www.legaljuice.com
June 23, 2010

Lots of people have a cup of coffee before work. Some smoke a joint before work? Not so many. Among those that do so indulge, at least on the day in question, is Mr. Brock Hopkins. Based on the title of the post, you can probably see where this is going.

Dude gets high. Dude gets mauled by bear. Dude’s employer blames the weed (and also says Dude was a “volunteer” not an employee.)(And yes, dude, The Juice did recently see “The Big Liebowski”). On that last bit, said Mr. Kilpatrick, the owner of Great Bear Adventures [or misadventures] Park, per the AP.

Kilpatrick and the co-defendant in the case, the Uninsured Employers’ Fund, contended that Hopkins should not be eligible for Workers’ Compensation for those injuries because he was a volunteer acting outside of his duties and was not a paid employee.

Kilpatrick acknowledged giving money to Hopkins but it was given randomly and “out of my heart,” the owner told the court.

Interesting. So what did Judge James Jeremiah Shea of the Montana Workers’ Compensation Court have to say about that?

Shea ruled that Hopkins was a regularly paid employee and Kilpatrick’s claims were not credible.

“There is a term of art used to describe the regular exchange of money for favors — it is called ‘employment,’” the judge wrote.

Snap! What about the weed?

Hopkins acknowledged smoking marijuana before arriving at work that day, the judge said. Hopkins worked on the park’s gate for about two hours, then prepared food for the bears.

Uh-oh.

After he stepped inside the bears’ pen with a bucket of food, one of the grizzly bears attacked him. Hopkins fled, managing to escape by crawling under an electrified fence. He suffered severe injuries to his leg and had to be hospitalized, according to the court.

The weed! The weed! What about the weed?

“I cannot conclude based on the evidence before me that the major contributing cause of the grizzly bear attack was anything other than the grizzly,” the judge wrote. “It is not as if this attack occurred when Hopkins inexplicably wandered into the grizzly pen while searching for the nearest White Castle. Hopkins was attacked while performing a job Kilpatrick had paid him to do — feeding grizzly bears.”

Bam! Eligible for Workers’ Compensation. Next case!

First of all let’s get something straight; there was no reform of Workers’ Compensation, period! Call it whatever you want, but don’t you dare call it a reform!

The word “reform” is defined in many ways; Here are some examples:

1. To improve by alteration, correction of error, or removal of defects; put into a better form or condition.
2. To abolish abuse or malpractice in: reform the government.
3. To put an end to (a wrong).
4. A change for the better; an improvement.

Can you honestly say that what occurred in the legislature in 2004 with Senate Bill 899 meets any of these definitions?

Didn’t think you could.

“The Terminator” rode his chartered campaign bus into Sacramento and the rest is, well, an embarrassment of history. That’s when Arnold Schwarzenegger started his war on the working man! He ran around town wearing his tony looking “Fix Workers’ Comp, Terminate Fraud” jacket, knowing that the very insurance companies that were pandering him for his attention were the very ones causing the majority of the fraud that brings the system to its knees in the first place. This is the legacy of Arnold Schwarzenegger!

He threatened to put an initiative on the ballot to change the system if the legislators didn’t pass a bill that his buddy Sen. Chuck Poochigian was pushing on behalf of their insurance buddies.

There were 6 principled legislators who just simply refused to vote for this travesty of justice; On the Assembly side, Hannah Beth Jackson, Loni Hancock (now in the Senate) & Jackie Goldberg; On the Senate side, Richard Alarcon, Joe Dunn & Martha Escutia. We all know how that ended up; introduced in the middle of the night. Had it gone before the voters, it most certainly would have been turned down by a great majority.

He managed to bluff an entire state legislature, many Democrats reluctantly voting for it so that he wouldn’t go messing around in their districts! He conned big business CEO’s like Jim Sinegal, the CEO of Costco Warehouse Stores to gather signatures for this abomination. I’ll bet you that Costco’s Workers Comp rates didn’t go down very much afterwards!

Ironically, Workers’ Compensation does everything but, compensate the worker for his injuries which in many cases are caused by the gross negligence of his or her employer! But hey, this is a no fault system, right? Or so we are led to believe!

Treating doctors no longer have a say in the treatment of their patients, instead being forced to run their treatment recommendations by insurance company employed Utilization Review doctors who have never seen nor examined these patients. It is a primary reason why so many of these highly qualified physicians are refusing to treat occupationally injured patients anymore!

With the loss of the Vocational Rehabilitation benefit, just precisely how are seriously injured workers going to have any kind of a reasonable chance to rejoin the work force. A job displacement voucher you say? The worse you are injured, the more you get? Now that’s total nonsense! But consider the source of those who dreamt that one up! It just plain doesn’t work. As a matter of fact, none of the stuff that they dreamt up and have shoved down our throats works worth a damn! It never was supposed to!

California Workers’ Compensation has morphed into “Mother May I” medical care.

Mother, may I have some physical therapy for my injuries?
No you’ve had enough already…..

Mother may I have the surgery that will make me a whole person once again?
No it costs too much…..

Mother may I have a power chair so that I can get around my house?
No our utilization review doctors who have never met nor examined you don’t feel that it will help you!

