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Haggard v. Industrial Commission
Citations: 223 P.2d 915; 71 Ariz. 91; 1950 Ariz. LEXIS 156Docket: 5263
Court: Arizona Supreme Court; November 3, 1950; Arizona; State Supreme Court
In Haggard et al. v. Industrial Commission, the Supreme Court of Arizona addressed a class action by appellants, who were engaged in horse and dog racing, challenging orders from the Arizona Industrial Commission that classified certain individuals at their businesses as employees eligible for Workmen's Compensation coverage, thereby imposing insurance costs on the appellants. The appellants had obtained racing permits and had previously taken out compensation insurance policies. However, on January 20, 1949, the Commission ordered the cancellation of these policies due to concerns about their compliance with the law, offering to provide temporary coverage if the appellants pursued a legal action to resolve the issues. The appellants then applied for a new policy that limited coverage to specific roles, excluding various racing personnel, arguing these individuals were independent contractors and not subject to the insurance requirements. The Commission denied the new policy application but offered to issue a binder for full coverage under certain conditions, including the immediate initiation of a lawsuit to clarify the disputes, disclosure of all individuals whose coverage was uncertain, and agreement that any independent contractors without their own insurance would be covered under the policy. The commission established that there is no existing formula to determine the fair average earning capacity of individuals in the industry for any given thirty-day period. It emphasized the need for a formula that accounts for the variability of employment and the challenges in defining fair earning capacity. This formula was to be agreed upon by the commission, insured parties, and their employees as the basis for compensation benefits and premium assessments. The plaintiffs, while protesting, accepted these conditions. The commission then suspended the cancellation of their insurance policies and issued a temporary binder for all related occupations, leading to the filing of this lawsuit. The trial court indicated that the case would not be retried but reviewed to assess the commission's actions for reasonableness and legality. Despite this, the trial court provided findings of fact and legal conclusions, prompting appeals from both parties regarding unfavorable aspects of the judgment. Both parties accepted the sufficiency of evidence supporting the trial court's factual findings. The case references the O'Neill v. Martori decision, which was decided after the lower court's ruling. During oral arguments, both sides agreed to treat the case as if it had been tried de novo, based on Martori. The primary legal issues for review include whether the plaintiffs were entitled to a declaratory judgment, whether the commission had the authority to set premium rates as it did, and whether certain service providers during the racing events qualified as employees under the Workmen's Compensation Act. The applicability of the Declaratory Judgment Act versus the specific procedures outlined in the Workmen's Compensation Act is also questioned, with precedents from other jurisdictions suggesting that the special act provides the exclusive remedy. The Arizona Supreme Court has established that the workmen's compensation act provides a distinct and exclusive remedy for compensation cases, as reaffirmed in S.H. Kress. Co. v. Superior Court. The legal procedure to challenge commission orders is outlined in Sections 56-914 to 56-918 of the act, and the trial court correctly declined to render a judgment under the Declaratory Judgment Act. The appellants contest the constitutionality of the act's provisions that require employers to pay premiums and the commission's authority to collect them, arguing that this could invalidate the entire Workmen's Compensation Act. They assert that the Industrial Commission lacks a legal standard to set rates for employees, particularly those working at race tracks, and that using total payroll and employee count as bases for rate-setting is either forbidden by the act or constitutes an unconstitutional delegation of legislative power. The commission's authority to issue insurance contracts originates from Sections 32, 34, and 35 of the 1925 Act, allowing it to cover employers comprehensively for both compensation and liability claims. The commission is mandated to determine the hazards of various employment classes and set premiums accordingly, aiming for the lowest rates that sustain a solvent fund. Prior case law, including Industrial Commission of Ariz. v. Arizona Power Co., indicates that the commission must adhere to legislative authority in issuing insurance policies, casting doubt on the legality of self-rating policies not explicitly authorized by legislation. In 1939, the legislature replaced previous provisions with Sections 56-921, 56-922, and 56-923 of the A.C.A. 1939, specifically addressing the determination of rates for the state compensation fund and accident benefit fund. Section 56-923 mandates that these funds be self-supporting and allows the commission to classify employments for rate adjustments, with the authority to transfer employments between classes. Separate accounts must be maintained for each class to track collections and expenditures, yet the fund remains indivisible for compensation and dividends. The commission is tasked with assessing the hazards of different occupations and establishing premium rates that ensure the fund's solvency while allowing for surpluses. This process may incorporate a schedule rating system considering individual risk factors. Plaintiffs argue that by removing specific language from the previous act, the legislature limited the commission's ability to base premiums on payroll and employee numbers, leaving no legal standard for rate determination. However, it is