DIR Director's Message -
1995 Brings Labor Task Force

by Lloyd W. Aubry Jr.


Beginning a new year brings cause to look ahead with optimism. This year, as the second term of Governor Wilson's administration begins, we look ahead to California's future.

As the economy in California enjoys a sustained and growing recovery, more Californians are working. In December, California's unemployment rate dropped to the lowest level in nearly four years.

The rate of non-fatal work-related injuries and illnesses in California also has dropped to an all-time low.

The minimum rate for workers' compensation insurance has plunged over 31 percent, with the advent of competitive rating expected to continue the downward pressure on workers' compensation rates.

We look forward to continued innovation, shaping California's future and our prosperity.

DIR has embarked on a review of its operations and its relationship with other state agencies. The objective is to respond as effectively as possible to current conditions, service demands, and market realities--so that DIR can play a vital role in spurring California's competitiveness.

In his proposed budget for 1995-96, Governor Wilson directed the Directors of Industrial Relations and the Employment Development Department to lead an interagency team evaluating the operation and management of programs dealing with labor and employment issues in California. The Governor has requested our recommendations by mid-April.

The Governor's Task Force on Labor Relations will concentrate on several issues: 1) enhancing the competitiveness of California business with respect to competitors in other states, 2) decreasing litigation costs to employers, 3) decreasing the cost to taxpayers of labor and employment programs, 4) promoting the transition from welfare to work, and 5) furthering state goals by assuming additional responsibilities from the federal government where appropriate.

Although we are separate agencies, DIR and EDD have related roles. DIR functions primarily as a labor law enforcement agency. EDD administers unemployment and temporary disability insurance programs and collects employer taxes. We have worked together on several initiatives, including the Targeted Industries Partnership Program and the Joint Enforcement Strike Force aimed at California's underground economy.

Because of our similar roles, constituents are often confused as to which agency handles particular matters. In our review with an eye toward reorganization, we will visit a proposal made in the past in which DIR and EDD would be combined into a single California Labor and Employment Agency. This review gives us the opportunity to shape our future by making our agencies and programs as effective and responsive as possible--and less costly and burdensome to employers while maintaining necessary protections for employees.

The new year also brings a change to DIR Bulletin. Because of the overwhelmingly favorable response to our quarterly newsletter, it will be issued bimonthly beginning with this edition. The more frequent publication schedule enables us to keep you better in-formed of DIR's initiatives. And, please keep sharing your comments with us--let us know what you would like to see in DIR Bulletin. Happy New Year.

Injury Rate Drops to All-time Low

The rate of non-fatal work-relatied injuries and illnesses in California decreased to an all-time low in 1993.

According to the annual Non-Fatal Occupational Illnesses and Injuries Census for California, work-related injuries and illnesses per 100 full-time workers declined from 9.8 in 1992 to 9.0 in 1993.

The census is conducted by DIR's Division of Labor Statistics and Research in cooperation with the U.S. Bureau of Labor Statistics. This injury and illness rate is the lowest recorded since the census began in 1972.

In announcing the improved figures, Governor Pete Wilson said, "At a time when more Californians are working, we have the added good news that workplaces in California are safer. These figures are good news not only for working Californians, but for employers in terms of lower workers' compensation costs. We can credit the increased prevention efforts of employers, employees, and Cal/OSHA for this decrease in work-related injuries and illnesses."

The incidence rate for injuries and illnesses that caused workers to lose at least one workday declined to its lowest level since 1976. These injuries and illnesses generally are more serious.

Workers in California experienced a total of 425,000 lost-workday injuries and illnesses during 1993, a seven percent decrease from the 456,000 cases reported in 1992.

Statistics in the survey are based on occupational injury and illness reports from workers' compensation claims, as well as information gathered from Cal/OSHA and the U.S. Occupational Safety and Health Administration.

The state survey produced by DLSR is more comprehensive than the census conducted by the federal government because it analyzes occupational injuries and illnesses in the public sector as well as the private sector.

