STATE COMPENSATION INSURANCE FUND v. WORKERS COMPENSATION APPEALS BOARD (1984)

State Compensation Insurance Fund (State Fund) petitioned for review of a decision and order and order denying reconsideration which awarded workers' compensation benefits to Virgil J. Meier as an employee of Warren Chichester.   We issued a writ of review and the matter is now before us for decision on the merits.   The dispositive question is whether section 2750.5 of the Labor Code precludes a determination otherwise compelled by the record that the applicant Meier was an independent contractor rather than an employee at the time of his injury.   We have concluded the answer is that it does not and that the order and decision and order denying reconsideration should be annulled.

Facts

Applicant was engaged by Warren Chichester, a rancher and homeowner, to remodel a portion of Chichester's residence which was part of his ranch in Topaz, California.   Chichester's ranching business is insured for workers' compensation liability by State Compensation Insurance Fund.   Les Chichester, Warren Chichester's son, is an employee of the ranching business and is covered by workers' compensation.   Warren and Les Chichester do most of the ranch work themselves.   Applicant's status aside for the moment, there are no other employees.

On June 25, 1981, while performing the remodeling work on Mr. Chichester's home, applicant, then 50 years of age, fell from a scaffold he had built and sustained among other injuries a broken neck, rendering him a quadriplegic.   He is totally and permanently disabled.

Applicant had more than 15 years of experience in general contracting and carpentry.   He engaged in a general contracting business for eight years as a licensed contractor.   After he lost his license as a result of having taken bankruptcy he continued in the contracting business as Vice President of Pacific Structural Concrete, a licensed construction firm.   Shortly before being engaged by Mr. Chichester, applicant performed a construction job for Tony Leon.   Because Mr. Leon's lender required a licensed contractor and applicant was unlicensed, applicant utilized the license of his brother's business, the Andy Meier Construction Company, in doing the Leon job.   Mr. Leon was the person who recommended applicant to the Chichesters.

The remodeling work to be done was rather extensive.   It involved converting the attic of the ranch house to a bedroom and a bathroom and included the building of a stairway.   It involved plumbing and electrical work as well as carpentry.

Applicant submitted a bid on a sheet from a memo pad bearing the heading Pacific Structural Concrete, which applicant testified was without significance and just something he had at hand.   The total bid was $9,493 which expressly included “all labor & material to complete job, (except exclusions) all electrical, painting, hauling off debris, [and] permits.”   The figure also included $780 for carpeting, $300 for roofing labor, $230 for insulation labor and $440 for hanging, taping and texturing drywall.   Finally, the bid indicated that if Les Chichester helped with the labor the value of his time would be deducted from the bid price at $7 per hour.   While the applicant testified that his bid was based on a figure of $15 per hour for his on time, the bid did not purport in any way to be based on an hourly wage plus the cost of materials.   Rather, as already stated, the total bid price was said to include all labor and material.

Warren Chichester had discussed what he wanted done with another carpenter but accepted applicant's bid.   He reviewed the bid and approved it after discussing it with his son who agreed it was reasonable.   Applicant did not expressly tell the Chichesters either that he was or was not licensed.   Warren Chichester testified he felt applicant acted as a contractor.   Les Chichester had not previously given the question any consideration but after discussing the matter with an attorney he thought applicant was probably acting as an independent contractor.

In respect to performance of the remodeling job, Mr. Chichester specified only the results of the remodeling.   Neither Warren Chichester nor Les Chichester controlled the manner in which the work was done or to be done.   Neither father nor son had the knowledge nor skill to tell applicant how to do the work.   To the extent the son helped with the work, applicant told him what to do.   Applicant furnished whatever plans were utilized, purchased and supplied all materials, and furnished all the tools used except that Les Chichester furnished his own hammer and nail apron.   Applicant set his own work schedule and came and went as he chose, accommodating his schedule to other things he wanted to do.   In addition, applicant hired and paid another man, John Gray, to help with the remodeling work.