argued that the change actually expanded the commission's powers to include additional factors beyond payrolls in rate-setting. The commission's long-standing interpretation of the act over the past decade, without legislative alteration, supports this view. The commission retains the authority to use total payroll and employee numbers as bases for insurance rates. Additionally, the constitutionality of Section 56-923 is challenged as an unlawful delegation of legislative power. Plaintiffs seek to compel the commission to issue compensation insurance while simultaneously contesting the constitutionality of the premium-setting basis. Arizona law generally prohibits a litigant from seeking relief under a statute while claiming part of it is unconstitutional. Despite this, it is concluded that the delegation of authority to the commission in Section 56-923 does not violate constitutional principles regarding the delegation of legislative powers. Administrative bodies are authorized to create rules and regulations that supplement legislation for effective operation and enforcement, provided these align with the legislative standards. Such regulations must be reasonable and based on governmental coordination needs, allowing for some broad interpretation by the legislature. The Industrial Commission, empowered by the act, can issue insurance policies and set premium rates without delegating legislative power, merely executing the act's intent. Rates must ensure a self-supporting fund, categorize employments for rate determination, and consider employment hazards to maintain a solvent compensation fund. The legislature does not specify exact rates due to the variability of hazards, making it appropriate for administrative delegation. The act provides sufficient standards for the commission's regulation of insurance premiums, ensuring constitutional compliance. Judicial review is available for any unreasonable classifications or rates set by the commission. Additionally, the commission can impose conditions before policy issuance, as seen in the Gene Autry Productions case, which involved defining "average monthly earning capacity" for intermittent employment. The commission's authority to adopt relevant rules is affirmed to safeguard the compensation fund's solvency. Section 56-920, A.C.A. 1939 grants the Industrial Commission full authority over the compensation fund, requiring sufficient premium collection to ensure the fund’s solvency for compensation benefits and related expenses. The Commission mandates that insured parties disclose the identities of independent contractors before their work begins, a regulation deemed reasonable and necessary for effective management and prevention of liability shifting. However, the provision requiring that uninsured independent contractors and their employees be considered insured under the original contractor's policy is deemed unwarranted. This provision wrongly ties independent contractor status to insurance coverage, ignoring established legal definitions and shifting liability burdens onto insured employers for their contractors’ actions. The document also addresses whether certain classes of individuals, identified in the plaintiffs’ complaint, must be covered by insurance policies issued by the Commission. These classes include owners and trainers of racing animals, stable workers, jockeys, veterinarians, operators of racing equipment, photographers, and employees of pari-mutuel machines. If these individuals fall under the act's requirements for insurance, the Commission is obligated to provide coverage and collect appropriate premiums. Concessionaires or individuals with contracts for selling food and refreshments at racing tracks, as well as those selling racing programs and information, are identified as specific categories of workers. Additionally, individuals who contract for parking privileges and their employees are noted. The court assessed further employee classifications. Sellers of wagering tickets and cashiers were confirmed as employees of the appellants, with no objections raised regarding their employment status. Concessionaires paying a fixed sum for their services were not classified as employees; however, those paying a percentage of their earnings to the appellants were deemed employees due to the resultant supervisory and control relationship. The legal distinction made by the court emphasizes that determining employment status based solely on payment structures could lead to inappropriate classifications, akin to landlords being considered employers of lessees' staff under percentage lease agreements. Section 56-928, A.C.A. 1939 outlines employer responsibilities for securing compensation for employees, specifying that an employer with three or more workers under contract is generally liable, with certain exceptions. The section further clarifies that if an employer hires a contractor but retains supervision over the work, then the contractor and their workers are considered employees of the original employer. Conversely, independent contractors, who work autonomously and are only accountable to the employer for outcomes, do not fall under this classification. Thus, two categories for employer compensation obligations are established: directly employed workers and those contracted with supervisory oversight. Contractors and their employees, as well as subcontractors and their employees, are considered employees of the original employer under the specified section, unless they operate independently, only following the employer's design. Plaintiffs, who run race meets, utilize individuals whose services are essential for the operation. The critical determination of employment status hinges on whether the plaintiffs maintain supervision or control over the work performed. The trial court's findings detail the employment and compensation of various groups, including trainers, horse and dog owners, jockeys, and racing gate operators, indicating that these individuals are employed and compensated by parties