My contractor says that he does not need workers’ compensation insurance unless he has employees. I don’t think I have any employees. Do I really need insurance?
The technical answer is NO. The better answer is YES. If you are in business, you should obtain a Workers’ Compensation policy to protect your stuff. Having cool stuff and getting newer and cooler stuff is generally why we follow the Self-Employment path. When people take your cool stuff, it will make you sad. If you have an Uninsured Injury, you are at risk of losing all your cool stuff. I tell my clients “If you cannot afford WC Insurance for your Business, you cannot afford to be in Business.” EXAMPLE 1
Betty Boop has an AVON® business, and conducts all the sales, deliveries, billing, and packing herself. Betty does not need WC Insurance to cover herself. However, if Betty has the next-door-neighbor drop catalogs off on doorsteps 4 hours each weekend, she WILL need a WC Policy when Texting Tim walks into a ditch. EXAMPLE 2
Bob the Builder is a Licensed California Contractor. If Bob does all the plumbing work himself, or builds every wall himself, he can register as EXEMPT, and does not need a WC Policy for himself. However, if Bob ever hires a Subcontractor to do any part of the job, Bob SHOULD get a Workers’ Compensation Policy. If his Subcontractor hires another Subcontractor, or anyone hires a Day Laborer anywhere down the line, Bob is responsible for the downstream group. Keeping track of Subcontractors is hard, but keeping track of the Subcontractors of your Subcontractor’s Subcontractors is near impossible. One Unlicensed Contractor, Uninsured Contractor, or Day Laborer is all it takes to lose everything when Clumsy Ken rolls off the roof and suffers life-threatening injuries. Since roughly 60% of Licensed Contractors register as EXEMPT in Southern California, many Licensed Contractors are begging to own an Uninsured Workers’ Compensation injury. A Workers’ Compensation policy can save that grief.
The trainer at the gym says that incorporation will protect me from lawsuits. Is that true?
A Corporation can protect you, but also may not. Your Incorporation will only shield you if you take steps to properly fund and insure the Corporation. That generally requires that your Corporation have both Business Liability insurance for non-employees, as well as Workers’ Compensation insurance for employees. If you do not insure your Corporation, you may still be PERSONALLY responsible as a Substantial Shareholder . A Workers’ Compensation Policy can save that grief.
I was just personally served with a “special notice of lawsuit.” My spouse thinks I am going to jail. Should I flee the country?
Probably not. Your Spouse might just be HOPING you will disappear. The Uninsured Employers Benefit Trust Fund requires that you be served with the Application for Adjudication and Special Notice of Lawsuit in a manner authorized by the CA Civil Code. This gives the UEBTF “Personal Jurisdiction” over you and all your assets. It also means that the case is not going away on its own, and you should probably look into finding an Attorney. Spend it some money on the WC Attorney, and you may not have to spend it on the Divorce Attorney.
Our neighbor says that the uninsured employers benefit trust fund will pay workers’ compensation claims if I do not buy insurance. Can’t I just let UEBTF handle the claim?
