- Workers’ compensation insurance coverage for California employees is mandatory.
If a California business has employees, then the employer must obtain workers’ compensation insurance. It is really that simple. The insurance coverage should take effect from the moment the first employee commences employment. If the business is a start-up, insurance coverage must be obtained before the company becomes operational with employees. A California employee is covered under the protections of the Workers’ Compensation Act of the California Labor Code from the moment that he or she starts employment. Case law has also extended the protection of workers’ compensation benefits for many employees for injuries that occur even before the moment of hire; for example, an injury that occurs during a job try-out or employment testing. If an employer is not insured for workers’ compensation in California, the owners, general partners, and/or significant shareholders of the business can be held personally liable for benefits owed an injured worker as well as face criminal charges.
- A business may act as self-insured for workers’ compensation in California-but this option is not available for small businesses
While many large and well-capitalized companies are self-insured for workers’ compensation purposes, note that the requirements for a business to act as self-insured involves a burdensome compliance process that must be approved by the State of California. Permission to self-insure must be granted well before any claim of a job-related accident occurs. The bonding, compliance, and educational requirements on an employer that wishes to obtain permission to self-insure are significant. While many of the Fortune 500-type companies are self-insured, the compliance costs for small employers, i.e. those with under 500 employees, are such that insurance is usually a much more viable option. A company must be well capitalized with significant reserves dedicated to paying workers’ compensation claims to obtain self-insurance status. Audits be the state’s Office of Self-Insurance are common.
- The Independent Contractor Defense to Workers’ Compensation Liability is Fraught with Hazard
Often employer’s claims that workers’ compensation coverage is not needed because their workers are really independent contractors. Beware! This defense rarely succeeds and even if successful at trial, the employer will often expend tens of thousands of dollars of litigation costs to prove independent contractor status of an injured worker. Much more often, the State of California Administrative Law Judge that hears workers’ compensation claims will find that the injured worker is an employee of the business where he or she worked as the time of the injury. If the worker can be hired or fired by the business, or if the business controls the details of how the work is performed, or if the business provides tools and other equipment to the employee, and if the worker works regularly at the business, the worker is most likely an employee. No single factor controls whether a worker is an employee or independent contractor but remember that California law favors a finding of employment.
- But I have a contract that provides all workers are independent contractors. Does my business still need workers’ compensation insurance?
YES: Just having an attorney or an online service draft an independent contractor agreement that must be signed by all workers as a condition of working for your business does not render your company’s worker’s independent contractors. Generally, if the workers for your company work for any amount near the minimum wage and if your company controls the details of their work, set the hours of work, has the ability to hire or fire the workers, pay the workers by the hour or on salary, then the workers will successfully prove employment status at a workers’ compensation trial. Without workers’ compensation insurance, your company will have to hire an attorney to represent it at the California Workers’ Compensation and pay related litigation costs that would otherwise be assumed by the insurance carrier if the employer obtained workers’ compensation coverage. The cost of a defense can easily exceed $15,000 per claim-plus settlement costs of the claim itself.
- My company does indeed have workers’ compensation insurance but we do not report claims we suspect as bogus to our carrier to hold our rates down.
Unfortunately, this practice is all-too-common and quickly backfires as self-defeating. If the employer suspects that a claim if fraudulent or otherwise invalid, the employer must cooperate fully with its insurance carrier so that the insurance carrier can investigate the facts and circumstances of the claim and issue a denial letter if appropriate. An insurance carrier only has ninety days to decide whether to accept or deny a claim. The date of knowledge on the insurance carrier is that date that the employer is put on notice of the claim of work-related injury. If an employee shows at trial that he or she put the employer on notice of claim on a certain date, and the claim was not formally denied by the insurance carrier within 90 days, then the claim is assumed compensable under California law. The key for an employer is to cooperate fully and timely with its insurance carrier, particularly the carrier’s adjusters and investigators.
- To keep our premiums down, we encourage our injured employees to use state disability and then we settle with our employees directly.
