What vessel operators and maritime staffing companies need to know before the next injury.
Companies engaged in offshore operations and third-party staffing companies face liability when a worker supplied by a staffing company is injured at sea, depending on the nature of their relationship. Understanding that relationship is critical to assessing potential liability exposure before an injury occurs.
We recently obtained dismissal via summary judgment on behalf of our client, a marine staffing company, based on its relationship with its offshore vessel operator customer. In that case, a third-party worker our client provided was injured while serving on a vessel in the U.S. Gulf of Mexico. He sued our client and the vessel operator for Jones Act negligence, and the vessel operator, in turn, filed a contractual indemnity cross-claim against our client. The dismissal of both claims highlights the importance of understanding the relationship between marine staffing companies and their customers before an injury happens.
While several considerations apply, this article offers a primer on common issues that arise when third-party employees are injured at sea: (1) who qualifies as a Jones Act “employer”; (2) the borrowed-servant doctrine; and (3) independent contractual obligations that arise in response to an offshore injury.
WHO IS THE “EMPLOYER” UNDER THE JONES ACT?
Offshore operators in today’s maritime industry often rely on third-party staffing companies to identify and provide workers for a specific role on a vessel. But if one of those workers is injured at sea, who is the worker’s “employer” under the Jones Act? The offshore operator? The staffing company?
The answer is either of them, and possibly both. This confusing answer stems from the Jones Act’s failure to define “employer.” Courts have grappled with this ambiguity in cases involving offshore operators and third-party staffing companies. Under the current body of law, a Jones Act seaman can have more than one “employer” and, therefore, can sue more than one of them. The two most common “employers” are the “direct” employer (also referred to as a “nominal,” “payroll,” or “lending” employer) and the “borrowing” employer. A staffing company is typically classified as the former. An offshore operator may qualify as the latter, depending on the application of the “borrowed employee” doctrine.
THE “BORROWED EMPLOYEE” DOCTRINE
The “borrowed employee” doctrine considers as many as nine factors to determine whether a seaman can sue a “borrowing” employer under the Jones Act. Those factors are: (1) who controlled the employee and the work performed; (2) whose work was being performed; (3) whether there was an understanding between the lending and borrowing employers; (4) whether the worker agreed to the new arrangement; (5) whether the original employer terminated its relationship with the employee; (6) who furnished the tools and place to work; (7) how long the assignment lasted; (8) who could fire the employee; and (9) who had the obligation to pay the employee. Although courts evaluate these factors on a case-by-case basis, and no single factor is dispositive, the first factor is often the most critical. While offshore operators and third-party staffing companies should consider these factors when contracting with one another, courts routinely disregard contract terms seeking to limit or exempt the operator’s Jones Act liability.
VALID INDEPENDENT CONTRACTUAL OBLIGATIONS
Despite the courts’ scrutiny of attempts to contract around the “borrowed employee” factors, courts do not view defense and indemnity provisions through the same lens. As a result, third-party staffing companies and offshore operators should strive for robust liability-shifting terms, but they should also keep in mind any applicable state anti-indemnity laws.
In Texas, for example, defense and indemnity provisions must (1) be conspicuous, i.e., presented in typeface that distinguishes the terms from the rest of the contract’s provisions; and (2) satisfy the “express negligence” doctrine, which requires the contracting parties to specifically and unambiguously state their intent to shift liability for a party’s own negligence within the four corners of the contract.
PRACTICAL STEPS TO CONSIDER FOR FUTURE CONTRACTS
With these issues in mind, the following steps may help third-party staffing companies and offshore operators reduce uncertainty when an injury occurs at sea:
- Draft contract provisions aligned with the worker’s day-to-day duties and supervision.
- Keep detailed logs of job assignments, supervisor reports, and payment history.
- Draft defense and indemnity provisions in compliance with applicable state law.
- Ensure that defense and indemnity language specifically identifies the circumstances in which either party will be liable for the other’s negligence.
- Confirm that workers’ compensation coverage is properly secured and coordinated between the staffing company and the operator.
- Revisit staffing agreements periodically, since a template that worked in one relationship may not hold up in another.
These arrangements are common throughout the offshore and inland marine industries, and the liability questions they raise are foreseeable. Aligning the contract with operational practice before an incident occurs is far less costly than sorting out those questions in litigation afterward.
The authors
Trent Wallis is a director at Galloway, Johnson, Tompkins, Burr & Smith in Houston, where he represents vessel owners, marine terminal operators, stevedores, and maritime staffing companies in Jones Act defense and admiralty litigation. He may be reached at [email protected]. Jacob C. Soto is an associate in the firm’s maritime practice. He may be reached at [email protected].