During 1993 all major industry divisions in the private sector recorded decreases in injury and illness rates. Among private sector industries, the injury and illness rate per 100 full-time workers was 8.4 in 1993, compared with 1992's rate of 9.3 per 100 full-time workers.

In the public sector, the injury and illness rate per 100 full-time state and local government employees was 13.1 during 1993. The 1992 rate was 13.4 per 100 full-time workers.

For a copy of Non-Fatal Occupational Illnesses and Injuries Census for California, 1993, please write to the Division of Labor Statistics and Research, P.O. Box 420603, San Francisco, CA 94142-0603. The census contains only totals with breakdowns for private and public sector groups. More specific demographic information and statistics on injury and illness types for 1993 will be available later in the year.

New Commission Launched: Baker Named EO

As a result of the 1993 workers' compensation reforms, a new Commission on Health and Safety and Workers' Compensation has begun operation within DIR. Christine Baker, who has held several positions at DIR, has been appointed Executive Officer by the Commission members.

The Legislature established the Commission under Senate Bill 1005, which Governor Pete Wilson signed as part of the comprehensive package of workers' compensation reform legislation. SB 1005 abolished the former Health and Safety Commission and created the new Commission with an expanded role.

Composed of an equal number of employer and labor representatives, the Commission reflects Governor Wilson's argument during the enactment of workers' compensation reform that the only true stakeholders in the workers' compensation system are the employers who pay the insurance premiums and the workers for whose benefit the system was created.

The Commission consists of eight members, four representing employers and four representing organized labor. Of the two employer representatives and two representatives of organized labor who are appointed by the Governor, one of the employer representatives must represent a public agency. The Speaker of the Assembly and the Senate Rules Committee each appoint an employer representative and a labor representative.

All official actions of the Commission require a majority vote, and at least two votes each from the employer representatives and the labor representatives.

Governor Wilson appointed James Hlawek and Gregory Vach as employer members, and Jim R. Green and Leonard McLeod as labor members. Hlawek, Chief Administrative Officer of San Bernardino County, serves as the representative of public employers. Hlawek and Green were appointed to terms expiring December 31, 1995. McLeod and Vach were appointed to terms expiring December 31, 1998.

The Speaker of the Assembly appointed Robert Steinberg as an employer representative, and Gerald O'Hara to a seat representing labor. Their terms expire December 31, 1997. The Senate Rules Committee named Tom Rankin as a labor representative and Kristen Schwenkmeyer as an employer member, with both terms expiring December 31, 1996.

The Commission designated Rankin as chair during 1994. SB 1005 requires that a labor representative serve as chair during the first year, and that the chair then alternate in one-year terms between employer and labor members. At its January meeting, the Commission unanimously selected Steinberg as the 1995 chair.

At its October meeting, the Commission selected Baker as Executive Officer. Christine Baker has served in a variety of positions at DIR.

In 1984 she was Special Assistant to the Chief of the Division of Labor Statistics and Research, and Governor George Deukmejian later appointed her as DLSR Chief. Prior to joining the Commission, Baker served as Deputy Administrative Director of the Division of Workers' Compensation, where she managed the Office of Benefit Assistance and Enforcement and oversaw the audit unit.

Baker holds a master's degree in education with an emphasis on research methods from the University of California, Berkeley, where she was advanced to candidacy in the doctoral program in education.

The new Commission has a number of responsibilities. It is vested with all duties of the former Health and Safety Commission, including the awarding of grants to assist in developing effective occupational injury and illness prevention programs. In 1994 the Commission awarded nine grants totaling $503,656. The new Commission will also:

The Commission meets every two months and at the call of the chair. The meetings are public. Members receive $100 per meeting plus expenses.

For additional information on the Commission on Health and Safety and Workers' Compensation, please write to the Commission at 30 Van Ness Avenue, Suite 2122, San Francisco, CA 94102--or call 415-557-1304

Commission Awards Grants for Prevention Programs

The new Commission on Health and Safety and Workers' Compensation has awarded grants totaling $503,655.87 to nine organizations to establish effective programs for prevention of occupational injuries and illnesses.

