Opting Out of Workers Compensation in California

12.15.2016

Opting Out of Workers Compensation in California

By: Shane Flagstad

There is an established workers’ compensation system that provides employees benefits for those who suffer from an illness or injury that was a result of employment, regardless of fault. Included in employees are officers, members of the board of directors, general partners and managing members of a partnership or LLC who are receiving wages. A sole shareholder, managing member or general partner can elect to not be covered under their workers’ compensation policy.

Bill 2883

The purpose of this bill is to create an explicit process through which an officer, members of board of directors, or general partners and working members of a partnership or LLC may elect to be excluded from their workers’ compensation policy.

Why This Bill Was Enacted?

The existing election process to opt out of coverage is not very clear. There are limited statutory references and very little regulatory guidance, which leaves insurers and LLCs to figure it out for themselves. This lack of clarity has led to abusing the policy and has affected injured workers and drove fraudulent activities, according to The Association of California Insurance Companies (ACIC). The Assembly Bill 2883 seeks to address these challenges by creating specific rules and guidelines about who qualifies to opt out and how they can opt out.

Specifics of Bill 2883

This bill can permit an officer or member of the board of directors to opt out of their workers’ compensation policy if this person owns at least 15 percent of the issued and outstanding stock of the corporation. The person who wishes to opt out must execute a written waiver of their rights under penalty and perjury that the person is a qualifying officer or director.

This bill can permit 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 the person executes a written waiver of their rights under penalty and perjury that the person is a qualifying managing member or general partner.

This bill states that it is required for the waiver to be effective upon the date of receipt by the corporation’s insurance carrier. The waiver will 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.

Conclusion

Assembly Bill 2883 creates specific rules and guidelines for who can opt out of workers’ compensation policies. It cleared up some confusion on how to opt out and likely reduced workers’ compensation related fraudulent activities. This bill sets up a requirement for any person who wishes to opt out to submit a written waiver and be a qualifying member, such as a general partner or managing member in a partnership or LLC, or any shareholder who is an officer or a member of the board of directors who owns more than 15 percent of the corporation’s stock.

 

Works Cited

Insurance, Committee On. "AB 2883 Assembly Bill - Bill Analysis." AB 2883 Assembly Bill - Bill Analysis. N.p., 20 June 2016. Web. 12 Dec. 2016.

"Text." Bill Text - AB-2883 Workers' Compensation: Employees. N.p., n.d. Web. 12 Dec. 2016.

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