On certification to the Superior Court, Appellate Division.
In this appeal, the Court considers whether a general employer may be held vicariously liable under the doctrine of respondeat superior for injuries caused by the alleged negligence of a borrowed, or "special" employee, engaged in the business of a special employer.
On October 27, 1998, plaintiff, Sergio Galvao, was injured while working on the Route 21 Viaduct Replacement Project in Newark, when a rebar cage used for the pouring of concrete failed, causing plaintiff to fall twenty feet onto another rebar cage. Employees of defendant, G.R. Robert Construction Company, Inc. (Robert), the general employer, had constructed the defective rebar cage. At the time of the accident, Galvao's W-2 form listed George Harms Excavating Company (Excavating), an affiliate of Robert, as the payor of his salary.
Robert and Excavating are wholly owned subsidiaries of George Harms Construction Company (GHCC). GHCC formed both Robert and Excavating as part of an arrangement they have referred to as "double breasting," where the parent has formed the subsidiary companies that are subject to separate collective bargaining agreements based on the service provided by the particular subsidiary and the corresponding union membership of that subsidiary's employees. Robert and Excavating serve as payroll companies that supply employees to GHCC and receive reimbursement from GHCC for their respective payroll expenses. Those reimbursements are their sole income and neither company can do any business on its own or have any business purpose other than to provide employees to GHCC for work on that company's construction projects.
When Galvao was injured, GHCC was performing construction and related services on a project pursuant to a contract with the New Jersey Department of Transportation (DOT). GHCC and DOT were the only parties to the contract and GHCC controlled the direction and supervision of all workers, which necessarily included all employees of Robert and Excavating. Similarly, neither Robert nor Excavating had any responsibility for directing or supervising any aspect of the project or for safety at the job site. In sum, Robert had no other purpose on the project separate and distinct from GHCC, and its sole purpose in that respect was to supply employees to GHCC.
In May 1999, Galvao filed this third-party action against Robert, asserting liability under the doctrine of respondeat superior for the alleged negligent construction of the rebar cage by Robert's employees. He had already filed a workers' compensation claim against GHCC and received benefits. The trial court dismissed the complaint on Robert's motion for summary judgment. In doing so, the court held that GHCC, Excavating, and Robert shared the single purpose of furthering the business interests of GHCC and that GHCC had exclusive control over Excavating's and Robert's employees when the accident occurred. Therefore, according to the trial court, whether analyzed under the control test or the business-furtherance test, GHCC was solely responsible for the alleged negligence that caused Galvao's injury, and therefore no third-party liability should apply to Robert. In an unpublished opinion, the Appellate Division affirmed substantially for the reasons set forth by the trial court.
The Supreme Court granted Galvao's petition for certification.
HELD: The general employer in this case cannot be held vicariously liable under the doctrine of respondeat superior for injuries caused by the alleged negligence of a borrowed, or "special" employee, engaged in the business of a special employer where the general employer did not control the special employee and the special employee did not further the business of the general employer.
1. Although the traditional essence of vicarious liability based on respondeat superior relies on the concept of employer control over an employee, cost spreading policies and principles underlie modern application of the doctrine to impose vicarious liability on an employer. (pp. 6-8)
2. The two most common tests for determining whether a general employer may be held vicariously liable for the negligence of a special employee are the control test (which seeks to place responsibility on the employer having the right of control at the time the tortious act occurs) and the business-furtherance test (which places responsibility on the employer whose business purpose is furthered). Although both tests have been criticized as capable of producing inconsistent interpretations and results, New Jersey caselaw has not produced a conclusive determination as to the appropriate analysis in special employee settings. Some decisions have applied the control test, while others have applied the business-furtherance and dual-liability tests. (pp. 8-13)
3. The proper standard to apply when determining whether to hold a general employer vicariously liable for the alleged negligence of a special employee synthesizes components of both the control and business-furtherance tests, thus giving due weight to the traditional justification of respondeat superior liability (control) and to the modern justification (deliberate allocation of a risk). Under the test, which contains two parts, the threshold inquiry is whether the general employer controlled the special employee. This first prong would be satisfied by either on-spot or broad control by a general employer. If control cannot be found on the part of the general employer, then vicarious liability cannot be imposed on that employer for the alleged negligence of the employee. If the general employer did exercise some control, however, then it must be ascertained whether the special employee furthered the business of the general employer. A special employee will be considered to be furthering the business of the general employer if the work being done by the special employee is within the general contemplation of the general employer and the general employer derives an economic benefit by loaning its employee. If the answer to the second question is in the affirmative, then the general employer may be held vicariously liable for the alleged negligence of a special employee. (pp. 13-15)
4. In this case, plaintiff cannot satisfy either prong necessary to hold Robert vicariously liable under the doctrine of respondeat superior. The mere fact that Robert did not control the project or the activities on the project, of itself, precludes a basis for a finding of liability. Although the lack of control ends the inquiry, Robert also did not derive any economic benefit by providing special employees to GHCC. (pp. 15-17)
5. Although the facts in this case do not support dual liability, nothing in this opinion should be construed as foreclosing that possibility in a situation where both the general and special employers retain some control over a project and both stand to reap an economic benefit from it. (p. 17)
Judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, ALBIN, and WALLACE join in JUSTICE LaVECCHIA's opinion. JUSTICES LONG and ZAZZALI did not participate.
The opinion of the court was delivered by: Justice LaVECCHIA
In this appeal, we are asked to determine whether a general employer may be held vicariously liable under the doctrine of respondeat superior for injuries caused by the alleged negligence of a borrowed, or "special" employee, engaged in the business of a special employer. Nearly a decade ago in a case similar to this one, Volb v. G.E. Capital Corp., 139 N.J. 110 (1995), we observed that two tests had been put forward for use in making such determinations: the control test, which asks whether the general employer controlled the activities of the special employee loaned to the special employer; and the business-furtherance test, which asks whether the activities of the special employee furthered the general employer's ...