Feb. 2012 Volume 2 Issue 1 Workers’ Compensation How to Avoid Hiring Those Likely to File Claims I N THE last few years, hiring has become both easier and more difficult. On the one hand, a larger labor pool has made it easier to tap quality employees. Yet, it’s more difficult as many people looking for work have been off the job for an extended period of time. Out of near desperation to land a job, some applicants have gone to great lengths to present themselves in the best possible light, even though the facts may not support what’s on their resume. But some people are serial workers’ comp claimants, malingerers or have prior industrial injuries that can end up affecting your bottom line and X-Mod. Here are some suggestions for making sure the right person gets the job, particularly when it comes to worker’s compensation issues. • Dig deeper in references. The difficult part is making sure employee selection meets your expectations. This may not be easy, particularly for smaller businesses, since vetting applicants is often limited to calling references they provide, and perhaps a drug test. Yet, even the basic step of contacting references can be made more effective by asking them if they know others who may have knowledge of the applicant. By extending the reach, it’s possible to obtain additional information that can help you evaluate applicants. • The integrity test. This is one of the more effective tools for identifying job applicants who may be likely to file workers’ comp claims. Employers often don’t use integrity tests in the belief that they are too expensive. But, a study by two Cornell hospitality professors of 27,000 employees of a national hotel chain highlighted the value of using such a test. Using one developed by American Tescor, the chain hired 6,100 of 29,000 applicants. They then used the data and compared the workers’ comp claims of the new hires to those of existing employees who did not take the test. The researchers concluded that the cost savings of screening the workers was considerable. Based on the number being tested, the cost of testing appears to be $8 to $14 per applicant. The study also found a notable reduction in the number of workers’ comp claims among the new hires, which suggests that an integrity test can be a valuable tool for screening job applicants. Because of the nature of the test, it can be administered before a job offer. • Avoid “medical baggage.” You should try to give every applicant who has been given a job offer a pre-employment physical before being approved for hire. Many job applicants have been out of work for a long time during this economic downturn. When they are finally back to work, either in a position requiring physical labor or a sedentary one, which can lead to back and neck pain and repetitive injuries, they are often out of condition and can be prime candidates for workplace injuries. Job applicants can be carrying “medical baggage” that may only be revealed with a thorough physical examination. • Background checks. You should consider a thorough background check by a private investigation firm, particularly for employees who will be driving their own or company vehicles. If they have a record of past traffic violations or DUIs, this can spell trouble. A background check can also reveal if a candidate has misrepresented their workers’ compensation history or medical condition. This can uncover a history of false claims or demonstrate that the applicant is a safety risk based on medical opinion. • Drug testing. This is not just a matter of identifying illegal drug use, as a test may indicate that an applicant is taking one or more prescriptions for a previous job-related injury. Employers need to comply with state and federal laws when screening for drugs. The overall goal is to obtain as much accurate information as possible so the picture is complete and reliable. While it takes more time and means additional costs, the expense pales to that of hiring someone with a propensity for filing a workers’ comp claim, or who is more apt to suffer a workplace injury. OUCH FACTOR: That new hire can bring a lot of hurt to your X-Mod if you are not careful. CONTACT US If you have any questions regarding any of these articles or have a coverage question, please contact us. 1012 Clegg Court Petaluma, CA 94954 Office: 707.794.8701 Fax: 707.794.8707 E-mail: info@whitman-insurance.com License No.: 0273555 We take the time to understand your concerns and risks Independent Contractors Beware of State’s New Misclassification Law A NEW STATE law adds teeth to statutes on the misclassificaton of employees as contractors by imposing hefty fines of up to $25,000 per violation. The measure, Senate Bill 459, signed by Gov. Brown on Oct. 9, also includes a scarlet-letter provision that requires employers who breach the law to post a notice admitting guilt on their website or prominently display the notice in a place that the public and company employees can see it. Corporate law firms assert the law, which took effect Jan. 1, 2012, carries significant risk to employers. Besides stepped-up enforcement, California’s Labor Code provides a vague definition of independent contractors, which business attorneys say leaves a lot of gray area. Sponsors of SB 459 asserted that 10-30% of employers misclassify their workers as independent contractors and that the state only catches a handful of companies that are doing it. In 2008, the state’s Tax Audit Program conducted 6,356 audits and investigations, which identified 64,539 previously unreported employees. That in turn led to $194 million in assessments being levied on the employers. The law adds two new Labor Code sections, 226.8 and 275.3, which set forth provisions that apply to all California employers. The first section states that it is unlawful to misclassify an individual as an