The commission awarded the grants at its November public meeting in San Francisco. The nine awards were selected from 91 applications.

Applications for grants to assist in developing effective occupational injury and illness prevention programs may be submitted by employers, employee organizations, or jointly by an employer organization with an employee organization.

Grants for 1994 are:

The organizations awarded grants will develop occupational injury and illness prevention programs. Once completed, prototypes of the programs, made available by the commission, may be ordered by calling 415-557-1304. Prototypes of programs produced under the former Health and Safety Commission also are available.

New Year Makes Comp Coverage a Shopper's Market

With the beginning of the new year, California's minimum rate law for workers' compensation insurance ceased to exist--turning the marketplace for coverage into a shopper's market.

In 1993 as part of workers' compensation reform, the Legislature and Governor Pete Wilson enacted Senate Bill 30 to allow competitive pricing by repealing California's minimum rating law.

In effect since 1915, California's minimum rate law had established a minimum rate which workers' compensation insurers had to charge for coverage. That law was binding on all carriers, including the State Compensation Insurance Fund.

The Legislature had enacted the minimum rate law out of concern for the solvency of workers' compensation insurers. The minimum rate law guaranteed that an adequate price was charged in order to cover losses.

The Insurance Commissioner was vested with the authority to adjust the minimum rate as necessary, based on recommendations of the Workers' Compensation Insurance Rating Bureau (WCIRB). The Insurance Commissioner based these rates on the combined claims losses for each industry classification, with built-in factors for expenses, dividends, and profit. It was illegal to price coverage below the minimum rate.

One effect of the minimum rate law, however, was guaranteed profits for insurance carriers. It also stifled competition among insurance carriers, since they could not lower their rates to attract business.

Now, under competitive rating, the WCIRB will issue only advisory rates. These advisory rates include claims losses and the cost of claims administration, and do not include carriers' other expenses or any allowance for profit.

The WCIRB rates will serve only as guidelines, leaving insurance carriers to price policies based on expected claims costs and other expenses. An employer's experience modification, or history of losses, still must be used by all carriers in evaluating rates.

In a new circumstance for California employers, workers' compensation insurance rates will vary from carrier to carrier, making it possible to find a better deal by shopping around among various companies. Insurance carriers may adjust their prices in order to compete for business.

The Insurance Commissioner now may regulate rates only to ensure that they are adequate for solvency.

Competition in rates is expected to benefit California's employers by continuing pressure to hold down rates. The marketplace already has responded to lower workers' compensation costs.

Between the enactment of workers' compensation reform in July 1993 and late 1994, the minimum rate for workers' compensation insurance dropped over 31 percent. These reductions resulted from lower costs--as a result of reform and aggressive anti-fraud activities.

First HCOs Deliver Managed Care in Workers' Comp

DIR's Division of Workers' Compensation has certified the first two managed care plans to provide medical treatment to injured workers in California. The certification brings to fruition a key workers' compensation reform designed to control rising medical treatment costs, which have accounted for nearly half of workers' compensation costs.

At a ceremony in San Francisco on November 22, DIR Director Lloyd W. Aubry Jr. and DWC Administrative Director Casey Young presented certificates to FHP Life Insurance Company of Costa Mesa and The Travelers Insurance Company/CONSERVCO HCO of Manhattan Beach to provide managed care medical treatment for on-the-job injuries and illnesses.

The managed care programs are officially called health care organizations, or HCOs.

FHP is certified to provide services in Los Angeles, Orange, San Bernardino, Riverside, San Diego and Ventura counties, and has a preferred provider network of approximately 2,000 participating physicians.

The Travelers/CONSERVCO will provide services statewide through its preferred provider network of about 3,000 participating physicians.

Both FHP and The Travelers/CONSERVCO are eligible to provide services as HCOs, because they are disability insurers licensed by the Department of Insurance.

Pre-authorized, full-service health care service plans licensed by the Department of Corporations--commonly called health maintenance organizations, or HMOs--also are eligible to apply for HCO certification.