After applicant was injured, Warren Chichester arranged to pay and did pay premiums to State Fund on account of applicant.   However, shortly thereafter, State Fund gave notice that it had obtained information indicating that applicant was an independent contractor and refunded to Mr. Chichester the premiums he had paid.   State Fund also at that time ceased furnishing benefits to applicant as it had been doing apparently pursuant to the arrangements between it and Mr. Chichester made after the injury.

Shortly thereafter, applicant filed both a civil action for damages and a workers' compensation claim.   The workers' compensation claim proceeded to hearing, at which Warren Chichester was represented by independent counsel because of a potential conflict of interest between him and State Fund.   It was stipulated that the remodeling work being done by applicant required a contractor's license, and the evidence was uncontroverted that applicant was not licensed.   Relying on a provision in Labor Code section 2750.5 as interpreted in the decision of the Court of Appeal for the Third District in Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (Taylor) (1983) 147 Cal.App.3d 1033, 195 Cal.Rptr. 564, the workers' compensation judge (WCJ) determined that applicant's lack of a contractor' slicense precluded a finding he was an independent contractor, determined that applicant was not estopped to assert his unlicensed status, and concluded that applicant was an employee of Warren Chichester and that his injuries arose out of and occurred in the course of the employment.   The WCJ further determined that State Fund's policy afforded coverage.   Accordingly, applicant was awarded extensive workers' compensation benefits to be furnished by State Fund.

The Board denied State Fund's petition for reconsideration, relying on the same authorities as the WCJ, Labor Code section 2750.5 ¹ as interpreted in the Taylor decision.

Contentions, Issues and Discussion

 The statutory law governing workers' compensation cases is set forth in Divisions 4 and 4.5 of the Labor Code, commencing with section 3200.   Workers' compensation benefits are provided for “employees” (§§ 3351, 3357) but not for “independent contractors” (§ 3353;  see Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 949–953, 88 Cal.Rptr. 175, 471 P.2d 975;  Mission Ins. Co. v. Workers' Comp. Appeals Bd. (1981) 123 Cal.App.3d 211, 217, 176 Cal.Rptr. 439 passim ).   Section 3353, which is part of Division 4, defines independent contractor:  “ ‘Independent contractor’ means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.”   Manifestly, the evidence which we have summarized in the statement of facts establishes as a matter of law that in remodeling Warren Chichester's residence applicant was acting as an independent contractor under section 3353.  (Cf. Germann v. Workers' Comp. Appeals Bd. (1981) 123 Cal.App.3d 776, 783, 176 Cal.Rptr. 868 et seq.;   Mission Ins. Co. v. Workers' Comp. Appeals Bd., supra, 123 Cal.App.3d 211, 217, 176 Cal.Rptr. 439 et seq.)

The WCJ's and the Board's conclusions to the contrary were based on the interpretation of the penultimate paragraph in section 2750.5 in Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (Taylor), supra, 147 Cal.App.3d 1033, 1037–1038, 195 Cal.Rptr. 564.   The WCJ and the Board quite properly followed the Taylor decision as they were required to under the doctrine of Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.   However, it is apparent to us that the interpretation and application of section 2750.5 in Taylor was incorrect and that properly construed and applied, section 2750.5 does not preclude what would otherwise be the only reasonable determination that applicant in this case was an independent contractor rather than an employee.

Section 2750.5 which is set forth in its entirety in the margin,² purports to do two separate and distinct things.  (See Foss v. Anthony Industries (1983) 139 Cal.App.3d 794, 797, 189 Cal.Rptr. 31.)   All of its paragraphs and subparagraphs except the penultimate paragraph prescribe and deal with a rebuttable presumption affecting the burden of proof that a worker performing services for which a license is required pursuant to chapter 9 of Division 3 of the Business and Professions Code or who is performing such services for a person who is required to have such a license is an employee.   In the words of the decision in Foss, the penultimate paragraph “absolutely denies independent contractor status to a person required to have such a license who is not licensed.”  (Ibid.)