Such a practice is illegal and the claim ends up costing the insurance carrier, and ultimately the employer, much more. Nothing is worse for a defense attorney representing the employer and insurance company to learn about such facts at a deposition of the claimant months or years after the date of injury. All settlements of workers’ compensation benefits must be approved by a State of California Workers’ Compensation Administrative Law Judge. The judge must review the settlement to determine if the settlement is adequate from the standpoint of the injured worker. In addition, the injured worker is entitled to receive many types of notices on the types of benefits available in workers’ compensation. Any private settlement will not be enforceable and the insurance carrier’s timeline in which to investigate the claim will be severely compromised.
- Remember that workers’ compensation insurance protects employers from civil lawsuits from employees.
While some employers gripe about the “mandatory insurance” requirement of workers’ compensation insurance, remember that workers’ compensation requirements have been in place for about 100 years and serve to protect employers as well as employees. Before mandatory workers’ compensation coverage laws were enacted, employees injured at work could sue their employers in tort for personal injury. In other words, the employee could sue the employer for a slip and fall at work just the way a patron of a restaurant or store might sue in a general court for an injury caused by negligence of the store or its personnel. If an employer today lacks workers’ compensation coverage, the injured employee can elect to sue in Superior Court with a civil lawsuit- with negligence of the employer presumed as a matter of law. Defending a civil lawsuit is always an expensive undertaking for any business-and most injury suits by employees can be avoided with the purchase of workers’ compensation insurance.
- Always brace your business for higher workers’ compensation insurance costs.
California passed into law in 2004 an employer-friendly workers’ compensation reform bill that reduced benefits for employees drastically by placing a 2-year limit on temporary disability payments, effectively eliminated vocationally rehabilitation benefits, and placed limits on medical care entitlement. Nevertheless, some of the reform’s clout has been eroded by case law and regulatory changes. The upshot for employers will be higher workers’ compensation premiums. Many employees fear layoff and want claims “on record” prior to lay off, while others, particularly those in hard-hit industries such as construction, are already laid off and attempt to relate chronic conditions, such as a bad knee or hip that may need replacement, to the last employer. The costs of administering these claims are enormous.
- Report payroll honestly to the insurance carrier.
Workers’ compensation fraud covers many categories- and not all of it is by employees with bogus claims or medical treatment mills churning out bills for services of dubious necessity. The Insurance Commissioner and District Attorneys statewide regularly investigate and prosecute payroll fraud by unscrupulous employers. Workers’ compensation premium rates are based upon payroll and the occupations covered (roofers are much more expensive to cover, for example than office workers) as well as claim history and the safety record of the employer. The husband-and-wife owners of a framing subcontractor in Shasta County were arrested in May 2011 with a charge of violating the California Insurance Code by underreporting $900,000 in payroll to its workers’ compensation insurance carrier. A husband and wife that owned a gardening service in Orange County were arraigned in May 2011 for not reporting some $3 million in payroll to its workers’ compensation carrier and charged with multiple felonies.
- Uninsured Employer:
California Workers’ Compensation laws require that all employers of one or more non-family employees have workers’ compensation insurance. This ensures that in the event an employee is injured, disabled, or killed in the workplace, compensatory benefits are available to the employee or his survivors.
Worker’s compensation insurance is not the same as liability insurance, which provides coverage in the event of a non-employee injury on the premises, or medical insurance, which only covers medical bills for non-work-related conditions. If an employer does not have worker’s compensation insurance and is not self-insured as required by law, they are classified as an “Uninsured Employer.”
- The State’s Role:
In the event of an Uninsured Employer with a workers’ compensation case, the State of California must step in and pay the benefits due. Payouts come from one of two state funds: (1) The Uninsured Employers Benefits Trust Fund, for benefits awarded by the Workers’ Compensation Appeals Board, and (2) The Subsequent Injuries Benefits Trust Fund, which covers employees with a preexisting disability at the time of injury resulting in permanent disability of 70% or more.
Because the State must pay the claims for Uninsured Employers, the penalties for noncompliance are steep. Many employers don’t understand the very serious civil and, in some cases, criminal consequences of being uninsured.
