INOCENCIO Z. HERNANDEZ, Employee, v. SPECIALTY STAFFING, SELF-INSURED, adm=d by MEADOWBROOK INS. GROUP, Employer/Appellant, and FANTOM WIRE, INC., and STATE FUND MUT. INS. CO., Employer-Insurer.
WORKERS= COMPENSATION COURT OF APPEALS
OCTOBER 31, 2006
EMPLOYMENT RELATIONSHIP. Although the employee falsified his identity, and the temporary employment agency would not have hired him had his true identify been known, the compensation judge properly imposed workers= compensation liability on the temporary agency, rather than on the special employer, pursuant to agreement between the temporary agency and the special employer, where there was no material mutual mistake or material misrepresentation by the special employer that would justify allowing the temporary agency to avoid the contract.
Determined by Wilson, J., Rykken, J., and Pederson, J.
Compensation Judge: Harold W. Schultz II
Attorneys: Scott A. Teplinsky, Minneapolis, MN, for the Respondent Employee. Steven T. Scharfenberg, Minneapolis, MN, for the Respondent Employer and Insurer. John H. Guthmann and Trisha A. Vicario, Hansen, Dordell, Bradt, Odlaug & Bradt, St. Paul, MN, for the Appellant.
DEBRA A. WILSON, Judge
Specialty Staff, Inc., appeals from the compensation judge=s decision imposing liability for workers= compensation benefits pursuant to Minn. Stat. ' 176.071. We affirm.
Inocencio Zamorano Hernandez, the employee in this matter, is an undocumented worker who came to Minnesota in 2000. In 2001, using false identification papers, he obtained employment with a temporary staffing agency, Specialty Staff, Inc., which placed him in a full-time job with ST Specialty Foods [ST Foods], a pasta processing company.
ST Foods apparently has a policy prohibiting its employees from holding second jobs. Specialty Staff complies with this policy and will not assign temporary workers to both ST Foods and to other employers. While Hernandez was aware of the policy, he nevertheless worked other jobs, concurrently with his ST Foods job, but not through Specialty Staff.
In February of 2005, Hernandez was assigned by a different temporary agency, FirstSite Staffing [FirstSite], to a job at Fantom Wire, Inc., a manufacturer of steel wire products. Fantom Wire has a number of permanent employees and also uses between four and fifteen temporary workers supplied by a staffing agency. Beginning on about February 23, 2005, Hernandez worked the first shift, from 6:00 a.m. to 2:00 p.m., at ST Foods, through Specialty Staff, and then worked the second shift, from 3:30 p.m. to 11:30 p.m., at Fantom Wire, through FirstSite.
Hernandez did not complete any application or other paperwork for Fantom Wire when he began the job there. He did, however, fill out time cards, under the name AInocencio Zamorano Hdz,@ abbreviating his last name due to the length of his full name. His supervisor, foreman Jaime Rios, met him the first day as AInocencio Hernandez@ but subsequently called him by the nickname AChappo.@
In early March 2005, Sherry Ye, a corporate officer of Fantom Wire, contacted Specialty Staff to inquire about its rates and services. Not long after, Paul Lietzau, Specialty Staff=s sales representative, met with Sherry Ye; Mike Coyle, a Fantom Wire foreman; and Brian Ye, the president of Fantom Wire. During the meeting, Lietzau offered to provide Fantom Wire with the same services it was then receiving from FirstSite, but at a substantially lower price. Fantom Wire representatives were told that they could Aroll over@ their existing FirstSite temporary employees to Specialty Staff, subject to Specialty Staff=s application process. To be included in the roll over, workers would be required to complete Specialty Staff applications, sign Employment Eligibility Verification (I-9) forms as required by the federal government, provide two forms of identification, and clear Specialty Staff=s screening.
During the meeting or shortly thereafter, Fantom Wire decided to make the switch from FirstSite to Specialty Staff. Fantom Wire agreed to pay Specialty Staff a percentage markup, above the temporary workers= hourly pay, in exchange for Specialty Staff=s provision of temporary workers and agreement to handle workers= compensation and unemployment compensation coverage, taxes, and payroll functions. Consistent with Specialty Staff=s usual practice, the agreement was not memorialized in any formal, written contract.
