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May 28, 2013


The folks at Murray Bresky Consultants are just trying to scratch out a living by raising chickens - not just any chickens, but free range chickens that are "happy and healthy." Their signature breed is "fed an all-natural and all-vegetable diet that, combined with plenty of exercise, makes our birds the leanest on the market. The leisurely lifestyle eliminates the need for antibiotics to prevent diseases commonly found in chickens as a result of stress and confined living conditions. Minimally processed, without the use of preservatives or other artificial ingredients, Murray's Certified Humane Chicken is truly all chicken."

Unfortunately for the company, they secured workers comp insurance through New York Compensation Managers (NYCM), the now defunct operator of a dozen self-insurance groups in New York. NYCM claimed to offer favorable rates, strict underwriting standards and exemplary claims services. They ended up with egg on their face with their inadequate rates, suspect underwriting and rampant under-reserving of claims. In retrospect, the operation ran around like a chicken with its head cut off. By the time the problems emerged (in 2006), it was too late to shake a feather and correct the problems.

Following the SIG's failure, Murray Bresky Associates was hit with a $1.2 million assessment to make up their share of the SIG's deficit. That ain't chicken feed.

A Game of Chicken
Murray Bresky is not chickening out of a fight. Indeed, the chickens have come home to roost in the form of a lawsuit filed against NYCM and its board of trustees. The lawsuit seeks to recover the $1.2 million and then some, alleging breach of contract and breach of fiduciary duty. The case worked its way up to the NY Supreme Court, Appellate Division, where the motion by the defendents to dismiss the lawsuit was, for the most part, dismissed.

Now the defendents are walking on egg shells, facing the prospect of personal liability for the failures of the SIG. Where they once feathered their nests with the proceeds of the operation, their financial security has flown the coop. This is a legal mess perhaps best described by the late Lyndon Baines Johnson: "Boys, I may not know much, but I know chicken poop from chicken salad."

Roles and Irresponsibilities
One of the former trustees of the SIG is squawking that he was not aware that he was, in fact, a trustee. He may have signed off on a few trustee documents, he may have performed some of the functions of a trustee, but he insists that he had no memory of being appointed. He insisted that he was not a bad egg and claimed that he had no place in the pecking order. The court, however, ruled otherwise.

As the saying goes, you have to break eggs to make an omelette. Quite a few more eggs will be broken before this particular concoction is served up. Hard-boiled attorneys will parse the details to figure out who, if anyone, owes Murray Bresky Consultants and exactly how much they owe.

Pecking Orders
The courts now rule the roost. They have upheld Murray Bresky's right to sue, with the exception of some actions that are time-barred. There may well be a sunny side up in the chicken company's quest for justice. We look forward to the final resolution of this stew, the chicken scratch of a judge's signature that will put a final number on the liability of an insurance operation that flaps my wattles (ie., annoys me).

Here's a little unsolicited advice to Murray Bresky Consultants: don't count your chickens before they hatch. This one has a long way to go before the company can feather its nest with the proceeds of a complex litigation. In the meantime, their free range chickens have the run of the coop, enjoying their cage-free, stress-free lives right up to the very end. Bon appetite!

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December 4, 2012


For decades now, it's been almost axiomatic: manufacturing is better offshored. Conventional wisdom, talking heads and campaigning politicians alike would have you believe American manufacturing is dead, killed off by greedy unions, high taxes, and an onerous regulatory climate. China, Taiwan, Mexico, and other emerging economies offered a seemingly ideal business climate without most of these pesky problems.

But not so fast. Paraphrasing the great Mark Twain, reports of manufacturing's death may be greatly exaggerated. Some manufacturers are questioning the wisdom the offshoring trend and, in a move that might be called "repatriation," some big name companies are re-establishing domestic operations here in the U.S. or simply making the strategic decision to keep operations here.

This month's Atlantic Magazine features a must-read article by Charles Fishman -- The Insourcing Boom -- which talks about how General Electric is moving much of its appliance-manufacturing operations back home to Appliance Park in Louisville, Kentucky.

In the late 1960s and early 1970s, Appliance Park was the quintessential American manufacturing operation, employing 23,000 at its peak in 1973. But after years of offshoring jobs, the site became a ghost town. In 2011, the Park's employee population was down to 1,863.

But this year, something interesting began happening. In February, the first new assembly line at Appliance Park in 55 years began making water heaters - a product line that had been previously made in China. A team of employees eliminated parts, reduced material cost by 25%, cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville. It beat the "China price" price by nearly 20%. Plus, it greatly improved time to market - cutting factory to warehouse time literally from weeks to minutes.

Buoyed by this success, a second assembly line for high-tech refrigerators was launched about a month later. Plans are in the works to open a third building and a third line to produce dishwashers in early 2013. CEO Jeffrey Immelt, commenting in Harvard Business Review, said that outsourcing is "quickly becoming mostly outdated as a business model for GE Appliances."

Fishman cites Lou Lenzi, head of design for all GE appliances, in the following excerpt:

"What we had wrong was the idea that anybody can screw together a dishwasher," says Lenzi. "We thought, 'We'll do the engineering, we'll do the marketing, and the manufacturing becomes a black box.' But there is an inherent understanding that moves out when you move the manufacturing out. And you never get it back."

It happens slowly. When you first send the toaster or the water heater to an overseas factory, you know how it's made. You were just making it--yesterday, last month, last quarter. But as products change, as technologies evolve, as years pass, as you change factories to chase lower labor costs, the gap between the people imagining the products and the people making them becomes as wide as the Pacific.

What is only now dawning on the smart American companies, says Lenzi, is that when you outsource the making of the products, "your whole business goes with the outsourcing." Which raises a troubling but also thrilling prospect: the offshoring rush of the past decade or more--one of the signature economic events of our times--may have been a mistake.

GE is planning to bring about 75% of its $5 billion appliance business back to the U.S. And it is not alone - Fishman cites Whirlpool, Otis, and Wham-O as a few examples of other manufacturers that are bringing operations back from China and Mexico to Ohio, South Carolina, and California. There are other reports of this trend too. In Everything You Need to Know About Insourcing from the White House Blog, Matt Compton says that large manufacturers like Ford and Caterpillar have announced large investments in U.S. facilities - expansions that were previously aimed at facilities in Mexico, China, or Japan. The post names other examples of smaller manufacturers and even service centers that are reinvesting domestically. it also provides these statistics:
  • Business investment is up, growing by 18 percent since the end of 2009
  • We're exporting more goods and services to the rest of the world. As of October, American exports totaled $2 trillion -- an increase of almost 32 percent above the level in 2009
  • Perhaps most importantly, the manufacturing sector is recovering faster than the rest of the economy. Through the course of the past two years, the economy has added 334,000 manufacturing job, and that's the strongest two-year period of manufacturing growth since the 1990s.

