Frank M. Hall & Co., Inc. v. Newsom, No. 04SC275.

• Decision Date: 19 December 2005
• Docket Number: No. 04SC275.
• Citation: 125 P.3d 444
• Parties: FRANK M. HALL & COMPANY, a Colorado corporation, Petitioner, v. Rick NEWSOM, Respondent.
• Court: Colorado Supreme Court

125 P.3d 444

FRANK M. HALL & COMPANY, a Colorado corporation, Petitioner, v. Rick NEWSOM, Respondent.

No. 04SC275.

Supreme Court of Colorado, En Banc.

December 19, 2005.

Messner & Reeves, LLC, John K. Shunk, Ryan A. Williams, Denver, for Petitioner.

Lohf Shaiman Jacobs Hyman & Feiger, P.C., John C. Steele, Denver, Robert M. FitzGerald, Lakewood, for Respondent.

Pinnacol Assurance, Michael J. Steiner, Denver, for Amicus Curiae, Pinnacol Assurance.

Hall & Evans, LLC, Douglas J. Kotarek, Denver, for Amicus Curiae, Professional Independent Insurance Agents of Colorado.

Stettner, Miller and Cohn, P.C., Kate Raabe, Denver, for Amicus Curiae, Construction Industry Associations.

COATS, Justice.

Frank M. Hall & Company sought review of the court of appeals judgment upholding the denial of its motion for summary judgment, in a personal injury lawsuit brought by Rick Newsom. See Newsom v. Frank M. Hall & Co., 101 P.3d 1107 (Colo.App.2004). The district court had rejected Hall & Company's assertion that it was immune from suit by Newsom because it was his employer within the meaning of the workers' compensation act. The court of appeals agreed, holding that Hall & Company did not qualify as Newsom's statutory employer because the subcontractor directly employing Newsom stood in relation to Hall as an independent contractor rather than its employee.

We understand section 8-41-401(1)(a), C.R.S. (2003), to relieve a general contractor of its liability as an employer, for the death or injury of a person to whom it contracts out work, whenever that person is engaged in an independent trade, occupation, profession, or business and is free from the general contractor's control and direction, without at the same time relieving the general contractor of liability for the subcontractor's employees. We therefore find that Hall & Company was liable, as Newsom's statutory employer, for the injuries he suffered and was correspondingly immune from a personal injury suit by him. Accordingly, the judgment of the court of appeals is reversed.

I.

Rick Newsom filed suit against Frank M. Hall & Company, the general contractor on a construction project, for injuries he suffered while working on the project. Newsom was directly employed by Diamond Excavating, Inc., a subcontractor engaged by Hall & Company to perform excavation work on the project. After recovering from Diamond's workers' compensation carrier, Newsom filed suit against Hall. Hall moved for summary judgment on the ground that statutory workers' compensation was Newsom's exclusive remedy for his injuries. The district court denied the motion, and the jury returned a special verdict finding Hall seventy-five percent negligent, ultimately resulting in a judgment in Newsom's favor for about $160,000.

Hall & Company moved for judgment notwithstanding the verdict and subsequently appealed the denial of its motions, but the court of appeals affirmed. The appellate court reasoned that according to the plain language of section 8-41-401(1)(a)(I), no company can be an employer of either a subcontractor or employees of the subcontractor if the subcontractor's independence is established according to the criteria enumerated in a cross-referenced section of the act defining the term "employee." In reaching that conclusion, the court of appeals rejected Hall's interpretation of the statutory scheme as contemplating that only an individual subcontractor himself, as distinguished from an entire business entity and that entity's employees, could be independent and free from the control and direction of the general contractor. Because the court of appeals also agreed that evidence in the record established Diamond's independence from Hall & Company under the criteria of section 8-40-202(2)(b), C.R.S. (2003), it affirmed the district court's rulings.

Hall then petitioned this court for a writ of certiorari.

II.

We have previously described workers' compensation as having a primary purpose of providing a remedy for job-related injuries, without regard to fault. Finlay v. Storage Tech. Corp., 764 P.2d 62, 63 (Colo.1988); see Frohlick Crane Service, Inc. v. Mack, 182 Colo. 34, 38, 510 P.2d 891, 893 (1973). The statutory scheme was designed to grant an injured employee compensation from his or her employer without regard to negligence and, in return, the responsible employer would be granted immunity from common-law negligence liability. Finlay 764 P.2d at 63. This jurisdiction has long provided an extra layer of protection for the employees of subcontractors by imposing employer liability for their injury or death not only on the subcontractors by whom they are directly employed, but also on the companies contracting out work to those subcontractors. See San Isabel Electric Assoc. v. Bramer, 182 Colo. 15, 19, 510 P.2d 438, 440 (1973).

