HealthSmart Casualty Claims Solutions and Uninsured Employer's Fund v. Steve Ray Divino ( 2020 )

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Decker, Judges Beales and Russell
UNPUBLISHED
Argued by teleconference
STEVE RAY DIVINO
v. Record No. 1990-19-1
UNINSURED EMPLOYER’S FUND, CAVALIER
LAND INC., HARLEYSVILLE INSURANCE
COMPANY, JAMES McQUITTY, JR., JIMMY
McQUITTY HARDWOOD FLOORS AND
MULT. MISC. PROPERTIES ASSOCIATES, LC
MEMORANDUM OPINION* BY
HEALTHSMART CASUALTY CLAIMS SOLUTIONS JUDGE RANDOLPH A. BEALES
AND UNINSURED EMPLOYER’S FUND JULY 14, 2020
v. Record No. 2036-19-1
STEVE RAY DIVINO, CAVALIER LAND INC.,
HARLEYSVILLE INSURANCE COMPANY,
JAMES McQUITTY, JR., JIMMY McQUITTY
HARDWOOD FLOORS AND MULT. MISC.
PROPERTIES ASSOCIATES, LC
FROM THE VIRGINIA WORKERS’ COMPENSATION COMMISSION
W. Mark Broadwell (Forbes & Broadwell, on briefs), for Steve Ray
Divino.
Esther King (Jessica Hacker Trivizas; McCandlish Holton, PC, on
briefs), for HealthSmart Casualty Claims Solutions and Uninsured
Employer’s Fund.
Adam E. Strauchler (Teumer & Drash, on brief), for Cavalier Land
Inc. and Harleysville Insurance Company.
Brian N. Casey (Taylor Walker, P.C., on brief), for Mult. Misc.
Properties Associates, LC.
*
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
No brief or argument for James McQuitty, Jr. and Jimmy McQuitty
Hardwood Floors.
In this consolidated appeal, claimant Steve Ray Divino contends that the Workers’
Compensation Commission (“Commission”) erred in denying him benefits for an injury he
received while installing laminate flooring. He argues that the Commission erred in finding that
his employer was not subject to the Workers’ Compensation Act (the “Act”) because it had
regularly in service less than three employees. Divino also contends that the Commission erred
in finding that the owner and the property manager of the building where he was working when
he was injured were not his statutory employers under the subcontracted-fraction test of
Code § 65.2-302(B). The Uninsured Employer’s Fund and HealthSmart Casualty Claims
Solutions (collectively, “UEF”) also appealed the Commission’s decision, and, like Divino,
claim that the Commission erred in unanimously finding that the owner and the property
manager were not Divino’s statutory employers.
I. BACKGROUND
On appeal, we view the evidence in the light most favorable to the appellees, as we must,
because they prevailed before the Commission. See Osborne v. Forner, 36 Va. App. 91, 95
(2001). So viewed, the record before us establishes that on June 22, 2017, Divino was injured
while working on a laminate flooring project in the Time Building in Norfolk. The Time
Building was owned by Mult. Misc. Properties Associates, LC (“MMPA”) and managed by
Cavalier Land, Inc. (“Cavalier”) pursuant to a verbal contract.
Prior to Divino’s injury, Cavalier had entered into a lease agreement on behalf of MMPA
with CoreVelo, one of the Time Building’s existing tenants. The terms of the lease provided that
CoreVelo, which operates a Pilates and cycling studio, would lease both its current space and an
adjoining vacant space. Pursuant to an amendment to the lease, MMPA was required to perform
certain work on the adjoining space, identified in the lease amendment as the “Landlord’s
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Work,” to make it suitable for CoreVelo’s use. Cavalier, acting on behalf of MMPA, hired Jim
McQuitty Hardwood Flooring Co. (“McQuitty”), a flooring installation company, to perform the
flooring installation required by the lease amendment. Divino, an employee of McQuitty, was
injured while performing this work.
Divino submitted a claim for benefits to the Commission. During the proceedings,
Divino claimed that McQuitty was liable under the Workers’ Compensation Act as his actual
employer. He also claimed that MMPA and Cavalier were liable under the Act as his statutory
employers. After conducting two hearings, the deputy commissioner denied the claims, finding
none of the alleged employers liable under the Act. Upon review, the full Commission affirmed
the deputy commissioner’s decision, without dissent, and Divino and the UEF timely appealed to
this Court.