other than the plaintiffs, without any control from the plaintiffs. Findings reveal that owners of horses are generally independent contractors, with exceptions noted for jockeys. Specific findings indicate that during races, control is exercised by the starter, judges, and stewards over horses and jockeys, who can disqualify or penalize participants for rule violations. Control in this context is attributed to race officials rather than the plaintiffs, suggesting that the plaintiffs may not be liable for compensating these individuals. Plaintiffs have hired individuals in various classes (a, b, c, d, f, and h), but it would be unreasonable to conclude they exercise control over how these individuals perform their duties, indicating that plaintiffs are not their employers as per Findings 33, 36, and 37. Classes (e) and (g), which include veterinarians and photographers, are also hired by plaintiffs, yet their work nature suggests they are independent contractors rather than employees. Generally, physicians and veterinarians operate independently in their service execution, aligning with case law such as Moody v. Industrial Acc. Comm. The commission's reference to Industrial Comm. v. Navajo County is deemed inapplicable as it pertains to public employment under sovereign powers, not private contractual arrangements. Photographers, however, were classified as employees by the court based on their specific role in capturing race finishes, despite their skilled nature. They provide their own equipment and staff, which supports the assertion of their independent contractor status. The legal distinction between professionals and employees is emphasized, suggesting that the determination of the employment relationship must be based on specific employment facts. The court has instructed that further evidence be gathered on retrial to clarify the employment status of these individuals. Additionally, Classes (i), (j), and (k) are identified as "concessionaires," who operate independently by purchasing and selling refreshments, indicating a separate relationship from that of an employer-employee dynamic. Lessee or grantee concessionaires at venues such as amusement parks are classified as independent contractors rather than employees. The excerpt references a legal case (Rendall v. Pioneer Hotel) and discusses the implications of Finding 42. This finding states that the operations under a license from the State Tax Commission required integration and interdependence among workers, making it impractical to treat these individuals as independent contractors. Consequently, the licensee must maintain a degree of supervision over these workers, categorizing them as employees under specific Arizona statutes. The summary of the key points from Finding 42 is as follows: 1) The nature of the work performed by the various disputed classes necessitates that they are employees, as independent contractor performance is not feasible. 2) The licensee's obligation to retain sufficient supervisory control is essential for classifying the disputed workers as employees. However, it is noted that some workers, such as gate personnel and employees of mutuel men, are employed by independent contractors, which challenges the conclusion of law that all disputed classes are employees of the licensee. Thus, the case hinges on the licensee's control over these workers. To hold plaintiffs liable for insurance, they must demonstrate that their immediate employer is under their "supervision or control," as required by Sec. 56-928, which necessitates affirmative evidence in the record. Relevant case law emphasizes that while the act should be liberally construed, both the commission and trial court cannot assume the employer-employee relationship exists merely to facilitate further actions. The findings do not suggest any illegal attempts by plaintiffs to evade the law. Although requiring plaintiffs to provide compensation insurance for disputed classes could offer better employee protection, such liability can only be imposed by legislative action, not by administrative or judicial assumption. The commission lacks the authority to declare a relationship of supervision or control that is not evidenced in the record. Consequently, based on the trial court's findings, plaintiffs are only required to provide compensation insurance for certain classes. The commission has the authority to issue or deny insurance policies, but its discretion must be reasonable. The refusal to issue a policy based on illegal requirements is deemed "unreasonable and unlawful." The document also questions whether Arizona, as a participant in the racing business, is ultimately liable for premiums on all employees involved in racing meets, a claim based on Arizona's revenue interests in licensed racing activities. In 1949, the Arizona legislature established the Arizona Racing Commission, defining its powers and responsibilities, including the authority to issue permits for conducting racing meets under its regulations. The number of racing days allowed is limited by county population classifications. The act legalizes pari-mutuel wagering while prohibiting other forms of betting on race outcomes, except as outlined within the act. The commission can also license racing events at state and county fairs. The state is entitled to receive 5% of all money handled in the pari-mutuel pool from permit holders, paid daily during racing events. No fees will be charged for racing meetings held at fairs, provided profits do not exceed 14% of the pari-mutuel pool total. Counsel for the commission distinguishes between licensing an illegal business for revenue purposes and taxing legitimate businesses, although this distinction is questioned. The state has validated and regulates the racing business under its police powers and requires a percentage of revenue from licensed activities. The court's prior judgment is reversed, and a new trial is ordered to clarify the status of photographers in this context. The justices concurred in this decision.