If a legislator or anyone else in the upper levels of government are injured in the course of their employment, they are handled with kid gloves by the State Compensation Insurance Fund and pretty much given what they need to return to the work force. Why? Well when legislation comes up that makes it more profitable for the insurance companies, they want them on their side. You and I are treated in a whole different way.

Is it time to regulate this line of insurance, the only type that is unregulated in this state? Former Senator Richard Alarcon tried when he was chair of the Senate Labor & Industrial Relations committee, but to no avail. The insurance industry lobbying money did all the talking!

Look at Berkshire Hathaway’s Warren Buffett who had Schwarzenegger’s ear during the transition. He now has multiple insurance companies doing a land office business in California’s unregulated Workers’ Comp market. It kind of makes you ask yourself just where did he get all that money to buy the rest of the Burlington Northern Santa Fe railroad that he didn’t already own!

It’s time to take the system back! We have the opportunity to put someone in the Governor’s office who will put their constituents first for a change! After all that’s who he or she works for. Workers’ Comp is supposed to be about people, or so they say…..

Bloomberg Businessweek
June 8, 2010

American International Group Inc. was ordered by a federal judge to turn over records by Sept. 1 to competitors that sued the company and said it was responsible for workers’ compensation fraud of $1 billion.

AIG must review 400,000 documents and produce those that aren’t confidential, Magistrate Judge Sidney Schenkier said in a June 4 order in the civil fraud case. Liberty Mutual Group Inc. sued AIG last year saying the company underpaid industry-funded pools by hiding revenue used to calculate its obligations. AIG has filed a complaint against rivals, including Liberty Mutual and Travelers Cos., saying underreporting happened industrywide.

“What they’re trying to prove is that AIG was systematically misreporting workers’ compensation premiums as being other lines and knowingly avoiding proper fees,” said Edward Priz, president of Riverside, Illinois-based commercial insurance consulting company Advanced Insurance Management LLC. “AIG is basically saying, to whatever extent we did this, we didn’t do anything different from you guys.”

The insurers, fighting over who pays for state workers’ compensation funds, are seeking information to support their claims and attempting to limit the scope of material they provide. New York-based AIG has already produced more than 287,000 pages, according to the order from Schenkier in U.S. district court in Chicago.

Remains Committed
“AIG remains committed to a full development of the record” in the case, said Mark Herr, a spokesman for the company. “In contrast, certain competitors of AIG continue fighting to avoid the production of their own evidence that would reveal how much they and others may have underreported.” He didn’t name the rival companies.

The dispute over workers’ compensation began in 2007, a year after AIG resolved a suit from then-New York Attorney General Eliot Spitzer, who said the company underreported premiums between 1985 and 1996.

An industry group, the National Workers Compensation Insurance Inc., sued AIG in May 2007, saying the company had underpaid for more than three decades and owed $1 billion. Liberty Mutual filed its complaint last year after U.S. District Judge Robert Gettleman ruled that the council lacked standing to sue on behalf of 600 companies in its reinsurance pool.

Pattern of Racketeering
Liberty Mutual said in its complaint in October that AIG “operated an enterprise through a pattern of racketeering.” Managers were rewarded because the premium underreporting helped AIG reach a 20 percent profit growth target, Boston-based Liberty Mutual said.

In most states, companies that sell workers’ compensation insurance must fund pools that serve as insurers of last resort to cover worker injuries at employers that pose unattractive risks for individual carriers. They also pay into funds to protect policyholders of insurers that fail.

AIG said in its complaint in September that rivals “formed an illegal conspiracy” to hide underreporting of premiums. The competitors “engaged in the very same or similar underreporting practices that the New York authorities alleged against AIG,” the company said.

“Liberty Mutual looks forward to resolving this matter in court,” said Adrianne Kaufmann, spokeswoman for the company.

The case is National Council on Compensation Insurance Inc. v American International Group Inc., et al. 1:07-cv-02898, U.S. District Court, Northern District of Illinois (Chicago).

By GREG GORDON
McClatchy Newspapers
June 8, 2010

Paul Jasmine, a dog trainer, was on his first mission hunting for explosives in southeastern Afghanistan when he stepped on an improvised bomb.

The blast hurled him 15 feet in the air, blew off his left foot, fractured his right leg and mortally wounded his bomb-sniffing dog, Chucky.

Permanently disabled at 36, Jasmine was transported home to Lake Charles, La., where he said he expects to receive enough workers’ compensation benefits from a subsidiary of the American International Group to support him, his wife and their three children.

AIG’s Insurance Company of the State of Pennsylvania, the workers’ comp carrier for most employees of U.S. overseas contractors, has been sending him benefit checks amounting to $315 a week.

That’s a small fraction of the $10,000 a month that Jasmine said he earned during three years in Iraq and of the $7,500-a-month contract that his employer, CAN-Am Protection Group, gave him for war zone duty in Afghanistan.

“I thought I’d be better taken care of, seeing that I was doing this for the country,” Jasmine said in a phone interview.

AIG, the company through which more than $90 billion in federal money flowed out the back door to some of the same Wall Street banks whose risky behavior fueled the nation’s financial crisis, is now being accused of short-changing its customers. Attorneys for hundreds of injured workers say AIG is dragging out insurance payments that their clients need to cover home mortgages, failing to pay full compensation benefits and refusing to pay medical bills.