Lisa Harrington also examines this trend in an article in Inbound Logisitics: Is U.S. Manufacturing Coming Back?. She cites further examples of work that was created in or brought back to the U.S. She explores some of the strategic decisions that need to be factored in to where production occurs. The article includes a checklist, Nine Steps to Choosing a Manufacturing Location from Stephen Rogers, author of The Supply Chain Advantage: How to Link Suppliers to Your Organization's Corporate Strategy.

The article notes that decisions about location must take a total cost perspective. Direct costs were often factored into decisions, while other factors may have been given little consideration. One example:

Labor cost savings are just one factor driving companies to reconsider manufacturing in the United States. To compete more effectively, a growing number of manufacturers are considering shifting operations closer to customers to provide better service, reduce total costs, and enable accelerated growth, according to a survey of 287 manufacturing companies, conducted by market research firm Accenture.

Companies are realizing that the physical location of supply and manufacturing operations can have a significant impact on overall competitiveness. An unbalanced network--where regional supply is physically separated from regional demand--makes it difficult for the organization to deliver on the very customer expectations that drive growth.

Not a return to the days of yore
Fishman notes that such "insourcing" will not suit all companies - basic work processes, such as mass market clothing manufacturers, will likely never return. Relocation in the U.S. seems to suit companies with high-tech and complex manufacturing process and products that require continuous innovation and improvements.

He cautions that American manufacturing will never return to its prior peak, and he describes various ways that things have changed: "Back in the '60s, Appliance Park was turning out 250,000 appliances a month. The assembly lines there today are turning out almost as many--with at most one-third of the workers." But he cites the "multiplier effect" that the presence of a large manufacturer can have. We saw the multiplier effect in action when the auto industry was in risk - it wasn't just the auto jobs that were threatened, but entire communities - including businesses as diverse as parts suppliers to luncheon delis.

Manufacturing May Be Coming Back to the U.S., Long-Term - an article in Forbes by Robert McCutcheon, the U.S. industrial products leader of PwC.

The Reshoring Initiative - founded by Harry Moser in 2010, an industry-led effort to bring manufacturing jobs back to the United States. The initiative works with U.S. manufacturers to help them recognize their profit potential as well as the critical role they play in strengthening the economy by utilizing local sourcing and production.

M.I.T. Forum for Supply Chain Innovation -
a community of academics and industry members whose support allows Forum researchers to provide customer-focused solutions to design and manage the new supply chain.

Investing in America: Building an Economy That Lasts - White House report

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November 20, 2012


When a laborer with limited English is disabled from physical work, is he obligated to increase his employability by learning English? This interesting question emerged in the case of Enrique Gutierrez, a 48 year old welder who worked at Merivic, a company specializing in grain-related processing. Gutierrez came to the United States at age 14, but in his 34 years in the country never learned to speak or write English. While at work, Gutierrez fell about 10 feet onto a steel table, injuring his shoulder and wrist. He underwent two surgeries, worked for a while as a one-armed welder, and then was let go. His post-injury functioning was significantly limited, including difficulty lifting and carrying, gripping and grasping, and reaching.

When the workers comp commission found him permanently and totally disabled, the employer appealed and the case reached the Iowa Court of Appeals, where the finding of compensability was upheld. Up until 2007, Iowa courts routinely lowered the indemnity paid to limited English speaking workers, on the theory that a language disability was something within the power of the worker to correct. A case entitled Lovic v. Construction put an end to that practice. The reasoning in this decision is worth quoting:

Unfortunately, this line of cases [involving reduced indemnity] overlooked the fact that the employers who hired these workers should have reasonably anticipated that an injury which limits an ability to return to manual labor work would have far more devastating consequences upon non-English speaking workers than English speaking workers. Oftentimes, this agency has penalized non-English speaking workers despite the knowledge that the employers actually recruited such workers because they were willing to work for less wages.

In other words, you get what you pay for: limited English speaking workers are willing to work for less, so the employer benefits from this potential "disability." The ruling goes on to attack the rationale for the reduced wages:

What has been troublesome to many, including myself, is that this agency has never similarly treated non-immigrant workers for failing to learn other skills. Defendants would certainly have trouble citing any agency or court precedent in the workers' compensation arena where an industrial award for an English speaking worker was lowered because the injured worker, before the injury, failed to anticipate he would suffer a devastating work injury and failed to obtain a type of education before the injury that would mitigate the effects of such an injury.

We simply cannot assume that claimant was capable of such training or that such classes are generally successful in leading to employment where fluent English is required . . . .

By reiterating the logic of the pre-Lovic court, Merivic was attacking settled - albeit recently settled - law. The Appeals Court rejected this "collateral attack" on Lovic and upheld the permanent total award, and in doing stumbled upon yet another conundrum: that of the older worker. The court found that once a laborer goes beyond age 47, his ability to perform physically demanding work comes into question. A vocational expert retained by Gutierrez described the 48 year old worker as "approaching advanced age." The Judge noted that "We have previously held the age of forty-seven is a factor that the commissioner may consider in finding industrial disability." The expert also noted that Gutierrez's entire career involved "limited education" and a work history limited to physically demanding jobs, which his permanent work restrictions now prevented him from performing.

The Very Big Picture
Our Colleague Peter Rousmaniere provides a valuable perspective on aging manual workers. In his Risk & Insurance article "The Age Trap" he points out that 55+ workers comprised 16.7 percent of the workforce in 2010, a number projected to increase to 22.7 percent by 2020. In contrast to Enrique Gutierrez, most aging workers are not injured and eligible for workers comp; to be sure, their bodies are wearing down and they are confronted with diminishing strength and balance, even as they desperately try to hold onto their places in the workforce. Rousmaniere suggests that employers develop a renewed focus on prevention, one that has been adapted to the realities of the aging worker. After all, these workers are valued for the skill and experience they bring to the work, even as their work capacities diminish.

The Big picture here - and it is a very big picture indeed - is the dilemma of aging workers who perform physically demanding jobs and who have little education and virtually no transferable skills. There are millions of such workers, some are immigrants, while many others are native born. Most have zero prospects for a secure retirement, even as Congress contemplates pushing social security retirement even further into the future.