Penalties for uninsured employers may include any of the following:
- Prosecution for a misdemeanor punishable by imprisonment for up to one year, or by a fine of up to $10,000, or by both fine and imprisonment.
- Civil Negligence lawsuit, with a presumption of employer negligence.
- Administrative order or court injunction stopping business operation.
- A 10% penalty on award arising out of the Workers’ Compensation case.
- Liability for the injured worker’s attorney’s fees.
- Attachment of home, cars, and other property or financial accounts.
- Penalties and collection action by Administrative Director on behalf of the injured employee, and the Uninsured Employers Benefits Trust Fund.
- Possible additional 10% penalty/penalties for failure to provide or delay in providing necessary benefits.
- How long do I have to report a work-related injury in California?
There are two aspects to reporting an injury in the California workers’ compensation system: telling your employer about the injury and filing a workers’ comp claim.
Generally, you need to give your employer written notice of the injury within 30 days of the date you’re injured. But for injuries that happen over time, you need to report your injury to the employer within 30 days of the date you suffer a temporary disability (that is, when you lose time from work or seek medical treatment) and you realize (or should have realized) that the injury was due to work. (California Labor Code Section 5412.) If you have a union representative, you should also report your injury to that person as soon as possible.
You also have to officially file your workers’ comp claim by filing California workers’ comp claim form, the DWC-1 Claim Form. You file this form by giving it to your employer, who will forward it to its workers’ comp insurance company. The time limit to file this form is within one year from the date of injury, but filing it sooner than later is to your advantage.
To save time, you can kill two birds with one stone: you can use DWC-1 to give written notice to your employer; just make sure you give it to your employer within 30 days of your date of injury.
- What happens if I don’t report the injury on time?
If you don’t report your injury to your employer within 30 days, you might not be able to collect workers’ comp benefits (medical expenses or cash benefits), unless you can show that your employer knew or should have known about the injury within the 30-day time period. For instance, if you’ve been complaining that your back hurts from lifting boxes at work, your employer was on notice that you might have a back injury; or, if another employee tells your employer that an employee slipped and fell on the factory floor, that counts as notice. (California Labor Code Section 5402.)
If you didn’t report your injury within 30 days and neither of these exceptions applies to your situation, you should talk to a workers’ compensation attorney—a lawyer may be able to prove that your failure to report your injury didn’t harm your employer’s standing as to your workers’ comp claim and that you should have the right to collect workers’ comp benefits. (California Labor Code Section 5403.)
- Can I see my own doctor for a work-related injury?
One way to get to choose your own doctor is to give your employer a form designating who you want your doctor to be in case of injury—before an injury occurs. In California, the doctor you choose must be your regular primary care physician, and you have the right to “pre-designate” your doctor only if your employer provides group health coverage. (California Labor Code Section 4600.3.) The Department of Workers’ Compensation offers a form for this purpose: DWC Form 9783, Pre-designation of Personal Physician.
If you didn’t pre-designate a doctor, you’ll likely need to see a doctor chosen by your employer or who is in your employer’s medical provider network. But if your employer hasn’t followed certain rules, such as not telling you that you could pre-designate a doctor, not giving you a workers’ comp claim form after learning of your injury, or not posting required notices of your workers’ comp rights, California law says that you have the right to choose your own doctor, outside of your employer’s network. (California Labor Code Section 3550(e).)
- Again–What if my employer didn’t have workers’ comp insurance:
If your employer didn’t pay for workers’ comp insurance coverage and was not “self-insured,” you have the right to sue the employer in civil court for your medical expenses and lost wages, as well as pain and suffering (which aren’t allowed in a workers’ comp case). Or, you have the right to file a workers’ comp claim against the employer and collect from California’s Uninsured Employers Benefits Trust Fund. (California Labor Code Sections 3715 and 3716.) In either case, you’ll need to hire a lawyer to represent you.
LAWYER FOR BUSINESS: http://www.wfblegalconsulting.com