Jim McQuitty Hardwood Floor Company
Prior to the hearings before the deputy commissioner, the parties stipulated that Divino
“was an employee of Jim McQuitty Hardwood Floor Co. and/or Jimmy McQuitty in the sense
that McQuitty controlled the means and methods by which the Claimant performed his work,
(i.e., he was not an independent contractor).” McQuitty did not have workers’ compensation
insurance and was not present (or represented) at either of the hearings.
Divino testified that he had worked for McQuitty for approximately thirty years. His job
was to “[p]ut down floors, sand and finish floors, and whatever needed to be done.” He testified
that in 2016, McQuitty had five employees but then the “business changed.” He stated that by
late 2016, the company no longer had an office, and it had started storing all of its materials in
various places – including in Divino’s home. Divino testified that in 2017, the company only
had two employees in addition to Mr. McQuitty, whom Divino described as “the head man –
president.”
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Divino submitted into evidence the Articles of Incorporation and the Certificate of
Incorporation of “Jim McQuitty Hardwood Floor Co.” filed with the Virginia State Corporation
Commission (SCC). The effective date of the Certificate of Incorporation was August 18, 1997.
Divino also submitted into evidence W-2s for 2015 and 2016. Divino stated that, when the
accident occurred, he was working twenty to thirty hours a week for McQuitty and was making
$13 per hour. That year, unlike prior years, he was not given a W-2. He was paid by cash or
check and had no records of his earnings.
The deputy commissioner concluded that Divino failed to prove that McQuitty was an
employer subject to the Workers’ Compensation Act because Divino did not prove that the
company had three or more employees regularly in service. The deputy commissioner stated that
“[t]here is no evidence of record to support a conclusion that Employer was still operating as a
corporate entity at the time of Claimant’s injury in 2017.” The deputy commissioner instead
found that Mr. McQuitty was a sole proprietor “who regularly employed only two employees at
the time of Claimant’s injury.”
The full Commission affirmed the decision of the deputy commissioner although it noted
that the deputy commissioner had erroneously placed the burden on Divino to prove that
McQuitty had three or more employees. The Commission explained that once an employee has
proven his injury occurred while employed in Virginia, the employer has the burden of
producing sufficient evidence that it has less than three employees regularly in service in
Virginia. Even though no representative of McQuitty appeared at the hearings, the Commission
stated that it was still required to “determine whether a preponderance of the evidence
established Jim McQuitty Hardwood Floor Co. was not subject to the Act.”
The Commission found that Divino’s testimony that McQuitty “typically had three
persons, including [Mr.] McQuitty, working in 2017” was undisputed and, therefore, the issue of
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whether the company was liable under the Act turned on whether Mr. “McQuitty himself was an
employee.” The Commission noted that the term “employee” under the Workers’ Compensation
Act “includes every executive officer elected or appointed in accordance with the charter and
bylaws of a corporation. Va. Code § 65.2-101.” The Commission also stated that “[s]ole
proprietors who elect to be included as an employee under workers’ compensation coverage are
also considered employees under the Act.”
To determine if McQuitty was a corporation or a sole proprietorship, the Commission
searched for the company’s name on the Virginia SCC’s website and found that the company’s
status was listed as “Purged.” In its opinion, the Commission explained that the SCC’s website
states that when an “entity’s status is ‘Purged,’ then its existence or registration has been
canceled, revoked, terminated or withdrawn for a period of more than 5 years and, under
Virginia law, the entity is not eligible for reinstatement or restoration.” The Commission
acknowledged that this evidence was not presented by the parties but noted its ability to take
administrative notice of public records prepared by government agencies. Based on this
information and the evidence presented, the Commission concluded that when Divino was
injured, “McQuitty was acting as a sole proprietor.” The Commission also found that there was
no evidence that Mr. McQuitty had elected to be treated as an employee, and thus “the
preponderating evidence established that Jim McQuitty Hardwood Floor Company only had two
employees regularly in service at the time of the accident.” Accordingly, the Commission
concluded that McQuitty “was not an employer subject to the Act.”
