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On May 13, 2002, a decision by the California Court of Appeals in Fernandez v. Lawson(2nd Appellate District, B 153949) demonstrates that a homeowner who hires an unlicensed contractor may be treated as a statutory employer subject to substantial liability, including but not limited to Cal/OSHA fines, civil damages, and even criminal penalties. BACKGROUND In March 2000, the owner of Anthony’s Tree Service (ATS) approached homeowner Truman Lawson and offered to trim a 50-foot tall palm tree in Lawson’s yard. The ATS owner provided Lawson with a business card, which described the various areas of the company’s expertise, including trimming palm trees, and a license number. The license number, unbeknownst to Lawson, was expired and was not, in any event, a proper license for a tree trimmer. Lawson asked whether ATS carried workers’ compensation insurance. The ATS owner produced an expired insurance form from his truck and told Lawson that he would bring a current form. The next day, however, he failed to produce the current form. Lawson still decided to allow ATS to proceed with the work, believing that because ATS had a license, it must also have current workers’ compensation insurance. During his deposition, Lawson testified that he had noticed the license on the business card, but was uncertain as to whether he relied on it in making his decision to hire ATS. Miguel Fernandez worked for ATS as a tree trimmer for two years. He had five years’ experience trimming trees, including palm trees similar to the one in Lawson’s yard. While climbing Lawson’s palm tree, he fell, suffering various injuries. THE LAWSUIT Fernandez brought a lawsuit claiming that Lawson failed to maintain workers’ compensation insurance and hired an unlicensed contractor in violation of California Labor Code � 2750.5. Fernandez also brought a general negligence claim, which was later dismissed by stipulation of the parties. Later in the court proceedings, Fernandez also abandoned his workers’ compensation claim. The Superior Court first determined that ATS did not have the required contractor license, and thus, pursuant to Cal. Lab. Code � 2750.5, both Fernandez and ATS were employees of the homeowner, something that would come as a rude awakening for most homeowners but which is consistent with prior law. However, notwithstanding this finding, the court concluded that Lawson was entitled to summary judgment because Cal/OSHA regulations did not apply to homeowners who hire someone to trim a tree for personal, noncommercial benefit. The court found that tree trimming was a household domestic service and as such is excluded from Cal/OSHA jurisdiction, which by statute does not cover household domestic work. SeeLab. Code � 6303(b). Such an exclusion also exists under Fed/OSHA and many other state OSH plans. The Superior Court relied on Rosas v. Dishong, 67 Cal.App.4th 815 (1998), which held that tree trimming was indeed a domestic service excluded from Cal/OSHA and which noted that homeowners, unlike other employers, do not expect Cal/OSHA to apply to them and were ill-equipped to understand and comply with Cal/OSHA regulations. THE COURT OF APPEALS DECISION The Court of Appeals reversed. The court first noted that Labor Code � 2750.5 imposes a rebuttable statutory presumption of employer status on those who hire unlicensed contractors who perform services for which a license is required. However, the court noted that the presumption of employer status may be rebutted and the contractor or its workers may be estopped from claiming that the homeowner was their employer under � 2750.5 where it can be shown that a contractor led the hirer to believe the contractor held a valid license and the hirer relied on the misrepresentation. According to the court, the listing of the expired license on the card and the services provided and the evidence obtained during the course of Lawson’s deposition as to whether he relied on the license in making the hiring decision created a conflict in the evidence more appropriate for a jury to resolve. The Court of Appeals also declined to follow Rosas, thus setting up a conflict between two appellate courts. According to the Court of Appeals in Lawson, the test for whether an activity qualifies for the household domestic service exclusion under Cal/OSHA depends on whether an average member of the household has the skill and competence to undertake the activity. The court noted that this tree was 50 feet tall and most homeowners would not, and should not, attempt to trim it themselves. In an ambiguous, but potentially disturbing comment, the court found that laws requiring state contractor licenses provide objective guidance in this regard. If the court is really saying that any work for which a state contractor’s license is required cannot be deemed household domestic work, the decision is very far-reaching. The court also noted that under California law, homeowners have never been categorically excluded from Cal/OSHA requirements. The court stated that it was mindful of the fact that homeowners may not anticipate that Cal/OSHA would apply to them, but found that the burden of Cal/OSHA compliance could have been avoided if the homeowner had verified that it had hired a licensed contractor. The court stated that it is not difficult for an average homeowner to make such a verification, noting that the California State Contractor’s Licensing Board has a 1-800 number and a Web site where the status of a license can be checked. THE MISSING ANALYSIS As problematic as this case may be for homeowners, what has been left unsaid may be even more disturbing for all employers. The Court of Appeals notes that this case included a claim for violation of Cal/OSHA. However, Cal/OSHA provides no mechanism for litigation by an individual employee and contains no remedy for a private litigant. Does Lawsonimpliedly provide a new private right of action for Cal/OSHA violations? Or was this issue simply not considered at all by the court? If Lawsondoes provide a new right of action, what are the remedies — how much can an individual recover and under what theory of liability? In addition, Labor Code � 3600 provides that workers’ compensation is the exclusive remedy for an employee against his employer arising out of any occupational injury. The few statutory exceptions to this workers’ compensation exclusivity clause do not appear applicable here. Labor Code section 3602 would seemingly bar any recovery against the homeowner, but the court did not address this issue. Is it possible that the court has created a new exception to Labor Code section 3602 or was this issue also simply not considered by the court? WHAT SHOULD HOMEOWNERS (AND OTHER EMPLOYERS) DO NOW? The split among the Courts of Appeals and the lack of analysis on several important issues certainly means that the final chapter of this story has not yet been written. However, there are some clear lessons from the Lawsoncase for prudent homeowners and other employers. Although the law is not necessarily identical in other states, the following steps should also be useful for all homeowners and employers throughout the country: � Hire only licensed contractors. The Lawsoncase is a good reminder that a homeowner, or anyone else, who hires an unlicensed contractor to perform work for which a license is required by law, is at serious risk of liability. Such liability can include OSH fines, civil liability, and even criminal liability. � Verify that the contractor has a current license. � Verify that the contractor has current workers’ compensation coverage. � Verify that the contractor has general liability coverage. � Check your own insurance coverage. This case serves as a sobering reminder that serious accidents can occur on your premises. � Specify in writing that the contractor is responsible for occupational safety and health compliance, and compliance with all other laws and regulations governing the work in question. If you don’t want to take on this responsibility yourself, it is important that you specify who will exercise this responsibility. � Consider requiring an indemnification clause from the contractor. � Review your potential status as an “employer” with other workers who think they are independent “contractors.” � Will you be deemed a statutory employer? � If so, are you meeting all wage and hour and tax obligations? � If so, are you meeting any benefit obligations imposed by law (workers’ compensation, unemployment insurance, etc.)? � What steps do you need to take to minimize exposure to liability? Jeff Tanenbaum is a shareholder and Kurt Bockes is an associate in Littler Mendelson’s, www.littler.com , San Francisco office. If you would like further information, please contact your Littler attorney at 1.888.Littler, [email protected]

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