Contractors vs employees: KBR and Blackwater shell games

April 21st, 2008 by Julie Ferguson

A reader sent us a story from the Boston Globe that we previously missed about contractors who are suing KBR for toxic exposures to sodium dichromate in Iraq. Nine Americans are suing the erstwhile Halliburton subsidiary for ” …knowingly exposing them to the deadly substance and failing to provide them with the protective equipment needed to keep them safe.”
Sodium dichromate is a very dangerous substance, yet the 100+ workers at the Qarmat Ali water injection plant worked in and around the substance without protection. Some workers were observed eating lunch on the floor next to chemical tanks and others exhibited nosebleeds, eye problems, shortness of breath, and ulcers on the skin.
Regular readers may recall that we’ve discussed Iraq-based contractors previously – all contractors – whether nationals or foreign – are covered by the Defense Base Act. Although this involves some creative insurance arrangements, the DBA essentially acts very similarly to workers comp.
As with workers comp, one of the cornerstones of the coverage is that the DBA is the employee’s exclusive remedy. In other words, it is an employee’s only legal redress in the event of injuries or illnesses. However, in workers comp, there are generally some exceptions, although the window for such exceptions is pretty narrow. Some states allow an employee to pierce the exclusive remedy shield if “willful intent” of injury can be proven or if there was substantial certainty that an injury would have been likely to occur. The burden of proof is on the employee, and courts usually require something more that goes beyond the realm of mere negligence – the employer’s actions need to be quasi criminal.
KBR is relying on exclusive remedy for protection, but this troublesome matter may be a factor:

“But the company’s own actions have undermined its case: To avoid payroll taxes for its American employees, KBR hired the workers through two subsidiaries registered in the Cayman Islands, part of a strategy that has allowed KBR to dodge hundreds of millions of dollars in Social Security and Medicare taxes.

That gives the workers’ lawyer, Mike Doyle of Houston, a chance to argue to an arbitration board that KBR is not an employer protected by federal law, but a third-party that can be sued.”

Interestingly, this “independent contractor” argument is the same one that Blackwater is using to justify why the company didn’t pay $50 million in U.S. payroll taxes. So far, the IRS isn’t buying that argument – they don’t think that the Blackwater workers fit the definition of contractors. It seems that Blackwater might be trying to play both sides of the fence by not paying the taxes which would be an employer obligation but claiming the employer privilege of exclusive remedy afforded by the DBA when it comes to other matters.
My colleague has talked about the matter of independent contractors vs employees several times in the past – most notably in the case of the fascinating Fedex state-by-state saga 1, 2, 3, 4, 5, 6 and 7. It will be interesting to see how the matter of these giant federal contractors play out. Being a military contractor is apparently good work for the firms that can get it: lucrative no-bid contracts, U.S. taxpayers subsidizing the DBA coverage, and little in the way of pesky employee taxes, labor laws, or government oversight.
In looking into these issue, we stumbled on the Defense Base Act Blog (who knew there was such a critter?!) and blogger Aaron Walter makes some good points about being careful what you wish for – if KBR is not covered by DBA, then thousands of injured or deceased employees and their families would no longer receive income benefits or medical treatment. He also has good commentary on the Blackwater matter.
Stay tuned for more.