"Statutory Employment"—What Kind of Work Is That?, 0616 COBJ, Vol. 45 No. 6 Pg. 53

AuthorRobert Wren

45 Colo.Law. 53

"Statutory Employment"—What Kind of Work Is That?

Vol. 45 No. 6 [Page 53]

The Colorado Lawyer

June, 2016

Robert Wren

Workers' Compensation Law

Workers' Compensation articles provide information about topics of interest to workers' compensation practitioners and updates on Colorado case law.

Coordinating Editors

Thomas L. Kanan, Denver, of Western Guaranty Fund Services—(303) 759-5066, tkanan@wgfs.org; Kristin Caruso, Denver, of Ritsema & Lyon, P.C.—(303) 297-7290, kristin.caruso@ritsema-lyon. com

About the Author

Robert V. Wren practices workers' compensation defense, general liability defense, employment law, and third-party subrogation at Ritsema & Lyon, P.C.—(303) 297-7297, robert.wren@ritsema-lyon.com

CRS § 8-41-401, commonly known as the "statutory employer" provision of the Colorado Workers' - Compensation Act, affects matters both within and outside the workers' compensation arena. This article explores how qualification as a statutory employer affects tort liability and potential damages in a tort claim.

CRS § 8-41-401 is commonly known as the "statutory employer" provision of the Colorado Workers' Compensation Act. By shielding statutory employers from liability in tort, this section has a complex and far-reaching effect on matters both within and outside the workers' compensation arena. This article explores the impact that qualification as a statutory employer has on tort liability and potential damages in a tort claim.

Establishing Statutory Employer Status

The statutory employer provision creates an employment relationship by law where one would not exist by common law or other provisions of the Workers' Compensation Act. Under the statute, any entity that conducts its business by leasing or contracting out part or all of its work is considered to be the employer of those to whom it leases or contracts out.1 The legislature enacted the section to prevent an employer from avoiding its workers' compensation responsibilities by contracting out its work to an uninsured subcontractor.2 Thus, under this section employees of a subcontractor may look to the general contractor3 for workers' compensation benefits if their direct employer does not have workers' compensation insurance4

To establish itself as a statutory employer, a general contractor must show that the work contracted out and performed by the subcontractor is part of the general contractor's regular business activity.[5] An entity's regular business is considered its total business operation. In evaluating an entity's total business operation, a court will look at elements of routineness, regularity, and importance of the contracted service to the employer.6 A statutory employer relationship can be found where the work performed by the subcontractor is casual and does not contribute directly to the main business of the general contractor7 and is not performed pursuant to an express contract.8

In determining whether the contracted work is part of a general contractor's regular business, courts look at the relationship between the type of contracted work and the purpose of the business. For instance, courts have found a country club is not regularly in the business of constructing sewer lines,9 a car dealership is not in the business of hanging neon signs,10 and a mine operator is not normally in the business of hauling debris.[11] In contrast, courts have determined that janitorial services are part of the regular business activity of a computer and data retrieval company,12 security services are part of the regular business of a home builder,13 housekeeping services are part of the regular business of a condominium owner that places the condo in a rental pool,[14] and arranging, displaying, and removing burritos are part of a grocery store's regular business.15

The key factor evaluated in the above cases is the overall importance of the activity to the general contractor's total business, specifically whether, in the absence of the subcontractor's services, the general contractor would necessarily have to accomplish the work with its own employees rather than forego the performance of the work.16 For instance, in Finlay v. Storage Technology Corp., the Colorado SupremeCourt held that "Storage Technology would have found it necessary to obtain [janitorial] services by other means including, if need be, the training and utilization of its own employees to accomplish the cleaning tasks."17 In Humphrey v. Whole Foods Market Rocky Mountain/Southwest, L.P., the Court of Appeals reached a similar conclusion, upholding the trial court's findings that Whole Foods would have required its own employees to remove expired burritos had the contractor not done so.18 In Thornbury v. Allen, the Court of Appeals held that, although the condominium was used as a second residence by its owner, because he also included it in a rental pool, the owner was in the rental business, and housekeeping services would necessarily have to have been done by the owner had he not contracted for them through the rental pool.19

Immunity from Tort Liability

Because a statutory employer bears the risk of injuries to those deemed its employees, it is entitled to the same immunity from tort claims brought by injured workers as is afforded to traditional employers. This immunity is rooted in the exclusive remedy provisions of the Workers' Compensation Act20 "Statutory immunity goes hand in hand with statutory liability."21 Thus, when a subcontractor is uninsured, the law considers the general contractor to be the employer of the subcontractor's employees, and imposes liability for workers' compensation benefits on the general contractor. In exchange for assuming workers' compensation liability, the general contractor receives immunity from tort liability for claims brought by an injured employee of the subcontractor.22 Even if the subcontractor carries its own workers' compensation insurance (removing workers' compensation liability from the general contractor), the law still extends tort immunity to a general contractor.23

Once a party establishes the statutory employer relationship, an injured worker cannot reach "upstream" to recover damages in tort against the general contractor.[24] This immunity exists regardless of the number of subcontractors in the chain. "[The] legislature, by extending workers' compensation liability to cover the injury or death of 'contractors, or subcontractors,' intended that workers' compensation be the remedy for all contractors 'downstream' from the one contracting out work, regardless of how many intermediate contractors there might be."25 The corresponding tort...

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