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RENDERED: MAY 5, 2016 

NOT TO BE PUBLISHED 

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2015-SC-000362-WC 

UNINSURED EMPLOYERS' FUND APPELLANT 

ON APPEAL FROM COURT OF APPEALS 

V. CASE NO. 2014-CA-1556-WC 

WORKERS' COMPENSATION NO. 10-00493 

DARLENE CROWDER; 

PULASKI FRANCHISES, INC.; 

QFA ROYALTIES, LLC.; 

EUGENE DAVIS; JAMES DICK; 

HONORABLE J. GREGORY ALLEN, 

ADMINISTRATIVE LAW JUDGE; AND 

WORKERS' COMPENSATION BOARD APPELLEES 

MEMORANDUM OPINION OF THE COURT 

AFFIRMING 

Appellant, Uninsured Employers' Fund ("UEF"), appeals a Court of 

Appeals decision which affirmed that Appellee, QFA Royalties, LLC, ("QFA") did 

not have up-the-ladder liability for workers' compensation benefits paid to 

Darlene Crowder, and that Appellees, Eugene Davis and James Dick, are also 

not jointly and severally liable to pay for the benefits in question. For the 

below stated reasons, we affirm the Court of Appeals. 

On February 27, 2009, Davis and Dick purchased an existing Quiznos 

sandwich shop in Somerset, Kentucky, from a third party. Davis purchased 
45% of the business and was to participate in the day-to-day management of 

the Quiznos. Dick purchased the remaining 55% but was not active in 

management. Davis and Dick signed the transfer agreements and franchise 

agreement with QFA in their individual capacity. The franchise agreement 

required Davis and Dick to pay QFA a one time transfer fee of $12,500 and a 

monthly 7% royalty fee based on sales. Several days after signing the 

contracts, on March 2, 2009, Davis and Dick created Pulaski Franchises, Inc. 

("Pulaski") for the purpose of owning and operating the Quiznos. Davis owned 

45% of Pulaski and Dick 55%. However, the record indicates that neither the 

franchise agreement nor the assets of the restaurant were transferred into 

Pulaski's name. Nevertheless, all of the restaurant's cash flow was placed into 

accounts held by Pulaski. The employees' wages, taxes, and royalty payments 

to QFA were also paid from the Pulaski account. 

Davis hired Tyler Hibbard to manage the Quiznos. Hibbard, in turn, 

hired Crowder to serve as his assistant. Crowder's first day of work was April 

3, 2010. On April 15, 2010, she severely injured her left eye while working at 

the Quiznos. At the time Crowder suffered her work-related injury, the 

workers' compensation insurance for Quiznos, that was held in Pulaski's name, 

had lapsed. Crowder filed a Form 101 Application for Resolution of Injury 

Claim. QFA, Pulaski, Davis, and Dick were all joined as parties. The UEF was 

also joined as a party due to the lack of a workers' compensation insurance 

policy. 

2 
QFA's designated corporate representative, Lori Christensen, testified by 

deposition. She stated that QFA is in the business of licensing franchises and 

makes profit from the initial franchise fee and monthly royalties from its o

franchisees. Christensen testified that QFA has never owned or operated any 

Quiznos sandwich shops. However, another corporate entity which is part of 

the "Quiznos family" did briefly operate corporate owned restaurants. 

Christensen did testify that while QFA is not in the business of running the 

day-to-day operations of Quiznos restaurants, it did have an interest in making 

sure the individual franchises lived up to a certain standard to provide a 

consistent experience for its customers. 

UEF filed a copy of the franchise agreement entered into between QFA, 

Davis, and Dick. The franchise agreement set out with great specificity the 

parties' rights and obligations with respect to operating the franchise. The 

franchise agreement stated that QFA must approve the location for the 

Quiznos, the lease, the type of equipment used, and the signage. The 

agreement also stated that the franchisees must comply with the operations 

manual which provided even greater detail into how the Quiznos must be 

managed. The operations manual gave rules on how many employees must be 

on duty at all times, what the daily hours of the restaurant must be, and how 

to make and wrap sandwiches, among other rules. 

