BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2883|
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CONSENT
Bill No: AB 2883
Author: Committee on Insurance
Amended: 8/2/16 in Senate
Vote: 21
SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/22/16
AYES: Mendoza, Stone, Jackson, Leno, Mitchell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 80-0, 6/1/16 - See last page for vote
SUBJECT: Workers' compensation: utilization review:
employees
SOURCE: Author
DIGEST: This bill specifies 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.
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 self-insure or by
securing insurance against liability from an insurance company
duly authorized by the state.
AB 2883
Page 2
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, this bill:
1)Permits 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)Permits an individual who is a general partner of a
partnership or a managing member of a limited liability
company to opt out of a workers' compensation policy if he or
AB 2883
Page 3
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)Requires 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
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, 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
AB 2883
Page 4
SUPPORT: (Verified8/2/16)
Association of California Insurance Companies
California State Association of Electrical Workers
California State Pipe Trades Council
Western States Council of Sheet Metal Workers
OPPOSITION: (Verified8/1/16)
None received
ARGUMENTS IN SUPPORT: 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.
ASSEMBLY FLOOR: 80-0, 6/1/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
AB 2883
Page 5
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
Prepared by:Gideon L. Baum / L. & I.R. / (916) 651-1556
8/3/16 19:40:21
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