The penultimate paragraph of section 2750.5 reads:  “In addition to the factors contained in subdivision (a), (b), and (c), any person performing any function or activity for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code shall hold a valid contractors' [sic] license as a condition of having independent contractor status.”  (Emphasis added.)   In the Taylor case the court interpreted this provision as prohibiting a determination the workers' compensation applicant was an independent contractor regardless of the weight of the other evidence and as establishing conclusively that the applicant was an employee covered by the workers' compensation law.  (Travelers Ins. Co. v. Workers' Comp. Appeals Bd. (Taylor), supra, 147 Cal.App.3d at pp. 1037–1038, 195 Cal.Rptr. 564.)   The court said in pertinent part:  “We hold this paragraph means that no person who performs any work for which a contractor's license is required shall be found to be an independent contractor unless such person holds a valid contractor's license.   This holding comports with the plain meaning of this statute.   The Court of Appeal for the Fourth Appellate District recently reached the same conclusion in dictum:  ‘The section [Lab.Code, § 2750.5] also absolutely denies independent contractor status to a person required to have such a license who is not licensed.’  (Foss v. Anthony Industries (1983) [supra ] 139 Cal.App.3d 794, 797 [189 Cal.Rptr. 31].)”  (Id., emphasis added.)

In our view the Taylor court was mistaken in several respects.   First, neither the Foss decision nor the quoted language from Foss furnish substantial support for the interpretation made or the result reached in Taylor.

Foss was a wrongful death case in which one of the defendants sought to avoid vicarious liability on the theory that the active tortfeasor was an independent contractor rather than its employee.   The Foss court's applying the penultimate paragraph of section 2750.5 to deny independent contractor status to the active tortfeasor had the effect of extending liability to the other defendant on the theory of respondeat superior.   That result appears wholly consistent with the history and purpose of section 2750.5 as explicated in Foss.  (Foss v. Anthony Industries, supra, 139 Cal.App.3d at pp. 797–798, 189 Cal.Rptr. 31.)   The court explained in part:  “[S]ection 2750.5 codifies the general tort standard for independent contractor status․  [T]he basic provisions of the Labor Code on employee status are not limited to cases involving disputes between employer and employee because those provisions were originally in the Civil Code and were transferred to the Labor Code when it was created in 1937 in order to group all provisions on employment status in the same code (1 Witkin, Summary of Cal.Law (8th ed. 1973) Agency and Employment, § 3, p. 645).   This has long been recognized as courts have cited the Labor Code on employment status in tort cases involving injuries to third parties.  [Citation omitted.]”  (Id., at p. 798, 189 Cal.Rptr. 31.)   The court also noted:  “Furthermore, section 2750.5 is not in the divisions of the Labor Code dealing with workers' compensation but rather is in division 3, the scope of which is set by section 2700 ․”  (Ibid.)

Even more significantly, the application of section 2750.5 in Foss did not result in a benefit or reward of any kind to the unlicensed defendant;  it benefited a third party by permitting him to rely on the doctrine of respondeat superior.   The analysis in the Taylor decision leads to the anomalous result of rewarding the person acting as a contractor without a contractor's license, extending to him or her workers' compensation benefits to which he or she would not otherwise be entitled under section 3353.   The case at bench is a perfect example.   Applicant was clearly acting as an independent contractor without a license.   Contracting without a license is a misdemeanor.   (Bus. & Prof.Code, § 7028.)   To reward the commission of an unlawful act punishable as a crime by extending to the malefactor benefits he or she would otherwise be denied by a specific provision of the workers' compensation law would be both anomalous and inconsistent with the purpose of the licensing laws.  (Cf. Fillmore v. Irvine (1983) 146 Cal.App.3d 649, 657–658, 194 Cal.Rptr. 319.³

State Fund suggests the somewhat peculiar language of the penultimate paragraph of section 2750.5 indicates that what the Legislature had in mind was to preclude the person acting without a required license from claiming or asserting the status of an independent contractor.   That would certainly be a reasonable interpretation of the language, that “any person performing any function ․ for which a license is required ․ shall hold a valid ․ license as a condition of having independent contractor status.”  “[A]s a condition of having ․ status” does seem to connote a claim or assertion of the status by the person acting without a license.   Had the Legislature meant that in no event or circumstances should a person acting without a required license be found or determined to be an independent contractor, it would probably have said that in so many words rather than speaking of the requirement “as a condition of having [that] status.”

