Wright, Jill D.

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McGeorge Law ReviewVolume 34 | Issue 2 Article 201-1-2003Employment / Chapter 52: Ensuring the PromptPayment of Disability Funds to Injured WorkersJill D. WrightFollow this and additional works at: https://scholarlycommons.pacific.edu/mlrPart of the Legislation CommonsThis Greensheet is brought to you for free and open access by the Journals and Law Reviews at Scholarly Commons. It has been accepted for inclusionin McGeorge Law Review by an authorized editor of Scholarly Commons. For more information, please contact mgibney@pacific.edu.Recommended CitationJill D. Wright, Employment / Chapter 52: Ensuring the Prompt Payment of Disability Funds to Injured Workers, 34 McGeorge L. Rev.459 (2003).Available at: https://scholarlycommons.pacific.edu/mlr/vol34/iss2/20Chapter 52: Ensuring the Prompt Payment of DisabilityFunds to Injured WorkersJill D. WrightCode Sections AffectedUnemployment Insurance Code §3260.5 (new); §§ 2610, 3254, 3255,3260, 3261, 3262, 3263 (amended).SB 467 (Scott); 2002 STAT. Ch. 52.I. INTRODUCTIONRichard Jackson, a fifteen-year veteran of Pacific Gas & Electric (PG&E),was forced to sell his home last year after filing for disability leave in April2001.1 After being exposed to an industrial chemical on the job, Jackson enrolledin a private industry voluntary disability plan through PG&E as an alternative tothe state disability program.2 Both programs offer partial wage replacement toemployees who are unable to work due to injury or illness.3 Employees oftenenroll in the voluntary plan because it offers more compensation in the event of4an injury than the state program.The Employment Development Department (EDD) approved PG&E'srequest for an alternative voluntary plan in 1949. 5 In order to maintain the plan,PG&E was required to provide greater benefits to employees than state disabilityinsurance and assume all liability for enrolled employees' disability benefits.6PG&E was also restricted by the requirement that employee wage deductionscould not be higher than the deductions taken by the state disability insurance(SDI) program.7 So, when the EDD reduced the amount workers could becharged for disability plans and subsequently increased the weekly payouts toSDI members, PG&E was forced to do the same, causing a strain on their funds.8PG&E's program ran out of money in April 2001, "leaving about $1.6 million inunpaid claims." 9 The EDD was unable to pay Mr. Jackson's benefits, along with1. David Lazarus, Corporate Casualties, S.F. CHRON., July 3, 2001, at B l.2. Id.3. See SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS, COMMITTEE ANALYSIS OF SB 467,at 1 (Jan. 23, 2002) (describing current disability programs).4. See Melanie Payne, Disabled Utility Workers Seek Appeal to California Board for Benefit Payment,SACRAMENTO BEE, July 18, 2001, at DI (quoting another PG&E worker when stating his reasons for choosingPG&E's voluntary disability plan).5. Lazarus, supra note 1.6. SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS, COMMITTEE ANALYSIS OF SB 467, atI (Jan. 23, 2002).7. Id.8. Lazarus, supra note 1.9. Payne, supra note 4.2002 / Employmenthis co-workers' benefits, because the current law required an appeal to be filedand the decision of the appeals board entered before payments could be made.'0Mr. Jackson, along with about 230 of his fellow PG&E co-workers, was leftwithout disability payments for three months due to this process, leaving manyfamilies in desperate situations." By allowing the EDD to terminate voluntaryplans that cannot meet their commitments, the authors of Chapter 52 hope toprotect vulnerable employees, like Mr. Jackson and his family, from enduringfinancial hardships.12I1. EXISTING LAWCurrent law allows the Director of the EDD to "withdraw his approval" ofany voluntary plan if the plan is in danger of running out of funds.13 The Directoris required to give notice of his intention and the reason for withdrawingapproval to the employer.' 4 The employer is then given a ten-day period in whichto appeal the decision to an appeals board, who will determine if the plan shouldbe terminated and if the EDD should take over the benefit payments., 5 Theappeals board will decide to take over the benefit payments if it is shown that thecompany is going out of business, filing for bankruptcy, or running at a deficit.16The appeals process can be extremely long, especially to persons relying ondisability compensation to support their families.' 7 If the appeals board decidesthat the EDD should take over the benefit compensation, payments can be madewithin days of the ruling.' 8 The employer is then required to remit any fundsrelating to the voluntary plan to the EDD to be deposited in the Disability Fund. 19If the employer fails to remit any such funds, the director of the EDD willassess the amount against the employer.20 The EDD will estimate the amount owedbased on the information in its possession regarding the amount of employeewages paid into the voluntary plan for the period in question. 