Fantom Wire wanted to keep all of its current temporary employees because they had already been trained for the work. Accordingly, on March 15, 2005, Paul Lietzau and Gisela Sierra, a Specialty Staff employee fluent in Spanish, came to Fantom Wire to collect applications and necessary identification from the temporary workers. Only about three of nine temporary employees had complete documentation that day. Inocencio Hernandez was not one of them.
Knowing that Specialty Staff would not allow him to work at both Fantom Wire and ST Foods, Hernandez obtained false documentation, on the street, in the name of Gabriel Zamorano. Hernandez then used the false documentation, including a counterfeit green card and social security card, to complete the Specialty Staff application. On March 16, 2005, foreman Rios, of Fantom Wire, took Hernandez=s falsified application and identification, photocopied it, returned the originals to Hernandez, and left the photocopies in the Fantom Wire office, to be given to Specialty Staff. Rios testified that he did not check or read Hernandez=s paperwork.
Paul Lietzau made trips to Fantom Wire every day that week to pick up the paperwork necessary for the roll over. Lietzau also notified FirstSite that Fantom Wire would be switching from FirstSite to Specialty Staff effective March 21, 2005. Lietzau did not ask either FirstSite or Fantom Wire for a list of the affected temporary workers.
Hernandez had used his real name when filling out his Fantom Wire time card for the week of March 14, 2005. However, after completing the new documentation for Specialty Staff, Hernandez crossed out the name on his time card and wrote the name Gabriel Zamorano above it. He subsequently used the altered time card to document his hours at Fantom Wire. According to a memo from FirstSite, Hernandez notified FirstSite on March 18, 2005, that March 11, 2005, had been his last day of work at Fantom Wire.
On Monday, March 21, 2005, Paul Lietzau signed the Employment Eligibility Verification (I-9) for Gabriel Zamorano. Lietzau testified that, as of that date, AGabriel Zamorano@ was an employee of Specialty Staff, authorized to work at Fantom Wire.
Also on March 21, or March 22, 2005, Mary Carlson, a Fantom Wire corporate officer, sent the Fantom Wire temporary employees= time cards, by facsimile, to FirstSite, for payroll covering the last period of FirstSite=s services. At some point prior to the close of office business hours on March 23, 2005, FirstSite called Fantom Wire to say that no paycheck would be issued to Gabriel Zamorano because Gabriel Zamorano was not in FirstSite=s system. No one at Fantom Wire notified Specialty Staff about any problems concerning an employee named Gabriel Zamorano.
At about 11:30 p.m., on the night of March 23, 2005, Inocencio Hernandez sustained a work-related injury to his right hand in his job with Fantom Wire, losing two fingers in a press. Foreman Rios took Hernandez to the hospital and reported the injury to Brian Ye that night. The next day, Sherry Ye contacted Paul Lietzau at Specialty Staff to inform him that Inocencio Hernandez had been injured at work. Lietzau responded by informing Ye that Specialty Staff did not have an application from Inocencio Hernandez on file.
Specialty Staff eventually took the position that Inocencio Hernandez was not a Specialty Staff employee for purposes of work at Fantom Wire. However, on April 7, 2005, Specialty Staff billed Fantom Wire for work performed by Gabriel Zamorano through March 23, 2005. Fantom Wire paid the bill. Nine months later, well after commencement of litigation, Specialty Staff sent Fantom Wire a refund check Afor Gabriel Zamorano/Inocencio Zamorano Hernandez.@
Following Hernandez=s injury, Fantom Wire=s workers= compensation insurer commenced payment of benefits and sought reimbursement from Specialty Staff, self-insured, pursuant to Minn. Stat. ' 176.071. When the matter came on for hearing on January 10, 2006, and February 2, 2006, Specialty Staff and Fantom Wire agreed that Hernandez was entitled to workers= compensation benefits; the only issue was which employer, Fantom Wire or Specialty Staff, was liable. Witnesses at hearing included Hernandez, Sherry Ye, Brian Ye, Jaime Rios, Paul Lietzau, and James Croft, the risk manager for Specialty Staff. Gisela Sierra=s testimony was submitted by deposition.
