cross-complaint against the agency. 

The temporary employer conceded that no written indemnity agreement exists with the agency but argued that the agency cannot invoke section 3864 as a defense, citing a prior ruling (Watters I) that claimed the agency was not Conley's employer. The court clarified that Watters I did not exclude the agency from being Conley’s employer but stated that Conley did not allege that the agency removed safety equipment, and section 4558 did not apply to the agency.

The temporary employer also contended that section 3864 should not prevent indemnity among co-employers, arguing that the purpose of the statute—to protect employers from indemnifying third parties for employee injuries—should not extend to barring indemnity between co-employers. However, the court emphasized the need to determine whether the temporary employer qualifies as a third party under section 3864. The conclusion reached is that an employer meeting the conditions of section 4558 is indeed a third party under section 3864, meaning that if Conley recovers from the temporary employer, the agency has no liability to indemnify. 

The decision referenced prior cases, including Alameda Tank Co. v. Starkist Foods, which upheld the right of employers to avoid liability beyond workers' compensation laws, reinforcing that creative legal strategies cannot circumvent the limitations imposed by section 3864.

Both temporary employment agencies and temporary employers are protected under the exclusive remedy doctrine for workers' compensation if applicable conditions are met. In such cases, the temporary employment agency acts as the general employer, while the business where the employee is assigned is considered the special employer. Employees can have multiple employers for workers' compensation purposes, allowing the special employer to enjoy immunity from common law negligence claims related to industrial injuries, similar to the general employer's immunity.

However, if the worker's compensation conditions are satisfied, an employer can be sued for tort damages if a specific statute, like Labor Code section 4558, exempts the employee from exclusivity under workers' compensation. The dual capacity doctrine, established in Duprey v. Shane, allows for an exemption if the employer also acts in a different capacity, such as a manufacturer of the injury-causing equipment, meaning workers' compensation may not be the exclusive remedy.

The exclusive remedy principle holds if the injury arises directly from the employment relationship. If an employer has a concurrent duty arising from a separate relationship, they may be treated as a third-party tortfeasor, losing their immunity. An example is shown in Bonus-Built, Inc. v. United Grocers, where an employer's involvement in the design of a product did not negate their employer status, thus maintaining immunity from third-party tort claims.

In ongoing proceedings, the applicability of Labor Code section 4558, rather than the dual capacity doctrine, determines if an employer is treated as a third-party tortfeasor. A prior ruling indicated that only the temporary employer could be treated as such under section 4558, confirming that the temporary employer cannot cross-complain for indemnity against the agency. The temporary employer attempts to frame the cross-complaint as a breach of contract issue, arguing that the employee's injury is merely a measure of damages, but this argument does not circumvent the legal principles at play, leaving the temporary employer without recourse against the agency should the cross-complaint be denied.

Temporary employers cannot hold the agency liable for failing to send qualified personnel to operate their machines. Employers that remove safety guards from power presses are responsible for any resulting civil damages. The Legislature did not impose sanctions on employers supplying unskilled workers, thus leaving workers' compensation as the sole remedy against such employers. The temporary employer's attempt to shift liability for an injury from their removal of the guard to the agency’s alleged negligence in employee selection does not alter the situation. The superior court incorrectly overruled the agency's demurrer, prompting a writ to vacate that ruling and require the court to sustain the demurrer without leave to amend. The decision did not necessitate consideration of the agency’s additional arguments for sustaining parts of the demurrer. A peremptory writ of mandate was issued to the Alameda County Superior Court accordingly, and the petition for Supreme Court review was denied on May 22, 1991.