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Industrial Commission of Arizona v. J. & J. Const. Co.

Supreme Court of Arizona

May 21, 1951

J. & J. CONST. CO. et al

On Motion for Rehearing July 12, 1951.

Judgments reversed, with directions.

H. S. McCluskey, of Phoenix (Robert E. Yount and Donald J. Morgan, Phoenix, of counsel), for appellants.

Shimmel, Hill & Hill, of Phoenix, for appellee.

Jennings, Strouss, Salmon & Trask, Phoenix, amicus curiae.

Udall, Chief Justice. Stanford, Phelps, De Concini and La Prade, JJ., concur.


Udall, Chief Justice.

Page 763

[72 Ariz. 141] The Industrial Commission of Arizona, plaintiff-appellant, brought this suit in the superior court against defendant-appellee, J. & J. Construction Co., a co-partnership, seeking to recover premiums on a policy of insurance issued by the commission to the company pursuant to the Arizona Workmen's Compensation Law, A.C.A.1939, § 56-901 et seq. The premiums were claimed due on wages earned and paid outside of Arizona, and a penalty of ten times the amount of such premiums, together with costs and attorneys' fees were sought. Interpretation of statutory provisions for extra-territorial coverage under the Workmen's Compensation Law, as well as the jurisdiction of the commission to enter the "order" in question, are involved. From a judgment in favor of defendant, plaintiff has appealed.

The undisputed facts giving rise to the instant suit are as follows: The defendant employer is a partnership having its residence in Oklahoma. It has been engaged in transitory work for the past several years in the construction and installation of various rural electrification and power projects in Arizona and elsewhere. In March 1947 while defendant was working in Arizona along the Colorado River, the boundary between Arizona and California, it applied for and received a policy of insurance with the state compensation fund. While some of its employees were hired in other states, at least 25 of them were hired within this state. Premiums on all wages paid by defendant to its employees for work performed within the physical boundaries of Arizona were paid to the commission.

When its work within this state was completed, defendant moved its base of operations across the Colorado River to Blythe, California and took out workmen's compensation insurance on all of its employees under the laws of that state. Labor Code, § 3201 et seq. Although 25 of its employees were originally hired in this state, the record does not disclose whether they were or were not residents of Arizona. A new written contract of employment was [72 Ariz. 142] entered into in California with each of defendant's employees individually under date of March 21, 1949. In addition to specifying the wage rate and that the work was to be performed wholly within that state, the contract provided: "All contracts or agreements heretofore made between the employer and employee, of every kind and nature and wheresoever made are hereby cancelled * * *." This step was consistent with defendant's answer to this question on its original application for an Arizona policy: "7. (a) Will employees who have been hired, or are regularly employed, in the state of Arizona be required to work outside this state? (Ans.) No. Explain. Employment of such men will be terminated and only be permitted to work outside the state after they have been rehired outside the state." When the commission found that defendant had entered

Page 764

into these new contracts of employment and had failed to include the Californiaearned wages of the 25 men who had been originally hired in Arizona on its periodic report and had failed to pay premiums thereon to the Arizona fund, it ordered an audit of the defendant's books and billed defendant for the premiums herein sued for. Counsel for defendant requested a hearing on this payroll audit and the hearing was granted. The seven page transcript shows that the hearing was somewhat informal, i. e., no witnesses were sworn or testified. It consisted mainly of an informal discussion between plaintiff's field auditor, the referee, and counsel for defendant, together with the admission of certain exhibits, to wit: the payroll audits and a copy of the employment contracts heretofore referred to. Twelve days later the commission by an interoffice communication directed their field auditor to "audit (defendant's) payrolls and assess for premium". Nearly three months later, on January 15, 1950, the commission entered a formal order finding that the 25 men in question were employees subject to the provisions of the Arizona Workmen's Compensation Law and covered under the terms of the Arizona policy of insurance. The commission's legal department was instructed to bring suit to collect the premiums found to be due. The commission further found: "* * * that the purported contracts signed by the several employees were a condition of employment and are null and void and of no effect as contrary to the provisions of the statute regulating the status of employer and employee in the State of Arizona." None of the essential statutory steps were taken by defendant to obtain a court review of the reasonableness or lawfulness of this order.

On February 8, 1950 the instant suit for collection of premiums was commenced. The defendant by its amended answer admitted that the commission had, by its order, determined that the 25 persons named in the complaint were subject to the Arizona workmen's compensation law and that their status was not changed by the employment contracts dated March [72 Ariz. 143] 21, 1949. Plaintiff's motion for a summary judgment was denied. A pre-trial hearing was had, resulting in an order of court setting forth certain undisputed facts. The gist of the commission's order was included therein together with a recitation that the premiums sued for in the sum of $ 1339.36 represented "total wages paid to said persons at the rate of premium ...

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