You do have the ability to bury your head in the sand. If you do, the Uninsured Employers Benefit Trust Fund WILL ultimately pay the Injured Worker. However, that arrangement is what we classify as LOSE/LOSE/LOSE. The Injured Worker may not receive any settlement money for 2 years or more after the injury. That is pretty hard when you cannot work and need medical treatment, so it is a LOSE for the Worker. The Uninsured Employer Benefit Trust Fund makes payments from assessments against actual Workers’ Compensation Policies written by Insurance Companies. When the UEBTF runs out of money in September/October each year, no one may get paid at all until they are funded again. That is a LOSE for the UEBTF. The UEBTF will not actively defend your Injury Claim, so you will not only get hurt without an Attorney, you may lose everything. The UEBTF will be joined when it is determined that there is no suitable policy available. Then they will wait until an Award is issued by a Judge. State Disability benefits can pay for a year, so the Injured Worker can treat with as many doctors as he likes, get as many procedures as he likes, and stay off work for up to a year with potential income, After he tires of treating, the Injured Worker’s Attorney will ask for whatever settlement number that he can draw up creatively. With undisputed Medical Evaluations in 3 or 4 Specialties, multiple testing/procedures, and a couple years of lost wages, that can be a pretty large number. The UEBTF will just write a check, as long as there is some rational basis in the evidence submitted at Trial. Then they will turn around and ask you for reimbursement. Losing control of the case value is a LOSE for the Employer. The UEBTF will then pay all the medical bills at face value. Your Health Insurance Carrier typically reduces every bill your Doctor sends in under your Health policy. A Workers’ Compensation Carrier normally does the same. The UEBTF does not have the manpower or obligation to do that. Since you will be reimbursing UEBTF in full for the expenditure, why bother? MRI tests are sometimes billed at $2,000 or more. Physical Therapy can be $200 per visit. Surgeries can vary from $5,000 to $50,000 each. The average total cost of a Workers’ Compensation Claim is over $82,000 (WCIRB 2016 Experience Report), and without an Attorney, you are unlikely to beat the curve. That is even before potential Uninsured Penalties are computed. A Workers’ Compensation Policy can save that grief.
My mechanic says that there are penalties for being uninsured. What are the penalties?
“Willfully Uninsured” is a legal term of art, but the exposure can be real if no action is taken.
If the Judge finds that you were “Willfully Uninsured” and the Employee has a confirmed injury, it is time to calculate some of the PENALTIES. $10,000 per Employee, according to the evidence. 200% (DOUBLE!) the calculated WC Premium for your business covering the period of non-insurance, for up to 3 prior years. Liability for the Awarded Fee of the Injured Worker’s Attorney.
If you were a business with 15 Employees, there is some good news(?). The Penalty per Employee is capped at $100,000 total (so everyone above 10 Employees is FREE!). Unfortunately, the 200% Premium calculation is not capped, because you should have obtained/paid the premium on the front-end (so they are not actually free). If there were not a painful result, everyone would just wait to get Insurance after they are caught.You can see that if the costs are not controlled, it is easy to reach 100K in cost for an Uninsured Claim, even before Penalties are assessed. Depending on number of Employees and length of non-insurance, 10K-100K in potential penalties is not unreasonable when the Policy/Employee penalties are calculated. If you thought business was hard before, imagine a 150K bill from the State of California, hanging over all your assets. Losing control of the case cost and penalties is definitely a LOSE for the Employer. A Workers’ Compensation Policy can save that grief.
Maybe I should hire an attorney. How much will that cost?
You are asking the wrong question. The more appropriate question is “how much money can I SAVE if I hire an Attorney?” You probably will not be able to get an exact answer, because the case does not have an exact value before it is settled or submitted. On the other hand, there is nothing wrong with asking an Attorney to see if he has a rough idea. A good Attorney should be able to give you an idea of the worst-case scenario (Temporary Disability, Permanent Disability, Medical Treatment, Penalties), and a rough idea of the best-case scenario. Since the worst-case scenario is most likely to occur without an Attorney, the Attorney should be able to justify some estimated cost-savings in excess of the requested fee. Spending $1 to save $5 or more is never a bad idea. That sounds fair, right? If the potential Attorney cannot even outline an outcome that mitigates your worst-case scenario, then save your money, crawl under the covers and just wait for the other shoe to drop. Like other things in life, you generally get what you pay for. There are only a few Attorneys in Southern California who concentrate in Uninsured Employer litigation, so only a few have extensive experience with the additional UEBTF issues. If you choose a Defense Attorney with comprehensive Uninsured Employer experience, you should save the maximum amount of money possible based upon your facts. If you want to save your business, you should be willing to invest in it. EXAMPLE
ACME Dry Cleaner has 5 Employees, but no current WC Insurance. Cathy Cashier fractures her skull when she trips into counter, and files a claim. Owen the Owner had a policy which expired 3 weeks prior, while Owen was shopping for a better rate. Owen may have an argument that he was uninsured at the time of the injury, but not “Willfully Uninsured.” An Uninsured Employer Attorney could present an argument that Owen previously HAD Insurance, and the lapse was short in duration while he was TRYING to renew Insurance. If the Insurance Agent can support Owen’s allegation that a coverage search was ongoing, the Uninsured Employer Attorney could potentially save the Employer 50K+ with his efforts. If the Premium and Per-Employee penalties are successfully avoided, the Employer has turned a tragic situation into a merely painful lesson. PLEASE NOTE THAT EXAMPLES ARE FOR ILLUSTRATION ONLY, AND NOT PROMISES OF RESULT. EVERY CASE IS DIFFERENT.