The interpretation suggested by State Fund would also be consistent with the decision in Fillmore v. Irvine, supra, 146 Cal.App.3d 649, 194 Cal.Rptr. 319 (see fn. 3, ante ) and the language in Foss v. Anthony Industries, supra, 139 Cal.App.3d 794, 797, 189 Cal.Rptr. 31, that “[t]he section also absolutely denies independent contractor status to a person required to have such a license who is not licensed.”  (Emphasis added.)

However, we are not required to determine definitively the precise meaning of the penultimate paragraph in section 2750.5.   Section 2700 and a portion of the legislative history of section 2750.5 unmistakably indicate that the penultimate paragraph of section 2750.5 was not intended in workers' compensation cases to transform a person who would otherwise be an excluded independent contractor into a covered employee.

As originally enacted in 1978 (Stats.1978, ch. 1246, § 1, p. 4058) the final paragraph of section 2750.5 read:  “For purposes of workers' compensation law, this presumption is a supplement to the existing statutory definitions of employee and independent contractor, and is not intended to lessen the coverage of Section 3353 of the Labor Code.”  (Emphasis added.)  Section 3353 of the Labor Code it will be remembered is the section that defines “independent contractor” and is found in Division 4 of the Labor Code dealing expressly with workers' compensation.   The original wording is rather persuasive that the Legislature did not intend by enacting section 2750.5 to transform one who would otherwise be an independent contractor under section 3353 into an employee.⁴

In 1979 the final paragraph of section 2750.5 was amended to read:  “For purposes of workers' compensation law, this presumption is a supplement to the existing statutory definitions of employee and independent contractor, and is not intended to lessen the coverage of employees under Division 4 and Division 5.”  (Stats.1979, ch. 605, § 1, p. 1879, emphasis added.)   The purpose and intent of the 1979 amendment is obscure and somewhat perplexing.   It is difficult to perceive how a presumption of employee status could possibly “lessen the coverage of employees under Division 4 and Division 5.”

The Legislative Counsel's Digest of Assembly Bill No. 1758, which was enacted as chapter 605, read:  “Existing law provides that there is a rebuttable presumption affecting the burden of proof that a worker is an employee rather than an independent contractor, and specifies factors which must be proven to show independent contractor status.   Such provisions specify that for purposes of workers' compensation, such presumption is a supplement to existing statutory definitions of employee and independent contractor, and is not intended to lessen the coverage of a specified provision of the workers' compensation law.  [¶]  This bill would provide that such presumption is not intended to lessen the coverage of employees under the workers' compensation law and worker safety laws.”  (Emphasis added.)   The italicized language suggests a housekeeping or clarifying type of amendment not intended to effect any real substantive change.   But, of course, the “specified provision” of the then existing law referred to in the Legislative Counsel's Digest was section 3353 and its coverage is not of employees except in a back-handed way;  it characterizes an independent contractor as distinguished from an employee.

In any event, however, the 1979 amendment does little to dilute the strong inference from the original language that the provisions of section 2750.5 were not intended to supersede or effect a pro tanto repeal of section 3353.

Finally, and most conclusive, section 2750.5 is, as previously noted, part of Division 3 of the Labor Code, the scope of which is limited by section 2700.  (See Foss v. Anthony Industries, supra, 139 Cal.App.3d 794, 797, 189 Cal.Rptr. 31.)   Section 2700 reads:  “The provisions of this division shall not limit, change, or in any way qualify the provisions of Divisions 4 and 4.5 of this code, but shall be fully operative and effective in all cases where the provisions of Divisions 4 and 4.5 are not applicable.”  (Emphasis added.)

Section 3353 defining “independent contractor” is within Division 4 and is, of course, applicable.   Accordingly, no provision in Division 3, of which section 2750.5 is a part, may limit, change or in any way qualify the provisions of section 3353.