Whether they like their jobs or not, aging workers see themselves working out of necessity well into the their 60s, 70s and even 80s. As their bodies inevitably wear out, as their injuries (cumulative and sudden) lead a number of them into workers comp courts across the country, judges will be confronted with the same dilemma that faced the appeals court in Iowa: for older workers with no transferable skills, workers comp becomes the retirement plan of choice for those with no retirement plans and no way to continue working.

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November 7, 2012


As someone who equates shopping malls with one of the lower circles of hell in Dante's Inferno, I avoid them whenever possible. I find myself suffering along with the retail sales force: understaffed, overworked and underpaid. Steven Greenhouse writes in the New York Times that not only are these workers underpaid, they can be the victims of sophisticated software scheduling programs (Kronos or Dayforce, to name just two) that can easily make the ordinary demands of personal life spin out of control.

There are about 18.6 million retail jobs, 70 percent of which used to be full time. In the relentless effort to reduce costs, 70 percent of retail jobs are now part time. Part-time workers often endure irregular schedules, with hours tied to customer flow. They may be called in for relatively short shifts - a couple of hours at peak times - and then sent home. If workers are unavailable to heed such calls, the work goes to someone else - and the hesitant worker falls further down the list of preferred staff.

Here's one example of "just-in-time" staffing: Jamba Juice tracks the weather forecast. When hot weather is on the horizon, extra workers are called in. When the heat spell breaks, fewer workers are scheduled. Being on call for a relatively low paying job might wreak havoc on one's personal life, but it sure helps the company's bottom line: by scheduling the workforce in 15 minute micro intervals, companies might save as much as 4 to 5 percent in labor costs per year.

Profits in Numbers
While retailers have the option of increasing the hours of their part-timers, they would rather add more bodies to the workforce. They can pay these folks less ($10.80 average for part time versus $17.18 for full time) and they can avoid the issue of benefits. About 30 percent of part-timers would prefer to work full time, but few are given the opportunity. Scheduling programs can quickly scan available workers and pull in the ones with the lowest hourly rates. Isn't that cool?! You could easily ensure that only one relatively senior worker is present at any given shift.

It may seem harsh to refer to this marginally employed workforce as sharecroppers, but the image comes from an industry consultant, who notes that companies benefit from using many part-timers as opposed to fewer full-timers.

It's almost like sharecropping -- if you have a lot of farmers with small plots of land, they work very hard to produce in that limited amount of land. Many part-time workers feel a real competition to work hard during their limited hours because they want to impress managers to give them more hours.

Of course, they rarely get those new hours, because their employers prefer to limit any given worker's time on the job - rather like the greyhounds who chase the mechanical rabbit around the racetrack.

Keep 'em Fresh, Keep 'em Moving
A Jamba Juice district manager waxes poetically on the advantages of part-timers:
"You don't want to work your team members for eight-hour shifts. By the time they get to the second half of their shift, they don't have the same energy and enthusiasm. We like to schedule people around four- to five-hour shifts so you can get the best out of them during that time."

During my increasingly infrequent mall visits, I find myself brooding on the difficult lives of these exploited workers. I have become infinitely more patient with them, no longer blaming them for not knowing the stock or being unable to answer a simple question. They are simply tilling the barren soil of their last-ditch employment, hoping that a better job, a career even, might be part of their murky future..

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October 14, 2012


It would be pretty hard to avoid the news about sugar: it's bad for us. Diets high in sugar contribute mightily to the nation's burgeoning problems of obesity and diabetes and may even be a factor in dementia. But sugar in its crop form is also proving to be deadly. The cause and effect, however, is as murky as a cloudy day in the rainforest.

Will Shorr has written a remarkable, hands-on article in the Guardian, examining the high rates of chronic kidney disease (CKD) among the workers who grow and harvest sugar cane in Central America. CKD is the second leading killer of men in El Salvador.

Why are sugar cane workers succumbing to kidney disease? Is it the working conditions? Is it the pesticides? Is it the diet of the workers? Fingers are pointing in a number of directions, and by the time the truth is sorted out, we may well find a toxic trail that includes of all three factors.

Nicaragua Sugar Estates, one of Central America's largest plantations, has conducted its own internal studies, one of which identified one potential factor in the disease: "strenuous labour with exposure to high environmental temperatures without an adequate hydration program." .Nonetheless, a company spokesman denies the connection: "We're convinced that we have nothing to do with kidney disease. Our productive practices do not generate and are not causal factors for CKD."

But researchers in the US have connected CKD to heat stress and dehydration. A standard day for an El Salvadorian sugar worker lasts between four and five hours, with double shifts during the summer planting season, when temperatures top out at 104 degrees.

Shorr quotes Héctor García, a 33 year old with stage-two kidney failure: "It's very hot; we suffer. People sometimes collapse. More often they vomit, especially when the heat is worse. They do two shifts to earn more money." Another worker, 40 years old and close to death with stage five CKD, reported the same symptoms, compounded by the limited resources in his home: "When I come home, I feel surrendered. Sick. Headache. I can't shower because the water [from the roof-mounted tank] is too hot." The image of the hand-rigged shower, full of very hot water, epitomizes the wretched living conditions of the workers.

Compounding the problem, most CKD sufferers do not even know they are ill: the disease is asymptomatic until its last, most deadly stages. Even when they feel unwell, many workers go into denial - they feel helpless, as they cannot afford the medication or the recommended diet of fresh vegetables and chicken breast. Dialysis - the last hope of the ill - is often avoided, because most of the workers who go on it end up dead anyway, so it appears to their co-workers that dialysis causes the death.

Researchers have found rates of CKD in cane cutters and seed cutters - the most strenuous jobs - to be higher than in pesticide applicators, who have greater exposure to agrochemicals. This seems to indicate that the pesticides are not a significant factor. But this conclusion may be premature.

Five chemicals are used in the cultivation of sugar cane: amine, terbutryn, pendimethalin, 2,4-D and atrazine. Shorr sent the chemical recipe for the yellow potion he observed being sprayed on the crops to Professor Andrew Watterson of the University of Stirling - an authority on agrochemicals and health. They were all herbicides, he noted. Watterson came up with a litany of potential problems:

Atrazine can cause kidney damage at high levels; acute exposure to 2.4-D can cause chronic kidney damage; pendimethalin is "harmful through skin contact and inhalation"; in lab tests, long-term feeding of terbutryn to rats caused kidney damage. None of them are acutely toxic, but this combination, plus the tropical climate, could worsen their effects.