Jasmine’s Houston lawyers, Joel Mills and Gary Pitts, said that he’s getting about a quarter of what he’s due under workers’ compensation laws because AIG wrongly based his benefits on his earnings in 2009, when he stayed home with his family and wasn’t working.

Attorneys for hundreds of injured workers accuse AIG of dragging out payments their clients need to cover home mortgages, failing to pay full compensation benefits and refusing to pay medical bills.

Employees of civilian contractors working abroad are covered by the 83-year-old Longshore and Harbor Workers’ Compensation Act and the 69-year-old Defense Base Act, laws that set a complex formula for determining compensation for disabled workers.

However, if a worker is injured as a result of a hazard of war, the insurer can seek compensation from the Labor Department.

AIG’s Pennsylvania subsidiary has dominated the market for injuries to employees of military contractors, handling nearly 80 percent of the 55,988 claims filed from Sept. 1, 2001 (shortly before U.S. troops invaded Afghanistan), to Dec. 31, 2009, according to data from the Labor Department’s Office of Workers’ Compensation. Of those, 21,207 claims involved injuries that idled workers for four or more days, including 1,987 filed on behalf of workers who died.

Pitts, whose Houston law firm represents some 300 injured employees of overseas defense contractors, the biggest caseload in the country, said AIG’s Pennsylvania subsidiary has fought claims for years.

“They just weren’t acting like a normal insurance company,” Pitts said, saying that “almost every case has gotten litigated” before Labor Department hearing officers, as opposed to the usual pattern in which 85 percent of claims are privately settled.

“If something’s getting litigated, from our point of view it’s because they’re not getting the benefits they should be getting,” he said. “Ultimately, we’re winning about 95 percent of the cases. So you could say they’re getting delayed about 95 percent of the time.”

AIG spokesman Mark Herr declined to comment on individual cases, but said that some of the claims are “exceedingly complex” and must be decided under decades-old legislation “that is ill-suited for its purpose.”

“We owe all these injured contractors a debt for their service to our country,” Herr said. “We are committed to handling and resolving all their benefit claims professionally, ethically and fairly.”

Charles Schader, the president of AIG’s worldwide claims, said in congressional testimony a year ago that the company has provided “decades of unsurpassed service,” including undertaking 2,000 medical evacuations of severely injured workers. However, he said that determining the validity of claims for workers “injured thousands of miles away from home, in a shifting war zone … where determining the facts of an accident – the location and the circumstances – can be a challenge.”

A Labor Department official said that the Obama administration has taken a number of steps to improve what was a small program overwhelmed by the number and complexity of claims. Changes have included confronting insurers about unacceptable claims handling practices, monitoring their filing of initial injury reports and expediting the resolution of disputes, the official said.

In recent months, Pitts said, lawyers for the AIG subsidiary have offered to mediate several pending cases, perhaps signaling a more conciliatory approach now that a massive bailout by taxpayers has kept AIG afloat and out of bankruptcy court.

Truck drivers Kenneth Simons and Robert Purcella and safety inspector Randall Mead, who filed claims for serious injuries they suffered while working in Iraq, voice frustration and anger over their treatment by AIG.

Ed Barton, an attorney in the east Texas town of Orange who represents Purcella, Simons and Mead, said that AIG is “worse to deal with” than other insurers and that he hasn’t noticed any improvement.

He said the insurer frequently refuses to authorize medical treatment, including mental health care for traumatized workers, and is slow to produce medical and employment records.

Simons, 55, slammed his left hand into the underside of his truck while he was strapping in a load in January 2004 for Service Employers International Inc., a Cayman Islands-based subsidiary of Houston contractor KBR.

When his hand didn’t respond to treatment, Simons was diagnosed with disabling Reflex Sympathetic Dystrophy Syndrome, a rare, incurable condition that caused chronic intense pain that gradually worsens and can spread to an entire limb. Barton said that the pain can be excruciating.

“I’ve had doctors say that sometimes people beg to have a leg amputated,” he said.

Simons said he cringes in pain if only a breeze brushes his hand.

AIG challenged the diagnosis, Simons’ need for a pain medication pump and his request for disability compensation based on his pay in Iraq. Simons said he looked up Barton after he’d gone months without a compensation check and was “sitting here trying to starve to death.”

A hearing officer ruled that Simons was disabled, but limited his weekly compensation to $648 based on his prior annual income of $7,300 to $38,000 in his hometown of Kirbyville, Texas, rather than his projected earnings of up to $90,000 in Kuwait and Iraq.

Barton appealed to the Labor Department’s Benefits Review Board, which ordered the hearing officer to recalculate his benefits based on his expected overseas income.

Last month, an administrative law judge awarded Simons the weekly maximum of $1,031 plus retroactive compensation, interest and penalties of $123,776.

Because of the insurer’s tough stance, Simons said, he hasn’t “been able to support my family like I should.”

AIG, he said, is “a big, big company and they’re continually jacking with you about the money. I’m getting my checks because I have a judgment against them.”