Cavalier Land
Marc Poutasse, the President of Cavalier, testified that Cavalier managed the Time
Building, MMPA’s other properties, and a number of other commercial and residential buildings.
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Poutasse explained that, as the property manager, Cavalier marketed, entered into lease
agreements, maintained properties, collected rents, and paid expenses on behalf of MMPA.
For the project on which Divino was injured, Cavalier had negotiated a lease on behalf of
MMPA for an existing tenant, CoreVelo, to take over a space in the Time Building adjoining its
current space. As part of the terms of the new lease, MMPA agreed to perform some work
referred to in the lease as the “Landlord’s Work,” which included removing walls and ceiling
tiles, installing recessed lighting, installing a shower and water heater, slick finishing the plaster
ceiling, and installing laminate flooring to match the adjoining unit as closely as possible.
Cavalier hired contractors to perform this work on behalf of MMPA, including McQuitty.
Poutasse also testified Cavalier had six employees that helped with preparing units for
new tenants and with maintenance requests. He stated that these employees do not do flooring
work except for repairing small flooring issues or laying vinyl flooring in small spaces, such as
in closets. For this project, he stated that Cavalier employees did not do any of the flooring work
although they did some cleaning up on the project site and some hauling off of old flooring.
The deputy commissioner concluded that Cavalier was exempt from statutory employer
liability under Code § 65.2-302(D)’s property management exception, and the full Commission
affirmed. The full Commission also concluded that “[e]ven if Cavalier Land were not exempt
from liability as a property manager, the subcontracted-fraction test [of Code § 65.2-302(B)]
would not apply to impose liability in this case.” The Commission found that Cavalier “did not
contract with the owner, Mult. Misc. Properties, to perform renovations on the [T]ime
[B]uilding.” Instead, it found that MMPA and the tenant agreed that MMPA “would have the
work performed.” The Commission also found that MMPA “did not hire a general contractor,
but instead directly hired individual contractors to perform different portions of the work” and
that “Cavalier Land merely acted as Mult. Misc. Properties’ agent in reaching the agreement with
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the tenant and in finding and hiring the various contractors, including Jim McQuitty Hardwood
Floor Company.” Consequently, the Commission found that Cavalier was not liable under the
Workers’ Compensation Act as Divino’s statutory employer.
MMPA
Vincent Mastracco, one of two owners of MMPA, testified that MMPA was a “passive
real estate owner” with no employees. He agreed that MMPA “made money from holding,
operating, and developing real property.” He also agreed that Cavalier had full authority to
select the contractors it wanted to perform the work here and that he had no involvement in the
day-to-day running of the buildings that MMPA owned, such as the Time Building.
The full Commission unanimously found that MMPA was not Divino’s statutory
employer under the subcontracted-fraction test of Code § 65.2-302(B). It found that MMPA was
the owner – not a contractor. The Commission made findings of fact that MMPA was “a passive
real estate investor,” that it had no employees, and that it was “not engaged in the business of
flooring installation.” Because the Commission concluded that MMPA was not a contractor, it
also concluded that McQuitty was not a subcontractor. Therefore, it held that MMPA was not
liable under Code § 65.2-302(B).
II. ANALYSIS
This appeal requires us to determine which, if any, of the purported employers are liable
to Divino under the Act. We address each purported employer in turn.
A. Whether McQuitty is Liable to Divino under the Act
On appeal to this Court, Divino argues that the Commission erred in finding that
McQuitty was not subject to the Act because the Commission improperly relieved McQuitty of
the burden of proving that it had regularly in service less than three employees. He claims that
the Commission improperly “produced evidence sua sponte” while McQuitty “produced no
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evidence at all.” He contends that the Commission deprived him of his right to due process
when, without giving the parties an opportunity to respond, “it took administrative notice, sua
sponte, of ‘records’ from the Virginia State Corporation Commission and in particular, an
‘explanation’ from the Virginia State Corporate Commission Clerk’s office website regarding
the meaning of the term ‘purged.’” In addition, Divino argues that the Commission never
determined whether, at the time of the accident, McQuitty’s “established mode of performing
business regularly required less than three or more employees.”