2 1 The director willthen compute and assess the amounts of worker and employer contributions owed10. ASSMBLY COMMITTEE ON INSURANCE, COMMITTEE ANALYSIS OF SB 467, at 4 (May 8, 2002).II. Id.12. Press Release, Jack Scott, Scott's Disability Insurance Bill Signed By the Governor (June 6, 2002)[hereinafter Scott Press Release] (on file with the McGeorge Law Review).13. CAL. UNEMP. INS. CODE § 3262 (West 1986).14. Id.15. Id.16. Id.17. See Scott Press Release, supra note 12 (stating that the appeals process delayed PG&E workers'benefits for four months).18. Lazarus, supra note I.19. See CAL. UNEMP. INS. CODE § 3260 (West 1986) (dictating penalties for an employer's failure tocomply).20. Id.21. See id. § 1126 (West 1986) (providing the method of calculation).McGeorge Law Review / Vol. 34by the employer upon the basis of this estimate.22 The EDD will then provide theemployer with notice of the assessment and the date the employer is required topay.23 If the employer does not meet these requirements the assessment willbecome a state tax lien, giving the State an interest in the employer's property untilhis debt is satisfied.24 This process can be difficult, however, because underexisting law the employer is required to keep the plan funds in trust, but not in atrust fund, which would forbid any commingling of the funds with the employer'sother assets.25 Where the company is claiming bankruptcy the payments owed bythe employer are given priority over most other creditors.26 However, if theemployer has commingled plan funds with other assets, the EDD may not receiveenough money to reimburse the state disability program after it has paid all of theoutstanding claims that the plan owed.27 In an attempt to remedy the difficultiesencountered under existing law, Chapter 52 requires employers to keep plan fundsin a separate trust fund and authorizes the EDD to terminate voluntary plans andpay benefits from the State Disability Fund without the delay of the appealsprocess.28III. CHAPTER 52The authors of Chapter 52 introduced the "bill to protect employees coveredby private [v]oluntary [d]isability [p]lans.,,29 Hoping to insulate the funds thatcovered employees pay into the voluntary plans, Chapter 52 gives the EDD morelatitude in controlling and monitoring independent voluntary plans.30 The authorsof Chapter 52 believe that it will allow the EDD to more thoroughly protectemployees by making several changes to California's existing UnemploymentInsurance Code. 3'22. Id.23. Id. § 1131 (West 1986).24. Id. § 1703 (West 1986).25. CAL. UNEMP. INS. CODE § 3261 (West 1986); see SENATE COMMITTEE ON LABOR AND INDUSTRIALRELATIONS, COMMITTEE ANALYSIS OF SB 467 (Jan. 23, 2002) at I (stating that Chapter 52 requires voluntaryplan money to be in a trust fund and maintained separately so as not to become a part of the employer's assets).26. CAL. UNEMP. INS. CODE § 1701 (West 1986).27. See generally SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS, COMMITTEE ANALYSISOF SB 467, at 1 (Jan. 23, 2002) (emphasizing that under existing law, plan funds are only held in trust and not ina trust fund).28. CAL. UNEMP. INS. CODE § 3262 (amended by Chapter 52); SENATE COMMITTEE ON LABOR ANDINDUSTRIAL RELATIONS, COMMITTEE ANALYSIS OF SB 467, at I (Jan. 23, 2002).29. Scott Press Release, supra note 12.30. See id. (stating that employees' payroll deductions, used to finance the voluntary programs, shouldbe protected); see also Letter from Bob Choate, Assistant Business Manager, International Brotherhood ofElectrical Workers, Local Union 1245, to Gray Davis, Governor of California (May 28, 2002) [hereinafterChoate Letter] (on file with the McGeorge Law Review) (stating that the EDD will protect employee's with "theauthority to monitor and to terminate voluntary plans for good cause.").3 1. Scott Press Release, supra note 12.2002 / EmploymentA. Termination of Voluntary PlansChapter 52 allows the EDD to terminate voluntary plans when the plan appearsto be unable to fulfill its obligations to its claimants.32 If a company is havingtrouble meeting its plan's needs, the EDD can directly intervene and terminate theplan rather than simply withdrawing its approval.33 Once the EDD terminates aplan, the Director can immediately begin paying eligible claimants through the SDIprogram.34 This allows the EDD to circumvent the appeals process and protectthose employees that rely on these benefits when they are unable to work.35B. Separate Accounts for Voluntary PlansOnce the EDD terminates a voluntary plan, the employer must remit anymoney related to the plan to the EDD.36 In the event that the employer fails to doso, the EDD may then pursue the employer to recover payments made toemployees under the State Disability Fund.37 The EDD will make an assessmentagainst the employer equal to the amount of money that was given to employeesout of the SDI.38 This assessment is based on the EDD's information with regard tothe amount of employee contributions paid into the plan.39 Employers are nowrequired to keep any wage deductions and funds relating to a voluntary plan inseparately maintained trusts. 