Simons said he found it particularly aggravating to watch the news after the government rescued AIG and learn that executives of its London-based Financial Products unit were being paid hundreds of millions of dollars in bonuses.

“I just wonder what they’re doing to get the bonuses,” Simons said.

Mead was a safety and environmental inspector for Houston-based EG&G Technical Services, a division of San Francisco-based URS Corp., when he injured his back on Oct. 25, 2007, while trying to transport a couple of heavy boxes from Dubai to Baghdad. That ended his 16-month tour in the Middle East.

A Dallas neurosurgeon recommended surgery, and a company doctor agreed, Barton said, but AIG refused to pay for the operation for a year while Mead struggled in pain.

Two months after the complicated operation in early 2009 to implant cadaver bones into his spine, Mead was still in pain. His doctor advised him that the surgery had failed, and that he needed a second operation.

Barton said the insurer directed Mead to its own doctor. As he sat for hours in the doctor’s office in Dallas, Barton said, Mead looked out the window to see the offices of WorldSource, an AIG subsidiary that processes workers’ comp claims. The company’s doctor told Mead he didn’t need a second surgery, Barton said.

Mead, 39, a husband and father of two children, likened the pain to an electrical shock “shooting up and down your leg.” He said he could do few of the activities he enjoyed in the past.

“I’m very upset about it,” he said. “I don’t understand how, me being as young as I am, that they can let this go on for so long.”

Purcella, 46, of Colorado Springs, Colo., said he earned a six-figure income from Halliburton ferrying military supplies in 18-wheelers to troops in Iraq before he was hurt and flown home.

“I got hit four times – three times with an IED (improvised explosive device), once with a rocket-propelled grenade,” he said. “A bullet came through the windshield and threw glass in my eye.”

Purcella said the attacks also broke both his shoulders, leading doctors to remove his collarbone, and damaged his hearing. He bench pressed 310 pounds in the gym when healthy, he said. “Now, I can’t lift anything.”

AIG said “I was a liar, and I was never hurt, and so on,” Purcella said, “even though they had the evidence.”

He said that he won a court order directing the company to send him more than $100,000 in unpaid compensation, plus $1,854 every two weeks, but the checks routinely arrive late.

Barton said that AIG has failed to pay tens of thousands of dollars of Purcella’s medical bills, including treatment for post-traumatic stress disorder.

By David J. DePaolo
posted on 4/24/2010

David J. DePaolo is the president and CEO of WorkCompCentral.com, a web based subscription newsite that deals with eveything Workers Compensation in California. David is also an attorney, and has been a member of the California Bar since 1985. He is a graduate of the Pepperdine University School of Law.

Yesterday (May 20) was quite the trying day. First the news comes out that professional cyclist and dethroned Tour de France winner Floyd Landis not only admits to doping, but accuses everyone else in cycling, from American hero Lance Armstrong, to the world executives in charge of professional cycling, to either doping or knowingly turning a blind eye.

Just as I recovered from these dark revelations I get an urgent e-mail mid-afternoon from a close friend that an attorney had just been stabbed at the Los Angeles District Office of the Workers’ Compensation Appeals Board. Like the Landis news, I was disheartened by this news, but certainly not surprised.

As we later reported, allegedly 38 year-old Andre Torres stabbed 60 year-old attorney Joe Rippinger in the back with a 9-inch kitchen knife. Details at the time I write this are unknown, but reports are that Torres and Rippinger did not have any relationship at all – apparently Rippinger was at the wrong place at the wrong time as Torres was intent on taking out his rage on an attorney – any attorney.

We can only surmise, but my guess is that Torres if he is the culprit has deep emotional scars from getting lost in the jungle of Workers’ Compensation.

I see evidence of this all the time, as I’m sure many in the industry do – desperate people fed up with the “system” act out in different ways – many of these desperate people vent their anger and rage in our forums, sometimes they send me e-mails or letters documenting their frustration with the system and desperation to get better, and sometimes they just commit suicide because there no longer is any hope.

Workers’ Compensation has seen its share of violence from such folk – Santa Cruz attorney Jay Bloombecker murdered in 2006 by a client, SCIF attorney Louise Armstrong assaulted in a parking lot in Anaheim, defense attorney Erwin Nepomuceno beaten with a hammer by an upset applicant in front of a medical clinic.

It would be easy to blame the Division of Workers’ Compensation for not setting tighter security protocol such as metal detectors, but the issue is not just one of security.

And it would be easy to just blame the injured worker and assume that these are just crazy people who would act out in some manner regardless, and just happened to choose a workers’ compensation situation due to convenience.

But I don’t think that the blame is so easy to assign, and I think the blame goes to the heart of what is fundamentally wrong with workers’ compensation: the one person whom the system is to benefit, the one person who is in the system involuntarily, is the one person who has no control over his or her fate – people pushed to the brink of sanity and then acting out in a violent, desperate manner in an attempt to get some relief.

Think about that – once the injured worker ends up in litigation nearly all semblance of control over his or her destiny is taken away, from being told what doctor to see, what treatment can or can not be approved, the expiration of disability payments, whether he or she can go to work, etc. The injured worker has no say during the life of the litigated claim until it’s settlement time.

The litigation process in California Workers’ Compensation is designed to remove all responsibility from the injured worker, and ergo, remove all control from the injured worker. This may not be the intent of the process, but it is the result.