On the prevention side, sprayers are supposed to avoid contact with skin; to wear face shields, respiratory protection, rubber boots and specialist coveralls. We can only surmise that such protective equipment, while technically useful, would be difficult to use in 100 degree weather. On the other hand, assuming the sprayers are protected, other workers do not wear protection and may thus experience greater exposures to the chemicals.

Sugar in the Diet?
Shorr concludes his article with a shocking new study that points in yet another direction. Richard Johnson, of the University of Colorado's Division of Renal Diseases and Hypertension, thinks the problem might have its genesis in a mechanism that his team discovered in rats. Johnson speculates that if dehydrated workers with already sugary kidneys are rehydrating with soft drinks or fruit juice, they may experience a potentially explosive fructose load. He adds that "it's not proven, so we don't want to get ahead of the gun here [rather unfortunate metaphor]." The research has not as-yet been published. But Johnson goes on to say that the experimental data is quite compelling, and it "could explain what's going on."

It would truly be ironic if the cane field workers were dying from kidney failure in part because they use sugary soft drinks to rehydrate. "Buy the world a Coke" indeed!

Collateral Damage?
While it is too early to draw definitive conclusions, the Guardian article identifies at least three converging factors in the high CKD rates among field workers: extremely high heat compounded by hydration problems; a mix of potentially harmful pesticides; and an unhealthy diet too full of sweetened beverages. Add the impoverished living conditions of the workers - and marginal medical care - and you have all the makings of an abbreviated lifespan.

The US gets 23% of the its raw sugar from Central America; the European Union spends more than €4.7m on this import. Sugar is El Salvador's second-biggest export. This is big business. With so much money at stake, the dying workers are little more than collateral damage. It appears that what they really need is an ample supply of clear, cool water, but such a simple remedy, alas, is nowhere in sight.

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October 2, 2012

"Men wanted for hazardous journey. Low wages, bitter cold, long hours of complete darkness. Safe return doubtful. Honour and recognition in event of success."

That is the ad that was allegedly posted to attract crew to Sir Ernest Shackelton's Arctic Expedition on the Nimrod in 1907-09. There's been a lot written about this adventure to one of the then-most remote corners of the earth. It is still among the most remote wilderness locations today - contemporary workers who agree to stint at Antarctic bases have to prepare for a long haul since some locations only afford a two to three month window when bases are reachable.

A few years ago, when Gavin Francis accepted the position as a medical doctor 'wintering' at Halley Base, a profoundly isolated research station on the Caird Coast of Antarctica, he had to plan accordingly since the base is unreachable for ten months of the year. He's written a pretty fascinating article in Granta magazine comparing the preparations he took in terms of supplying a medical kit with the list of supplies in Shackleton's Medical Kit.

"In the well-stocked polar section of the little base library I unearthed the packing list for Shackleton's medical kit - the drugs and dressings he took on the sledge trips of his Nimrod Expedition of 1907, the one that turned back only ninety-seven miles from the South Pole. It added up to a weight of about three kilos, less than a sixth of the modern kit, and to my technomedical mind read more like a witch's grimoire than the best medical advice of just a century ago."

It's a pretty fascinating read, one that we think might tickle the fancy of occupational physicians. We enjoyed the author's observations about how the practice of medicine has changed, particularly in regards to the challenges of caring for a workforce in a remote location.

Chances are, no matter how remote your workplace, planning for employee health and safety program doesn't have quite the same extremes in parameters. But one thing remains true: advance planning can still mean the difference between life and death; knowing how to respond quickly can be the difference between a relatively minor event and a life-changing tragedy.

What's the status of your workplace first aid kit?
In Fundamentals of a Workplace First-Aid Program (PDF), OSHA suggests:

"Employers should make an effort to obtain estimates of EMS response times for all permanent and temporary locations and for all times of the day and night at which they have workers on duty, and they should use that information when planning their first-aid program. When developing a workplace first-aid program, consultation with the local fire and rescue service or emergency medical professionals may be helpful for response time information and other program issues."
The booklet outlines OSHA Requirements, recommended First-Aid Supplies, including Automated External Defibrillators, guidance on First-Aid Courses and Elements of a First-Aid Training Program. In addition to evaluating their own organization's risk factors, employers should be aware of any state laws governing workplace first aid.

ANSI/ISEA Z308.1-2009 is the current minimum performance requirements for first aid kits and their supplies that are intended for use in various work environments. You can purchase these through the American National Standards Institute (ANSI) or the International Safety Equipment Association (ISEA). If you want to save a few dollars, you may be able to find a free copy, such as the one we found minimum contents list from the Minnesota Department of Labor and Industry.

Automated external defibrillators (AEDs) programs are an increasingly common component in a workplace health and safety program to address sudden cardiac arrest. These programs require some medical guidance and training to put in place.

Arguably, one of the most parts of your emergency planning should be to prepare your employees and your supervisors about what to do in the case of a medical emergency. Put your policies and protocols writing and communicate them to your employees frequently. Don't forget to include solitary and remote workers in your emergency planning.

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September 21, 2012


Back in 2009 we blogged the fate of strippers at the ironically named King Arthur lounge in Chelsea MA. The club treated the women as independent contractors, but the court found that they were employees and ordered the lounge to pay back wages to the strippers. (I wonder if they were able to collect.) Today we examine a similar situation with a dramatically different outcome: the saga of LeAndra Lewis, a free-lance stripper in the Carolinas.

The 19 year old Lewis worked a network of strip clubs in North and South Carolina. She traveled from one club to another, bringing her own (skimpy) costumes and working on her own schedule. She would approach a given club, uninvited and unannounced, and ask for access to the stage. She would pay an enrollment fee (about $70) and then dance as she wished to dance, collecting tips from the customers. If a given customer really liked her work, he might "make it rain" with dollar bills. At the end of the evening, she would pay a portion of her tips to the club owner. Lewis grossed an estimated $82,000 a year, but no one knows for sure, as she did not bother filing a tax form.

