How do parent corporations deal with Workers’ Compensation?

In search of viable third-party defendants in workplace injury cases, attention frequently turns to corporate relatives, particularly parent entities. In these situations, the question becomes, under what circumstances can a parent corporation be held liable in tort to an employee of a subsidiary who is injured in a work-related incident? Put another way, the issue is whether a parent corporation can be sued for an employee’s work-related injuries despite the exclusive remedy provisions of the Workers’ Compensation Act. The short answer is maybe. 

Resolution of this issue turns upon the concept of duty. Simply put, does a parent corporation owe a duty to an employee of a subsidiary who is injured on the job? There is no short answer to the question. What is clear is that attorneys trying to sue a parent corporation in this setting must exercise great care in pleading and framing the issue to survive a motion to dismiss or motion for summary judgment. 

Under the Workers’ Compensation Act, employees who are injured on the job are generally limited to the remedies afforded by the act, namely indemnity for lost earnings and payment of work-related medical expenses (Woodson v. Rowland and Pleasant v. Johnson). In the typical case, employees are barred by the exclusive remedy provisions of the act from suing their employers in court where nonpecuniary damages such as pain and suffering would be available (N.C.G.S. § 97-10.1). Pursuant to N.C.G.S. § 97-9, the immunity from suit extends to parties who are conducting the employer’s business. 

Under what circumstances can an employee of a subsidiary pursue a civil suit against the parent corporation? The law is somewhat sparse on this point of law, but generally, the employee can sue the parent corporation where it is a separate and distinct legal entity that assumed an independent duty of care to the injured worker. The N.C. Court of Appeals first addressed this issue in Phillips v. Stowe Mills (1969). In the case, the plaintiff was injured while working for Pharr, a wholly owned subsidiary of defendant Stowe Mills. The worker then filed suit against Stowe Mills. The issue addressed in Phillips was whether Stowe Mills was immune from suit by operation of the exclusivity provisions of the act. The evidence showed that the two entities had common administrative offices, a common personnel department and a common sales organization. 

Nevertheless, the court held that the suit against Stowe Mills was not barred by the exclusive remedy provisions of the act. Why? Because, among other indicia of independence, Pharr and Stowe were separate and distinct legal entities as evidenced by their separateness for accounting and tax purposes. Accordingly, the court held, Stowe Mills was not immunized from suit by the exclusive remedy provisions of the Act. (See also Cameron v. Merisel, Inc. (2004).) 

A plaintiff pursuing a parent entity is required to show that the parent entity assumed a direct and independent duty to provide for the safety and security of its subsidiary’s employees (Spaulding v. Honeywell (2007) and Richmond v. Indalex (M.D.N.C. 2004)). If the parent has assumed such a duty, it is not afforded the immunity enjoyed by employers under the act and may be sued in a civil action. 

Care should be taken not to conflate such scenarios with agency. An agency relationship arises when a parent corporation exercises such general and extensive direction and control over a subsidiary that the two entities can be treated as one. In that case, the parent corporation would be deemed the principal of the subsidiary and, as such, the exclusive remedy provisions of the act would accrue to the corporate parent under basic principles of agency. 

A scenario in which a corporate parent dominates the general operations of its subsidiary might also support a veil-piercing or alter ego theory. In either case, the liability of the parent for an injury to the employee of a subsidiary would be derivative and vicarious. Because a subsidiary enjoys immunity from suit when one of its employees is injured on the job, that same immunity would extend to the parent corporation if agency is alleged. Accordingly, it is critical that attorneys make clear in pleadings that they are alleging an independent and direct duty on the part of the parent corporation to provide a safe working environment for the subsidiary’s employees. Only in that scenario can a claimant sue a parent corporation and clear the exclusivity bar under the act. 

Establishing an independent duty is not the easiest task. The relevant test is set forth in Spaulding v. Honeywell (2007). As the Spaulding court held (original emphasis): 

“An employer has a nondelegable duty to provide for the safety of its employees in the work environment. The parent-shareholder is not responsible for the working conditions of its subsidiary’s employees merely on the basis of [the] parent-subsidiary relationship. A parent corporation may be liable for unsafe conditions at a subsidiary only if it assumes a duty to act by affirmatively undertaking to provide a safe working environment at the subsidiary. Such an undertaking may be express, as by contract between the parent and the subsidiary, or it may be implicit in the conduct of the parent. 

“Because an employer has a nondelegable duty to provide safe working conditions for its employees, we do not lightly assume that a parent corporation has agreed to accept this responsibility. Neither mere concern with nor minimal contact about safety matters creates a duty to ensure a safe working environment for the employees of a subsidiary corporation. To establish such a duty, the subsidiary’s employee must show some proof of a positive undertaking by the parent corporation.” 

(See also Edwards v. GE Lighting (2009); Hamby v. Profile Products (2007); and Nelson v. Smith (2025).) 

The exclusivity bar extends to people and entities conducting the employer’s business (N.C.G.S. § 97-9; see also Pender v. Lambert (2013) (exclusivity extended to sibling entity)). Accordingly, it is critical that claimants establish through discovery the separateness between the parent and its subsidiary. Who are the officers, directors and managers of the two entities? Are there any operating agreements or other contracts between the parent and subsidiary that indicate that they are independent entities dealing at arm’s length? Are the operations of the parent and subsidiary separate and distinct? Are there any agreements, policies or procedures promulgated by the parent corporation indicating the assumption of a duty or responsibility on the part of the parent to provide for the safety of the subsidiary’s employees? Do the interactions between the two entities and their course of dealing suggest that the parent corporation has voluntarily assumed a duty to provide for the safety of its subsidiary’s employees? These are just some of the questions plaintiff’s counsel should be asking in discovery. 

As the courts in Spaulding and Richmond observed, establishing an assumption of duty on the part of the parent corporation is difficult. In discovery, claimants should plumb in great detail all evidence of separateness between the two entities. While establishing an independent duty on the part of the parent corporation is not easy, it can reap considerable benefits, particularly when the subsidiary is under-insured or undercapitalized and when Woodson and Pleasant would otherwise be the only avenues to a full recovery. I wish you luck. 

Mark McGrath is a lawyer with Paynter Law in Hillsborough, where he practices personal injury and medical malpractice litigation.