Medical control essentially rests with the employer. This modification to the system was necessary, as are most rules and regulations, because a few bad apples decided to abuse the right to medical to control so that they could unfairly profit from the system.

And not only has the right to medical control been usurped, the method of contesting medical decisions has been removed from the injured worker’s control – it’s in the hands of utilization reviewers with essentially no right of appeal.

If you’re lucky enough to get to a hearing about a disagreement or conflict with the case, it’s likely months before any decision is made (which again is out of the hands of the injured worker) and it is very likely that the claims administrator may still not abide by the ruling, further delaying the claim and the fate of the injured worker.

The injured worker cannot get back to work because the employer doesn’t want a broken employee. The physician will prescribe a permanent impairment assessment, but the injured worker has no understanding of what that fiction means, or what its ultimate relation to a settlement is.

While all of this professional activity is going on around the injured worker, months or years go by and the injured worker has been off work for so long that there isn’t any motivation as he or she spirals down into depression.

This is no excuse for acting out or the violence that has made recent headlines. It is an indictment of the “system” – a process that is so complex, so entrenched, so lacking of humanity, that it no longer does what it was supposed to do: provide protection for the injured worker so he or she can get back to work.

Somewhere, at some time, some one with political power and clout will figure out that the problem with Workers’ Compensation is Workers’ Compensation itself – the system no longer serves the only involuntary participant. When that happens the system will cease, an industry will shift to another profit source, and perhaps the injured worker will regain some control over his or her life. Until then, expect more desperate acts from desperate people.

California Chronicle
May 13, 2010

Sen. Mark DeSaulnier (Chair) Demands Workers’ Compensation Schedules Be Updated As Required by Law.

A hearing of the Senate Labor and Industrial Relations Committee (DeSaulnier – Chair) today found that the Division of Workers’ Compensation (DWC) within the Department of Industrial Relations has deliberately and continuously failed to comply with a law requiring the adoption of a permanent disability rating schedule by January 1, 2010. This failure may have resulted in substantially lower Workers’ Compensation benefits for more than 70,000 Californians annually.

“California businesses and workers alike are required to comply with Workers’ Compensation laws. It is only reasonable that Workers’ Compensation regulators must also be required to comply with the law,” said DeSaulnier. “Regulators cannot come before the Legislature, the Governor, and the people of California explaining that the dog ate their rating schedule. This is simply unacceptable.”

In 2005, the Governor and Legislature enacted sweeping Workers’ Compensation reforms. This included adoption of a ratings schedule for permanent disability Workers’ Compensation benefits that ultimately cut benefits by 50% or more in many cases. A critical component of that reform was a requirement that DWC revisit the schedule in five years and adjust benefits appropriately. Now, five years later, DWC has knowingly refused to adopt a new schedule.

“Californians who receive permanent disability Workers’ Compensation benefits are the most severely injured workers,” said DeSaulnier (D-Concord). “I have asked that the regulators immediately provide a timeline for adopting a ratings schedule. Failure to adopt the schedule has resulted in injured workers continuing to receive only half the benefits that they may have otherwise received under a different rating schedule.”

DWC believes that an increase in permanent disability Workers’ Compensation benefits may result in an increase in premiums, which they believe may not be advisable in the current economic climate.

“Whether it is appropriate to delay an increase is a discussion that should happen in public in consideration of a proposed ratings schedule,” said DeSaulnier. “Regulators are not empowered to make unilateral policy decisions. Especially when those decisions violate the very law they are charged with enforcing.”

By Shaun Bishop
Mercurynews.com
May 4, 2010

The founder of Bay Area bakery chain Posh Bagel has been charged with Workers’ Compensation insurance fraud for failing to properly report employees’ hours and injuries, authorities said Monday.

Jeffrey Ottoveggio, 48, was arrested at his Redwood City home last Thursday along with his wife Cheryl Lee, 39, who serves as CEO of Posh Bakery, which sells bakery products at wholesale prices, according to the California Department of Insurance.

Authorities said they also arrested Bruce Campbell, 54, who was listed as the Santa Clara-based bakery’s accountant and controller, at his Palo Alto home.

Posh Bagel has 14 bakeries around the Bay Area, according to its website, including locations in Santa Clara, Mountain View, Menlo Park and San Francisco. It was founded in Los Altos in 1992.

Investigators say the company underreported its payroll expenses to two insurance companies by $3.1 million between January 2006 and May 2008, which effectively reduced its insurance premiums by $433,512.

Company officials also underreported payroll to the state’s Employment Development Department to avoid paying unemployment taxes, resulting in a $419,407 debt to the state, officials said.

“Purposely underreporting payroll to a Workers’ Compensation insurer is illegal and drives up the cost of workers’ comp insurance for all businesses,” Insurance Commissioner Steve Poizner, who is running for governor, said in a written statement. “It is not worth it for businesses to break the law and cheat the system – they will only wind up paying for it later with jail time, penalties and legal fees.”

Santa Clara County prosecutors charged Ottoveggio, Lee and Campbell on Friday with four felony counts of Workers’ Compensation premium fraud.