In a decision issued on April 10, 2006, as amended April 18, 2006, the compensation judge determined that Fantom Wire had not misrepresented any material fact to Specialty Staff prior to the work injury at issue and that Inocencio Hernandez was an employee of Specialty Staff on March 23, 2005, Apursuant to the agreement between Fantom Wire, Inc., and [Specialty Staff] to provide workers= compensation benefits to the temporary workers on-site at Fantom Wire, Inc.@ Specialty Staff was ordered to reimburse Fantom Wire=s insurer for all benefits paid. Specialty Staff appeals.
STANDARD OF REVIEW
On appeal, the Workers' Compensation Court of Appeals must determine whether "the findings of fact and order [are] clearly erroneous and unsupported by substantial evidence in view of the entire record as submitted." Minn. Stat. ' 176.421, subd. 1 (2004). Substantial evidence supports the findings if, in the context of the entire record, "they are supported by evidence that a reasonable mind might accept as adequate." Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59, 37 W.C.D. 235, 239 (Minn. 1984). Where evidence conflicts or more than one inference may reasonably be drawn from the evidence, the findings are to be affirmed. Id. at 60, 37 W.C.D. at 240. Similarly, findings of fact should not be disturbed, even though the reviewing court might disagree with them, "unless they are clearly erroneous in the sense that they are manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole.@ Northern States Power Co. v. Lyon Food Prods., Inc., 304 Minn. 196, 201, 229 N.W.2d 521, 524 (1975).
"[A] decision which rests upon the application of a statute or rule to essentially undisputed facts generally involves a question of law which [the Workers' Compensation Court of Appeals] may consider de novo." Krovchuk v. Koch Oil Refinery, 48 W.C.D. 607, 608 (W.C.C.A. 1993).
In a typical employment broker arrangement, the staffing agency is considered the general employer and the temporary employer to which the employee is assigned is the special employer. Danek v. Meldrum Mfg. & Eng=g. Co., 252 N.W.2d 255, 29 W.C.D. 438 (Minn. 1977); Bilotta v. Labor Pool of St. Paul, 321 N.W.2d 888, 35 W.C.D. 31 (Minn. 1982). Pursuant to Aultman v. Search Resources, Inc., 58 W.C.D. 89, 99 (W.C.C.A. 1997), the special employer is liable for workers= compensation benefits unless there is an express agreement establishing a different allocation of liability, pursuant to Minn. Stat. ' 176.071, which provides as follows:
When compensation is payable under this chapter for the injury or death of an employee employed and paid jointly by two or more employers at the time of the injury or death these employers shall contribute to the payment of the compensation in the proportion of their wage liabilities to the employee. If any such employer is excluded from the provisions of this chapter and is not liable for compensation, the liability of those employers who are liable for compensation is the proportion of the entire compensation which their wage liability bears to the employee=s entire wages. As between themselves such employers may arrange for a different distribution of payment of the compensation for which they are liable.
In the present case, Specialty Staff argues that the relationship between Specialty Staff and Fantom Wire was unique, in that Hernandez and the other temporary workers were already established employees of Fantom Wire when Specialty Staff entered the picture. As Specialty Staff characterizes the situation, it was Fantom Wire which provided Hernandez and the other temporary workers to Specialty Staff, Ain exact opposition to a typical labor pool relationship.@ For this reason, Specialty Staff argues, Athe existence and terms of an express contract transferring workers= compensation liability for Hernandez to Specialty Staff requires a completely different analysis than was used in Bilotta and Aultman.@ More specifically, Specialty Staff contends that, because there was no Ameeting of the minds,@ no contract was formed to make Hernandez a general employee of Specialty Staff and that, even if such a contract was formed, the contract is void, either because Fantom Wire negligently misrepresented Hernandez=s identity to Specialty Staff or because both Fantom Wire and Specialty Staff were mistaken as to a material fact underlying the agreement, that is, Hernandez=s true identity. Specialty Staff also contends that the compensation judge erred by failing to analyze contract formation issues with respect to each individual employee. We are not persuaded that the compensation judge erred in holding Specialty Staff liable for benefits.