independent contractor and, if an employer willfully misclassifies someone, it will also be prohibited from charging the worker a fee or making deductions from their compensation that they would not normally deduct from an employee’s wages. Barred fees and deductions include goods, materials, space rental, services, licenses, repairs, maintenance and fines. It also imposes penalties of between $5,000 and $15,000 for each violation, in addition to any other penalties permitted by law. That’s not just per employee. Any and each deduction or fee charged to the employee will be considered an additional violation. Additionally, if the Labor Workforce Development Agency or a court determines that an employer has engaged in a pattern or practice of violations, the fine will be increased to between $10,000 and $25,000 per violation. If cited, the employer will have to post a notice in a prominent place on its website for employees and the public to see. And if the company doesn’t have a website, it will have to post the notice in a place visible to both its employees and the general public. The notice must state that: 1) the employer has committed a serious violation of the law by engaging in the willful misclassification of employees; 2) the employer has changed its business practices to avoid further violations; and 3) any employee who believes they are being misclassified may contact the Labor Workforce Development Agency. One big concern about current law is the vague definition of independent contractor. According to a statement on the Department of Industrial Relations website: “There is no set definition of the term ‘independent contractor’ for all purposes.” Generally, a person is considered an employee if the employer retains the right to control the manner and means of the work they perform. In contrast, an independent contractor is under the control of the principal only as in regards to the result of his work and not as to the means by which such a result is accomplished. Courts have established a multi-factor test to differentiate between the two standards, and outcomes can differ depending on the facts. Besides the possibility of substantial penalties under the new law, if a court finds the employer has engaged in a practice of willful misclassification, the fines can add up quickly, particularly if auditors identify multiple individuals that have been misclassified. But one employment law defense firm cautions that much will hinge on the interpretation of “willful misclassification.” The law defines it as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” This standard was established in order to avoid “unintended consequences” of the law. An analysis of the legislation stated that willful misclassification is a high litmus test that may make it more difficult to find a violation. An earlier version of the bill wanted to issue penalties if there was “intentional or voluntary” misclassification. Compliance Tips for New Law IN LIGHT of federal initiatives and California’s enactment of SB 459, employers should cconsider taking various steps to evaluate their existing independent contractor relationsships: • Develop and publish a corporate policy on the engagement of independent ccontractors and the management of those relationships. As part of this policy, require tthat approval be obtained from a knowledgeable employee before any independent ccontractor relationship is established. • Train employees who manage independent contractor agreements as to how tto work with independent contractor relationships. • Ensure that the company has a well-written independent contractor agreement for each contractor, that it is accurate, complete and individually negotiated. m • Audit the company’s independent contractor relationships, including a review of any past decisions or determinations concerning independent contractor status. o • Obtain a written legal opinion from counsel regarding the appropriateness of tthe classification of workers as independent contractors, based on counsel’s undersstanding of the specific factual situations at issue. Whitman Samuelson Insurance Services February 2012 2 www.whitman-insurance.com We take the time to understand your concerns and risks Workplace Regulations New Unionization Rights Poster Required S TARTING ON April 30, non-union employers will be required to display a new poster that explains employee rights under the National Labor Relations Act. While the rules for most posters are generally straightforward, this one has a number of caveats that you need to be aware of. You must include versions of the poster in multiple languages if more than 20% of your staff speak a language other than English. And, if your company uses an intranet system, the announcement must also be posted on that. The content of this poster is basically a rundown of the National Labor Relations Act, covering employees’ rights to unionize, rights to collectively bargain with the employer and their right to refrain from these activities. It also has a section on what constitutes unfair labor practices, including examples of illegal employer and union conduct, and it tells workers how to contact the National Labor Relations Board with questions and complaints. Employers must display the new poster where other workplace notices are typically posted. Employers will be able to download the poster free on the NLRB’s website, www.nlrb.gov, or they can order free copies from the agency. If the board finds an employer has failed to put up the poster, the company may be charged with an unfair labor practice “for interfering to ht Rig cuss Dis ges Wa th Wi ers ork Cow t Righ to e aniz Org t Righ in o to J on ni a U with, restraining, or coercing employees in the exercise of their rights.” Additionally, when an employer fails to display the poster, it may toll the statute of