This Court is barred from reaching these arguments because they were not preserved
below for this Court’s review. “The contemporaneous objection rule, embodied in Rule 5A:18 in
the Court of Appeals . . . is based on the principle that a litigant has the responsibility to afford
[the Commission] the opportunity to consider and correct a perceived error before such error is
brought to the appellate court for review.” Williams v. Gloucester Sheriff’s Dept., 266 Va. 409,
411 (2003) (quoting Reid v. Baumgardner, 217 Va. 769, 773 (1977)); see also Hodnett v. Stanco
Masonry, Inc., 58 Va. App. 244, 253 (2011). The rule exists to protect the tribunal below “from
appeals based upon undisclosed grounds, to prevent the setting of traps on appeal,” to allow the
tribunal to “rule intelligently, and to avoid unnecessary reversals and mistrials.” Williams, 266
Va. at 411 (quoting Reid v. Boyle, 259 Va. 356, 372 (2000)). Divino’s assignments of error stem
from the Commission’s consultation of the SCC’s website. Because that alleged error did not
occur until the case was under review by the full Commission, Divino needed to file a motion for
reconsideration once the Commission stated in its decision that it was relying on information
from the SCC in order to give the full Commission the opportunity to correct the alleged error
and also so that Divino could preserve that argument for appeal. See id. at 411-12 (holding that
appellant was required to file a motion for reconsideration or rehearing to preserve argument for
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appellate review where the basis for the full Commission’s decision was not raised, litigated, or
considered in the case prior to the full Commission’s decision).
Likewise, we cannot consider Divino’s contention that the full Commission erred in
finding that McQuitty was not subject to the Act when the Commission never determined
whether, at the time of the accident, McQuitty’s “established mode of performing business
regularly required less than three or more employees.” The deputy commissioner’s opinion does
not actually state that McQuitty’s established way of performing business regularly involved less
than three employees, and Divino did not ask the full Commission to review that issue. Divino
also never filed a motion for reconsideration before the full Commission to alert it to the fact that
it also had not actually made that determination. As a result, Divino’s argument is barred under
Rule 5A:18. See Hodnett v. Stanco Masonry, Inc., 58 Va. App. 244, 253 (2011) (holding that
appellant failed to preserve an issue for appeal where he did not ask the Commission to review
the deputy commissioner’s decision on the issue and did not file a motion for reconsideration).
Consequently, given that we cannot consider these arguments because they were not preserved
for appeal, we affirm the Commission’s conclusion that McQuitty was not an employer subject
to the Act.
B. Whether Cavalier and MMPA are Divino’s Statutory Employers Under the Act
On appeal, both Divino and the UEF argue that the Commission erred when it failed to
find that Cavalier and MMPA were Divino’s statutory employers. “The Workers’ Compensation
Act requires an employment relationship of some kind to exist between a claimant and the party
allegedly liable for compensation. The usual scenario is a true employer-employee relationship
in which the employer controls the employee’s jobsite conditions, employment tasks, and
working hours.” Jeffreys v. Uninsured Employer’s Fund, 297 Va. 82, 90 (2019). In addition, an
employment relationship is created if a party is the employee’s “statutory employer” under
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Code § 65.2-302. “The issue whether a person is a statutory employee presents a mixed question
of law and fact which must be resolved in light of the facts and circumstances of each
case.” Cooke v. Skyline Swannanoa, Inc., 226 Va. 154, 156 (1983). “Factual findings by the
commission that are supported by credible evidence are conclusive and binding upon this Court
on appeal.” Haley v. Springs Glob. U.S., Inc., 54 Va. App. 607, 612 (2009) (quoting Southern
Iron Works, Inc. v. Wallace, 16 Va. App. 131, 134 (1993)). However, “[a]n issue
of statutory interpretation is a pure question of law which we review de novo.” Booker v.
Commonwealth, 60 Va. App. 35, 42 (2012) (quoting Kozmina v. Commonwealth, 281 Va. 347,
349 (2011)). In addition, as the claimant seeking benefits, Divino (and the UEF, which takes the
same position) had the burden of proof to show that Cavalier and MMPA were his statutory
employers. See Jeffreys, 297 Va. at 97.
