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February 13, 2003


February 13, 2003



Priority Personnel, Inc. (Priority) requested a hearing before the State Office of Administrative Hearings (SOAH) to contest a Texas Workers’ Compensation Commission (Commission) decision to identify it as a hazardous employer. The Commission contended Priority fit the definition of hazardous employer as stated in its rules. Priority contended it should not receive the designation because of the special nature of its business.

The Administrative Law Judge (ALJ) concludes that Priority is a hazardous employer as defined by Commission rules and should be identified as such.


The Commission set a hearing for January 30, 2002, to consider this matter. Thereafter, the parties requested that the case be submitted for summary disposition though stipulations. The ALJ granted the request and the parties filed stipulations, briefs, and reply briefs. After reviewing the filings, the ALJ set a hearing for May 13, 2002, to consider the party assertions and receive additional evidence. On May 13, the parties requested time to pursue settlement negotiations; the ALJ granted the request and continued the hearing. On June 14, 2002, Priority requested that a hearing be set because the parties were unable to settle the case. The ALJ set a hearing for July 25, 2002, and on that date the parties submitted evidence and argument. Upon the Commission’s request, the ALJ left the hearing open to receive additional evidence. The hearing reconvened on December 19, 2002, additional evidence and arguments were received, and the hearing closed. Additional notice and jurisdiction matters are stated in the fact findings and legal conclusions without further discussion here.


A.Statutory Provisions

Section 411.041(b) and (c) of the Texas Labor Code (Act) provide:

(b) The division shall develop a program to identify hazardous employers. The program must include an analysis of injury frequency.

(c) Except as provided by Section 411.0415, an employer whose injury frequencies substantially exceed those that may reasonably be expected in that employer’s business or industry is a hazardous employer.

B.Rule Provisions and Evidence Applicable to Rules

The Commission’s rules at 28 Tex. Admin. Code (TAC) § 164.1(c) provide:

(c) The following calculation shall be used to determine hazardous employer status. An individual employer’s rate of injuries per 100 employees, for the specified audit period, calculated using the formula: R = (I/E) x 100. The computed R is divided by the expected injury rate (R/expected) and the result compared to the threshold level established in ' 164.14. If the ratio is greater than the threshold value, the employer is hazardous.

Under subsection (b)(5) of Rule 164.1, the “I” part of the formula is defined as “The employer’s total number of injuries, in the following categories: lost time injuries, occupational diseases, and fatalities. . . .” The parties agreed that Priority had 41 injuries and occupational diseases during the October 1, 1999, through September 30, 2000, audit period, but had no fatalities.

Under subsection (b)(4) of Rule 164.1, the “E” part of the formula is defined as “Highest employment recorded during the audit period by the employer in any pay period, for the applicable SIC [Standard Industrial Classification] code,[1] as reported to the Texas Workforce Commission (TWC) or substantiated by employer payroll documents.” The parties agreed that Priority’s highest employment for a pay period during the audit period was 882.

Based on the above-stated figures, Priority’s rate of injury for the audit period was 4.64 (41 divided by 882 multiplied by 100).

Under Rule 164.1(b)(7), the employer’s expected injury rate is defined as ”an employer’s expected injury rate per 100 employees for the applicable SIC [Standard Industrial Classification] code . . . . from . . . the most current edition of the Bureau of Labor and Statistics (BLS) publication Survey of Occupational Injuries and Illnesses available to the commission when the audit period is initiated . . . .” The evidence showed that Priority is categorized as a “temporary employment service” in SIC code 7363, and that code has an expected injury rate of 1.00 per 100 employees.

Priority’s 4.64 injury rate divided by its SIC code expected-injury rate of 1.00 results in a 4.64 ratio.

The Commission identified Priority as a hazardous employer under the formula stated at Rule 164.1(c) because its 4.64 ratio is greater than the applicable 1.7 threshold value specified in Rule 164.14(2) for companies with 500 to 999 employees.


As shown in Part III above, Priority’s injury rate and highest pay-period-employment totals, its SIC code-expected-injury rate, and the applicable threshold value indicate Priority should be designated as a hazardous employer under Commission rules. Nonetheless, Priority contended it should not be identified as such based on the arguments discussed below.

