California Supreme Court Holds Residential “Owner-Builder” Liable For Cal-OSHA Violations

CALIFORNIA SUPREME COURT HOLDS RESIDENTIAL “OWNER-BUILDER” LIABLE FOR CAL-OSHA VIOLATIONS

If there is one thing made perfectly clear under California law in recent years, it’s this:  Contracting without a license is risky business.  It’s risky for the unlicensed contractors because they have no right to be paid for their work, and may even have to return payments they have received. But it’s also risky for the customers of the unlicensed contractor because they are exposed to a greater risk of liability for jobsite injuries, as a new California Supreme Court case found.  The case, issued in January of 2011, holds a residential owner-builder responsible for Cal-OSHA violations on the jobsite that resulted in injuries to the employee of an unlicensed contractor.

When an employee of a contractor is injured on the jobsite, under most circumstances the employee recovers its workers’ compensation benefits from its employer, but cannot bring a personal injury lawsuit against other contractors or the project owner, absent some showing of active and direct negligence on the part of those other parties.  This is sometimes called the “independent contractor rule.”  Someone who hires an independent contractor to do work can delegate safety responsibility to the contractor.  The theory behind the rule is that when an owner hires an independent contractor—or when a prime contractor hires a subcontractor—the responsibility for the safety of the contractor’s employees belongs with the independent contractor, not with the person who hired the contractor. 

There is an important exception to the independent contractor rule.  The rule does not apply to contractors who are not properly licensed.  A provision of the California Labor Code (section 2750.5) presumes that, for work that requires a contractor’s license, the unlicensed contractor is deemed to be an employee and not an independent contractor.  That can mean that the contractor’s customer (usually the owner or a prime contractor) loses its protected status as the hirer of an independent contractor who has no responsibility for worker safety, but instead has the same safety obligations as if he or she hired the injured employee directly.   

The California Supreme Court addressed this issue in the recent case of Cortez v. Abich. In that case a homeowner, Abich, began an extensive remodel of his home, acting as an owner-builder.  Abich pulled the building permit himself, and then hired numerous trade contractors to perform portions of the work.  One of the contractors hired to demolish a section of roof was unlicensed.  Abich didn’t know the contractor was unlicensed at the time he was hired.  An employee of the unlicensed contractor, Mr. Cortez, fell when a portion of the roof he was demolishing collapsed.  Cortez fractured his spine.  The unlicensed contractor who hired Cortez disappeared, and Cortez sued Abich, claiming:  1) Since the roof demolition contractor was unlicensed, Abich was legally Cortez’s employer, with an employer’s responsibility for ensuring a safe worksite, and 2) Cal-OSHA safety standards and regulations applied to the home remodeling project, and Abich’s failure to implement an OSHA-required safety program was proof of Abich’s negligence.

The case came to the Supreme Court on a less than perfect procedural record, requiring the Court to accept as true a lower court finding that Abich, as a homeowner who hired an unlicensed contractor, was deemed to be Cortez’s employer under the Labor Code (that finding by a lower court was not properly appealed to the Supreme Court).  The Court hinted that it may have struggled with that question if it was property presented, but since that question wasn’t one the Court could rule on, the Court assumed that Abich was Cortez’s employer and went on to examine the second issue, whether Cal-OSHA regulations apply to a residential remodeling project done by a homeowner as owner-builder.  Abich argued that his project was not a commercial building project, he was just a homeowner and not a professional contractor, and he should be exempt from OSHA.

The Court held that a significant residential remodel, even one managed by an owner-builder and not by a professional contractor, was subject to the Cal-OSHA regulations.  A significant remodel is exactly the type of construction activity that OSHA was intended to regulate, and was not a “household domestic service” like tree trimming or home maintenance that was exempt from regulation.  The Court’s ruling allowed Mr. Cortez to proceed with his lawsuit against the homeowner, and to introduce into evidence the violations of Cal-OSHA regulations to establish the homeowner’s fault.

What are the lessons to be learned from the Cortez v. Abich case?  The biggest lesson is to hire only licensed contractors and subcontractors.  Had Abich hired a licensed contractor (and taken other prudent steps such as insisting on proof that the contractor carried workers’ compensation insurance and required that Abich be named as an additional insured on the contractor’s liability policy), he likely would have escaped responsibility for Cortez’s injuries.  The second lesson is that homeowners choosing to act as owner-builders cannot assume their jobsites won’t fall under the same safety standards as commercial or industrial sites.  Owner-builders need either to implement and administer their own Cal-OSHA compliance programs, or to hire licensed independent contractors to do that for them, and to place safety compliance obligations squarely with their contractors through appropriate language in the construction agreements.