Lee and Campbell were also charged with one felony count of tax evasion and one felony count of failing to pay taxes. In addition, Lee faces two felony charges of concealing an event affecting a right to an insurance benefit.

All three defendants were arraigned Friday but delayed entering pleas, said Amy Cornell, spokeswoman for the district attorney’s office. They remain in lieu of $500,000 bail each.

The three could each face a maximum sentence of 13 to 15 years in prison if convicted, Cornell said.

Between January and September of 2006, Posh Bakery had a Worker’s Compensation insurance policy with Applied Underwriters. Posh Bakery was required to report its payroll every two weeks.

In June 2006, Posh Bakery sent Applied Underwriters an internal spreadsheet that showed different payroll data than what the company had given the insurer, said insurance department spokeswoman Molly DeFrank.

When the insurer contacted Lee about the discrepancy, she said the insurer was mistaken and cancelled the policy, officials said.

The company also failed to report to the insurer when two workers cut their fingers while cutting dough and later needed sutures, injections and prescription medication, authorities said.

With a new insurance policy from Endurance Reinsurance Corporation of America, the company allegedly had delivery drivers establish business entities in Nevada to avoid reporting all payroll expenses between October 2006 and May 2008.

By Diane Stafford
The Kansas City Star
April 26, 2010

The guy who came to fix your cable box: Employee or independent contractor?

The package delivery agent running up your sidewalk: Employee or independent contractor?

The beautician at your salon: Employee or independent contractor?

It can be hard to tell.

The distinction is important because employers’ labor costs are substantially lower for contract employees, giving employers a powerful incentive to misclassify employees.

Now the Obama administration intends to crack down on that practice.

With the goal of claiming an estimated $2.72 billion a year in unpaid Social Security, unemployment insurance and income taxes from both employers and workers – as well as protecting workers’ rights – enforcers are charging out of the gate.

And hitting a stumbling block: Just who are the estimated one in five U.S. workers who are independent contractors?

Donald Main didn’t think he was.

The Kansas City area resident, who temporarily drove his car for the 7/A Luxury Transportation service, thought he was an employee. So when he wasn’t paid as he expected, he called the Labor Department’s Wage and Hour Division, the Internal Revenue Service and Legal Aid.

He said all told him that he was an independent contractor. If he wanted to get paid, he’d have to sue the employer in small-claims court.

“I was surprised I didn’t have an employee’s rights,” said Main, who subsequently got paid without filing suit.

Main’s confusion is shared by many.

The Fair Labor Standards Act, the basis of American wage and hour law, along with years of judicial opinions, regulatory opinions and IRS rules, has yet to produce a clear distinction between who is an employee and who is an independent contractor.

“It is a tricky area,” acknowledged James Koren, district director of the Wage and Hour Division in Kansas City, Kan.

The Labor Department has estimated that up to one-third of U.S. employers are incorrectly classifying as least one employee – some by intent, others in error.

Part of the problem is that the distinction is complicated, and the government knows it.

To that end, the Internal Revenue Service has added 200 employment tax auditors and may strengthen its employer guidelines.

The U.S. Department of Labor’s 2010 budget calls for 250 more Wage and Hour investigators. And the department’s new top enforcement official has a history of payroll investigations that unearth misclassifications.

The administration’s intent to ferret out wrongdoing and clarify the employee/independent contractor distinction is important to an ever-increasing percentage of workers.

A growing force
In part because of payroll cuts during the recession, one in four U.S. workers is likely to soon fall into the independent employment ranks. Some authorities forecast that it’s only a matter of years before it’s one in three.

Call them independent contractors, contingent workers, self-employed, free agents, consultants, freelancers or even “micropreneurs.” What author Daniel Pink called the “Free Agent Nation” in his 2001 book of the same name is growing fast.

Here’s why:

If a business employs an independent contractor instead of an employee, it can save about one-third of payroll costs by not having to pay Social Security taxes, unemployment and workers’ compensation insurance taxes, and employee benefits such as paid time off and subsidized health insurance, according to an analysis by the National Employment Law Project.

A business also can staff up or staff down more quickly with contract workers – a just-in-time work force – than if it has to go through the time-consuming and costly effort of hiring and firing W-2 employees.

But it also can cost a lot if the business classifies wrongly.

“More and more businesses believe they can call someone an independent contractor because it’s cheaper not to pay employment taxes or workers’ comp taxes,” Koren said. “But they frequently find themselves owing back wages and back taxes, too.”

On the flip side, misclassified workers can be helped or hurt, according to their status.

Truck drivers, home health aides and construction workers – all in industries susceptible to accident and injury – are among the most frequently misclassified workers found in investigations.

When they’re treated as (or actually are) independent contractors, they’re responsible for their own health insurance and medical care. If they can’t work or lose work, they’re not eligible for unemployment or workers’ compensation benefits.

They’re also not covered by minimum wage, overtime or most workplace anti-discrimination laws. But they are responsible for their own withholding and tax payments.

So when federal authorities talk about a misclassification crackdown, they’re not only looking at employers. Workers who underreport or fail to pay their income taxes also will be caught in the enforcement net.