Contract formation in Minnesota is governed by an objective standard, not a subjective one, and it is expressed mutual assent, rather than actual mutual assent, which is the essential element in the formation of a contract. North Star Center, Inc., v. Sibley Bowl, Inc., 295 Minn. 424, 205 N.W.2d 331 (1973). In other words, it is the outward manifestation of assent, rather than the parties= subjective intent, which is determinative. Speckel by Speckel v. Perkins, 364 N.W.2d 890, 893 (Minn. Ct. App. 1985). If disputed, the existence and terms of a contract are questions for the finder of fact. Morrisette v. Harrison Int=l Corp., 486 N.W.2d 424, 427 (Minn. 1992).
In the present case, the record clearly establishes that Specialty Staff agreed to hire Fantom Wire=s existing temporary work force, subject to Specialty Staff=s application and screening process. The application and screening process was completed for Inocencio Hernandez effective March 21, 2005, albeit under the name Gabriel Zamorano. We acknowledge that Specialty Staff did not know that AGabriel Zamorano@ was actually Inocencio Hernandez and that Specialty Staff did not subjectively intend to hire a worker named Inocencio Hernandez when it approved Gabriel Zamorano=s application. However, the same would be true if Hernandez had applied for work, as Gabriel Zamorano, directly at Specialty Staff=s offices. As a rule, misrepresentations as to eligibility for employment do not negate the contractual employer-employee relationship. See, e.g., Gonzalez v. Midwest Staffing Group, Inc., 59 W.C.D. 207 (W.C.C.A. 1999). As such, the fact that Specialty Staff did not subjectively intend to hire Inocencio Hernandez is irrelevant, and Specialty Staff is responsible for benefits under its agreement with Fantom Wire unless avoidance of that agreement can be justified by mistake, fraud, or misrepresentation.
Specialty Staff does not contend that Fantom Wire committed fraud with respect to Inocencio Hernandez=s application with Specialty Staff. However, Specialty Staff asserts that Fantom Wire negligently misrepresented Hernandez=s identity to Specialty Staff by providing Specialty Staff with the fraudulent documentation. Specialty Staff further contends that, because Hernandez=s time card had been altered, Fantom Wire should have been aware that someone was trying to change identities. However, the compensation judge expressly accepted testimony indicating that neither Sherry Ye or Brian Ye knew the names of Fantom Wire=s temporary workers, and Jaime Rios testified that he did not review the application and supporting documentation submitted by Hernandez for purposes of Specialty Staff=s application process. See Even v. Kraft, Inc., 445 N.W.2d 831, 42 W.C.D. 220 (Minn. 1989) (the assessment of witness credibility is for the compensation judge). Furthermore, as the compensation judge observed, Athe fact that a name had been crossed out on the time card did not necessarily lead [Fantom Wire] representatives to believe someone was attempting to change their identity.@ After all, Hernandez had worked at Fantom Wire for less than a month when he altered his time card, and the change was from AInocencio Zamorano Hdz@ to AGabriel Zamorano,@ two somewhat similar names.
More importantly, Specialty Staff=s claim of negligent misrepresentation necessarily assumes that Fantom Wire had some kind of duty to verify the information provided by Hernandez to Specialty Staff. Even assuming that the roll over process somehow makes this case distinguishable from the typical labor pool scenario, nothing in the record establishes that Specialty Staff had any reasonable basis to expect Fantom Wire to assure the authenticity of the temporary workers= documentation. In fact, the opposite is true, in that it was Specialty Staff that had the screening process, and it used that process to decide which workers it would hire. At no point prior to Hernandez=s injury did Specialty Staff request a list of workers from either Fantom Wire or FirstSite. Fantom Wire was simply a convenient conduit for conveying applications and documentation from the temporary employees to Specialty Staff. The only representation arguably made by Fantom Wire was that the application at issue had been prepared by one of its current temporary workers, and that representation was accurate. We find no grounds to allow Specialty Staff to avoid the contract based on any misrepresentation by Fantom Wire.