A.Priority’s Classification Assumes an Unrealistically Low Risk for Priority’s Business


Priority argued:

  • it should not be considered a hazardous employer because it is a personal employment service doing no more than pairing individuals and employers on a temporary basis;
  • the purpose of the hazardous-employer-identification, to enhance safety in the work place, does not apply to Priority because it does not have ultimate control over client-employer safety, work-place environments, or management;
  • Section 411.041(c) of the Act, stating”. . . . an employer whose injury frequencies substantially exceed those that may reasonably be expected in that employer’s business or industry is a hazardous employer,” does not apply to it because it simply supplies employees;
  • it should be permitted to use the SIC codes of its client-employers; if it could do so, it would not be identified as a hazardous-employer; and
  • the testimony of TWC representative Ander Mitchell,[2] appears to indicate the reason companies like Priority are not judged by the SIC codes of their client-employers is the difficulty in coordinating so many classifications rather than the invalidity of doing so.

In addition, in response to a Commission assertion that it has responsibilities as a “staff leasing service” to share work-safety responsibility with employer clients, Priority maintained it is a personnel employment service rather than a staff leasing service. It cited a Texas Department of Licensing and Regulation definition stating, “A Personnel Employment Service pairs individuals and employers. This law does not include temporary placement or staff leasing.”

Priority’s vice-president of operations Thomas E. Brooks testified _____is constantly sending employees to different employers. Because of that, it cannot be compared to an ordinary employment situation where employees actually work for the employing company for extended periods. An injured employee may have worked for _____ for only a few days and never again.

Mr. Brooks pointed out that some of _____ clients’ businesses are inherently risky. An example at the time of the audit was_____, a company engaged in metal stamping and plastic molding.

Mr. Brooks said _____ pays attention to work-place safety on a continuing basis, employs a loss-prevention specialist, attempts to consult with its client-employers, has worked with insurance carriers,[3] and has sent its safety personnel to work places (although it cannot do so in each case). He maintained, although _____may request an employer to follow certain standards, ultimately it has no authority to require it; he also said the degree of control varies with each client.

According to Mr. Brooks, _____ has terminated contracts with employers over safety issues and has refused to contract with others for the same reason.

Mr. Brooks believes if he could use the SIC code-classifications of his employer-clients, _____ would not be identified as a hazardous employer. He contacted TWC to obtain permission to use those codes, but it refused.

Mr. Brooks contended the hazardous-employer designation puts ____at a competitive disadvantage with other temporary-help employers who may be new enough in the business not to have had unfavorable statistics.

Mr. Brooks’ ultimate conclusion is he does not think Priority has been negligent in any way.


The Commission argued it is required by its rules to use the SIC code assigned to an employer by the TWC. It said there is no dispute that TWC has assigned SIC code 7363 to Priority.

The Commission cited Section 91.001(14) of the Act as requiring Priority, as a staff leasing service, to contract with the employers to share employment responsibilities and Section 91.032(a)(5) requiring ______ contract with employers to give _____ a say over the direction and control of employee-safety policies. It also pointed out that as a provider of workers’ compensation coverage to its employees, _____ must share in the responsibilities of work-place safety.

Scott Gallacher, the Commission’s workers’ health and safety division manager for safety data verifications, testified _______designation as a hazardous employer was determined in accordance with the Commission rules. He said TWC designated the SIC code for employers like Priority as 7363. The SIC code is based on the employer’s industry type. As an example, he said a steel plant would have a different designation than an accounting firm.

Mr. Gallacher testified the Commission receives the expected injury rate for a SIC code from the Bureau of Labor Statistics (BLS). The BLS designated 1.00 for SIC code 7363 as an expected-injury rate per 100 employees for the audit period.

Mr. Gallacher acknowledged he thought at first that TWC would respond favorably to ________ request for permission to use the same SIC codes as its client-employers’ businesses. He agreed the use of those codes would likely affect _______expected-injury level. Although he believes it would have been fair for ______ to have used its client-employers’ codes, he also said other temporary-employment services make sure they have some control over employee safety, including using safety experts; he indicated he has talked to 10 to 12 services on this matter. He maintained temporary-help services are expected to employ safety experts.

TWC representative Anders Mitchell testified TWC assigns industry codes to businesses based on the descriptions he receives from them for their types of business. Based on _____ description of its business as “temporary personnel service,”[4] TWC placed _______

under “business services” and “temporary help services,” as a subset of business service.

Mr. Mitchell has no reason to believe ________is wrongly coded. Exhibit 14 is an Occupational Health & Safety Administration description of SIC code 7363. It says the code includes temporary help services and describes it as

Establishments primarily engaged in supplying temporary or continuing help on a contract or fee basis. The help supplied is always on the payroll of the supplying establishments, but under the direct or general supervision of the business to whom the help is furnished. . . .