Insurance carriers and employers self-insured for workers' compensation may contract with two or more certified HCOs to treat injured workers. Employees then will be given the opportunity to enroll in one of the plans.

State law gives employees the option of predesignating their current doctor or another provider for treatment of any on-the-job injuries or illnesses. In many cases, it is anticipated that employees will be able to enroll with the same provider for general health needs and work-related medical treatment--allowing for greater convenience and continuity of care.

Under California law, all medical costs of treating work-related injuries and illnesses are covered by workers' compensation insurance. There are no copayments or deductibles.

State law allows the employer to choose the health care provider for the first 30 days of an employee's medical treatment. When an HCO provides treatment, the employer will retain control for an additional 90, 180, or 365 days. The variable depends on whether the employer also offers group health insurance, and whether the employee's personal physician is available within one of the HCOs offered.

For additional information on HCOs, please contact the Division of Workers' Compensation's Managed Care Program at 415-557-8160.

Comp Reform Brings Alternative
Dispute Resolution to Construction Industry

Implementing a unique workers' compensation reform, the Division of Workers' Compensation has approved the first alternative dispute resolution plans for workers' compensation claims in the construction industry.

Enacted in 1993, Senate Bill 983 allowed large employers and groups of employers in the construction industry to establish, under collective bargaining, alternatives to the current workers' compensation system.

Under the alternative, management and labor agree to a limited list of providers of medical treatment, evaluation and vocational rehabilitation, as well as to an alternative mechanism to resolve disputes.

Traditionally, such disputes would be litigated through a workers' compensation referee and the Workers' Compensation Appeals Board (WCAB). Litigation has been one of the leading cost drivers in workers' compensation.

Senate Bill 853, enacted last September as an urgency bill, amended the 1993 legislation so that construction employers involved in rock, sand gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection may participate in the alternative system.

The legislation also required that an agreement be between a private employer or group of employers and a labor union which is the recognized or certified exclusive bargaining representative.

Inaugurating the program, DWC issued letters of eligibility to three groups of employers and unions.

The first approval went to ARB, Inc. and the State Building and Construction Trades Council of California, AFL-CIO. ARB is the contractor for the Domenigoni Reservoir project, a five-year $2 billion public works project near Hemet in Riverside County.

This project for the Metropolitan Water District of Southern California should employ 1,500 workers at its peak. All subcontractors will be covered by the alternative agreement. The projected workers' compensation premium for the life of the project is $27 million.

The Southern California Conference of Carpenters, its affiliates, and six multi-employer groups also received approval. The six multi-employer groups involved are the United General Contractors, Inc., California Wall and Ceiling Contractors Association, Associated General Contractors, Inc., the Building Industry Association of Southern California, Inc., the Southern California Contractors Association, Inc., and the Pacific Rim Drywall Association.

Each employer in a group must sign the collective bargaining agreement in order to participate in the alternative dispute resolution process. Ultimately, about 1,000 contractors and 30,000 union members could be covered.

The third group receiving approval is a group of electrical contractors and unions representing electricians throughout California. The agreement is between the Ninth District Council of the International Brotherhood of Electrical Workers, AFL-CIO, which includes 20 local unions, and District Nine of the National Electrical Contractors Association, a multi-employer group consisting of about 300 contractors. Each contractor will decide whether to join the program.

Under the Labor Code, two types of construction industry employers are eligible to participate in an alternative dispute resolution program under a collective bargaining agreement.

The first eligible type is private employers projecting an annual workers' compensation insurance premium in California of $250,000 or more. The second eligible type is groups of employers engaged in a workers' compensation safety group established pursuant to a joint labor management safety committee, with projected annual workers' compensation insurance premiums of $2 million or more.

In addition to the alternative dispute resolution process, the program allows for labor contracts to include a list of agreed-upon medical providers, a list of qualified medical evaluators, a joint labor-management safety committee, and return-to-work and vocational rehabilitation programs.

