Oregon Court of Appeals Ruling May Hurt LLCs

The Oregon Court of Appeals ruled in late February in Cortez v. Nacco Materials Handling Group, Inc. that the exclusive remedy provision of the workers’ compensation law does not protect the individual members of an LLC from tort liability. This decision could potentially negatively affect members of limited liability companies (LLCs) in the state.

Cortez involved a worker employed by an LLC and suffered injuries during a fork lift accident. The worker first filed a workers’ compensation claim against the LLC and received benefits. The worker then initiated an action outside of the workers’ compensation system, suing in tort a number of parties, including the sole member of the LLC. The trial court originally dismissed the lawsuit, citing the workers’ compensation exclusive remedy provision; however, the Court of Appeals reversed the decision, allowing the tort litigation to proceed.

AGC has already joined with other business associations (including Associated Oregon Industries) to resolve this issue and to ensure that the law is clarified and the exclusive remedy provision of the workers’ compensation law includes LLC members. There is some possibility that the court decision could be overturned by the Oregon Supreme Court, but there is no guarantee that the parties to the lawsuit will pursue an appeal.

For construction contractors that are formed as LLCs and their individual members, this ruling creates some uncertainty and potential risk. Under this ruling, members of an Oregon-based LLC are potentially liable for damages resulting from workplace injuries, even if the injured worker has been compensated through the LLC’s worker compensation insurance. Construction contractors who are formed as LLCs should review their liability insurance policies to ensure that individual members are adequately covered for all Oregon Employer Liability Law claims.

If you have any questions about this topic, please contact Government Affairs Director John Rakowitz (johnr@agc-oregon.org). If you would like to read Board Counsel Jeremy Vermilyea’s article on the issue, click here.

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