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At a Glance:
Title:
453-04-7548-e1
Date:
November 29, 2004

453-04-7548-e1

November 29, 2004

DECISION AND ORDER

I. INTRODUCTION

_____employer 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 contends that ___ should be identified a hazardous employer because ___’s injury frequency during the audit period exceeds what may reasonably be expected in ___’s industry. ___ contends it should not receive the designation because it has been incorrectly classified. The Administrative Law Judge (ALJ) concludes that ___ is not a hazardous employer as defined by Commission rules.

II. PROCEDURAL HISTORY

The hearing was convened on September 27, 2004, with ALJ Michael J. O’Malley presiding. Yvonne M. Williams, attorney, appeared and represented the Commission, and Fil Villarreal, Director of Loss Control for ___, appeared and represented ___. The record closed on October 15, 2004, after the parties filed written closing arguments.

There were no contested issues regarding notice or jurisdiction; therefore, those issues are addressed in the findings of fact and conclusions of law without further discussion.[1]

III. BACKGROUND

___ is a licensed staff leasing company in Texas. It enters into co-employment arrangements with its client companies, and leases employees to the client companies. Under the co-employment arrangement, ___ functions as the administrative employer. For example, ___ processes the payroll, provides human resource assistance, and obtains workers’ compensation insurance for the client companies for an administrative fee. The client company operates as the worksite employer for the direction and control of the employee. In this case, the Commission determined that ___ was a hazardous employer based on three injuries that occurred to employees who worked for Aarons Environmental (Aarons), a client company of ___.[2]

IV. APPLICABLE LAW

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

(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.

The Commission’s rules at 28 Tex. Admin. Code § 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. . . .” In this case, ___ was charged with three injuries, no occupational diseases, and no fatalities during the April 1, 2002, through March 31, 2003 audit period.

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,[3] as reported to the Texas Workforce Commission (TWC) or substantiated by employer payroll documents.” The Commission found that ___’s highest employment for a pay period during the audit period was 17. Based on the above-stated figures, ___’s basic rate of injury (“R”) for the audit period was (3/17) x 100 = 17.6471.

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 code . . . . from . . . the most current edition of the Bureau of Labor and Statistics publication Survey of Occupational Injuries and Illnesses available to the commission when the audit period is initiated . . . .” The Commission categorized ___ as building, cleaning and maintenance services in SIC code 7349, and that code has an expected injury rate of 1.70 per 100 employees.

___’s 17.6471 injury rate divided by its SIC code expected-injury rate of 1.70 equals 10.3806. The Commission identified ___ as a hazardous employer under the formula stated at Rule 164.1(c) because its 10.3806 ratio is greater than the applicable 10.00 threshold value specified in Rule 164.14(2) for this type of employer with 17 employees.

V. DISCUSSION

A. ___’s Position and Argument

In summary, ___ argues:

  1. it should not be considered a hazardous employer because it is a staff leasing company doing no more than pairing individuals and employers and should be classified under SIC Code 7363 (employee leasing services);
  2. it serves only as the administrative employer, and the client company serves as the worksite employer for the direction and control of the employee; it reported 54 employees under its federal identification number and, if this number were used, it would not be identified as a hazardous employer.

Kevin Burke, ___’s treasurer, testified that ___ is a staff leasing company with many clients in many different industries. He stated that the client company is responsible for the day-to-day operations and control of the employees, and ___ is responsible for the administrative functions. In this case, he testified that ___ is being classified as hazardous based on the SIC code of its client company, Aarons, which is a company that performs cleaning and maintenance.[4]

___ argues that as a staff leasing company, TWC has assigned it SIC Code 7363. ___ also notes that the North American Industrial Classification System has coded ___ as a employee leasing agency (561330). ___ also maintains that, during the audit period, it employed 54 employees as a co-employer, not 17 employees has argued by the Commission.[5]

B. Commission’s Argument and Position

The Commission argues it is required by its rules to use the SIC code assigned to an employer by the TWC. The Commission notes that as a provider of workers’ compensation coverage to its employees, ___ shares in the responsibilities of work-place safety. Robert Giacomazza, the Commission’s Administrator for the Hazardous Employer Program, testified ___s’s designation as a hazardous employer was determined in accordance with the Commission rules. He said TWC designated the SIC code for ___ as 7349, and that is the code that must be applied in this case.[6]