In June of 2008 she found herself working in L.B. Dynasty, DBA Boom Boom Room Studio 54 - you have to love the Studio 54 tag, adding a touch of New York glamour - and some white powder? - to an otherwise marginal venue. A fight broke out while Lewis was in the club. A random bullet hit her in the stomach, causing severe internal injuries. She filed for workers comp benefits; the club did not carry insurance (surely no surprise), so the claim reverted to the South Carolina Uninsured Fund. Her claim was denied on the basis that she was an independent contractor, not an employee of the club.

The Usual Criteria in an Unusual Setting
In its ruling on Lewis's claim, the South Carolina Appeals Court upheld the denial. They used the typical four pronged analysis for independent contractors to determine her work status:

1. The right or exercise of control: Lewis was free to come and go and free to dance as she chose; there were rules of behavior, but these did not constitute an employment relationship;
2. Furnishing of equipment: the court observed that the provision of a stage, a pole and music were practical matters, as a traveling stripper would not be able to bring these to each venue;
3. Method payment: the club did not actually pay Lewis anything, as she herself paid a fee to dance and a portion of her earnings to the club.
[NOTE: As we noted above, Lewis paid no taxes on her earnings, and it goes without saying the club paid no benefits on her behalf.]
4. The right to fire: the court determined that the right to throw Lewis out for violation of club rules did not make her an employee.

Judge Short dissented from the majority opinion, noting instances in other states where strippers were determined to be employees - he did not site the King Arthur Lounge case. But sad as Lewis's story is, and tragic as the results for her have been, the court probably got this one right. Lewis worked as an itinerant stripper, with no real base of operations. She walked into clubs, offered her services, and was given a stage on which to perform. She moved on when she felt like it. Had she been a regular at the Boom Boom Room, she could have made a stronger case. But this 19 year old woman was very much on her own. The money was good while it lasted, but she now finds herself unable to have children and, due her scars, unable to perform her chosen work. Like all truly independent contractors, Lewis was on her own that fateful day in 2008 and she must live with the consequences for the rest of her life.

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July 12, 2012


The drum that our colleague Joe Paduda has been beating for several years - the outrageous cost of repackaged drugs in Florida - appears to be resonating. This esoteric little nook and cranny of workers comp that is costing employers millions across many states would normally not attract much attention in mainstream media - heck, even a lot of grizzled workers comp vets weren't conversant with the practice or the potential adverse affect on costs. But yesterday, the issue made the business section of the New York Times in an article by Barry Meier and Katie Thomas, Insurers Pay Big Markups as Doctors Dispense Drugs. They sum up the crux of the matter: "At a time of soaring health care bills, experts say that doctors, middlemen and drug distributors are adding hundreds of millions of dollars annually to the costs borne by taxpayers, insurance companies and employers through the practice of physician dispensing." The article goes on to note that, "The practice has become so profitable that private equity firms are buying stakes in the businesses, and political lobbying over the issue is fierce."

Florida and the case of Automated HealthCare Solutions are used as examples in the article. We've leave you to follow the excellent job the reporters do in outlining the issue, tracking down connections, and showing how a recent legislative attempt to close this costly loophole was squelched. Alan Hays, the Republican state senator in Florida who introduced the defeated bill said that, "The strategy of the people that were opposed to this bill was to put the right amount of dollars in the right hands and get the bill blocked," he said. "And they were successful in doing that." That defeat is costing employers and taxpayers some $62 million, according to the state's insurance commissioner.

Don't miss the accompanying infographic, Paying Much More in the Doctor's Office. Also note the 424 comments to the article, which we are still perusing at this time - it's not often that a detailed workers' comp issue garners that much attention in the so-called mainstream press.

We give a big tip of the hat to Paduda, who has posted on the Florida repackaging issue repeatedly. going back several years, despite some personal jeopardy in the form of a threatened lawsuit, later dismissed by a federal judge.

How Connecticut is dealing with Physician Drug Repackaging

In February, Paduda posted that physician dispensing was coming to Connecticut and urged his readers to contact regulators. At Evidence Based blog, Michael Gavin posts an update: Connecticut Gets Drug Repackaging Right: Removing the Financial Incentive. Interestingly, this was done via a rule change rather than a statutory change. Plus, it does not ban the practice of physician dispensing, and it even allows a reasonable administrative fee. Gavin suggests that these central tenants of an effective regulatory approach to repackaged drugs might serve as a model for other states. Florida, take note!

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July 11, 2012


Barton Rodr was a computer programmer for Yzer Inc, DBA Funnel Design Group in Oklahoma. When the yard crew taking care of Yzer's property quit, the company asked for volunteers and Rodr stepped forward. He and his son mowed the lawn and manicured the yard on successive Saturdays, in preparation for the festivities at Automobile Alley, the historic district of downtown Oklahoma City. Barton, a salaried employee, was not paid for the work; his son received $40.

On July 18, 2009, Rodr was putting away the lawn mower when he suffered a heart attack. He was 36 at the time. A workers comp judge awarded him benefits, determining that the injury occurred in the course and scope of employment. A three-judge panel affirmed, but the OK Court of Civil Appeals reversed, opining that Rodr's lawn work bore no relation to his primary job as a programmer.

The OK Supreme Court has ruled in favor of Rodr. Despite his performing volunteer work out of class and on the weekend, he was still an employee of Yzer, as the yard work met the primary test of employment: it furthered the interests of his employer.

In its defense, the company pointed out that the heart attack was caused by a pre-existing conditon: Rodr was overweight, a smoker, with a family history of heart problems. From the perspective of (very distant) consultants, we are tempted to ask: why did the company allow this employee to volunteer? Despite his relatively young age, he worked at a sedentary job and displayed risk factors that precluded his doing physical work. Speaking as a weekend mower, I can certify that the task is strenuous and noisy (less so for my neighbor who sits calmly on his riding mower, listening to music through noise-canceling headphones).

Volunteer vs. Employee
The court has ruled that an employee who volunteers is not a "volunteer." OK law defines a volunteer as "any other person providing or performing voluntary service who receives no wages for the services other than meals, ...therapy...or reimbursement for incidental expenses." An employee is not "any other person."

This is no small matter, for Rodr or for Yzer's workers comp insurer. The unfortunate Rodr is permanently and totally disabled. He is unlikely to work again. He is currently surviving on a mechanical heart and will need a transplant soon. Given Rodr's age and medical expenses of significant magnitude, this claim is likely to reach seven figures.

The lesson for employers is clear: saving a few bucks on physically demanding jobs is not worth the risk. An overweight smoker with a family history of heart problems does not belong within ten feet of a lawnmower. When your lawn crew quits, just go find another one.