We also reject Specialty Staff=s request for relief on grounds of mutual mistake. While mutual mistake may provide a basis for avoiding a contract, Winter v. Skoglund, 404 N.W.2d 786, 793 (Minn. 1987), the mistake must be material, going to the very nature of the agreement. See Gartner v. Eikill, 319 N.W.2d 397, 399 (Minn. 1982); Beasley v. Medin, 479 N.W.2d 95, 98 (Minn. Ct. App. 1992). According to the Restatement, it is not enough for a party to establish that he would not have made the contract had it not been for the mistake; rather, A[h]e must show that the resulting imbalance in the agreed exchange is so severe that he can not fairly be expected to carry it out.@ Restatement (Second) of Contracts ' 152 cmt. C (1979). In the present case, as the compensation judge put it, A[t]he contract was not to insure Inocencio Hernandez [but] to provide temporary workers and to define financial responsibility for them.@ This was the essence of this contract and the basis of the parties= bargain. Furthermore, even assuming that Specialty Staff=s mistake as to Hernandez=s identity was material, circumstances dictate placing the risk of that mistake on Specialty Staff. See Restatement, id., at ' 154; Winter, 404 N.W.2d at 793 (mutual mistake provides grounds for avoiding a contract if the party seeking avoidance did not assume the risk of the mistake). Again, it was Specialty Staff that had the screening process for employee applications, and Fantom Wire representatives testified that they looked on temporary staffing agencies as a kind of human resources department. This characterization of Specialty Staff=s role was entirely reasonable given Specialty Staff=s promotional material.
Fantom Wire agreed to pay Specialty Staff a 30% premium, over hourly wage rates, in exchange for workers= compensation coverage, among other benefits, for its temporary workers. Specialty Staff agreed to hire Fantom Wire=s current temporary workers, subject to satisfactory completion of applications and provision of identification. Inocencio Hernandez completed an application and provided supporting identification that appeared valid on its face, and Specialty Staff approved the application on March 21, 2005. Hernandez, an undocumented worker, had used false identification all along, and Fantom Wire had no particular reason to care, vis-a-vis its agreement with Specialty Staff, what Hernandez=s name actually was; presumably, one of the advantages of using a temporary staffing service is the ability to avoid most paperwork and personnel issues. It is also important to note that Hernandez=s injury at Fantom Wire was not the harm that Specialty Staff was seeking to avoid by enforcing ST Foods= prohibition against moonlighting, and there was no causal connection between Hernandez=s misrepresentation and his injury. Cf. Jewison v. Frerichs Constr., 434 N.W.2d 259, 41 W.C.D. 541 (Minn. 1989); Yacoub v. American Nat=l Ins., 59 W.C.D. 104 (W.C.C.A. 1999). Certainly Fantom Wire did not bargain to lose workers= compensation coverage for the temporary workers through the roll over process. Under all these circumstances, to impose workers= compensation liability on Fantom Wire would unjustifiably deprive Fantom Wire of the benefit of its bargain with Specialty Staff. We therefore affirm the compensation judge=s decision.
 Gabriel Zamorano is the name of the employee=s brother, who has never been to the United States.
 State Fund Mutual Insurance Company insured Fantom Wire=s permanent employees.
 In this regard, Specialty Staff contends that AFantom Wire knew that someone calling himself Gabriel Zamorano had appeared out of nowhere on Inocencio Hernandez=[s] time card.@ (Emphasis added). The record does not support the conclusion that anyone at Fantom Wire knew that AGabriel Zamorano@ was using what had been the time card of AInocencio Zamorano Hdz.@
 And we are not convinced that this is the case. Specialty Staff had an established procedure for roll overs of this kind.
 Specialty Staff risk manager Croft testified that, in addition to observing ST Foods= multiple employer prohibition, Specialty Staff would not hire temporary workers who had proven unreliable in the past.
 We also take issue with Specialty Staff=s assertion that the compensation judge found that Fantom Wire had negligently misrepresented Hernandez=s identity. The judge made no such finding, noting only in his memorandum that Fantom Wire was Aperhaps negligent in not keeping better track of the temporary workers.@
 It is arguable that the mistake was unilateral, on the part of Specialty Staff, in that Fantom Wire had no particular interest in Hernandez=s actual identify B it simply wanted this worker, whatever his name, to continue in his job.
 According to James Croft, Specialty Staff=s risk manager, ST Foods utilizes very high speed machinery, and its exclusivity policy for temporary workers is based on a desire to avoid accidents at ST Foods. Had Hernandez falsified his ST Foods= application and then been injured at that job, Specialty Staff=s argument might have more weight.