You are correct. Proper z-bar flashing installs require no caulking as it will cause a damming effect and will hold moisture behind the caulk keeping it damp between the bottom edge of the siding and the z metal.This might not be too big a deal if already caulked depending on your location, as it will dry. In wet,humid climates, the moisture will not dry out as fast and could cause mold problems. Being hardie board, the siding will not rot in any climate. I would still insist on your contractor getting rid of the caulk in that area, as the moisture needs an avenue of escape.

You need to look at the entire detail not just one aspect of it. For instance you don't even mention trim. Show us the detail.

In general, the idea that water will weep below horizontal siding that has been nailed tightly to the z flashing above the field applied trim of a clad nail-fin window head, is only theoretical and is unlikely to work in reality. Caulking serves no useful purpose at this joint but it probably doesn't block moisture flow any more than the siding does unless some kind of drainage membrane or mesh is installed behind the siding. Also the top of the flashing would have to be lapped under a wrb or adequately and permanently sealed to it. I don't know if either of these details have been used here but since neither of them is usually done properly enough to be effective it probably doesn't matter how the joint is treated.

The whole idea of a sheet water/air barrier is probably no longer feasible with modern nail-fin windows, sticky flashing tapes and plastic housewraps that can so easily be assembled to trap moisture against the sheathing. In my opinion, exterior wall construction materials have been "improved" by chemical companies and marketing gurus until they no longer work well. It's time for a modern system that avoids such fussy and easily misunderstood details.

In general, I don't think caulking would be a problem if it's caulked at the top, if I'm envisioning this correctly, but normally, yes, you want it open at the bottom to allow moisture out safely. I can imagine there might be cases when the flashing fits tightly to the cladding, where there could be some wicking upwards, but this'd be slight and caulking at the top would take care of it.

In practice, providing the specs are follow, I doubt it would post a problem. OP needs to study what the contractor's done carefully and if necessary ask him/her to explain their reasoning.

Worst case I guess the OP might have to dig the stuff out themself, but it shouldn't have to come to that.

Sorry if my original post was unclear. The caulk was applied along the edge where the flashing meets the siding lap. On a few windows my contractor tried to use this caulking to hide the fact that he used L-shaped pieces instead of Z-shaped. On the others it appears to be the right kind of product (Z-flashing that goes behind the siding lap) but he caulked along the edge, so any water that gets behind the siding will not have a means to escape. There is no caulking at the far bottom edge of the flashing where it hangs over the window trim.

This detail should be shown in both the window and the siding installation instructions. (It is usually shown in the housewrap and flashing manufacturer's instructions too) Print them and show them to your contractor. Save yourself the inevitable conflict that results from telling someone they don't know how to properly do something that they do for a living (and you don't). Some people just can't resist filling a gap.

But I would be more worried about what is above the z flashing than below it.

Hi,
I allowed at least 1/4" gap from the flashing to the siding material, so the hardi-stuff never sat in water. I would also hold up the undercourse another 1/4, so the exposed course was it's own drip edge, and wouldn't wick water back between the courses (this was their hardishingle stuff). For "horizontal surfaces" hardi wants you to leave 2" vertical space before their product commences. That's like exposed porch floors, decks and roofs.
Casey

Best way to seal a window's Z-flashing is with a water proofing tape put over the top edge of the flashing that is nailed to the wall. This way you cover the nails that are penetrating through your exterior wall which can cause water problems, but when you use a water proofing tape covering it over the flashing edge and nail heads your better protected. We use Zip Tape. Dupont Flashing Tape https://www.dupont.com/products/dupont-flashing-tape.html and other manufacturers make a good water proofing tape.. Caulking eventually breaks down over time and yes a water problem will happen over time. One of the most damaged areas of a home is the window and doors due to bad installation. Hope that helps.