One study of employers and workers by the attorney general in Ohio estimated that state alone has 92,500 misclassified workers, which cost the state up to $35 million in unemployment insurance taxes, up to $103 million in workers’ compensation premiums and up to $223 million in income tax revenue.

This month, the Kansas Department of Labor said it was “taking additional measures” to detect unemployment insurance fraud.

In addition to going after workers who perpetrate fraudulent claims, the department is targeting employers who intentionally misclassify employees as independent contractors to avoid making unemployment insurance contributions.

No single rule
To understand how misclassification happens unwittingly, it helps to look at the basic rules, some of which haven’t changed in decades. The Labor Department, for example, refers to 1947 and 1964 U.S. Supreme Court decisions in helping it distinguish between independent contractors and employees.

The Wage and Hour Division’s guidelines say the distinction is a “matter of economic reality” that can be judged by analyzing seven significant factors (see below).

The imprecise language of those seven factors underlines the confusion. Courts have ruled on many occasions that there is no single rule or test for determining who is an employee and who isn’t.

The Wage and Hour Division provides some further guidelines:

“There are certain factors which are immaterial in determining whether there is an employment relationship,” the guidelines state.

“Such facts as the place where work is performed, the absence of a formal employment agreement, or whether an alleged independent contractor is licensed by the state/local government are not considered to have a bearing on determinations as to whether there is an employment relationship.

“Additionally, the Supreme Court has held that the time or mode of pay does not control the determination of employee status.”

That says what doesn’t matter, but it leaves open questions about what does.

Broadly, workers are employees if someone controls when and how they do their work.

That means the employer controls any or all of the tools and equipment used on the job, the co-workers hired and assigned to the job, the source of supplies and other services, the specific work assignment for the individual, and the order or sequence of the tasks performed.

Federal authorities categorize the relevant rules according to three types: behavioral, financial and the relationship of the two parties.

In general, workers are independent contractors if they’re in business for themselves, can get customers on their own and control how they do the work.

Typically, but not always, independent contractors are paid flat fees for the agreed-upon work, often established by a signed contract. But compensation sometimes can be hourly.

These aren’t the only determinations, though. Because of the tax consequences for both employers and workers, the IRS also has hefty regulatory interest in the issue.

For years, the IRS used a 20-factor test to distinguish between employees and independent contractors.

That advice has been supplanted by “common law rules,” which refer to the same behavioral, financial and relationship criteria used by the Wage and Hour Division.

But both agencies emphasize that case-specific details often are needed to make a decision.

“Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor,” the IRS guidance says. “Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”

If the IRS finds a classification violation, the employer could be found liable for unpaid taxes and mandatory insurance payments, severance pay for the worker, and payment of other benefits that were paid to employees at the time the wrongly classified independent contractor was employed.

Sen. John Kerry, a Massachusetts Democrat, late last year introduced a bill that he said was necessary to close a tax loophole in the Internal Revenue Code that provided a “safe harbor” for employers who wrongly classify employees as independent contractors.

About three-fourths of all states have recently passed or introduced legislation to clarify definitions or toughen enforcement of misclassification violations.

Still confused
Despite the avalanche of attention, confusion remains.

Ron Trachsel with Allied Staffing, a temporary help and placement agency in the Kansas City area, says part of the confusion is because definitions are used imprecisely.

“A lot of people who are called independent contractors are actually employees of the staffing agencies that placed them on the job,” Trachsel said. “There are many nuances, such as co-employment, where both the staffing company and the employer have responsibilities to abide by the labor laws.”

Trachsel said signed indemnification agreements help ensure that the staffing company and the contracted employer “each do what they’re supposed to do and are responsible for their respective actions.”

Signed contracts help ensure similar understanding between employers and independent contractors.

And, in regard to imprecise definitions, Trachsel noted that the even the basic language his industry uses to describe workers has been affected by payroll downsizing and the shift toward a just-in-time work force.

“We used to call it ‘permanent placement,’?” he said. “We don’t use that anymore. The term is pretty well gone because the promise of gold-watch ‘permanent’ is gone.”

The term “direct hire” is now the operative phrase for when a worker lands a payroll job and becomes an employee.

Find out more…
For the Labor Department’s Wage and Hour information about the distinction between independent contractors and employees:

• Go online to www.wagehour.dol.gov. Type “independent contractor” in the search box to find relevant information quickly.
• Call the Wage and Hour referral line at 1-866-487-9243 toll-free between 8 a.m. and 5 p.m. Monday through Friday.

For independent contractor/employee guidance from the IRS:

• Go online to www.irs.gov to download Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. (The IRS says individual responses may take six months.) Type “independent contractor” into the search box to find it quickly.
• View an IRS “worker classification webcast” posted at www.irs.gov. Type “independent contractor webcast” into the search box to find it.
• Call the IRS Business and Specialty Tax Help Line at 1-800-829-4933.

Seven factors
The U.S. Department of Labor’s Wage and Hour Division looks at seven factors to help determine the difference between an independent contractor and an employee. They are:

• The extent to which the services rendered are an integral part of the principal’s business.
• The permanency of the relationship.
• The amount of the contractor’s investment in facilities and equipment.
• The nature and degree of control by the principal.
• The contractor’s opportunities for profit and loss.
• The amount of initiative, judgment or foresight in open market competition with others required for the success of the independent contractor.
• The degree of independent business organization and operation.

