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Construction Law

Kent Lang

Workers Compensation: When Is a Worker Not an Employee?

Self-employed individuals who hire others without purchasing workers comp insurance assume a serious liability.


Workers compensation is a double-edged sword: It benefits employees who are hurt on the job, and it protects employers and co-workers from injured employees’ claims. Workers compensation disputes still occur, though, especially when there’s uncertainty over whether the injured person was an employee as defined by the Workers Compensation Act and related case law.


This article appeared in the October 2002 issue of "The Construction Advisor" published by Lang & Klain, P.C.

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According to A.R.S. § 23-901, an employee is anyone in the service of an “employer” as defined by the Act, except for someone whose employment is both casual and not in the course of the employer’s trade, business or occupation.

If that definition seems a little murky to you, welcome to the club. The vagueness of the statute has prompted a series of appellate court decisions that offer little certainty or clear guidance, particularly where the alleged “employer” is self-employed and does not normally have employees (see related article below).

Who Is an Employee?

Generally speaking, for an injured worker to have standing as an employee, there must be a “contract of hire” to create an employment relationship, which may be either express or implied.

Further, whether a claimant is an “employee” within the meaning of the workers compensation laws depends on several factors, including these:

  • Which party – the employer or the worker – had control over the method by which the claimant did his work?

  • Was the claimant engaged in a distinct trade or business and, thus, clearly not intending to serve as an employee?

  • What was the claimant’s primary occupation?

  • What skills did the claimant’s primary occupation require?

  • What standard of performance was expected of the claimant?

  • Who supplied the tools and place of work?

  • What was the duration of “employment”?

  • What was the method of payment, and how was compensation determined?

  • Was the claimant’s work part of the employer’s regular business?

  • Did the parties believe they created the relation of master and servant?

  • Was the “employer” actually engaged in a business activity?

  • Who had the right to hire and fire the claimant?

(No single factor is in itself conclusive or controlling.)

Some factors have been deemed insufficient to prove employment relationship. In some cases, the courts have determined facts that do not prove employee status:

  • Workers compensation coverage was obtained after an accident in order to avoid future disputes about coverage.

  • Payment of medical expenses for the injured worker occurred at the request of a third party that had hired the worker, and the alleged employer had passed on the costs.

  • The alleged employer exercised actual control over the manner of work performed.

  • There was sharing of profits gained on projects to which the claimant supplied work.

Are You Self-Employed?

Quickly now: If you’re self-employed and have no employees, and you bring in extra help to perform a short-term task for your company, do you have to include them in your workers compensation coverage?

Naturally, the answer is, “It depends.” More to the point, it depends on how regularly and predictably you have a need for day workers.

Under Arizona law (A.R.S. § 23-902[A]), with a few exceptions that don’t apply here, “every person who employs any workers or operatives regularly employed in same business or establishment under contract of hire” is on the hook for workers compensation coverage. If anyone knew for sure what that meant, this would be a short article. But interpretations of that statute have been all over the map, and, thus, we write on.

Three court decisions may help you determine whether you are liable for on-the-job injuries suffered by occasional workers.

Donahue v. Industrial Commission

In Donahue, the Arizona Court of Appeals found that liability depends on your hiring patterns. The court tried to determine whether the statute’s “regularly employed” phrase meant that the Workers Compensation Act applies to (a) all people who ever bring in extra workers, or (b) only people who routinely and predictably hire workers in the normal or usual course of their business. In a bit of good news, the court decided that a self-employed person is not required to provide coverage for workers hired “occasionally and unpredictably.” Because the employer’s “infrequent and unpredictable” hiring practices in Donahue did “not equate with having workers regularly employed,” Donahue was not subject to the Act. Thus, companies that do not hire workers in the normal or usual course of their business are not subject to the Act, regardless of the type of work performed by the workers. To support this finding, in Marshall v. Industrial Commission the Arizona Supreme Court examined the company’s “established business plan or mode of operation” as evidence of its hiring practices to determine whether hiring was performed in the normal or usual course of business.

Modern Trailer

The Supreme Court’s Marshall decision didn’t specify the type of “established business plan or mode of operation” that would make a company liable for workers compensation coverage. To the rescue came the Court of Appeals in the Modern Trailer case, where the dealer hired short-term labor up to 25% of the time for such tasks as lot maintenance and preparation of newly delivered mobile homes. Though intermittent, the hiring of additional labor was ongoing and predictable, leading the court to conclude that the use of additional labor was a customary or regular practice that constituted an “established mode of operation.” Thus, the company was subject to the Act and required to carry coverage.

Putz v. Industrial Commission

In a recent case, Putz v. Industrial Commission of Arizona, et al., the Arizona Court of Appeals decided that, because Putz did not “regularly employ any workers,” he was therefore not an employer covered by the Act and not liable. The court focused on the fact that Putz’s need for short-term labor arose far less predictably than it had in Modern Trailer because the work itself was varied, unpredictable, and dictated by customers’ demands. The court also found it significant that Putz did not know when he would need to hire extra labor again. In addition, in the year preceding the injury that set the case in motion, Putz had hired extra labor for approximately 32 eight-hour workdays, fewer days than Modern Trailer had. From that record, the Court of Appeals could not detect a hiring plan that was anything but “occasional and unpredictable.” However, the Court of Appeals cautioned that if, in the ordinary progression of its business, Putz’s company would begin to consistently undertake projects requiring the use of other workers on a more regular or predictable basis, then it would become subject to the Act and required to purchase workers compensation insurance.

Determining Your Liability

As the Putz case demonstrates, no bright-line rule exists to notify a self-employed person or group when they become subject to the Act for occasional part-time help. In general, the Court cautions that “there is a risk involved when those who are self employed hire others without purchasing Workers Compensation Insurance.”

Any of the following conditions may make them liable:

  • Hire extra help 25% of the time or more.

  • Hire extra help at the occurrence of predictable or regularly recurring events.

  • Employ laborers on a predictable cycle (e.g. monthly, quarterly or seasonally).

  • The business plan includes seeking out and obtaining work that requires extra help.

  • There are regular or long-standing customers whose work normally requires hiring extra help.