According to MCLS § 418.171, if any employer referred to as the principal, contracts with any other person referred to as the contractor, the principal shall be liable to pay compensation which s/he would have been liable to pay to any person employed in the execution of the work, if that person had been immediately employed by the principal.

If compensation is claimed from or proceedings are taken against the principal, reference to the principal shall be substituted for reference to the employer, except that the amount of compensation shall be calculated with reference to the earnings of the person under the employer by whom s/he is immediately employed.  In all cases where the principal gives permission that the work or any part thereof be performed under subcontract, a contractor shall be deemed to include subcontractors.  If the principal is liable to pay compensation, s/he shall be entitled to be indemnified by the contractor or subcontractor.  If an employee takes compensation from principal, s/he shall not be entitled to recover at common law against the contractor for any damages arising from such injury.  The principal may recover the amount paid as compensation to the employee in an action against the contractor.

However, a principal may demand that the contractor enter into a written agreement with the principal agreeing to reimburse the principal for any loss incurred due to a claim filed for compensation and other benefits.