C. ALJ’s Analysis

From the outset, the ALJ notes that the Commission seems to have misunderstood ___’s primary argument in this case. The Commission appears to believe that ___ is arguing that it does not control the injured Aarons’ employees. However, from a review of the evidence and the arguments, this is not ___’s primary argument.[7] ___’s primary argument is that it has been incorrectly classified under SIC Code 7349 (building, cleaning, and maintenance services). It claims it should be classified under SIC Code 7363 (employee leasing services). The ALJ agrees with ___ that the incorrect SIC code has been used to classify ___ as a hazardous employer. If the correct SIC code had been used, ___ would not have been designated a hazardous employer.

As early as October 30, 2003, it should have been apparent to the Commission that ___ (formerly LJM Services, Inc.) was classified under SIC code 7363. In a letter dated October 30, 2003, Mr. Villarreal informed the Commission that he considered LJM Services to be correctly classified under SIC code 7363.[8] In fact, the Commission’s employer identification sheet classified LJM Services under SIC code 7363. On November 7, 2003, the Commission appeared to acknowledge that LJM Services was classified under SIC code 7363 and determined that it would not be classified as a hazardous employer at that time.[9] On November 21, 2003, ___ responded, by letter, to incorrect information that the Commission had sent to ___. In that letter, ___ stated that the SIC code for ___ was 7363, and the SIC code for Aarons was 7349.

The letter reiterated that ___ and its predecessor, LJM Services, were employee leasing companies and should be classified under SIC code 7363.[10]

On February 18, 2004, the Commission informed ___ that it was being identified as a hazardous employer based on the injuries that had occurred to Aarons’ employees under SIC code 7349.[11] On February 23, 2004, ___ responded to the Commission explaining that the Commission had used the wrong SIC code in its decision to designate ___ a hazardous employer. ___ also indicated that the Commission had used the number of employees at Aarons in its calculation when it should have used the number of ___ employees.[12]

From the evidence presented, it is unclear how ___’s classification changed from SIC code 7363 to SIC code 7349.[13] SIC code 7349 identifies Aarons, and Aarons is a cleaning and maintenance service. ___, however, is a licensed staff leasing company and should be identified as such. ___ should not be assigned the SIC Code of its client employers. If this were the case, its SIC Code would change with each different client company. More importantly, SIC Code 7349 does not correctly identify ___. SIC Code 7349 identifies building cleaning and maintenance services. ___ clearly is not a building, cleaning, and maintenance service.

The purpose of the hazardous employer program is to identify employers who have a higher frequency of injury in a particular industry. Because ___ is not a cleaning and maintenance service, it would be incorrect to label it a hazardous employer in the cleaning and maintenance industry.

The Commission also incorrectly determined that ___ had 17 employees for purposes of identifying it as a hazardous employer. In fact, ___ identified 54 employees[14] under its federal identification number; it was Aarons that had 17 employees. If the Commission had used 54 employees in its calculation, ___ would not have been identified as a hazardous employer because the number of injuries would not have exceeded the threshold.

In a recent Commission decision involving a similar issue, a TWC witness testified that TWC assigns codes to companies based on the description of that type of business. The Commission argued in that case that the petitioner should not be allowed to assume the SIC code of its client companies. It maintained that the petitioner, a temporary placement service, should be classified under SIC code 7363.[15]

Based on the evidence and the purpose of the hazardous employer program, the ALJ finds that ___ should be classified under SIC code 7363 with 54 employees.[16] Accordingly, ___ is not a hazardous employee.