Thanks to WorkCompCentral (subscription required) for the heads up on this case.

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May 22, 2012


When you're looking for ethically-challenged business practices, Florida is usually a good place to begin. The latest kerfluffle involves a toxic combination of very high deductibles for workers comp insurance and employee leasing companies. Oklahoma based Park Avenue Property and Casualty Insurance sold policies with deductibles as high as $1 million to PEOs. Think about that for a moment: a million dollar deductible is virtually self-insurance, as very few claims break that formidable barrier. Park Avenue, along with its successor companies, sold these policies to employee leasing companies, who in turn passed the coverage through to their client companies. With such a huge deductible, the coverage must have been relatively inexpensive compared to standard market rates.

Under large deductible programs, the insurance company pays all the bills and then seeks reimbursement from the client company, up to the deductible amount. It's not hard to figure out the flaw in this business model: client companies will welcome the discounted premiums, but when it comes time to pay back the insurer for paid losses, they will be unable to cut the checks. Given the complete absence of regulatory-mandated collateralization for the claims liability, there is no way the insurer will be reimbursed for large loss claims.

That's where the three-card Monte comes in: the insurer wrote these policies knowing full well that the deductibles would never be paid. That's why Park Avenue morphed into Pegasus Insurance, which morphed into Southern Eagle Insurance, which flies off into the pastel sunset of bankruptcy.

Gaming Risk Transfer
The cards have been moved around at blinding speed, but who ends up paying? Once again, those who played by the rules will have to pay for those who didn't. (For a more egregious example of punishing the innocent, see our blogs on the New York Trusts.) Policy holders in Florida will be charged somewhere between 2% and 3.5% of premiums to cover the $100 million plus of losses.

In the WorkComp Central article by Jim Sams (subscription required), Paul Hughes, CEO of Risk Transfer Company, which markets insurance to PEOs, complains that singling out the PEO industry is unfair. The state should never have allowed Park Avenue and its winged successors to write insurance, as they were clearly incapable of assuming the risk. True enough, but even Hughes would have to admit that the PEO industry offered a ripe venue for the scam: individually, PEO clients would never have qualified for high deductible coverage, but somehow, under the collective umbrella of a PEO, they did.

Meanwhile, PEOs are being sued for failing to reimburse the claims payments of Park Avenue and its successors. After the PEOs lose these cases, they will seek payment from their clients, who are unlikely to have the ability to pay anywhere near what is owed. The litigation will go on for a long time, but the bottom line is simple: risk transfer cannot exist where none of the parties can cover the exposure. That isn't risk transfer: it's a shell game, where those who did not play are left holding the bag.

Follow Up - June 7, 2012
After posting this blog, I received a call from Paul Hughes, CEO of Risk Transfer in Florida, who is quoted above. While not contesting the premise that large deductibles are poorly managed in Florida (and elsewhere), he believes that I unfairly singled out PEOs in the blog. The fundamental issue is the failure of the state to adequately regulate and oversee large deductible programs. I agree.

Please take a few moments to read Paul's response, which employs the useful metaphor of a casino for the risk transfer industry:

The core issue to me is the role of the regulator versus the business owner in the management of the "casino" (insurance marketplace). That is one of the parts of Jon's article in Workers Comp Insider that blurs the line a bit on what the PEO's role is within the casino and whose job it is to set the rules. The casino is the State as they certify the dealers to play workers' compensation (Carriers, MGU's, MGA's, Agents and Brokers) and the State also certifies that the players are credible (not convicted of insurance fraud) and can pay/play by the rules of the house. The rules are set by the house and the games all require public filings - ability to write workers' compensation (certificate of authority), ability to offer a large deductible plan (large deductible filings), agent license, agency license, adjusters license and any other deviation from usual business practices (like the allegations that one now defunct insurance carrier illegally charged surplus notes to desperate PEO's in the hardest market the industry has ever seen). The "three-card monte" that Jon alludes to in this article is managed not by the dealers (carriers), but by the house (state). Would a real life casino consider it prudent to allow one of their dealers to expose 20% of their $5m in surplus through high deductibles sold to PEO's with minimal financial underwriting and inadequate collateralization? Would any casino write harder to place (severity-driven) clients to include USL&H, roofers etc with the minimum amount of surplus needed to even operate a carrier...? Of course not. These "big boy" bets would never be allowed in Vegas without the pockets being deep enough to cover the losses.
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May 16, 2012


The latest edition of Cavalcade of Risk, hosted by Dennis Wall at Insurance Claims and Issues, is up. It's the risk-free option for checking out a potpourri of interesting posts related to risk.

And while we are on the topic of risk, let's give a Bronx cheer for Jamie Dimon, CEO of JP Morgan Chase, for the work of his risk management team. The bank's $2 billion plus loss was the result of "sloppy" and "stupid" trading, a "mistake" which involved "bad judgment," and which caused losses that are "very unfortunate" and that come at an "inopportune time," but which in any case are not "life threatening." The risk management team is supposed to prevent such problems, not perpetrate them. Oh, well, that's just the risk you take when your frisky risk managers manage risk.

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April 18, 2012


We have been following the fate of self insurance groups (SIGs) in New York, where the innocent pay for the sins of the guilty and where what is legal is by no means fair. We read in WorkCompCentral (subscription required) that an appeal to over-rule the onerous assessments imposed on the trusts who played by the rules, to cover the liabilities of trusts who did not, has been rejected by the U.S. Supreme Court. [The Insider is quoted at length in the article.] Had employers known just how expansive the risks of SIG participation were, they would likely have chosen to purchase conventional insurance.

The appellate court wrote that "a fair reading of [comp law] within the context of the related provisions and the legislative history, leads to the conclusion that group self insurers were intended to be included among those to be assessed to provide the funds to cover the defaults of all private self-insurers, including groups."

The court went on to say that the liability of individual employers "is proportional to their role as self-insurers within the workers' compensation system."

The New York appellate court has expanded the concept of joint and several liability way beyond the members of a given trust, including not only all those who participate in self insurance groups, but virtually every self insurer in the state. There is no way a company can reasonably assess the scope of this risk. Why would anyone put their trust in trusts?

The Law of Small Numbers
The problem for the dwindling number of employers who participate in New York SIGs is the inverse of the law of large numbers: because their numbers are relatively small (compared to the total number of employers and comp premium in the state), they own a disproportionately large share of the open-ended liabilities generated by the failed trusts. Given the now-established legality of the assessments, and given the impossibility of verifying the viability of every self-insured risk, New York has basically eliminated self insurance as an option. That's too bad, especially in the context of the state's relatively high costs for comp.