Since the major statutory reorganization of 1990, see ch. 62, sec. 1, Articles 40 to 47 of title 8, 1990 Colo. Sess. Laws 468-556 ("Workers' Compensation Act of Colorado"), the applicability of the workers' compensation act to contractors and lessees has been governed by part 4 of article 41 of title 8, of the revised statutes. As applicable here, section 8-41-401(1) specified that except for certain enumerated exceptions, any person, company, or corporation leasing or contracting out any part of its work would be construed to be an employer and liable to compensate the lessee, sublessee, contractor, or subcontractor, as well as its employees (or their dependents), for injuries or death resulting from that work. See § 8-41-401(1)(a).¹ In the next two, closely-related subsections, the statute also made express that if such a subcontractor were itself an employer and insured its liability as required by the act, neither the subcontractor nor any of its employees would have any right of action against the person or company contracting out the work, see § 8-41-401(2); and that recovery for death or injuries according to the provisions of the act would not be available to designated individuals who maintained their independence from another by whom they were engaged to perform a service or who chose not to cover themselves, as permitted by the act, or be so covered by the corporation of which they were officers or the limited liability company of which they were members, see § 8-41-401(3).

Although subsection 401(2) of the statute would therefore appear to govern most directly the matter at issue here — whether an employee of a subcontractor was barred from pursuing a personal injury suit against a general contractor — that provision, by its own terms, applies only to the lessees, sublessees, contractors, and subcontractors described in subsection 401(1)(a). Since 1995, when subsection 401(1)(a) began to include exceptions to the class of subcontractors of whom the general contractor would be considered an employer, see ch. 112, sec. 3, § 8-41-401(1) and (3), 1995 Colo. Sess. Laws 343, 344, the scope of subsection 401(2)'s bar to actions against the general contractor has been correspondingly limited. At the time of Newsom's injury, subsection 401(1)(a) delineated three separate exceptions to employer liability. For a number of reasons, the language of the first of these three presents questions of interpretation not apparent in the other two.

Unlike the second and third exceptions to employer liability, which specifically refer to "persons" owning or holding particular positions in an organization or entity ("general partner," "sole proprietor," "corporate officer," "members [of limited liability companies]"), the first exception is couched in terms of the lessee, sublessee, contractor, or subcontractor itself. While the reference in the body of section 401(1)(a) to the recipient of leased or contracted-out work is clearly intended to include business entities having employees of their own, the exception applies, by its own terms, only to a subset of such recipients, which is limited to those who can establish that they perform their service independently within the meaning of subsection 8-40-202(2)(b), so as to be excluded from the broader definition of "employee" altogether. See § 8-41-401(1)(a)(I) (incorporating by reference § 8-40-202(2)(b)). The requirements for establishing "independence" or an "independent contractor relationship" within the meaning of subsection 8-40-202(2)(b), on their face, go beyond merely receiving leased or contracted-out work; and therefore, whatever the realities of practice in the construction industry may actually be, lessees, sublessees, contractors, or subcontractors are not automatically "independent contractors," as that term is now used in the statute.

The criteria of subsection 8-40-202(2)(b) for establishing independence, according to which the subcontractor exception of subsection 8-41-401(1)(a)(I) is defined, are expressed in terms of "individuals" or "service providers," who are expressly distinguished from their trade or business names. See, e.g., § 8-40-202(2)(b)(II)("To prove independence it must be shown that the person for whom services are performed does not: ... (E) Provide more than minimal training for the individual; (F) Provide tools or benefits to the individual;... (H) Pay the service provider personally instead of making checks payable to the trade or business name of such service provider...."). In addition, the very definition of "employee," from which individuals meeting these criteria are excluded, is itself expressed in terms of "persons" in the service of other persons, associations of persons, firms, private corporations, or governmental agencies, departments, or offices, rather than the associations or entities themselves. See § 8-40-202(1). Because the term "employee" is used elsewhere without apparent distinction between business associations and individual natural persons, see, e.g., § 8-41-401(1)(b) and (2), it would not be unreasonable to understand the term "individual" to...