The rebuttable presumption portion of section 2750.5 is, of course, applicable to determinations made under section 3353 (see, e.g., Mission Ins. Co. v. Workers' Comp. Appeals Bd., supra, 123 Cal.App.3d 211, 217, 176 Cal.Rptr. 439).   However, the rebuttable presumption is but a procedural provision affecting the burden of proof (see Foss v. Anthony Industries, supra, 139 Cal.App.3d 794, 799, 189 Cal.Rptr. 31);  it effects no limit uon, change in, or qualification of the substantive provisions of section 3353.   Indeed, the burden of proving an applicant was an independent contractor rather than an employee has been that of the alleged employer since at least 1937.  (§ 5705;  Germann v. Workers' Comp. Appeals Bd., supra, 123 Cal.App.3d 776, 783, 176 Cal.Rptr. 868.)   The penultimate paragraph of section 2750.5, by contrast, is a substantive provision of law (Foss v. Anthony Industries, supra, 139 Cal.App.3d 794, 799–800, 189 Cal.Rptr. 31) and would limit, change, and qualify the substantive provisions of section 3353 if applied to compel a determination that every person performing services for compensation without a required contractor's license is an employee.   Thus, section 2700 precludes the application to the applicant here of the penultimate paragraph of section 2750.5.

In view of this conclusion we are not required to address State Fund's contention that an unlicensed contractor is estopped from asserting his unlicensed status.

Disposition

The order and decision and order denying reconsideration are annulled.

FOOTNOTES

1.   All statutory references will be to the Labor Code unless otherwise specified.

2.   “There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, or who is performing such services for a person who is required to obtain such a license is an employee rather than an independent contractor.   Proof of independent contractor status includes satisfactory proof of these factors:“(a) That the individual has the right to control and discretion as to the manner of performance of the contract for services in that the result of the work and not the means by which it is accomplished is the primary factor bargained for.“(b) That the individual is customarily engaged in an independently established business.“(c) That the individual's independent contractor status is bona fide and not a subterfuge to avoid employee status.   A bona fide independent contractor status is further evidenced by the presence of cumulative factors such as substantial investment other than personal services in the business, holding out to be in business for oneself, bargaining for a contract to complete a specific project for compensation by project rather than by time, control over the time and place the work is performed, supplying the tools or instrumentalities used in the work other than tools and instrumentalities normally and customarily provided by employees, hiring employees, performing work that is not ordinarily in the course of the principal's work, performing work that requires a particular skill, holding a license pursuant to the Business and Professions Code, the intent by the parties that the work relationship is of an independent contractor status, or that the relationship is not severable or terminable at will by the principal but gives rise to an action for breach of contract.“In addition to the factors contained in subdivisions (a), (b), and (c), any person performing any function or activity for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code shall hold a valid contractors' license as a condition of having independent contractor status.“For purposes of workers' compensation law, this presumption is a supplement to the existing statutory definitions of employee and independent contractor, and is not intended to lessen the coverage of employees under Division 4 and Division 5.”

3.   In Fillmore v. Irvine, supra, 146 Cal.App.3d 649, 194 Cal.Rptr. 319, a drywall finisher sued to recover for his services pursuant to an oral contract.   The defense contended the plaintiff was a contractor acting without a license and was thus precluded from recovering.   The trial court applied the penultimate paragraph of section 2750.5 and thus found the plaintiff was an employee rather than an independent contractor.   The appellate court reversed, holding the penultimate paragraph of section 2750.5 inapplicable.   The court concluded:  “Thus, if section 2750.5 were applied to determinations under sections 7031 and 7053 [of the Bus. & Prof.Code], every unlicensed person performing work on a job would be characterized as an employee and not an independent contractor.   This result would repeal by implication section 7031's ban on recovery by an unlicensed contractor ․  We hold that Labor Code section 2750.5 is not applicable to determinations of whether one is an employee or unlicensed contractor under Business and Professions Code sections 7031 and 7053.”  (146 Cal.App.3d at p. 657, 194 Cal.Rptr. 319.)¢

4.   We note, however, that the words “this presumption” would appear to limit application of the paragraph to the rebuttable presumption aspect of section 2750.5.

KAUFMAN, Acting Presiding Justice.

McDANIEL and RICKLES, JJ., concur.