Davis testified that he was initially responsible for the day-to-day 

operation of the Quiznos, but hired Hibbard to take over all management 

duties. Davis stated that his primary employment was as a snack food 

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salesman. Dick testified that he was just a passive investor in the business 

and had no knowledge of the daily operations. However, there was no contract 

or agreement limiting Dick's involvement in the enterprise. His primary 

employment was as a funeral director. Both Davis and Dick testified that they 

set up Pulaski to own the Quiznos, but neither came up with a reason as to 

why the franchise was not transferred to the corporation. However, Davis 

stated that all of the Quiznos's receipts were placed into and payments were 

made out of an account in Pulaski's name. Neither Davis nor Dick knew that 

the workers' compensation coverage for Pulaski had lapsed. 

Al.,J Allison Jones entered an interlocutory opinion and order on 

December 6, 2012, on the bifurcated issues of whether QFA had up-the-ladder 

liability per KRS 342.610(2); whether Pulaski, Dick, or Davis was Crowder's 

employer; and whether QFA can be held liable if it did not have a written 

agreement with Crowder's employer. Al.,J Jones found QFA was in the 

business of granting and overseeing franchise agreements, and that making 

and selling sandwiches to customers is not a regular and recurrent part of its 

business. She found that while QFA provides very detailed instructions to its 

franchises, it is not involved in operating or managing the stores. Al.,1 Jones 

found QFA's role in this matter was indistinguishable from the scenario in 

Doctors' Associates, Inc. v. Uninsured Employers' Fund, 364 S.W.3d 88 (Ky. 

2011). ALJ Jones reasoned that QFA did not have up-the ladder liability, and 

dismissed it from the case. ALJ Jones then further found that Pulaski was 

Crowder's employer based on bank records and the parties' testimony. She 

4 
dismissed Davis and Dick from the claim. Thus, Pulaski would be responsible 

to repay the UEF for any workers' compensation benefits paid to Crowder. 

The UEF filed a petition for reconsideration asking for additional findings 

of fact and conclusions of law on the question of whether Davis, Dick, and 

Pulaski were involved in a joint venture and were therefore jointly and severally 

liable. The elements essential to find that there was a joint enterprise/venture 

are: "1) an agreement, express or implied, among the members of the group; 2) 

a common purpose to be carried out by the group; 3) a community of pecuniary 

interest in that purpose among the members; and 4) an equal right to a voice in 

the direction of the enterprise, which gives an equal right of control." Huff v. 

Rosenberg, 496 S.W.2d 352 (Ky. 1973). 

Applying the facts of this matter, ALI Jones determined that Davis, Dick, 

and Pulaski were not involved in a joint enterprise/venture because the first, 

third, and fourth element of the Huff test were not satisfied. ALJ Jones found 

the first element was not satisfied because there was no agreement between 

Dick, Davis, and Pulaski to jointly operate and run the Quiznos. The third 

element was not satisfied because ALJ Jones found that there was no evidence 

the three parties shared profits from the Quiznos. Instead, ALJ Jones believed 

that all of the profits from the restaurant were treated as corporate profits and 

retained by Pulaski to put back into the business. Finally, A1,J Jones found 

that the fourth element was not satisfied because Dick testified that he was a 

passive investor and exercised no control over the business. The Al.,J further 

5 
opined that the parties made a mutual mistake when Dick and Davis 

purchased the franchise in their personal capacity and not in Pulaski's name. 