What questions should I ask a potential attorney?
What percentage of your present case-load is devoted to Uninsured Employer issues?
How many Uninsured/132a Discrimination cases have you handled in the past?
What do you estimate the potential Penalty amount to be based upon my length of non-insurance and/or Employee count?
How much are your Retainer/Hourly Fees?
Do you offer a Fixed Fee Option? How Much is that?
Can’t I just file bankruptcy and avoid all liability?
I am not a Bankruptcy Attorney, and will not specifically address whether the benefit of Bankruptcy outweighs the cost for you. You should consult a Bankruptcy Attorney on that matter. There is a referral link for a Free Bankruptcy Consult under my RESOURCES Button at the top of the page. What I can tell you is that any Workers’ Compensation Award or UEBTF Lien should be treated as a non-preferred creditor in Bankruptcy, if you qualify for reduction or discharge. That should put the UEF Judgment in the pile of bills with credit cards and medical expenses, rather than the pile with back taxes and student loans. On the other hand, would you rather gamble on Discharge/Reduction of 150K or 50k? The Uninsured Employer Attorney could still be a good move even if the Bankruptcy Attorney qualifies you for relief, because forecasting the future is imperfect. If the expected Discharge turns into mere Reduction, you could easily regret not choosing to mitigate the WC claim.
What is a 132a lawsuit?
132a is the Labor Code section that prohibits discrimination against workers who file Workers’ Compensation claims. It can also apply to witnesses who assist in the investigation or litigation under some circumstances. Even if you have a Workers’ Compensation policy, your Carrier will send a letter to you advising that they will not cover a 132a Discrimination action. You should consult with a Certified Specialist in Workers’ Compensation if this happens, because any 132a Award is the direct responsibility of the Employer. Penalties can include back wages, reinstatement and a 50% increase in the settlement amount (up to $10,000). The Penalty Petition must be filed within one year of the alleged discriminatory event.
Do I have to keep a bad employee just because they filed a workers’ compensation claim?
No. If there is a reason that they should not stay (aside from the WC Injury), they need not be treated any better than your other unsatisfactory employees. If the Employee misses excessive work, is insubordinate, or violates company procedures, you can fire him even if he did file a WC injury claim. Just make sure your paper trail shows that you followed your own company policies, and the Worker did not. On the other hand, if you just fire him because he filed the WC claim, Karma could definitely catch up with you. Do the right thing, and Justice will probably be yours.
What is serious and willful misconduct?
Serious and Willful Misconduct occurs when either the Employer or the Employee exercises complete disregard for a dangerous situation, resulting in injury to the Employee. The Employee will have to prove that someone in a Supervisory capacity increased the danger of injury by taking affirmative action, resulting in injury. Examples are locking fire doors, removing safety guards, and intentionally disregarding known dangerous conditions. The level of proof is higher than Gross Negligence, but lower than Intentional Harm. The potential liability involves a 50% increase in all payments made (no limit). The Injured Worker can also be found guilty of Serious and Willful Misconduct resulting in his own injury. These sometimes involve use of dangerous equipment that a Supervisor has specifically told the Employee to avoid, or even fleeing Police at a high rate of speed while working. If an Employee is found guilty of S&W Misconduct, his benefits can be reduced by half. If you receive a Petition requesting Serious and Willful Misconduct Penalty, you should immediately contact a Certified Specialist in Workers’ Compensation. The potential increase is directly assessed against the Employer, and can be quite sizeable in a serious injury. The Petition to Increase/Decrease the value of the case must be filed within one year of the injury.