Mr. Mitchell explained that “temporary help” is simply help on a temporary basis.[5] He said it would be an administrative “nightmare” to assign client-employer codes to temporary help services because temporary-help-service employees typically work one place in one month and another place in another month. He explained the commonality that connects services like ______is that the help they provide tends to be temporary.

According to Mr. Mitchell, TWC is required to follow federal guidelines under its contract with the federal government. He said if ____wanted to change from a temporary help to a employee leasing service it would need to be certified as such by the Texas Department of Licensing and Regulation.


This decision concludes ________ arguments are not persuasive because it is arguing against the force and effect of a (presumably) validly passed rule.[6] It is virtually undisputed that the Commission has properly applied its rule. A valid rule has the force and effect of law.[7] ______ could petition the Commission to amend its rule to include an exception or other special treatment for companies like______,[8] but there is no evidence it has done so.

Although not determinative in view of the preceding analysis, two additional considerations should be addressed. First, it appears ______ real complaint is that the BLS-SIC code-7363- expected-injury-rate designation of 1.00 is not realistic for some employers. However, even if the Commission had authority to determine whether BLS expected-injury-rate designations were reasonable and to ignore them if they were not, there is no evidence of what factors went into the BLS deliberation, i.e., whether BLS took into account situations like ______ and determined that a 1.00 designation was appropriate anyway. Second, although ______ arguments have some appeal, the nature of _______ efforts to control injuries was really not tried in this case. The Commission’s primary case was that it had followed its rule as written and that the data used in its calculation came from other agencies or from _______itself.

B.Number of Employees Should be Based on Yearly Totals


_____ argued its employee-number count in the Rule 164.1 formula for determining a hazardous employer should be based on its yearly total of 2,720 rather than the highest-month count of 832. ______ contended the temporary nature of its business, with impermanent employees, makes it different from companies with more stable workforces where employee numbers for the highest employment month are likely to be relatively close to the total number of employees employed in the entire year. It also cited Exhibit 12, showing the average work-week hours for its employees in 1998, 1999, and 2000 was close to 40 hours.

Mr. Gallacher testified he applied the formula as set forth in the Commission’s rules.


Again, _______ is arguing against the force of a duly adopted Commission rule. Rule 164.1(b)(4) requires the use of the highest employment counts during a pay period, not an entire year. The ALJ believes _____ is in the wrong forum for contesting the rule.

In addition, the record is not clear that _______ exposure is any greater with more employees than another company with fewer employees. There is no reason to believe from the evidentiary record that _______ 2,720 employees work more hours in a yearthan another company’s fewer employees. The total number of work hours for 2,720 employees could be the same as the total work hours for fewer employees in another company if the majority of the 2,720 employees worked only part of a year and most of the other company’s employees worked the entire year. It seems that risk should be measured primarily on total work hours rather than total number of employees.[9]

C.The Commission Should Follow Two Previous Precedents in Determining that Priority is notSubject to an Extra-hazardous Employer Designation.

Evidence and Argument

The evidence showed that in May 1999_____ received a hazardous-employer notification from the Commission for the audit period between October 1, 1997, and September 30, 1998. In June 1999, the Commission notified _____it had incorrectly counted its employees for the highest pay period and informed _______it had withdrawn the hazardous-employer identification. Mr. Brooks testified the Commission had not used the month with _____ highest number of employees when it made its calculation.

The parties stipulated that in September 1999, the Commission issued a hazardous-employer notification to ______ for the audit period from January 1, 1998, through December 31, 1998. Later that month, after an administrative review, the Commission notified _____ it would not be identified as a hazardous employer. Mr. Brooks explained in this instance the Commission recalculated using ____ calender-year-employee count of 3,434 rather than the month (pay period) with the highest number of employees.

Mr. Gallacher testified he was not able to determine the reasons for the Commission’s actions the first time ____ hazardous-employer designation was withdrawn because the Commission records are no longer in existence, but said the second Commission calculation, using the entire calender-year count, was not in accordance with Commission rules.


The Commission’s previous actions do not support _____ arguments. It appears that in the first instance the Commission at first simply used the wrong figure to calculate _____ hazardous-employer status. In the second instance, it incorrectly applied the Rule 164.1 formula.

