BILL ANALYSIS                                                                                                                                                                                                    





          SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
                             Senator Tony Mendoza, Chair
                                2015 - 2016  Regular 

          Bill No:               AB 2883      Hearing Date:    June 22,  
          2016
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          |Author:    |Committee on Insurance                               |
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          |Version:   |June 13, 2016                                        |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Gideon L. Baum                                       |
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          Subject:  Workers' compensation:  utilization review:  employees


          KEY ISSUE
          
          Should the Legislature specify how officers and members of  
          boards of directors at private corporations and managing members  
          and general partners of Limited Liability Companies (LLCs) elect  
          to not be covered by workers' compensation policies?

          Should the Legislature require the Commission on Health and  
          Safety and Workers' Compensation to conduct a study on the  
          extent to which physicians' requests for authorization of  
          medical treatment for injured workers may be processed using an  
          entirely paperless system?

          ANALYSIS
          
           Existing law  :

             1)   Establishes a workers' compensation system that provides  
               benefits to an employee who suffers from an injury or  
               illness that arises out of and in the course of employment,  
               irrespective of fault.  This system requires all employers  
               to secure payment of benefits by either securing the  
               consent of the Department of Industrial Relations to  








          AB 2883 (Committee on Insurance)                                  
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               self-insure or by securing insurance against liability from  
               an insurance company duly authorized by the state.

             2)   Defines as an employee, for the purposes of workers'  
               compensation coverage, officers and members of boards of  
               directors of quasi-public or private corporations, except  
               in cases of officers and members who are the sole  
               shareholders of a private corporation who do not elect to  
               be covered by a workers' compensation policy. (Labor Code  
               3351)

             3)   Defines as an employee, for the purposes of workers'  
               compensation coverage, working members of a partnership or  
               LLC receiving wages, except in cases where the managing or  
               general partners do not elect to be covered by a workers'  
               compensation policy. (Labor Code 3351)

             4)   Provides that medical, surgical, chiropractic,  
               acupuncture, and hospital treatment that is reasonably  
               required to cure or relieve the injured worker from the  
               effects of his or her injury shall be provided by the  
               employer.  (Labor Code 4600)

             5)   Requires that all employers create a utilization review  
               process, which is a process that prospectively,  
               retrospectively, or concurrently review and approve,  
               modify, delay, or deny, based in whole or in part on  
               medical necessity to cure and relieve, treatment  
               recommendations by physicians, prior to, retrospectively,  
               or concurrent with the provision of medical treatment  
               services.  (Labor Code 4610)
           
          This bill creates an explicit process through which an officer  
          or member of a board of directors or working members of a  
          partnership or LLC may elect to be excluded from a workers'  
          compensation policy. Specifically, AB 2283 would:

             1)   Permit an officer or member of the board of directors to  
               opt out of a workers' compensation policy if he or she owns  
               at least 15 percent of the issued and outstanding stock of  
               the corporation and executes a written waiver of his or her  
               rights under this chapter stating under penalty of perjury  
               that the person is a qualifying officer or director. 

             2)   Permit an individual who is a general partner of a  







          AB 2883 (Committee on Insurance)                                  
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               partnership or a managing member of a limited liability  
               company to opt out of a workers' compensation policy if he  
               or she executes a written waiver of his or her rights under  
               this chapter stating under penalty of perjury that the  
               person is a qualifying general partner or managing member.

             3)   Require that the waiver be effective upon the date of  
               receipt by the corporation's insurance carrier and remain  
               effective until the officer, member of the board of  
               directors, general partner, or managing partner provides  
               the insurance carrier with a written withdrawal of the  
               waiver.


          COMMENTS
          
          1.  Need for this bill?

            Under current law, nearly all employees must be covered  
            through either a workers' compensation insurance policy or a  
            recognized self-insurance certificate. However, there are some  
            limited exceptions to this rule. One example is officers and  
            members of a board of directors of a private corporation or  
            managing partners or general partners of a LLC. In those  
            cases, the individual workers can elect to not be covered by  
            the employer's workers' compensation policy.