Perhaps the state's 800,000 employers could push for fundamental changes in the way workers compensation is managed: they could argue that the system is too complex and too costly for employers, even as the benefits for injured workers are way too low. As a group, they would have the law of large numbers in their favor, which is certainly more than can be said for the hapless remnants of the state's self insurance groups.

NOTE: For access to the Insider's numerous blogs in this issue, enter "New York trusts" in the search box.

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February 13, 2012


A couple of years ago we blogged the performance incentive program at Smurfit-Stone Container Corporation in California. The performance numbers were stellar, but not necessarily because the work was performed safely. Instead, the company conspired with local medical providers to secure limited treatment outside of the workers comp system. Two supervisors pled no contest in conspiring to deny comp benefits to injured workers.

With the recent conviction of chiropractor Robert Schreiner, we see into the black box of the conspiracy. Workers complaining of work-related problems were referred to doctors like Schreiner - giving rise, alas, to a new and ominous definition of provider network. In one instance a worker complained about a neck and shoulder injury. Schreiner denied that the problem was work related, saying that it was caused by carrying a back pack as a child. He provided a handful of treatments and then encouraged the worker to file the claim under his health plan to continue treatments. When the worker persisted and filed a comp claim, he was fired.

Schreiner is headed to jail to serve a mostly symbolic sentence of 30 days, to be followed by three years of probation. Perhaps he can provide some adjustments to his fellow inmates. Confined spaces sure can mess up the spine.

Faking Safety
Smurfit-Stone was bought out last year by RockTenn. You can still read about the company in Wikipedia. Here is the (unattributed) description of the company's safety program:

Smurfit-Stone has been an industry leader in safety performance since 2001 [NOTE: the conspiracy to under-report claims began in 1999!]. In 2007, Smurfit-Stone's U.S. operations had an OSHA recordable case rate of 1.05, the best in company and industry history. This represents an 84 percent improvement in the company's recordable case rate since the implementation of Smurfit-Stone's SAFE process in 1995.The SAFE process, which stands for Smurfit-Stone Accident-Free Environment, promotes five core beliefs: 1.All injuries are preventable 2.Safety is everyone's responsibility 3.Working safely is a condition of employment 4.Training employees to work safely is essential 5.Safety is good business

As litigation has proven, Smurfit-Stone's low OSHA case rate has less to do with safety than with a conspiracy to under-report claims. Perhaps the SAFE program stood for something else: Screw All Forsaken Employees. Aggressive safety goals are a good business practice; circumventing the workers comp system is not just a bad practice, it's illegal. Just ask Robert Schreiber.

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January 23, 2012


Yesterday the New York Sunday Times ran a fascinating piece on the manufacturing of iPhones. The making of 200 million phones is taking place in the far east, mostly in China. When President Obama asked Steve Jobs "why can't that work come home?" Jobs replied: "Those jobs aren't coming back." The article, written by Charles Duhigg and Keith Bradsher, describes the reasons why this work will never come back home (and why we wouldn't want them anyway).

In the months prior to the release of the iPhone, Steve Jobs carried a prototype in his pocket. He discovered that the plastic screen was easily scratched by the keys and loose change that people often have in their pockets. He informed his engineers that this was not acceptable and insisted - at the last minute - that they redesign the phone with a scratch- and break-resistant glass. Corning Glass was able to do this.

Corning (made in America!) shipped the new parts to China, where they arrived around midnight. Supervisors at the assembly plant woke up some 8,000 workers sleeping in company dorms, gave them tea and a biscuit and set them to work in 12 hour shifts installing the glass into bevelled frames. The plant churned out 10,000 phones per day.

It is impossible to envision an American workforce positioned to perform this kind of work under these conditions. We do not house our workers in dorms (except migrant farm workers). We do not suddenly change work schedules to begin at midnight. Even in the Republican dream of a post-union workforce, it is inconceivable that American workers would accept this kind of pressure - and be paid $17 per day or less.

iPhones and Pyramids
Nearly seven years ago we blogged the emerging issue of worker rights in China. While there is a bare-bones structure of rights, these are arbitrarily enforced and easily avoided. China is a single party state, run with ruthless efficiency by the Communist Party. Opposition is not tolerated; dissent is brutally suppressed; and workers are at the mercy of their employers. To enforce rights, you need a constitution and an infrastructure of laws and regulations. And you need lawyers to argue on behalf of workers. China has none of these crucial elements and, truth be told, no real interest in developing them. And that is why everything is made in China: quality is high, working conditions are whatever management wants them to be, and labor costs are low.

While technically not slaves, production workers in China labor under appalling conditions that do not and cannot exist in most western cultures. They may be paid better than the slaves who built the pyramids, but they are paid less - while working harder - than any comparable workforce in developed countries.

So the late Steve Jobs was correct: the jobs involved in assembling essential electronic devices will remain off shore. These jobs are never coming home, unless, of course, the economy collapses totally and our workers are reduced to accepting virtually any working conditions. Which leads to questions beyond the scope of a workers comp blog: what manufacturing jobs will remain domestic? What will happen to the millions of production workers in America who no longer have jobs? As the American middle class declines, how will the economy function? Who will buy the goods that drive the engine of capitalism?

I drove my American assembled Japanese car to the Verizon store yesterday and picked up my black 16 gig iPhone, designed by indisputable geniuses in America and assembled by an underclass in China. It's awesome. I can't imagine life without it.

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December 20, 2011


Raymond Letellier co-founded a steel fabrication company in New Hampshire called Steelelements. The company suffered a major fire in March of 2007. They rebuilt, although the cost of the rebuilding, managed by Letellier's partner, exceeded the budget. In October 2009 the company went out of business. Throughout the long, downward spiral, Letellier suffered from stress, hypertension and depression. Soon after the company's failure, he filed for personal and business bankruptcy. At the same time, he applied for workers comp benefits.

Letellier's claim was initially denied, then accepted for the medical costs only, and then denied again. Eventually the claim reached the New Hampshire Supreme Court, where a deeply divided court (3 to 2) ruled against Letellier. The court reasoned that the failure of the company was akin to a personnel action: workers comp does not cover such employer actions as discipline, termination and lay off. In closing the business, Letellier subjected himself - and everyone else - to a lay off. - a non-compensable personnel action.

