In Heiman v. Workers’ Compensation Appeals Board, a California Court of Appeal the Workers’ Compensation Appeal Board’s ruling that an injured employee of an unlicensed and uninsured contractor was entitled to workers’ compensation benefits. This part of the decision is straightforward. The interesting twist applicable to common interest developments/homeowner associations is the characterization of the property management company and the association as “dual employers” for purposes of imposing workers’ compensation liability.

This case involved an unincorporated residential condominium association, Montana Villas Homeowners Association (“Association”). Its property manager, Pegasus Properties, owned by Robert Heiman (“Pegasus”), hired an unlicensed contractor, Rube’s Rain Gutter Service owned by Mark Hruby (“Hruby”), to install new rain gutters on the condominium building. Hruby did not have workers’ compensation insurance. Hruby then hired Freddy Aguilera (“Aguilera”) to perform some of the work at $65 per day. On the first day of the job, a rain gutter contacted a high-voltage electrical wire and Aguilera was severely shocked and fell, sustaining serious injuries. Aguilera filed for workers’ compensation naming Hruby as the employer. The Uninsured Employers Benefit Trust Fund, Pegasus, Association and the individual condominium owners were joined as defendants.

After making its way through various workers’ compensation administrative proceedings, the case was eventually brought before the Court of Appeal on review to determine which entities were considered an “employer” under the Labor Code for purposes of workers’ compensation liability.

When an unlicensed contractor or its employee is injured performing work, multiple employment relationships may arise resulting in multiple entities being jointly and severally liable for workers’ compensation as employers. Both an unlicensed contractor and the person/entity who hired the contractor could be considered “employers” responsible for workers’ compensation.

In this case, the Court of Appeal found both Hruby (the unlicensed contractor) and Pegasus (the contracting party/hirer) “employers” and subject to Aguilera’s workers’ compensation. Aguilera was presumed Hruby’s employee because Hruby was in the business of rain gutter installation, contracted with Pegasus to perform the work at the Association, paid wages to Aguilera and controlled Aguilera’s work and hours. Pegasus was also considered an employer because Pegasus, by virtue of its management agreement with the Association, was authorized to contract directly with vendors such as Hruby. Pegasus argued against this characterization; however, no evidence was presented that supported Pegasus’s contention that the Association had any direct involvement with hiring Hruby.

The Court of Appeal also held that Pegasus, as the Association’s agent, may still be liable for its own actions on behalf of the Association, whether or not the Association is liable. Applying these same agency principles to the Association, the Court found that the Association was also liable as an employer based on Pegasus’ authorized actions as an agent of the Association when Pegasus hired Hruby. Here, because the services provided by Hruby and Aguilera were not “personal” and were in the “trade” and “business” of the Association by virtue of the Association’s duty to provide maintenance and repairs to the condominium building, the Association was not an “owner” or “exempt employer” under the Labor Code. The Association was liable for worker’s compensation as the principal of Pegasus and Pegasus was not exempt because of its agency status with the Association.

Finally, the Court of Appeal found that the individual owners of the condominiums were not liable for Aguilera’s worker’s compensation as an “employer” because Aguilera did not work sufficient hours under the Labor Code. Thus, employer liability was not imputed to the individual owners.

The moral of this convoluted case is that both associations and property management companies may be deemed “employers” and subject to liability for workers’ compensation benefits where an employee of an unlicensed and uninsured contractor is hired to perform work at an association. Associations and property management companies should not hire unlicensed contractors. Moreover, contractors should be required to provide proof of license with the state contractor’s licensing board as well as proof of insurance prior to commencement of work.

If you have any questions about the applicability of this case to your association, please do not hesitate to contact our office.