D.Other Assertions

Other matters ______asserted are: the Commission’s audit should have been for a different period of time; in determining the number of ______ injuries, the Commission should use the injury figures for a particular month rather than an entire year; _______received inadequate notice of the hearing; and because the audit period was from October 1, 1999, through September 30, 2000, and its hazardous-employer identification occurred on August 3, 2001, the identification is based on unduly stale statistics.

The ALJ considers the first three of these matters waived because they were not asserted during arguments or in the presentation of evidence at the July and December hearings. The arguments were also not persuasive because: Mr. Gallacher testified that the audit period was appropriate and there was no contrary evidence; under Commission Rule 164.1(8), a 12-month period is used for counting injuries rather than a particular month; when asked, ________did not object to notice at the July hearing; and a final determination of _______ hazardous-employer status was delayed by the administrative hearing process and _______ attempts to settle the case.


  1. On August 3, 2001, the Texas Workers’ Compensation Commission (Commission) identified ______as a hazardous employer pursuant to Tex. Labor Code Ann. § 411.041 for an audit period between October 1, 1999, and September 30, 2000 (the audit period).
  2. Priority requested a hearing to contest the Commission’s determination described in Finding of Fact No. 1.
  3. Priority’s total number of injuries, in lost-time injuries and occupational diseases, was 41. There were no fatalities during the audit period.
  4. The highest employment recorded by _____for a particular pay period within the audit period was 882 employees.
  5. At the time of the audit period, ______was classified under Standard Industrial Classification (SIC) code 7363 by the Texas Workforce Commission (TWC) based on Priority’s self-description as a temporary personnel service.
  6. The expected injury rate per 100 employees for SIC code 7363, as determined from the most current edition of the Bureau of Labor Statistics publication Survey of Occupational Injuries and Illnesses, was 1.00 for the audit period.
  7. The threshold factor stated in the Commission’s rules at 28 Tex. Admin. Code § 164.14(2) for an employer with 500 to 999 employees is 1.7.
  8. A hearing was conducted on July 25, 2002, and December 19, 2002.
  9. Priority and the Commission attended the hearing.
  10. All parties received not less than 10 days notice of the time, place, and nature of the hearing; the legal authority and jurisdiction under which the hearing was to be held; a reference to the particular sections of the statutes and rules involved; and a short, plain statement of the matters asserted.
  11. All parties were allowed to respond and present evidence and argument on each issue involved in the case.


  1. The State Office of Administrative Hearings has jurisdiction over matters related to the hearing in this proceeding, including the authority to issue a decision and order. Tex. Labor Code Ann. §§402.073(b) and 411.049.
  2. Adequate and timely notice of the hearing was provided. Tex. Gov’t Code Ann. §§2001.051 and 2001.052.
  3. The Commission correctly applied its formula for identifying Priority as a hazardous employer. 28 Tex. Admin. Code § 164.1 and 164.14.
  4. Priority’s should be identified as a hazardous employer. Tex. Labor Code Ann. § 411.041; 28 Tex. Admin. Code §§ 164.1 and 164.14.


IT IS THEREFORE ORDERED THAT______, be, and the same is hereby, identified as a hazardous employer.

Signed this the 13th day of February, 2003




  1. Commission Rule 164.1(3) defines Standard Industrial Classification code as “The SIC Code derived from the Standard Industrial Classification Manual, current edition, published by the Office of Management and Budget, and assigned to the employer by the Texas Workforce Commission . . . .”
  2. Mr. Mitchell manages the TWC division that assigns industry classification codes to employers.
  3. Priority provides workers’ compensation insurance for its employees to maintain a competitive advantage.
  4. Ex. 13.
  5. Mr. Mitchell testified the SIC code system was replaced in 2001 with the North American Industrial Classification System. The new system has placed temporary help services and employee leasing services into different codes. The latter service is able to use the SIC codes of the individual employers to which it sends employees. He said beginning in 1997, the two types of services were also treated differently, on an informal basis, under the old system. He indicated the difference between the two types of service is that temporary help services are generally short-term, whereas employee leasing is long-term. He explained for employee leasing services, the client company usually transfers its employees to the employee leasing company and then leases them back.
  6. An action to declare a rule invalid must be commenced in the Travis County district courts. Tex. Rev. Civ. Stat. Ann. §001.038.
  7. Kinnard v. Homann, 750 S.W.2d 30 (Tex. App.-- Austin 1988, writ den.)
  8. Tex. Rev. Civ. Stat. Ann. §001.021.
  9. As argued by_______, its risk might be increased by continually using new and less-experienced employees than would be the case in a stable work force.
End of Document