The law establishes that the level of workers' compensation benefits to which injured workers are entitled can-not be reduced as a result of using the alternative system.

Traditionally, disputed workers' comp claims are litigated by either party filing an application for adjudication with a DWC district office. Even if both parties later settle the claim, the settlement still must be approved by a workers' compensation referee.

Under the alternative dispute resolution system, participants agree to present disputes to a mediator or arbitrator, whose decisions still may be appealed to the WCAB.

For more information on alternative dispute resolution plans, please write to the Division of Workers' Compensation at P.O. Box 420603, San Francisco, CA 94142-0603--or call 415-703-3731.

Pair Pleads Guilty in JESF Investigation

In a case stemming from an investigation by the Joint Enforcement Strike Force (JESF), the owner and manager of a Los Angeles silk screening company have pleaded guilty to felony charges of manufacturing counterfeit designer clothing.

The JESF is a multi-agency joint enforcement effort created by Governor Pete Wilson to target violations in the underground economy.

As reported in the Autumn edition of DIR Bulletin, JESF investigators uncovered a major garment counterfeiting operation at J.C. Best Printing. The operation manufactured and sold counterfeit garments with copied brand names and logos that included Guess?, Disney, Nike, Fila, and Bob Marley.

The Labor Commissioner, whose investigators determined that J.C. Best Printing was not a licensed garment manufacturer as required by state law, seized 72,595 pieces of counterfeit clothing.

One firm identified an estimated $1 million in counterfeit merchandise bearing its name at the site. Because the items are counterfeit, they must be destroyed. The Los Angeles Police Department seized as evidence eight silk screening machines and three dryers.

Yun Sung Cho, the owner of J.C. Best Printing, and Seung Ryong Sung, identified as the manager of the garment manufacturer, each pleaded guilty in Los Angeles Municipal Court to one felony count of manufacturing items with counterfeit trademarks for sale.

Municipal Court Judge Kathleen Kennedy Powell sentenced Cho to one year in county jail, three years probation, and a $10,000 fine. She also ordered all confiscated equipment forfeited and barred Cho from any employment in the garment industry during his probation.

Sung received three years probation and a $200 fine for court costs. Kennedy also barred Sung from employment in the garment industry during probation. The judge added that any violations of the terms of sentencing would result in three-year state prison terms.

In addition to the criminal charges, the Labor Commissioner cited J.C. Best Printing for operating as an unlicensed garment manufacturer and fined the firm $1,200--$100 for each employee. The Labor Commissioner also fined the firm $12,000 for not carrying workers' compensation insurance, and assessed penalties of $36,250 for cash pay violations.

The Employment Development Department found that J.C. Best Printing was not registered for purposes of paying employment taxes, resulting in a referral for a tax audit.

Since the Governor created the JESF by Executive Order, the strike force has focused on violations in the construction, auto body, garment, and restaurant industries. Last fall, the Governor signed Senate Bill 1490, which codified the JESF into state law until January 1, 2000.

AB 13 Clears Air in Most Workplaces

Most California workplaces became smoke-free at the beginning of 1995 when a statewide standard regulating workplace smoking went into effect.

Assembly Bill 13 (T. Friedman), signed by Governor Pete Wilson last July, prohibits employers from permitting--and any person from engaging in--the smoking of tobacco products in an enclosed space at a place of employment.

The statewide standard applies throughout California, except in municipalities that have enacted stricter restrictions. Local governments remain free to enact tougher restrictions. Since Governor Wilson issued an Executive Order in 1993, smoking has been banned in state office buildings and vehicles.

AB 13, which was amended 10 times in the legislative process, contains the following exemptions to the smoking prohibition:

Although AB 13 addresses an occupational safety and health issue, the legislation specifically does not obligate Cal/OSHA to respond to complaints of workplace smoking.

Instead, violations of AB 13 are enforceable by local law enforcement agencies, such as local health departments or another agency designated by the local governing body.

Violations are considered infractions, with fines not to exceed $100, $200 and $300 for the first, second and third violations respectively within one year.