By Liz Benston
Las Vegas Sun
April 26, 2010

Cheryl Rose, a casino worker who helped mount a brief campaign to ban smoking in Nevada casinos, died last week after a two-year battle with lung cancer.

Rose passed away April 20 at her daughter’s home in Illinois, where she had moved to participate in that state’s government-sponsored health insurance program.

An otherwise healthy woman with no previous health problems or any family history of cancer, Rose’s doctors first diagnosed her with asthma before X-rays of her fluid-filled lungs confirmed that she had stage 4 lung cancer.

A few months ago, Rose participated in anti-smoking rallies in Las Vegas and appeared in a public service video urging casinos to ban smoking. She was also exercising daily and hiking frequently at Red Rock, her husband David Rose said today. She declined rapidly after the cancer spread to her liver and brain and she began radiation treatment, he said.

A few weeks before her death, Rose filed a workers compensation claim in Nevada with the assistance of a lung cancer specialist who said Rose’s cancer was caused by her long-term exposure to smoke on the job. That claim, like the few others that have been filed by Nevada casino workers over the years, was rejected on the basis of a 1992 Nevada Supreme Court case.

The 1992 case arose from a workers compensation claim filed by a similarly healthy worker at a Lake Tahoe casino who developed breathing problems after many years as a pit boss. While the state determined that the man’s health problem resulted from inhaling second-hand smoke on the job, a majority of justices concluded that second-hand smoke-related illnesses aren’t covered by the state’s workers compensation law because they aren’t considered an occupational disease specific to the casino industry the way that black lung disease is inextricably linked with mining.

In spite of the frequent presence of smoke in casinos and the associated health risks, Nevada’s workers compensation system could go bankrupt if workers were entitled to financial compensation for smoke-related problems, one of the justices said.

A memorial service for Rose will be held Sunday at Green Valley Ranch, one of her previous employers.

In a previous interview with Sun, Cheryl Rose declined to name the property or its owner, Station Casinos, so as not to blame any single employer for the presence of second-hand smoke. She bore no animosity toward the company, where she spent 22 years, most recently as a slot manager.

Rose is survived by two brothers, two sisters, two children, four grandchildren and one great-grandchild.

Rose’s ashes will be buried in Las Vegas, next to her first husband.

“All of her friends are in Vegas,” David Rose said.

While her immediate family is scattered across Illinois, Florida, California and Arizona, Rose’s work family is concentrated at Station Casinos, where she “touched the lives of a lot of people,” he said.

By Kevin Osborne
CityBeat
April 20, 2010

In a stark turnabout from the company’s previous position involving the incident, Cintas Corp. has settled a lawsuit filed by the wife of an employee who was burned to death in an industrial dryer at an Oklahoma facility.

When Eleazar Torres-Gomez was killed at the Cintas laundry near Tulsa, Okla., in March 2007, the company took no responsibility and blamed him for his death. Further, Cintas initially tried to block Torres-Gomez’s family from claiming Workers Compensation benefits.

Now, just four days before the suit would reach trial, the Mason-based uniform supplier settled the case with Torres-Gomez’s widow on Thursday. Details of the settlement weren’t disclosed.

Court-ordered mediation in the case previously was unsuccessful.

In her lawsuit, Amalia Diaz Torres alleged Cintas knowingly encouraged dangerous working practices by employees in order to meet production quotas. Cintas denied the allegations, but has faced multiple fines for the past few years due to workforce safety violations at its facilities.

While working his shift one morning, Gomez was alone in an area where clothes are washed by an automated system. He became caught on a large, robotic conveyor belt that is used to transfer uniforms from washers to dryers.

Despite struggling to get free, he remained trapped and was dragged inside the dryer, where temperatures reach 300 degrees Fahrenheit. Gomez was found about 20 minutes later by another worker, but already was dead. He was 46 years old.

Cintas usually pays workers in Gomez’s position about $9 per hour, or about $18,720 annually before taxes.

Shortly after the incident, Cintas CEO Scott Farmer sent a letter to all employees, stating Gomez had caused his own death by failing to follow standard safety procedures.

“Unfortunately, (Gomez) climbed on top of a moving conveyor to dislodge a jam, contrary to all safety training and procedures, and fell into a dryer,” Farmer wrote. “I’m grief-stricken at the loss of a fellow partner and deeply saddened for his family and for his fellow partners in the facility. It hurts us all.”

Internal company memos cited at a Congressional hearing revealed that company officials knew about the dangers posed by the conveyor belts and had close calls before but never installed protective guardrails that could have prevented the incident.

The U.S. Occupational Safety and Health Administration (OSHA) fined Cintas $2.78 million for the Gomez incident, but the company fought the penalty. In the final days of the Bush Administration, Cintas reached a settlement with the Justice Department to pay $2.76 million in penalties to settle six safety violation cases, including the one involving Gomez’s death.

Cintas has been cited for more than 170 safety violations in its facilities since 2003, including more than 70 citations that regulators deemed could cause “death or serious physical harm.”

During that period, the company has paid nearly $200,000 in initial penalties, including more than $30,000 in penalties for “repeated” violations of the same standards in multiple company locations.