            However, the existing election process to opt out of coverage  
            is not very clear. Beyond one limited statutory reference and  
            very little regulatory guidance, insurers and LLCs are left to  
            figure it out for themselves. The Association of California  
            Insurance Companies (ACIC), one of the supporters of this  
            bill, argues that this lack of clarity has led to abuses that  
            have hurt injured workers and driven fraudulent activity.

            AB 2883 seeks to address this challenge by specifying, in the  
            case of an officer or member of the board of directors, that  
            he or she must own at least 15% of the stock of the  
            corporation in order to opt out of workers' compensation  
            coverage, as well as sign a waiver stating that the individual  
            is a qualifying officer or member. Similarly, AB 2883 also  
            requires a general partner of a partnership or a managing  
            member of a LLC to execute a waiver to opt out of workers'  
            compensation coverage.








          AB 2883 (Committee on Insurance)                                  
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          2.  Staff Comments: 

            Possible Amendments 

            First, the sentence structure of AB 2883 appears to assume  
            that the officers and members of a private corporation or  
            working members of a partnership or LLC receiving wages would  
            automatically opt out of coverage. While that may not be the  
            case, it does not assist statutory clarity. Therefore, the  
            Committee may want to consider the following amendment:

             1)   On page 4, line 13, strike "pay" and insert "pay. An  
               officer or member of a board of directors";
             2)   On page 5, line 1, strike "company" and insert "company.  
               A general partner of a partnership or a managing member of  
               a limited liability company".  

            Second, as noted above, the requirement of a signed waiver is  
            key piece of a qualifying individual opting out of a workers'  
            compensation policy. However, the plain reading of the statute  
            seems to imply that a waiver that was signed - but not  
            accepted by an insurer as legitimate - would trigger the opt  
            out. The Committee may wish to consider the following  
            amendment:

             3)   On page 8, line 7, strike "receipt" and insert "receipt  
               and acceptance"
             4)   On page 8, line 16, strike "receipt" and insert "receipt  
               and acceptance"

            Clarifying the LLC Exemption

            As currently drafted, AB 2883 extends a clear exception from  
            the requirements of being covered by a workers' compensation  
            policy to a managing member of a LLC. This is similar to  
            language found in existing law, and insurance companies  
            currently have exclusion endorsements for managing members of  
            LLCs. However, the term "managing member of a limited  
            liability company" is not defined in Labor Code or  
            Corporations Code, where "general partner of a partnership" is  
            defined. This may be something that should be clarified  
            through a Letter to the Journal by the author.

          3.  Proponent Arguments  :
            







          AB 2883 (Committee on Insurance)                                  
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            Proponents argue that the existing exceptions that allows an  
            officer or a member of a board of directors or a general  
            partner to opt out of workers' compensation coverage are  
            intended to allow individuals who have a significant role in  
            running the company or significant ownership shares to exempt  
            themselves from workers' compensation insurance.  Existing  
            law, especially as to what constitutes an eligible individual  
            of a corporation is ambiguous and has resulted in abuse of  
            this provision. One proponent notes an example where an  
            insurer found a company trying to exclude the "vice-president  
            of dishwashing."  In another example, a company provided  
            coverage for all of their employees, but during the post audit  
            conducted by the insurer, the company retroactively declared  
            that several employees with a tiny ownership share were exempt  
            under the corporate officer statute and demanded a premium  
            refund. The proponents argue that AB 2883 addresses these  
            issues by removing the uncertainty found in existing law by  
            clearly defining what constitutes an eligible employee.


          4.  Opponent Arguments  :

            None on file.



          SUPPORT
          
          ACIC
          California State Association of Electrical Workers
          California State Pipe Trades Council
          Western States Council of Sheet Metal Workers
          
          OPPOSITION
          


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