Code § 65.2-302 is comprised of four subsections. The first three subsections (A, B, and
C) identify relationships where a party may be liable as a statutory employer under the Act.
Code § 65.2-302(A)-(C) states:
A. When any person (referred to in this section as “owner”)
undertakes to perform or execute any work which is a part of his
trade, business or occupation and contracts with any other person
(referred to in this section as “subcontractor”) for the execution or
performance by or under such subcontractor of the whole or any
part of the work undertaken by such owner, the owner shall be
liable to pay to any worker employed in the work any
compensation under this title which he would have been liable to
pay if the worker had been immediately employed by him.
B. When any person (referred to in this section as “contractor”)
contracts to perform or execute any work for another person which
work or undertaking is not a part of the trade, business or
occupation of such other person and contracts with any other
person (referred to in this section as “subcontractor”) for the
execution or performance by or under the subcontractor of the
whole or any part of the work undertaken by such contractor, then
the contractor shall be liable to pay to any worker employed in the
work any compensation under this title which he would have been
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liable to pay if that worker had been immediately employed by
him.
C. When the subcontractor in turn contracts with still another
person (also referred to as “subcontractor”) for the performance or
execution by or under such last subcontractor of the whole or any
part of the work undertaken by the first subcontractor, then the
liability of the owner or contractor shall be the same as the liability
imposed by subsections A and B of this section.
“Subsection A addresses the scenario in which ‘any person’ contracts with an
independent contractor to perform work within the ‘trade, business or occupation’ of that ‘any
person.’” Jeffreys, 297 Va. at 91. When examining subsection A, Virginia courts generally
apply the “normal-work test,” which requires this Court to ask “whether the activity in which the
independent contractor engages is ‘normally carried on through employees rather than
independent contractors.’” Id. Subsection A would apply, for example, “when a roofing
company hires an independent contractor to repair a roof.” Id. Because the roofing company
hired the independent contractor to perform work that would normally be performed by the
roofing company’s employees, the roofing company is the statutory employer of the independent
contractor’s employees.
Unlike the two-tiered scenario of subsection A, “Subsection B involves a three-tiered
scenario[.]” Id. The Virginia Supreme Court explained that under subsection B:
A “person” hires a contractor to perform work outside the scope
of that person’s “trade, business or occupation.” Code
§ 65.2-302(B). The contractor then hires a subcontractor to do
some or all of that work. In this scenario, we have applied what
has become known as the subcontracted-fraction test. See Cooke
v. Skyline Swannanoa, Inc., 226 Va. 154, 158-59 (1983). An
example of this scenario would be where a banker — whose
business is banking rather than construction — enters into a
contract with a general contractor to build a home, and the general
contractor in turn relies on subcontractors (e.g., firms employing
framers, brick masons, electricians, etc.) to complete the job. The
general contractor, not the banker, becomes the statutory employer
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of the subcontractors’ employees. See, e.g., Cinnamon v. Int’l
Bus. Machs. Corp., 238 Va. 471, 474-79 (1989).
Id. at 91-92 (footnotes omitted) (emphasis in original).
1. Cavalier Land
Divino and the UEF ask this Court to apply the subcontracted-fraction test of
Code § 65.2-302(B) to find that both MMPA and Cavalier are Divino’s statutory employers.
Divino argues that Cavalier is “any person (referred to in [Code § 65.2-302(B)] as ‘contractor’)”
who agreed to perform work for “another person” (MMPA) “which work or undertaking is not a
part of the trade, business or occupation” of “such other person” (MMPA). He contends that
Cavalier then contracted with “any other person (referred to in [Code § 65.2-302(B)] as
‘subcontractor’)” (McQuitty) “for the execution or performance” of a part of Cavalier’s contract
with MMPA.
The UEF frames the argument slightly differently. It contends that MMPA is “any
person (referred to in [Code § 65.2-302(B)] as ‘contractor’)” who contracted through the lease to
perform the “Landlord’s Work” “for another person” (CoreVelo) and that the work is “not a part
of the trade, business or occupation” of “such other person” (CoreVelo).1 The UEF contends
that MMPA then entered into a subcontract with Cavalier to perform all of the “Landlord’s
Work,” making Cavalier the “subcontractor” under Code § 65.2-302(B). Then, Cavalier, in turn,
subcontracted a fraction of that contract – the flooring work – out to McQuitty, making both
MMPA and Cavalier Divino’s statutory employers under Code § 65.2-302(B) and (C).