Cal/OSHA is obligated to respond to smoking complaints only if an employer has been found guilty of three violations within one year.

In order to assist the public, the Department of Health Services prepared a fact sheet on AB 13. For your convenience, DIR has copies available by writing to DIR, Office of the Director, P.O. Box 420603, San Francisco, CA 94142-0603, Attn.: AB 13 Fact Sheet--or by calling 415-703-4590.

DIR Releases Summary of 1994 Legislation

In order to assist the public in keeping abreast of 1994 legislative developments, the Department of Industrial Relations has published the DIR 1994 Legislative Summary.

This publication summarizes 67 pieces of legislation approved by the Legislature in the areas of occupational safety and health, workers' compensation, and wages, hours, and working conditions.

In addition to a summary of each bill's content, the DIR 1994 Legislative Summary provides chapter numbers for signed legislation and veto messages for bills vetoed by the Governor. Unless otherwise noted, all legislation signed by the Governor was effective January 1, 1995.

Among the major bills involving DIR that were signed by Governor Pete Wilson in 1994:

Copies of DIR 1994 Legislative Summary are available by writing to the Department of Industrial Relations, Office of the Director, P.O. Box 420603, San Francisco, CA 94142-0603--or by calling 415-703-5380.

DIR's Funding Steady in Proposed Budget

DIR's funding will remain virtually stable under Governor Pete Wilson's proposed budget for 1995-96.

Proposed funding from the General Fund and special funds totals $217.2 million, with $136.9 million of the funding coming from the General Fund. The budgeted total from all funds is $218.3 million in the current fiscal year.

Last year, DIR's budget increased considerably in order to accomplish implementation of the 1993 workers' compensation reforms and expand Cal/OSHA injury and illness prevention efforts. While state government generally has experienced reductions in recent years, the level of support provided by the Governor to DIR has increased.

Highlights of the Governor's proposed budget for DIR include:

For a copy of Department of Industrial Relations Summary of the 1995-96 Governor's Budget, please write to DIR, Office of the Director, P.O. Box 420603, San Francisco, CA 94142-0603, Attn.: Budget Summary--or call 415-703-5380.

DIR Notes...

In a 6-0 vote, the Occupational Safety and Health Standards Board rejected a proposed ergonomics standard. Board Chair and occupational health member Jere Ingram noted "there is virtually no agreement among the affected groups on a means to effectively regulate the prevention of cumulative trauma disorder." The proposed standard was opposed by labor as too weak and by employers as too stringent. ... DIR won an important legal victory in a lawsuit involving the Employee Retirement Income Security Act (ERISA). In Edh and Walther Electric Company v. Hale et al., U.S. District Court Judge Vaughn Walker in San Francisco dismissed a lawsuit brought after the California Apprenticeship Council denied an apprenticeship application, although the CAC later granted approval. The court ruled that the plaintiffs cannot sue for damages under a civil rights statute on claims that they suffered a violation of their rights under ERISA. This case was the first ruling in the nation on this question. ... The Division of Workers' Compensation has approved three additional 24-Hour Coverage pilot projects. The new pilots will operate in San Diego, Sacramento, Santa Clara, and Los Angeles counties. Under the pilot program, workers receive care from the same provider for general health needs and work-related injuries and illnesses.

Chief Deputy Director Retires

After 21 years at the Department of Industrial Relations, Robert W. Stranberg retired as Chief Deputy Director on December 30, 1994.

Stranberg joined the Division of Occupational Safety and Health in 1973 as a safety engineer. He later served as staff services manager, principal safety engineer, and manager of the Sacramento region. In 1984 Governor George Deukmejian appointed Stranberg Deputy Chief of DOSH. Later, Governor Deukmejian promoted him to chief of the division. In October 1991 Governor Pete Wilson appointed him Chief Deputy Director of DIR.

Before joining DIR, Stranberg served in the U.S. Air Force for 29 years, retiring as a colonel in 1971. He is a graduate of the United States Air Force War College and the Safety Engineering School at the University of Southern California.