AB 2081: State Sponsored Corruption is Bad for Business

Monday, March 10, 2008 | 0

By Roger Bachman

A growing number of California companies are joining the opposition to AB 2081 introduced by Assemblymember Joseph Coto (D-San Jose).

While in favor of reasonable quantifiers for the so-called “owners’ exemption” from workers’ compensation premiums, business opposes the bill on the grounds that it is intentionally vague and a thinly-veiled attempt by the California Applicants’ Attorney Association (CAAA), a group of California trial lawyers, to further line their pockets at the expense of small-to-medium sized private businesses.

AB 2081 is nothing more than an outrageous attempt to reward State Fund for its documented kick-backs and alleged criminal activities, as exposed in the Los Angeles Times. The intentionally vague language of the bill mandates all corporations to self-regulate employee-shareholders without providing them any objective standards by which to self-regulate. In addition to much needed provisions of the bill that seek to close loopholes that quasi-public agencies such as State Fund and CIGA have reportedly exploited, a last minute addition to AB 2081, sought by the CAAA, also prohibits an officer or director holding less than 10% of the shares of the corporation from excluding himself or herself from workers' compensation coverage.

This will adversely impact California businesses that depend upon this exemption to provide comprehensive health, life and disability benefits to their key employees. If AB 2081 passes, thousands of employees risk losing their health benefits as hundreds of businesses, already overburdened by California’s workers’ compensation system, may leave the State. As currently written, even those officers with a qualifying 10% ownership stake would still be held to a draconian “burden of proof” requirement.

Nowhere in the bill is there any quantification of what exactly is this mysterious “burden of proof.” Furthermore, nowhere is it identified as to whom may require this “proof.” Unscrupulous attorneys will be lining up to threaten small businesses to “prove” their legitimate exemptions or face nuisance lawsuits.

Ultimately, millions of dollars will be siphoned from the working class into the pockets of trial lawyers and political influence peddlers. If AB 2081 becomes law, a corporation would have no objective measure by which to prove its own compliance. A company could be breaking the law solely because someone (anyone) had a difference of opinion as to the validity of that company’s “proof.”  Meanwhile, another identically structured company would not be breaking the law if no one challenged the validity of its “proof.” AB 2081 would allow a mere difference of opinion to become an unlawful act. In what is arguably the most litigious state in the country already, under AB 2081 why would anyone continue to do business here?

The CAAA, as the mouthpiece for the bill’s sponsors, contends that they are attempting to fix a “loophole” in the labor code relative to workers’ compensation that its originators never intended, and that the State is better qualified to administer benefits than private industry.

In truth, California has already proven itself incapable of minding its own store in the workers’ compensation arena. The corrupt State Fund has effectively become the generalhealth provider for the millions of California’s employed who are uninsured. Workers that are sick or injured off the job often must resort to false claims that their injuries or illnesses were job-related in order to receive routine medical care.

State Fund is accused of endorsing this criminal activity by knowingly paying on suspicious claims even in the face of overwhelming evidences of fraud. Its cozy connections with so-called “safety groups” has also come under investigation for alleged kick-backs to executives operating these organizations. Many “safety groups” oppose the current long-standing workers’ compensation exemptions for employee owners, not for an altruistic “protection of the common worker,” but because they are financially enriched by funneling group premiums directly to State Fund.

California faces a $14 billion deficit and the politicians’ response is to further alienate the business community by placing unreasonable and unquantifiable restrictions on a decades-old law that has served us well. AB 2081 will drive companies out of state. Can we really afford to do that?

Mr. Coto should be applauded for AB 2081’s much needed reforms for CIGA. But he was clearly misled by the CAAA’s unscrupulous attempt to enable trial lawyers to recoup revenues they have lost in the past five years due to California’s workers’ compensation reforms.

Mr. Coto, please do not let trial lawyers make a “revised” labor code 3351c their new cash cow. The bottom line: AB 2081 is good for corruption. Bad for business.

Roger Bachman is now self-employed after a career in the risk management and professional employer organization industry.