These arguments fail with respect to Cavalier for several reasons. First, these theories
require MMPA to have entered into a contract with Cavalier to have Cavalier perform the
1
No party disputes that construction and flooring work were not a part of CoreVelo’s
trade, business or occupation.
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“Landlord’s Work.” Second, these theories require Cavalier to have entered into a subcontract
with McQuitty to perform the flooring work. However, the Commission made findings of fact
that no such contracts existed. The Commission found, “Cavalier Land did not contract with the
owner, Mult. Misc. Properties, to perform renovations on the [T]ime [B]uilding.” The
Commission also found, “Cavalier Land merely acted as Mult. Misc. Properties’ agent in
reaching the agreement with the tenant and in finding and hiring the various contractors,
including Jim McQuitty Hardwood Floor Company.” These findings of fact are supported by
credible evidence in the record. Poutasse testified that Cavalier was a property manager that
acted as an agent of MMPA and entered into a contract with McQuitty on MMPA’s behalf.
Because the contract for the flooring work was actually directly between MMPA and McQuitty,
and Cavalier itself did not contract to perform the work, we cannot say the Commission erred in
concluding that Cavalier was not Divino’s statutory employer.2
2. MMPA
Divino and the UEF argue that MMPA was Divino’s statutory employer under Code
§ 65.2-302(B). They argue that MMPA is “any person” who contracted through the lease to
“perform or execute” the “Landlord’s Work” “for another person” (CoreVelo) and that the work
is “not a part of the trade, business or occupation” of “such other person” (CoreVelo). Divino
2
In addition to finding that Cavalier was not a statutory employer, the Commission also
found that Cavalier was not liable to Divino under the Act as a statutory employer because it met
the exception for persons engaged in “the business of property management” under Code
§ 65.2-302(D). Because we agree that Cavalier was not a statutory employer and because that is
the best and narrowest grounds for our decision, we do not reach this additional reason given by
the Commission. See Levick v. MacDougall, 294 Va. 283, 302 (2017) (“Following the
traditional doctrine of judicial restraint, we ‘decide cases “on the best and narrowest grounds
available.’”” (quoting Commonwealth v. White, 293 Va. 411, 419 (2017))).
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contends that MMPA then contracted with “any other person” (McQuitty) to perform “any part
of the work undertaken by” MMPA (i.e., the flooring).3
Divino and the UEF object to the Commission’s position that, because MMPA is an
“owner” and not a “contractor,” MMPA cannot be liable under Code § 65.2-302(B). They argue
that it is irrelevant that MMPA was not a contractor because the statute only requires that MMPA
be “any person.” They also claim that the question of whether construction is MMPA’s trade,
business, or occupation is not the relevant inquiry under the statute because the only requirement
under subsection B is that the work is not the trade, business or occupation of “another person” –
i.e., CoreVelo.
In response, MMPA argues that the “subcontracted-fraction test only applies where there
is a general contractor hired by an owner to perform a project whose work is not a part of the
trade, business or occupation of the owner.” MMPA contends that it “is not a general contractor
who contracted to do work for an owner and then subcontracted a part or fraction of the work to
a subcontractor.” Rather, MMPA argues that it is an owner who hired independent contractors to
perform work on its own buildings so that it could lease units in those buildings, such as the
Time Building, to tenants. Therefore, MMPA contends that it “does not, and did not, contract to
perform flooring installation for another person” as Code § 65.2-302(B) requires.
The arguments presented require us to examine the language of Code § 65.2-302.
“The Virginia Supreme Court has long held that ‘when analyzing a statute, we must
assume that “the legislature chose, with care, the words it used . . . and we are bound by those
words as we interpret the statute.”’” Doulgerakis v. Commonwealth, 61 Va. App. 417, 420
(2013) (alteration in original) (quoting City of Virginia Beach v. ESG Enters., 243 Va. 149, 153
3
The UEF continues to assert that MMPA contracted with Cavalier to perform all of the
“Landlord’s Work” and then Cavalier subcontracted the flooring work out to McQuitty.
