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Loaned Servant Doctrine as a Shield Often Fails Defendant Upon Examination of the Facts

Defendants responsible for causing injuries to the employee of another often attempt to invoke the Loaned Servant Doctrine to avoid liability where their employee injures a co-employee of the alleged “borrowing employer.” This defense rarely survives scrutiny but is often alleged because of the allure it presents to wrongdoers seeking to evade liability.

The Illinois Workers’ Compensation Act defines a loaned employer as:

An employer whose business consists of . . . furnishing employees to or for other employers . . . for the performance of the work of such other employers and who pays such employees their salary or wages notwithstanding that they are doing the work of such other employers. Ill.Rev.Stat.1987, ch. 48, par. 138.1(a)(4).

The case law establishes a series of factors necessary for evaluating whether a worker is a loaned servant, if any of these facts are in dispute these factors should be presented to the trier of fact and a motion for summary judgment should be denied. These factors include: the manner of hiring, the mode of payment, the right to discharge, the manner of direction of the services, and the terms of the written contract. Gundich v. Emerson-Comstock Co., 21 Ill. 2d 117, 123, 171 N.E.2d 60, 63 (1960).

When evaluating the manner of hiring element, it is clearly established that if the alleged borrowing employer did not choose who would specifically be hired and instead that choice was made by the original employer, then the worker is not a loaned servant. This is often the circumstance where a crane company rents a crane complete with an operator. The operator remains a direct employee of the crane company and does not become an employee of the lessee. Gundich. Id. In evaluating the mode of payment, the fact that the original employer pays the operator’s wages, benefits and issues W-2 forms, is usually sufficient to defeat any claim of loaned status.

The right to discharge is another element which usually strongly rests in favor of the original employment status. This factor is further strengthened when the alleged loaned employee is one of specialized training, is governed by the safety rules and instruction of his employer and the employer retains the authority to replace him and/or substitute him during the term of the lease. Where the employee is accompanied by an expensive specialized piece of equipment owned by the original employer, is responsible to the original employer and its dictates for the care and maintenance of the equipment and throughout the arrangement continually advises and answers to the employer as to the care of that equipment it is impossible to establish loaned status. Merlo v. Public Service Co. of Northern Illinois, 381 Ill.300, 45 N.E.2d 665, has continually been cited along with Gundich in support of these propositions. Further, Courts have held consistently that even though certain day to day direction during the course of the work may have been received by the alleged loaning employer, that fact does not inure to a finding of loaned status. The United States Supreme Court in Standard Oil Company v. Anderson, 212 U.S. 215, 29S.Ct. 252 wrote:

Much stress is placed on the fact that winchman obeyed the signals of the gangman,…in timing the raising and lowering of the cases of oil. But when one large general work is undertaken by different persons doing distinct parts of the same undertaking, there must be cooperation, or there will be chaos. The giving of the signals of the circumstance of this case was not the giving of orders, but of information; and the obedience of those signals showed cooperation rather than subordination, and is not enough to show that there has been a change of masters. (Cited as authority in Gundich, Id., Murphy v. Lindahl, 24 Ill.App.2d 461; andMerlo, Id.)

The above, when taken together with the terms of any existing written contract, regardless of the contract’s attempt to shift employment status, leads to the defeat of the purported defense. Even when the contract gives authority to the alleged borrowing company that does not necessarily mean that the original employer is giving up control of its employee and lending him, instead the court will look to how much control the alleged borrowing employer had over the employee on the jobsite before rendering a classification of loaned servant. See Pioneer Fireproof Const. Co. v. Hansen, 176 Ill. 100, 110, 52 N.E. 17, 20 (1898).