A1.0 Gregory Allen was assigned to the matter after ALJ Jones was 

appointed to the Court of Appeals. He adopted AL I Jones's findings regarding 

the parties' liability to pay Crowder's workers' compensation benefits. Al.,J 

Allen then ordered Pulaski to reimburse UEF per KRS 342.760(4) for any 

benefits paid. He awarded Crowder temporary total disability benefits and 

permanent partial disability benefits enhanced by the three multiplier per KRS 

342.730(1)(c)1. The Workers' Compensation Board ("Board") and Court of 

Appeals affirmed, and this appeal followed. 

The Board's review in this matter was limited to determining whether the 

evidence is sufficient to support the ALJ's findings, or if the evidence compels a 

different result. W. Baptist Hosp. v. Kelly, 827 S.W.2d 685, 687 (Ky. 1992). 

Further, the function of the Court of Appeals is to "correct the Board only 

where the Court perceives the Board has overlooked or misconstrued 

controlling statutes or precedent, or committed an error in assessing the 

evidence so flagrant as to cause gross injustice." Id. at 687-88. Finally, review 

by this Court "is to address new or novel questions of statutory construction, 

or to reconsider precedent when such appears necessary, or to review a 

question of constitutional magnitude." Id. The ALJ, as fact-finder, has the sole 

discretion to judge the credibility of testimony and weight of evidence. 

Paramount Foods, Inc. v. Burkhardt, 695 S.W.2d 418 (Ky. 1985). 

6 
I. QFA DOES NOT HAVE UP-THE-LADDER LIABILITY TO 

REIMBURSE THE UEF FOR CROWDER'S WORKERS' 

COMPENSATION BENEFITS 

UEF first argues that QFA should have up-the-ladder liability to pay for 

Crowder's workers' compensation benefits. UEF contends that QFA was a 

contractor and Davis, Dick, and Pulaski collectively served as a subcontractor, 

as a matter of law. It argues that QFA was as much in the sandwich selling 

business as Davis, Dick, and Pulaski, based on Christensen's testimony which 

indicated that QFA had an interest in making individual franchises succeed, 

and that the franchise agreement provided very specific instructions on how 

franchises must run their business. Because the UEF was unsuccessful before 

the ALJ and had the burden of proof regarding whether QFA has up-the-ladder 

liability, the question on appeal is if, upon consideration of the whole record, 

the evidence compels a finding in its favor. Wolf Creek Collieries v. Crum, 673 

S.W.2d 735 (KY. App. 1984). 

KRS 342.610(2) states, "A contractor who subcontracts all or any part of 

a contract and his or her carrier shall be liable for the payment of 

compensation to the employees of the subcontractor unless the subcontractor 

primarily liable for the payment of such compensation has secured the 

payment of compensation as provided for in his chapter." Any person who 

contracts with another, "To have work performed of a kind which is a regular or 

recurrent part of the work of the trade, business, occupation, or profession of 

such person shall for the purposes of [the statute] be deemed a contractor, and 

such other person a subcontractor." KRS 342.610(2)(b). 

7 
Work of a kind that is a 'regular or recurrent part of the work of 

the trade, business, occupation, or profession' of an owner does 

not mean work that is beneficial or incidental to the owner's 

business or that it is necessary to enable the owner to continue in 

business, improve or expand its business, or remain or become 

more competitive in the market. It is work that is customary, 

usual, or normal to the particular business (including work 

assumed by contract or required by law) or work that the business 

repeats with some degree of regularity, and it is of a kind that the 

business or similar business would normally perform or be 

expected to perform with employees. 

