Young v. Environmental Air Products, Inc.

• Decision Date: 01 April 1983
• Docket Number: No. 16216-PR,16216-PR
• Citation: 665 P.2d 40,136 Ariz. 158
• Parties: David T. YOUNG, a single man; and Michael W. Mason, a single man, Plaintiffs/Appellees/Cross Appellants, and Kirby Building Systems, Inc., a Texas corporation, Defendant/Appellee, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Defendant/Appellant/Cross Appellee. David T. YOUNG, a single man; and Michael W. Mason, a single man, Plaintiffs/Appellants, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation; Kirby Building Systems, Inc., a Texas corporation; William Foster and Betty Foster, husband and wife; Frank Coates and Gloria Coates, husband and wife; and Tonnes Skagestad and Esther Skagestad, husband and wife, Defendants/Appellees. KIRBY BUILDING SYSTEMS, INC., a Texas corporation, Defendant/Cross Appellant, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Defendant/Cross Appellee. William S. FOSTER and Betty Foster, husband and wife, Cross Plaintiffs/Appellants, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Cross Defendant/Appellee.
• Court: Arizona Supreme Court

Page 40

665 P.2d 40

136 Ariz. 158

David T. YOUNG, a single man; and Michael W. Mason, a single man, Plaintiffs/Appellees/Cross Appellants and Kirby Building Systems, Inc., a Texas corporation, Defendant/Appellee, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Defendant/Appellant/Cross Appellee.

David T. YOUNG, a single man; and Michael W. Mason, a single man, Plaintiffs/Appellants, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation; Kirby Building Systems, Inc., a Texas corporation; William Foster and Betty Foster, husband and wife; Frank Coates and Gloria Coates, husband and wife; and Tonnes Skagestad and Esther Skagestad, husband and wife, Defendants/Appellees.

KIRBY BUILDING SYSTEMS, INC., a Texas corporation, Defendant/Cross Appellant, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Defendant/Cross Appellee.

William S. FOSTER and Betty Foster, husband and wife, Cross Plaintiffs/Appellants, v. ENVIRONMENTAL AIR PRODUCTS, INC., an Arizona corporation, Cross Defendant/Appellee.

No. 16216-PR.

Supreme Court of Arizona, In Banc.

April 1, 1983.

Rehearing Denied June 14, 1983.

Healy & Beal by William T. Healy, Robert L. Beal, Tucson, for Young and mason.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by Richard J. Woods, Larry L. Smith, Phoenix, for Kirby Building Systems.

Slutes, Browning, Sakrison & Grant by William D. Browning, Tucson, for Environmental Air Products and Coates.

Walter U. Weber, Tucson, for Foster.

Thomas E. Johnson, Tucson, for Skagestad.

FELDMAN, Justice.

Plaintiffs Mason and Young claim they were injured while working for Cimetta Construction Company (Cimetta), a contractor engaged in erection of a new building for Environmental Air Products (EAP). Plaintiffs brought a tort action against EAP and others. In defense, EAP argued that it was plaintiffs' employer by operation of law (a "statutory employer" ¹ under A.R.S. § 23-902(B)), and was, therefore, entitled to the benefit of A.R.S. §§ 23-906 and 23-1022, which provide that absent rejection of compensation coverage before injury, workmen's compensation is an injured employee's exclusive remedy against an employer who has complied with the Workmen's Compensation Act.

The court of appeals held that EAP was not plaintiffs' statutory employer because plaintiffs had not consented to such a relationship. We accepted review of this case and of the companion case, Word v. Motorola, Inc., Ariz., 662 P.2d 1024 (1982), in order to reconcile any conflict between our two appellate divisions and to settle Arizona law on issues pertaining to employers' immunity to remote employees' common law tort actions. We have jurisdiction pursuant to Ariz.Const. art. 6, § 5(3) and Ariz.R.Civ.App.P. 23, 17A A.R.S.

EAP wished to erect a large building to use for part of its manufacturing operations. It contracted with defendant Kirby Building Systems, Inc. (Kirby), a manufacturer of prefabricated metal buildings, for the purchase of a "kit" which contained all of the parts needed for the prefabricated structure. EAP undertook to erect the building itself and used its maintenance chief, William Foster, as supervisor of the construction project. Foster had been hired by EAP some time prior to the incidents in question as a maintenance chief or foreman, and was evidently assigned to the construction work because of his prior experience in erection of small prefabricated buildings. EAP hired a crew to work on the construction project, with Foster acting as construction foreman. EAP's main business was the manufacture of sheet metal products and various accessories, such as registers for duct work, used in the air conditioning industry. So far as the record shows, it had never before undertaken construction of a building.

