California Wine Industry, Growers Face New Work Comp Requirements

The California wine industry absolutely depends on temporary workers during the harvest season – a relationship that will certainly be tested in the years ahead.

Whether you use a labor leasing company, staffing agency, or you hire temp workers on your own, new Workers’ Compensation rules have altered the way we think about temporary workers.

First, we should define some general terms within this type of employment situation:

• The General Employer is the original employer and responsible for loaning the employee to another “employer
• The Special Employer is the other party involved in in the “borrowing” of that employee from the General Employer
• The Borrowed Servant Rule is a common law doctrine that applies but has typically applied when there is an express or implied contract of hire between the Special Employer and the employee or the employee performs work primarily for the Special Employer and the Special Employer controls the details of the work

California revised the state’s labor law (AB 1897), creating joint liability on client companies when the labor contractor fails to secure Workers’ Compensation coverage for – or pay wages to – workers that are supplied to their clients.  Now, the various obligations of the “Borrowed Servant Rule” no longer exist. The Special Employer is using employees supplied by the General Employer.

If the labor contractor (the General Employer) does not purchase Workers’ Compensation coverage or allows it to lapse, employees not covered for a work-related injury or illness can look to the Special Employer for recovery of benefits.

The law does except businesses such as:

• Small employers with less than 25 employees (including temporary employees)
• An employer using five or fewer employees at any given time
• Municipalities

It’s no problem if you carry Workers’ Compensation coverage for your directly hired employees. If an injured temporary employee needs benefits because the temporary agency does not have Workers’ Compensation coverage, then your insurance will respond.

It’s important to know that automatic coverage may well be a thing of the past.

Insurance companies are watching the underwriting of this type of risk exposure and are often adding an endorsement that intends to remove coverage for injury to a temporary employee from the policyholder’s Workers’ Compensation policy;

They do this by adding an “Employee Insured by General Employer Excluded Endorsement” (WC 04 03 17), stating:

NO LIABILITY FOR EMPLOYEE INSURED BY GENERAL EMPLOYER

It is AGREED that, anything in this policy to the contrary notwithstanding, this policy DOES NOT INSURE:

Any liability you may have as the special employer of an employee who is not on your payroll at the time of injury, based upon your representation that: (1) you have entered into a valid and enforceable agreement pursuant to Labor Code Section 3602(d) with the employee’s general employer under which the general employer agrees to secure the payment of compensation for such employee and (2) the general employer has obtained workers’ compensation coverage for the employee.

This endorsement creates several issues for the Special Employer:

• The Special Employer is automatically jointly liable in California for injury to the employee
• The Special Employer must have a valid and enforceable agreement with the staffing company that requires the staffing company to purchase the Workers’ Compensation coverage and they have to obtain the coverage
• The Special Employer is required to affirmatively state that the conditions are in place and sign the endorsement to this effect
• The Special Employer should verify this by obtaining a Certificate of Liability Insurance (ACORD 25) that indicates this coverage has been obtained.

This endorsement does not make clear that the policy will respond if the staffing company allows insurance to lapse and the temporary employee looks to the Special Employer for coverage.

Is it the intent of this endorsement to remove all coverage? It’s possible. But the language has not been tested in court. I’m willing to bet that you and your client do not want to be plaintiffs in trying to determine whether coverage might apply or not.

What are the ramifications?

• The temporary employee has no coverage available to them
• The Special Employer becomes an uninsured employer and subject to all of the penalties and fines that can be imposed by the State:
  • Pay all bills relating to the injury or illness
  • Subject to civil litigation brought by the employee (not covered)
  • California Labor Code 3700.5 imposes a misdemeanor with fines not less than $10,000 and up to $100,000 maximum along with imprisonment up to one year
  • The Division of Labor Standards Enforcement will also issue a stop order that prohibits use of employees until coverage is obtained.  If this stop order is not observed, the Division can seek a misdemeanor criminal action with imprisonment up to 60 days, $1,000 fine per employee, subject to a minimum fine of $10,000 up to $100,000 maximum.

Here’s how I can help:

• Let’s discuss your use of temporary staff
• If exposure exists:
  • Verify the labor contract in place
  • Verify that the contract requires the staffing company to obtain and keep in force Workers’ Compensation coverage
  • Verify that you have received a current ACORD 25 indicting Workers’ Compensation coverage exists
  • Verify that the contract includes an indemnification agreement as per AB 1897
• If the underwriter questions the use of temps and adds WC 04 03 17, discuss with the underwriter and attempt to have it removed
• If the underwriter is unwilling to do so, discuss ramifications with the client at the time that you are obtaining their signature on the endorsement
• You should seek legal counsel before agreeing to this endorsement
• Your client could attempt to insert a requirement for notification in the event of coverage cancellation into the contract.

Interested in taking the next step? Call or email me today!