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(1992)). “Consequently, we ‘apply[ ] the plain meaning of the words unless they are ambiguous
or [doing so] would lead to an absurd result.’” Eley v. Commonwealth, 70 Va. App. 158, 164
(2019) (alterations in original) (quoting Wright v. Commonwealth, 278 Va. 754, 759 (2009)).
In our review, we are also cognizant that “[t]he Act makes clear . . . that these scenarios
[in Code § 65.2-302] are exceptions to the general rule that ‘nothing in [the Act] shall be
construed to make the employees of any independent contractor the employees of the person or
corporation employing or contracting with such independent contractor.’” Jeffreys, 297 Va. at
92 (last alteration in original) (quoting Code § 65.2-101); see also Sykes v. Stone & Webster
Eng’g Corp., 186 Va. 116, 123 (1947). “Consequently, ‘the mere fact a business owner engages
an independent contractor does not make that independent contractor’s employees statutory
employees of the owner.’” Jeffreys, 297 Va. at 92 (quoting Rodriguez v. Leesburg Business
Park, LLC, 287 Va. 187, 194 (2014)).
The Commission’s finding that MMPA is not in the business of laying laminate flooring
is not – on its own – fatal to appellants’ argument. Unlike subsection A, which codifies the
normal work test and that specifically requires that the work contracted for be part of “any
person[’s]” “trade, business or occupation,” the subcontracted-fraction test of subsection B does
not state this requirement. The Supreme Court of Virginia recently discussed this difference
between subsections A and B of Code § 65.2-302 in Jeffreys v. Uninsured Employer’s Fund, 297
Va. 82 (2019). The Supreme Court explained, “Depending upon the circumstances, subsections
A and B can overlap each other. But they do not necessarily do so. When subsection B applies,
the contractor becomes the statutory employer of the subcontractor’s employees, and ‘[t]his is
true even if that work is not normally a part of the []contractor’s normal work, but is a
subcontracted fraction of the main contract.’” Id. at 92 n.4 (quoting 15 Virginia Practice Series,
Workers’ Compensation § 4:12, at 24 (2018 ed.)). When the subcontracted-fraction test applies,
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“we need not reach the question whether the business was normally carried on through
employees rather than independent contractors.” Smith v. Horn, 232 Va. 302, 308 (1986). See
also Cooke, 226 Va. at 159 (stating that the normal work test “comes into play only where an
obvious subcontract is not first found”).
We also agree with Divino and the UEF that the statute does not apply only to contractors
and subcontractors engaged in construction projects, as MMPA seems to suggest. The statute
clearly provides that “any person” can be a statutory employer and then simply refers to that
person as “contractor” for identification purposes in subsection B of the statute. Moreover, the
Virginia Supreme Court has applied the subcontracted-fraction test to situations that involve
more than the relationship between a general contractor and a subcontractor that is often seen in
construction contracts. See Cooke, 226 Va. at 159 (holding that a hotel licensee’s contract with
the hotel’s restaurant operator was a subcontracted fraction of the licensee’s contract with the
hotel owner, making that hotel licensee the statutory employer of the restaurant’s injured
employee). Furthermore, this Court has determined that simply being an “owner” does not
necessarily relieve a party from being a statutory employer under Code § 65.2-302(B) and the
subcontracted-fraction test. See Princess Anne Builders, Inc. v. Faucette, 37 Va. App. 102
(2001) (holding that a construction company that contracted with a buyer to complete
construction of a home and lot to then sell and deliver to the buyer was liable to the injured
claimant of a tree trimming company because the construction company’s contract with the tree
trimming company was a subcontracted fraction of the construction company’s contract with the
buyer).
However, the Commission’s findings of fact that MMPA was an owner and a passive real
estate investor who did not engage in the business of laminate flooring or construction
contracting are very relevant to the determination of whether MMPA was a statutory employer.