During the course of construction, the Registrar of Contractors of the State of Arizona received a complaint about EAP doing its own construction work without a contractor's license. A representative of the registrar's office spoke to Mr. Coates, EAP's chief operating officer in Tucson, and informed him that that construction must cease and could not resume until EAP had entered into an agreement for construction with a licensed contractor. ² Coates called the registrar's office that afternoon and informed them that EAP had contracted with Cimetta and that Cimetta would finish construction on the building. He also told the registrar's office that EAP was now in compliance with the law and that none of its employees would be working on the job.

Indeed, EAP and Cimetta entered into a contract that very day. The contract provided that Cimetta was to finish the construction of the project, supervise construction activities, employ the persons necessary for those purposes and carry workmen's compensation insurance for them. Cimetta was required to accept Foster as foreman for the project. ³ There was testimony that the contract was a sham designed to allow the project to continue, ostensibly under Cimetta's aegis, but actually in much the same way as before the visit from the registrar's office. However, there was also evidence that Cimetta did exercise control over Foster and that it actually had the right to hire and fire the other workers. Plaintiff Mason had been hired by Foster and worked for EAP before the Cimetta-EAP contract. On the day that contract was signed, Mason went off the EAP payroll and was placed on Cimetta's payroll. Young was hired two days later to work for Cimetta and was put directly on Cimetta's payroll.

Plaintiffs were injured when the building collapsed because of improper bracing. Both plaintiffs collected compensation benefits from Cimetta's compensation carrier and sued EAP in tort--a so-called "third party action"--under A.R.S. § 23-1023. This statute allows any employee entitled to compensation to bring a tort action for damages against a tortfeasor "not in the same employ" and further provides that the compensation carrier shall have a lien against any recovery to the extent of the benefits paid by that carrier.

In bringing their action, plaintiffs claimed that EAP and Foster were negligent in the erection of the building. Plaintiffs also joined Kirby, Coates, Cimetta and its officer, Skagestad, as defendants. The trial court directed a verdict in favor of Cimetta, Skagestad and Coates. The jury returned a verdict against Kirby, Foster and EAP as Foster's employer. The trial court granted judgment n.o.v. to Kirby. EAP appealed and raised several allegations of error, including the claim that the trial court should have found that plaintiffs were EAP employees. We agree with the court of appeals and approve its opinion with respect to disposition of all issues except those dealing with the statutory employer question. The issue before us, therefore, is simply whether EAP was plaintiffs' statutory employer. If so, it is entitled to the immunity conferred upon employers by the exclusivity statutes (A.R.S. §§ 23-906 and 23-1022; ⁴ if not, then EAP was a "third party" subject to the employees' common law damage action under A.R.S. § 23-1023.

The statutory employer situation is a legislatively created scheme by which conceded non-employees are deliberately brought within the coverage of the Act. The statute which accomplishes this is A.R.S. § 23-902(B); it provides that:

When an employer procures work to be done for him by a contractor over whose work he retains supervision or control, and such work is a part or process in the trade or business of the employer, then such contractors and the persons employed by him, and his sub-contractor and persons employed by the sub-contractor, are, within the meaning of this section, employees of the original employer.

(Emphasis supplied.) Thus, the original employer is required to provide workmen's compensation for its remote employees, just as is required of direct employers. See A.R.S. § 23-902(A); see also and compare United States Fidelity & Guaranty Co. v. Industrial Commission, 42 Ariz. 422, 435, 26 P.2d 1012, 1017 (1933) (holding the remote employer primarily liable for compensation benefits even though the direct employer provided coverage); and Basurto v. Utah Construction & Mining Company, 15 Ariz.App. 35, 41, 485 P.2d 859, 865 (1971) (stating that the remote employer is secondarily liable for workmen's compensation if the direct employer fails to provide coverage). The rationale of statutory employer immunity ⁵ is that since the remote employer shoulders the burdens imposed by the Act, he should enjoy the immunity which that Act grants a direct employer. 2A A. Larson, Workmen's Compensation Law § 72.31(a) (1982). Larson states the law as follows:

Since the general contractor is ... in effect, made the employer for the purpose of the compensation statute, it is obvious that he should enjoy the regular immunity of an employer from third-party suit when the facts are such that he could be made liable for compensation; and the great majority of cases have so held.

Id. at 14-112. ⁶

EAP argues that as a matter of law plaintiffs were its statutory employees under A.R.S. § 23-902(B). The court of appeals held that the two statutory requirements for finding statutory employer status under § 23-902(B) were met in this case, but imposed a third requirement--consent. The court recognized that the test for establishing an employer-employee relationship is to be liberally applied in order to bring employees within the protection of workmen's compensation, but held that where it is the employer who seeks to invoke the statute in order to insulate itself from tort liability, the court ought not to strain to find the existence of an employment relationship. Basing its decision on Novenson v. Spokane Culvert and Fabricating Co., 91 Wash.2d 550, 588 P.2d 1174 (1979), and holding that the statutory employer relationship could not be invoked absent the consent of the employee, the court of appeals concluded that an...