Innovative v. wellman/special/run

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

INNOVATIVE WORK COMP SOLUTIONS, LLC, Petitioner Employer,

SUNZ INSURANCE COMPANY, Petitioner Carrier,

v.

THE INDUSTRIAL COMMISSION OF ARIZONA, Respondent,

DENNIS WELLMAN, Respondent Employee,

SPECIAL FUND DIVISION/NO INSURANCE SECTION, Respondent
Party in Interest,

RUNCHEY ENTERPRISES, Respondent Employer,

CATALYST SOLUTIONS, Respondent Employer,

LIBERTY MUTUAL INSURANCE, Respondent Insurance Carrier.

No. 1 CA-IC 21-0038
FILED 6-14-2022

Special Action - Industrial Commission
ICA Claim Nos. 20181-730396
20182-400142
20185-470373
Carrier Claim No. SZ1800009935
The Honorable Paula R. Eaton, Administrative Law Judge

AWARD AFFIRMED
 COUNSEL

Jardine, Baker, Hickman & Houston, PLLC, Phoenix
By K. Casey Kurth
Counsel for Petitioner Employer/Carrier

Industrial Commission of Arizona, Phoenix
By Gaetano J. Testini
Counsel for Respondent

Snow Carpio & Weekley PLC, Phoenix
By Brian A. Weekley
Counsel for Respondent Employee

Industrial Commission of Arizona, Phoenix
By Afshan Peimani
Counsel for Respondent Party in Interest

Lundmark Barberich La Mont & Slavin PC, Phoenix
By Lisa M. LaMont
Counsel for Respondent Employer/Carrier

MEMORANDUM DECISION

Judge Randall M. Howe delivered the decision of the court, in which
Presiding Judge Jennifer B. Campbell and Judge James B. Morse Jr. joined.

H O W E, Judge:

¶1 Innovative Work Comp Solutions, LLC, a professional
employer organization (“PEO”), appeals the Industrial Commision of
Arizona’s (“ICA”) award finding three employers, including Innovative,
liable for an injury that occurred on a construction site. Innovative and its
insurance carrier, Sunz Insurance Company, argue that it complied with
A.R.S. § 23–901.08(D)(3), thereby relieving itself from workers’
compensation liability for non-covered employees. Under A.R.S.
§ 23–901.08(D)(3), however, a PEO must notify the ICA and its client if any
member of the client’s workforce is not covered by the professional

2
 INNOVATIVE v. WELLMAN/SPECIAL/RUN
Decision of the Court

employment agreement between the PEO and the client. Innovative failed
to comply with the notice requirement. We therefore affirm the award.

FACTS AND PROCEDURAL HISTORY

¶2 In early 2018, Dennis Wellman worked as a journeyman
carpenter, doing mainly drywall work for Catalyst Solutions on a specific
construction job. When that job concluded, a Catalyst employee directed
him to a job with Runchey Enterprises in Lake Havasu City, Arizona. He
worked on the Arizona job for several days before a large wall fell on him,
breaking his leg and seriously injuring his ankle. After he filed a claim for
workers’ compensation benefits, Innovative, Sunz, Runchey, and Catalyst
disputed who was liable for the claim as his employer.

¶3 Runchey had an “Administrative Service Organization
Agreement” (“Agreement”) with Innovative that provided “leased
employee services and workers’ compensation services” to Runchey. In the
Agreement, the parties declared that Innovative was a “statutory
employer” of covered employees for workers’ compensation purposes. The
Agreement provided workers’ compensation coverage for Runchey
employees on its payroll but exempted coverage for any workers not on the
payroll. Runchey agreed to provide workers’ compensation coverage for
“independent contractors and sub-contractors.” The Agreement was in
effect when Wellman was hurt. After a hearing, an administrative law judge
(“ALJ”) found that Catalyst was Wellman’s direct employer, that Runchey
was the statutory employer, and that Innovative was not an employer.

¶4 The ICA’s Special Fund Division requested review of the
award, asking the ALJ to reconsider the decision and analyze Innovative’s
liability in light of A.R.S. § 23–901.08, which makes PEOs co-employers with
their clients. It claimed that Innovative did not comply with A.R.S. § 23–
901.08(D)(3), which states that when a PEO enters an agreement with a
client in this state, the PEO “shall notify” its insurance carrier and the ICA
of the agreement on an ICA approved form. The approved form required
that if the agreement did not cover all employees of the client employer, it
must inform the ICA “of the client employer’s workers’ compensation
insurance carrier” that covers the client employer for any employees “who
are not covered by the professional employer agreement.” Id. Accordingly,
the Special Fund Division argued that because the Agreement did not
identify the insurance carrier for non-covered employees, Innovative was
not in compliance with A.R.S. § 23–901.08(D)(3). Innovative responded by
stating that the Agreement complied with the statute and urged the ALJ to
affirm the initial finding that Wellman was not an employee of Innovative.