VI. FINDINGS OF FACT

  1. On February 18, 2004, the Texas Workers’ Compensation Commission (Commission) identified Prime Source Management/___ Staff Leasing (___) as a hazardous employer pursuant to Tex. Labor Code Ann. § 411.041 for an audit period between April 1, 2002, through March 31, 2003 (the audit period).
  2. ___ is a licensed staff leasing company in Texas.
  3. ___ enters into co-employment arrangements with its client companies.
  4. Under the co-employment arrangement, ___ functions as the administrative employer.
  5. ___ leases employees to it client companies, processes the payroll, provides human resource assistance, and obtains workers’ compensation insurance for the client companies for an administrative fee.
  6. A client company operates as the worksite employer for the direction and control of the employee.
  7. ___ requested a hearing to contest the Commission’s determination of ___ as a hazardous employee.
  8. The total number of injuries charged to ___ was three. ___ was assigned no fatalities or occupational diseases during the audit period.
  9. The injured employees were injured in the course and scope of their employment.
  10. The employees worked for Aarons Environmental (Aarons), an ___ client company.
  11. Aarons performed building cleaning and maintenance.
  12. ___ had 54 employees during the audit period and that number should have been used to determine whether ___ was a hazardous employer.
  13. At the time of the audit period, ___ was classified under Standard Industrial Classification (SIC) code 7349, building, cleaning, and maintenance services, by the Texas Workforce Commission (TWC).
  14. SIC code 7349 more aptly applied to Aarons.
  15. The proper classification for ___ during the audit period was SIC code 7363, employee leasing services (often referred to as help supply services).
  16. The wrong SIC code was used to describe ___.
  17. A hearing was conducted on September 27, 2004, to determine if ___ had been correctly identified as a hazardous employer.
  18. 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.
  19. ___ was incorrectly identified as a hazardous employer for the audit period.

VII. CONCLUSIONS OF LAW

  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 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 did not use the correct information for identifying ___ as a hazardous employer. 28 Tex. Admin. Code §§ 164.1 and 164.14.
  4. ___ should not be identified as a hazardous employer. Tex. Labor Code Ann. § 411.041; 28 Tex. Admin. Code §§ 164.1 and 164.14.

ORDER

IT IS THEREFORE ORDERED THAT Prime Source Management/___ Staff Leasing, not be identified as a hazardous employer.

Signed this the 29th day of November, 2004

MICHAEL J. O’MALLEY

ADMINSTRATIVE LAW JUDGE

STATE OFFICE OF ADMINISTRATIVE HEARINGS

  1. The Occupational Health & Safety Administration (OSHA), through the Occupational Safety and Health Act, also regulates workplace safety and health issues; however, Alamo did not challenge the Commission’s jurisdiction in this case. Alamo did note that OSHA standards conflicted with the Commission’s standards. Specifically, OSHA states that responsibility for safety issues is with the employer that directly supervises the employee’s day-to-day work activities. Alamo Ex. E.
  2. The parties agree that the three employees were injured in the course and scope of employment.
  3. 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 . . . .”
  4. All three injuries at issue in this case involved Aarons’ employees who were involved in an automobile accident.
  5. Alamo maintains that the Commission unilaterally changed its SIC code to 7349, which coincidentally is the SIC code for Aarons.
  6. The Commission argues that Alamo was the employer of the injured Aarons’ employees; however, as discussed below, this issue was not the focus of Alamo’s closing argument.
  7. Although Alamo argues that it does not have direct control over the day-to-day operations of Aarons, this argument seems to be secondary to its argument that it has been wrongly classified.
  8. Alamo Ex. A-2.
  9. Alamo Ex. A-3.
  10. Alamo Ex. B-2.
  11. Alamo Ex. B-3.
  12. Alamo Ex. C-1.
  13. If TWC classified Alamo under SIC Code 7349, then the SIC Code should be corrected to reflect the correct SIC Code of 7363. Alamo claims that the Commission unilaterally changed its SIC Code; however, there is not any evidence to suggest that the Commission was responsible for the reclassification. Regardless of how the reclassification occurred, it should be corrected to reflect the correct classification for Alamo.
  14. These employees were employed at approximately 17 different client companies.
  15. Priority Personnel, Inc. v. Texas Workers’ Compensation Commission, SOAH Docket No. 453-02-0956.E1 (February 13, 2003).
  16. The Commission argues that TWC classifies employers; therefore, it is not the Commission’s responsibility if Alamo has been incorrectly classified. Regardless of who is responsible for classifying employers, an employer, who has been incorrectly classified, should not be identified as a hazardous employer based on an incorrect code.
End of Document
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