40 These trusts must be completely independent, andany commingling with the employer's own assets is strictly forbidden.41 Becausetrusts are maintained separately, when an employer is or appears to be goingbankrupt, the EDD can terminate the plan and begin paying eligible employeeswithout the delays of the appeals process. 42 Because the voluntary plan funds arenot part of the employer's assets, they will not be subject to creditor's claims in abankruptcy proceeding.43 The authors of Chapter 52 hope that in the event ofemployer bankruptcy, these separately maintained accounts will providereimbursement for SDI.4432, CAL. UNEMP. INS. CODE § 3262(a) (amended by Chapter 52).33. Id.34. Id. § 3263(b) (amended by Chapter 52); see also Letter from Tom Rankin, President, CaliforniaLabor Federation, AFL-CIO, to Gray Davis, Governor of California (May 28, 2002) [hereinafter Rankin Letter](on file with the McGeorge Law Review) (stating that "[o]nce a voluntary plan is terminated, otherwise eligibleSDI claimants would be paid through the worker-financed SDI program.").35. CAL. UNEMP. INS. CODE § 3262(0 (amended by Chapter 52); see also Scott Press Release, supranote 12 (stating that the people that rely on these benefits will no longer "have to worry about whether or nottheir check is in the mail.").36. CAL. UNEMP. INS. CODE § 3262(b) (amended by Chapter 52).37. Id. § 3262(c) (amended by Chapter 52).38. Id.39. Id. § 1126 (West 1986).40. Id. § 3261 (amended by Chapter 52).41. Id.42. Id.; id. § 3262 (amended by Chapter 52).43. Id. § 3261 (amended by Chapter 52).44. See ASSEMBLY COMMITrEE ON INSURANCE, COMMITTEE ANALYSIS OF SB 467, at 4 (May 8, 2002)McGeorge Law Review / Vol. 34IV. ANALYSISChapter 52 will provide much-needed protection to employees that areenrolled in a voluntary disability plan.45 By allowing the director of the EDD toterminate voluntary plans that are not meeting their commitments, rather than justwithdrawing his approval, Chapter 52 allows California workers to receivepayments from the State without enduring a long period of financial hardship.46By continuing to allow the employer to appeal the termination of the voluntaryprogram, Chapter 52 protects employers as well. 47 However, terminating thevoluntary program allows the EDD to begin paying eligible employeesimmediately and does not allow the appeals process to suspend any disabilitypayments.48Although the fiscal impact of Chapter 52 is unknown,49 taxpayers will beprotected due to the ability of the EDD to pursue an employer that does not remitthe plan funds that are owed. 50 Because plan funds are to be kept in separatelyidentifiable trust funds, rather than simply in trust, the EDD should be able torecoup the money paid to employees out of the SDIf' Chapter 52 had "nearunanimous support in ... the Legislature because it "guarantee[s] that injured[employees] have the most expeditious access to their benefits. 52V. CONCLUSIONChapter 52 protects California employees that are injured and can no longersupport their families.5 3 By providing the EDD with the tools necessary "tomonitor and to terminate voluntary [disability] plans for good cause," the authorsand proponents of Chapter 52 hope to avoid delays like those experienced byPG&E employees. 54 Chapter 52 is exactly what California employees need in(stating that once a voluntary plan is terminated, the EDD can recoup payments directly from the voluntary plantrust).45. Rankin Letter, supra note 34.46. See ASSEMBLY COMMITTEE ON INSURANCE, COMMITTEE ANALYSIS OF SB 467, at 3-4 (May 8,2002) (explaining the PG&E situation and how SB 467 rectifies it).47. See CAL. UNEMP. INS. CODE § 3262(e) (amended by Chapter 52) (providing guidelines by which anemployer can appeal a notice of termination of a voluntary plan).48. Id. § 3262(0 (amended by Chapter 52).49. ASSEMBLY COMMITTEE ON INSURANCE, COMMITTEE ANALYSIS OF SB 467, at 3 (May 8, 2002).50. Scott Press Release, supra note 12.51. See SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS, COMMITTEE ANALYSIS OF SB467, at 3 (Jan. 23, 2002) (stating that funds are required to be held in separately maintained trust funds and notjust in trust, which was required under prior law).52. Rankin Letter, supra note 34.53. Scott Press Release, supra note 12.54. Choate Letter, supra note 30.2002 / Employmentorder to protect the funds that they have deposited into their disabilityprograms.5555. Rankin Letter, supra note 34.

Employment / Chapter 52: Ensuring the Prompt Payment of Disability Funds to Injured Workers

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Employment / Chapter 52: Ensuring the Prompt Payment of Disability Funds to Injured Workers

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