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In fact, viewed all together and considering MMPA’s relationship with CoreVelo, these facts
establish that MMPA did not “contract[] to perform or execute any work for another person,” as
Code § 65.2-302(B) requires. (Emphasis added). The agreement in this case to perform the
work on part of the Time Building was entered into because CoreVelo was a tenant in MMPA’s
building, and CoreVelo required MMPA’s authorization in order for the work to be performed.
Through the parties’ lease and lease amendment, the two parties acknowledged that MMPA – the
party with the superior interest in the real estate as the owner of the building and of the
improvements and renovations being made – would select which independent contractors it
wanted to perform the work. Therefore, when MMPA signed the amendment to the lease, it was
undertaking to have the “Landlord’s Work” performed for itself to part of the building it owned –
and would continue to own even after all of the work was completed.4 MMPA hired
independent contractors – not subcontractors – including McQuitty to perform the work on its
building. Consequently, MMPA is not Divino’s statutory employer under Code § 65.2-302(B).5
4
This point distinguishes the case from Princess Anne Builders, Inc. v. Faucette, 37
Va. App. 102 (2001), which Divino contends controls here. Although Princess Anne Builders
was an “owner” because it owned the property on which it was constructing a house, Princess
Anne Builders was “engaged routinely in the business of purchasing lots from a developer, doing
site work, and constructing homes on these lots pursuant to a contract with a prospective buyer.”
Id. at 104. Unlike in this case, where MMPA would continue to own the property, Princess
Anne Builders, who regularly built houses to sell, did contract to perform or execute work for the
future new owner, who was in the process of buying that property from Princess Anne Builders.
5
If MMPA were a statutory employer under Code § 65.2-302(B) and the facts of this
case, the consequences of the logical extension of that holding would reverberate beyond even
the commercial landlord scenario now before us. At oral argument before this Court, counsel for
the UEF stated that Code § 65.2-302(B) could even apply to a homeowner who makes
renovations for a tenant renting out a room in his home. Viewing the statute as the Commission
has unanimously done, however, results in a clear, more logical holding commensurate with the
General Assembly’s intent in Code § 65.2-302. The following example exemplifies what are the
principles in this case and shows the problem with the UEF’s position. A homeowner rents out a
bedroom and bathroom to a tenant and later agrees to renovate the bathroom to make it more
appealing to the tenant to renew the lease. The homeowner hires a general contractor who, in
turn, hires several subcontractors, including an electrician. If an employee of the electrician is
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III. CONCLUSION
In short, we cannot say that the Commission erred in unanimously denying Divino
benefits because Divino failed to prove that any of the alleged employers are liable for his
injuries under the Workers’ Compensation Act. Divino made several arguments to this Court on
appeal regarding his actual employer, McQuitty. However, this Court cannot reach his
arguments regarding McQuitty because none of them were preserved for appeal. Consequently,
we affirm the Commission’s finding that McQuitty did not have at least three or more employees
regularly in service in Virginia and, therefore, that McQuitty is not subject to the Act.
The Commission also did not err in finding that Cavalier was not Divino’s statutory
employer. Cavalier did not contract with MMPA to perform the “Landlord’s Work,” and
Cavalier also did not contract with McQuitty to perform the flooring work. The Commission
made a finding of fact below that Cavalier was merely acting as an agent for MMPA, and, as
such, Cavalier could not be Divino’s statutory employer.
Finally, the Commission did not err in finding that MMPA was not Divino’s statutory
employer. The lease agreement between MMPA and CoreVelo gave MMPA – the owner of the
property and the owner of the improvements being made to it – the right to decide which
contractors would perform the work on MMPA’s own building. Therefore, those contractors
were independent contractors – not subcontractors – as they went about the work for MMPA on
its own building.
injured while doing the work, the homeowner would not be liable as the injured worker’s
statutory employer. Like MMPA, who continued to own the Time Building, including the rented
suites undergoing the renovations there, the homeowner (who would continue to own the rented
bathroom being renovated) did not “contract[] to perform or execute any work for another,” as
Code § 65.2-302(B) requires. Consequently, the homeowner would not be the injured worker’s
statutory employer – just as commercial landlord MMPA would not be Divino’s statutory
employer.
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For all of these reasons, we affirm the decision of the Workers’ Compensation
Commission.
Affirmed.
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