BILL ANALYSIS Ó
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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