limitations for filing a charge of unfair labor practices, unless the employee has received actual or constructive notice that the conduct complained of is unlawful. Finally, the failure to post a notice may be used as evidence of anti-union sentiment by the employer in cases in which the employer’s motive is at issue. The poster was originally supposed to be mandatory on Nov. 15, 2011, but a number of business groups filed legal actions to stop the order. They argued that the NLRB had overstepped its authority by mandating a blatantly pro-union notice. After the legal filings, the NLRB postponed the requirement until Jan. 31, but as the matter is still in the court’s hands, it postponed the order again. The NLRB’s stated reason for the second postponement is to “facilitate the resolution of the legal challenges that have been filed with respect to the rule.” Given the pending legal challenges, it is possible that the effective date will be further delayed. In the absence of further developments, employers should post copies of the notice by Apr. 30. It can be obtained here: https://www.nlrb.gov/poster Right to Str ik or Pic e ket Right to Refuse to Join a Union Rig Co ht t m o ab plain W ou Co orki t nd n iti g on s Produced by Risk Media Solutions on behalf of Whitman Samuelson Insurance Services. This newsletter is not intended to provide legal advice, but rather perspective on recent regulatory issues, trends and standards affecting insurance, workplace safety, risk management and employee benefits. Please consult your broker or legal counsel for further information on the topics covered herein. Copyright 2012 all rights reserved. Whitman Samuelson Insurance Services February 2012 3 www.whitman-insurance.com We take the time to understand your concerns and risks Workers’ Comp Brown Signs Legislation Aimed at Curbing Costs P OTENTIALLY SAVING California employers hundreds of millions of dollars on their workers’ comp measures, Gov. Jerry Brown has signed one piece of legislation that should reduce costs and vetoed two others. He signed one bill despite heavy lobbying from the California Medical Association, and vetoed others that were supported by his fellow Democrats in the state Capitol. His actions were applauded by insurance trade groups as well as business organizations. Gov. Brown signed AB 338, which is aimed at reining in one of the fastest-growing cost drivers in the workers’ comp system: compound drugs. These drugs, sometimes known as convenience packs or medical food, are essentially two or more pharmaceuticals combined for the purpose of treating an injured worker’s specific ailments. The new law will remove the financial incentives for dispensing compound drugs, which insurers contend were created for the sole purpose of sidestepping the California workers’ compensation Official Medical Fee Schedule, which sets out prices that pharmacies can charge for drugs used to treat injured workers. Because compound medications, medical foods and convenience packs are specialty products designed specifically for individual patients, they are not covered under the medical fee schedule, even if most or nearly all of the active components of the compound are on the fee schedule. The end result is that it creates a loophole for pharmacists and physicians to charge fees and costs beyond what would be allowed for pharmaceutical treatments in the fee schedule. In 2007, the Division of Workers Compensation dealt with a similar loophole by creating a fee schedule for drug repackaging, which formerly had not been cost-contained by the fee schedule. The California Compensation Institute has found that the total amount charged for compound medications, medical foods and conve- nience packs grew to 11.8% of the total dollars billed as “medications” in the California workers’ compensation system in the first quarter of 2009, from 2.2% in the first quarter three years prior. Early this year, the Commission on Health and Safety and Workers’ Compensation issued a study on the issue: “Use of Compound Drugs, Medical Foods, and Co-Packs in California’s Workers’ Compensation.” While concurring with the earlier study, it also found “indications that products are pre-compounded and mass-marketed in California,” suggesting that a significant number of these compounded products are not for the specific needs of individuals, but rather part of a scheme to evade the cost-containing aspects of the Official Medical Fee Schedule. One bill the governor vetoed was AB 947, which would have increased the cap on payment of temporary disability (TD) benefits to up to 240 weeks, from the current standard of up to 104 weeks. The measure would have extended TD benefits for workplace incidents such as contacting hepatitis or HIV, high-velocity eye injuries, amputations, burns, chronic lung disease, and more. One analysis of the measure found that the additional TD time would have increased system costs by up to $238 million a year from current levels, an overall increase of 1.5% of total workers’ comp costs. Gov. Brown also vetoed AB 1155, which opponents, including the business community, said would have increased litigation. Specifically, the bill would have barred the use of race, religious creed, color, national origin, age, gender, marital status, sex, sexual orientation or genetic characteristics from being considered a cause or other factor when determining claims. Attorneys for injured workers say doctors are discriminating against injured workers in apportionment reports, which try to determine how much an employer is liable for an injury that may been sustained or aggravated over the course of working for multiple employers. COMPLEX DRUGS: A new law is aimed at reining in the fastest-growing drug class in terms of costs. Whitman Samuelson Insurance Services February 2012 4 www.whitman-insurance.com