Arizona Court of Appeals Division One holds that in workers’ compensation claims, multiple contractors and subcontractors may share joint liability as direct or statutory employers.

Courts liberally construe the broad language of Arizona’s Workers’ Compensation Act to protect employees.  The Act makes employers liable for employee injuries and requires employers to maintain workers’ compensation insurance.  These requirements apply to both direct employers and to “statutory employers” who subcontract the work of their businesses to direct employers but retain supervision and control over the work.  The Act also provides for a Special Fund to compensate workers whose employers fail to provide the required insurance.

A construction worker was injured while framing a home.  He reported his injury to the Industrial Commission of Arizona.  There were several potentially liable employers.  The primary framing contractor on the home had engaged a subcontractor, which itself engaged a second subcontractor.  The second subcontractor assigned the work to a man operating as a sole proprietor.  That first man hired a second man to oversee the framing work in question.  The second man paid the injured construction worker and told him when and where to work.

The result was a consolidated workers’ compensation claim against the five potential employers: the primary contractor, the two subcontractors, and the two men.  The Special Fund also joined the action because the first man and second man did not have workers’ compensation insurance.  An administrative law judge (ALJ) held a three-day hearing and issued a consolidated decision.  The ALJ found that the first man employed both the second man and the injured construction worker.  The ALJ determined that the first man was a direct employer and that the second subcontractor was a statutory employer.  The ALJ held that both were responsible for paying the injury claim.  The ALJ made no findings about the primary contractor or the first subcontractor.  Upon review, the Industrial Commission affirmed.  The second contractor and the Special Fund petitioned for special action review.

The Court of Appeals affirmed the ALJ’s factual findings and conclusions with respect to the second subcontractor, the first man, and the second man.  It affirmed that the first man was an employer under the Act.  Although his sole proprietorship was not a complex company, he had at least one employee in the regular course of his business.  The Court also affirmed that under the Act each responsible employer is jointly and primarily liable, regardless of whether it is a direct or statutory employer. 

The Court of Appeals then held that the ALJ erred by not determining the liability of the primary contractor and first subcontractor.  Arizona’s Workers’ Compensation Act defines a statutory employer based on the nature of the work and the level of supervision or control retained.  It does not limit liability to a single statutory employer and the Court declined to impose a “first responsible contractor” limitation.  The jurisdictions that follow that rule have a different statutory scheme for apportioning liability.  In Arizona, ALJs must evaluate the liability of each contractor and subcontractor that is party to a workers’ compensation proceeding.  Here the ALJ failed to do so.  The Court of Appeals could not determine the liability of the primary contractor and first subcontractor as a matter of law because of conflicting evidence.  Instead the Court set aside the decision and award.

Judge Jones authored the opinion; Judges Morse and Thompson concurred.