General Electric Co. v. Cain, 236 S.W.3d 579, 588 (Ky. 2007). Nothing within 

KRS 342.610(2) precludes a franchisor, such as QFA, from being considered 

the statutory employer of its uninsured franchisee's employee. Doctors' 

Associates, Inc., 364 S.W.3d at 92. Whether an individual or business has upthe-ladder liability is decided on a case by case basis. Id. at 89 

In this matter, the ALJ's determination that QFA does not have up-theladder liability is supported by substantial evidence. The ALA found that QFA 

is in the business of granting and overseeing franchisee agreements and that, 

unlike the Quiznos in Somerset, making and selling sandwiches to customers 

is not a regular and recurrent part of its business. This finding is supported by 

the fact that QFA did not actually operate any Quiznos restaurant. While the 

franchise agreement and operating manual do provide detailed instructions on 

how to manage the restaurants on a day-to-day basis, these guidelines were 

instituted to protect the brand which QFA sold. Keeping the brand strong is a 

critical part of QFA's purpose because it derives its revenue from franchise fees 

and royalties. Additionally, while the success of individual franchises does 

benefit QFA, its primary focus is making Quiznos franchises attractive to 

8 
investors. Thus, since QFA is not in the business of making and selling 

sandwiches to customers and the Quiznos in Somerset was engaged in that 

work, QFA cannot be considered the contractor, and does not have up-theladder liability in this matter. 

II. CROWER'S EMPLOYER IS PULASKI, THEREFORE DAVIS 

AND DICK ARE NOT JOINTLY AND SEVERALLY LIABLE TO 

PAY FOR HER WORKERS' COMPENSATION BENEFITS 

UEF also argues that Davis and Dick are jointly and severally liable for 

Crowder's workers' compensation benefits because they were engaged in a joint 

venture with Pulaski to operate the Quiznos. UEF argues that Davis, Dick, and 

Pulaski had a common purpose to make money selling Quiznos sandwiches, 

and thus per the Huff test, they were engaged in a joint venture. However the 

UEF's focus on whether Davis, Dick, and Pulaski were involved in a joint 

venture is misplaced. Clearly, Davis and Dick were involved in a joint venture 

to make money from operating a Quiznos franchise and created Pulaski in an 

attempt to shield themselves from the liability of running such a business. See 

KRS 271B.6-220. The real question here is whether Pulaski is Crowder's 

employer despite the fact that Davis and Dick never transferred the assets and 

franchise agreement from the Quiznos to the corporation. If Pulaski is 

Crowder's employer, then Davis and Dick are shielded from being jointly and 

severally liable for the workers' compensation benefits. 

KRS 342.640(1) defines employees as, "Every person including a minor, 

whether lawfully or unlawfully employed, in the service of an employer under 

any contract of hire or apprenticeship, express or implied, and all helpers and 

9 
assistants of employees, whether paid by the employer or employee, if 

employed with the knowledge, actual or constructive, of the employer." 

Crowder was clearly under a contract of hire because she was asked by 

Hibbard to work for Quiznos. There is no evidence that Davis or Dick had any 

say in hiring Crowder and both testified that Pulaski was incorporated to 

operate the Quiznos. Crowder and Hibbard were paid from Pulaski's bank 

account and would have received worker's compensation benefits from an 

insurance policy held in Pulaski's name if it had not lapsed. Therefore, the 

ALJ's conclusion that Crowder was employed by Pulaski is supported by the 

record and shall not be disturbed on appeal. The fact that Davis and Dick 

never transferred the franchise agreement and restaurant assets into Pulaski's 

name does not change the fact that Pulaski was operating the restaurant on 

Davis and Dick's behalf. Pulaski is solely responsible to pay the UEF for 

Crowder's workers' compensation. 

For the above stated reasons, we affirm the decision of the Court of 

Appeals. 

All sitting. All concur. 

10 
COUNSEL FOR APPELLANT, 

UNINSURED EMPLOYERS' FUND: 

James Robert Carpenter 

COUNSEL FOR APPELLEE, 

DARLENE CROWDER: 

McKinnley Morgan 

COUNSEL FOR APPELLEE, 

PULASKI FRANCHISES, INC.; 

EUGENE DAVIS; JAMES DICK: 

John G. Prather, Jr. 

Arden Winter Robertson Huff 

COUNSEL FOR APPELLEE, 

QFA ROYALTIES, LLC: 

Donald Cameron Walton, III 

John Patterson 

11