Legislative Update: AB 2883, by Richard Markuson, Lobbyist, CAPHCC

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AB 2883 of 2016 specifies how officers and members of boards of directors at private corporations and managing members and general partners of Limited Liability Companies (LLCs) elect to not be covered by workers’ compensation policies. Specifically, this bill:

  • Permits an officer or member of the board of directors to opt out of a workers’ compensation policy if he or she owns at least 15 percent of the issued and outstanding stock of the corporation and executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying officer or director.
  • Permits an individual who is a general partner of a partnership or a managing member of a limited liability company to opt out of a workers’ compensation policy if he or she executes a written waiver of his or her rights under this chapter stating under penalty of perjury that the person is a qualifying general partner or managing member.
  • Requires that the waiver be effective upon the date of receipt by the corporation’s insurance carrier and remain effective until the officer, member of the board of directors, general partner, or managing partner provides the insurance carrier with a written withdrawal of the waiver.

Under current law, nearly all employees must be covered through either a workers’ compensation insurance policy or a recognized self-insurance certificate. However, there are some limited exceptions to this rule. One example is officers and members of a board of directors of a private corporation or managing partners or general partners of a LLC. In those cases, the individual workers can elect to not be covered by the employer’s workers’ compensation policy.

However, the existing election process to opt out of coverage is not very clear. Beyond one limited statutory reference and very little regulatory guidance, insurers and LLCs are left to figure it out for themselves. The Association of California Insurance Companies, one of the supporters of this bill, argues that this lack of clarity has led to abuses that have hurt injured workers and driven fraudulent activity.

AB 2883 seeks to address this challenge by specifying, in the case of an officer or member of the board of directors, that he or she must own at least 15% of the stock of the corporation in order to opt out of workers’ compensation coverage, as well as sign a waiver stating that the individual is a qualifying officer or member. Similarly, AB 2883 also requires a general partner of a partnership or a managing member of a LLC to execute a waiver to opt out of workers’ compensation coverage.

AB 2883 does not change existing law that requires Workers’ compensation insurance for issuance of an active license, reactivation of an inactive license, and for the maintenance of an actively renewed contractors’ license, unless the licensee does not employ anyone in a manner that is subject to California workers’ compensation laws (Business and Professions Code section 7125). Workers’ compensation insurance is not required for expired or inactive licenses.

Licensees are still required to submit proof of their workers’ compensation insurance coverage to CSLB. If the licensee does not employ anyone in a manner that is subject to California workers’ compensation laws, he/she is required to submit an Exemption from Workers’ Compensation form to CSLB. You can download or order an exemption form online or by calling CSLB at (800) 321-CSLB (2752).

Business and Professions Code §7125.5 (Assembly Bill 397) which took effect on January 1, 2012 requires that, at the time of renewal, an active contractor with an exemption for workers’ compensation insurance on file with CSLB either recertify that exemption or provide a current and valid Certificate of Workers’ Compensation Insurance or Certificate of Self-Insurance. If, at the time of renewal, the licensee fails to recertify his or her exempt status or to provide a workers’ compensation policy, the law allows for the retroactive renewal of the license if the licensee submits the required documentation within 30 days after notification by CSLB of the renewal rejection.

There is a perception that an inordinate number of contractors are filing an exemption illegally or are failing to pay Workers Compensation premiums by reporting zero payroll. 56% of licensed contractors have filed an exemption including 59% of C36 plumbing contractors.

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