3
 INNOVATIVE v. WELLMAN/SPECIAL/RUN
Decision of the Court

¶5 The ALJ did not rule whether Innovative complied with the
statute. Instead, the ALJ issued a Decision Upon Review that recited A.R.S.
§ 23–901.08(D)(3) and the lent-employee doctrine as adopted in Word v.
Motorola, Inc., 135 Ariz. 517 (1983), which made a “lent employee” a covered
employee of the business to which they are lent. The Decision Upon Review
concluded:

I find that Innovative Work Comp Solutions is a co-employer
of [Wellman] based upon their contract with Runchey
Enterprises and the provisions of A.R.S. § 23–901.08(D). The
Arizona Workers’ Compensation Act requires that a PEO
insure all covered employees and that they are deemed to be
a co-employer of all employees as part of that professional
employer agreement. A.R.S. § 23–901.08.

Innovative timely brought this review.

DISCUSSION

¶6 Innovative argues that it complied with A.R.S. § 23–901.08’s
requirements. An appellate court must affirm an agency action unless it is
“contrary to law, is not supported by substantial evidence, is arbitrary and
capricious or is an abuse of discretion.” A.R.S. § 12–910(F). The parties do
not dispute the facts critical to resolving the issue on appeal. This court
reviews legal questions, including statutory interpretation, de novo,
“without deference to any previous determination that may have been
made on the question by the agency.” Id. This court interprets statutes to
give effect to the legislature’s or voters’ intent, looking first to the statutory
language itself. Baker v. Univ. Physicians Healthcare, 231 Ariz. 379, 383 ¶ 8
(2013). When construing the workers’ compensation statutes, courts should
favor interpretations that favor making the worker whole and that
promotes a worker’s possibility for redress. See Carbajal v. Indus. Comm’n of
Ariz., 223 Ariz. 1, 3 ¶ 10 (2009).

¶7 Section 23–901.08 applies to PEOs, which are defined as any
person or organization “engaged in providing professional employer
services,” A.R.S. § 23–901(15), through co-employment relationships that
cover all or a majority of employees providing services to a client, A.R.S.
§ 23–901(16). A professional employer agreement is a written contract in
which a PEO agrees to co-employ all or a majority of the employees
providing services to a client. A.R.S. § 23–901(14). Such contracts are
intended to be ongoing rather than temporary, and they expressly allocate
employer responsibilities for worksite employees between the parties. Id.

4
 INNOVATIVE v. WELLMAN/SPECIAL/RUN
Decision of the Court

¶8 While a professional services agreement is in effect, the PEO
is a co-employer of the client’s employees. A.R.S. § 23–901.08(A). A PEO
must notify its workers’ compensation insurance carrier and the ICA when
it enters into an agreement with a client. A.R.S. § 23–901.08(D). It must do
so via an ICA form that identifies the client and states whether the
agreement covers all employees.1 Id. If the agreement does not cover all
employees, the notification must provide the name of the client’s workers’
compensation insurance carrier covering those employees the PEO
agreement does not cover. A.R.S. § 23–901.08(D)(3). Upon termination of a
PEO agreement, the PEO must notify its carrier and the ICA. A.R.S.
§ 23–901.08(E).

¶9 Innovative provided no evidence that it notified Sunz or the
ICA that it did not cover Wellman as A.R.S. § 23–901.08(D)(3) required. The
appellate record does not contain a completed ICA notification form filed
with the ICA. Without such evidence, Innovative cannot prove that it
complied with A.R.S. § 23–901.08(D)(3). While the parties seem to implicitly
agree that the Agreement can act as the required notification, the statute
does not permit that. Notification to the PEO carrier and the ICA must be
on an approved form. A.R.S. § 23–901.08(D)(3). Moreover, even if we
assume the Agreement would otherwise serve as notification, it did not
provide the name of Runchey’s carrier which would cover the employees
not covered by the Agreement. Id. Because Innovative failed to show that it
filed the statutorily required notification, it did not comply with A.R.S.
§ 23–901.08(D)(3). The ALJ therefore did not err in finding Innovative was
Wellman’s co-employer with Runchey. See A.R.S. § 23–901.08(B), (D)(3).

¶10 Innovative nonetheless argues that the award should be set
aside because the ALJ failed to make findings necessary for this court to
determine the basis of its ruling that Innovative is a co-employer of
Wellman. We disagree. The Decision Upon Review implicitly found that
Innovative did not comply with the statute.

1 The ICA provides a form of this notice on its public website at
https://www.azica.gov/claims-filing-professional-employer-
organization-peo-agreement.

5
 INNOVATIVE v. WELLMAN/SPECIAL/RUN
Decision of the Court

CONCLUSION

¶11 For the reasons stated, we affirm.

AMY M. WOOD • Clerk of the Court
FILED: AA

6