Work-Related Stress?
Two dissenting judges pointed out that the majority focused almost exclusively on the ultimate failure of the company, the lay off itself. But the extraordinary and relentless stressors in Letellier's life began with the fire and continued throughout the struggle to keep the over-leveraged company in business. This is not the stress of a single event, but the cumulation of stress over months and years. The dissenters noted that Letellier's commute to the factory was 100 miles, so he often slept in his office, where ever-pending doom haunted his every waking moment and his troubled dreams. They opined that his multiple health issues were predominantly caused by work.

Letellier, once the proud owner of a successful business, finds himself in the same situation as laid off workers across America. He is on his own and out of luck.

We will set aside for the moment what may be Letellier's biggest mistake: instead of trying to make things that people can actually use, he should have pursued a career in finance, where he could have sold worthless mortgages, watched his company flounder, and then be rescued by tax-payer bailout, all the while preserving a superbly inflated salary. That's an All-American story of a different sort, albeit fodder for another day.

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October 11, 2011


For 36 years Rodolfo Meza worked for Aerol Corporation in Rancho Diminguez CA as a metal worker making cast iron and aluminum molds. He was about 48 when he began working; he was about 84 when he was terminated while on medical leave for a knee operation. Rodolfo sued, claiming age discrimination, raising the question: how old is too old to work?

In the course of his trial and subsequent appeal, Rodolfo noted that his immediate supervisor commented frequently about his being "too old to work." Despite operations for a hernia and a knee replacement (the court rulings do not indicate whether these were covered by workers comp), Rodolfo had every intention of continuing to work. When his normal job became a bit difficult for him to perform, he requested a transfer to the engineering department, where he often had performed work. His supervisor responded "no, Rudy I can't [transfer you]. You are too old to move to engineering."

When he was terminated in 2009, his 24 year old son (conceived when Rodolfo was 60!) noted that he became sad and depressed.

Age Has Its Benefits
A jury awarded Rodolfo $100,000 for future economic loss: based upon his annual earnings, that's a little over three additional years of employment, bringing Rodolfo to age 87. In addition, they awarded $300,000 for past non-economic damages (presumably, the ongoing agist comments of his supervisor). That's a lot of money for an individual nearly 20 years past the conventional retirement age.

Aerol appealed and lost. The CA Court of Appeals found a pattern of discrimination, along with a legal technicality that prevented Aerol from contesting the award for the future earnings: Aerol failed to raise the issue in a timely manner during the initial the trial.

Expensive Lessons in Human Resource Management
Is the court saying that employers must continue to employ workers into their 80s, with no recourse available to force retirement? Can workers work as long as they like?

Not really.

Aerol - through the actions of Rodolfo's supervisor - made a number of critical mistakes in managing this situation. The supervisor made repeated comments about Rodolfo's age; the supervisor should have been warned to cease this behavior and disciplined if he continued. Rodolfo had an exemplary record of employment; there was no (written) indication that his performance had deteriorated. When Rodolfo felt less capable of doing his regular job and requested a transfer, he was denied the opportunity based solely upon his age. When he requested time off for the knee surgery, it was granted; there was no indication that his job would be eliminated during his absence, but that's exactly how Aerol proceeded.

A Word to the Wise on Aging
Savvy employers would do well to learn from Aerol's mistakes:
- Never assume that based solely upon age a worker is "too old"
- Focus on the essential job requirements: employees must be able to safely perform jobs as specified (some accommodation based upon age should be considered)
- Document any problems in performance
- Train supervisors in managing older workers (along with women, minorities, disabled workers and any other protected classes)
- Above all, keep lines of communication open.

Rodolfo gave 36 years to Aerol. He deserved consideration as he grew older, but he was not guaranteed a job. If and when any issues of his job performance arose, his supervisor should have sat down with him to discuss them openly. Ironically, there are no real winners in this situation: Aerol (or its insurer) took a big hit economically. They also lost a loyal employee who was still capable of making a positive contribution to the company. Rodolfo lost the job he loved and lived for. To be sure, he now has a nice nest egg for retirement, but that is not what he wanted most. He was one older worker who just wanted to keep on working.

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September 6, 2011


We have been tracking the fate of the FedEx business model in state courts as it collides with increasingly stringent definitions of "employee." FedEx operates under a sophisticated and ingenious contract designed to transform their drivers into "independent contractors." It's been a tough haul. For the most part, FedEx has been losing the argument in courts, state by state, and then delaying any ultimate resolution by filing appeals. Today we examine a similar business model: cleaning operations that are classified as franchises.

Coverall North America is one of the largest franchise cleaning operations in the world, with 9,000 franchise owners, 50 support centers and 50,000 customers. Franchise owners are trained by Coverall, wear Coverall uniforms, use Coverall mandated supplies and receive payment for their work through Coverall. Coverall bills customers and then pays the franchise owners, after deducting management and royalty fees plus any other incurred expenses.

The Massachusetts Standard
Unfortunately for Coverall, they have the burden of demonstrating franchisee "independence" in Massachusetts, which has a very tough, three-pronged standard for independent contracting [Ch. 149, Sec 148B]:
1. The contractor operates free from control or direction
2. The work of the contractor is fundamentally different from the work of the general contractor/owner
3. The contractor operates an independent business and is free to offer services to anyone

Under the MA requirements, independent contractors must meet all three criteria. Coverall first encountered the problem when out-of-work franchisees filed for unemployment benefits. The MA Division of Employment & Training focused on the third prong, determining that franchisees were indeed employees of Coverall, as their work was limited to that secured through Coverall.

In a case brought in Federal Court, franchise owners sought summary judgment against Coverall for the deceptive and unfair labor practice of calling them "independent contractors." U.S. District Court Judge William Young got the case. He focused on the second prong: Coverall had to demonstrate that they were in a fundamentally different business than their franchisees.

Coverall fashioned a clever but ultimately unsuccessful defense: Coverall corporate is not in the cleaning business, but in the franchising business. Coverall corporate trains people who clean offices and Coverall manages the finances of franchisees, but no one in Coverall actually cleans. Judge Young did not buy that argument. He determined that Coverall provides the administration for the franchisees, who provide the cleaning services. One cannot exist without the other. He granted summary judgment to the plaintiffs.

Who Works for Whom?
We are by no means at the end of this seemingly endless attempt to separate independent contractors from employees. What is at stake is pretty obvious: work performed by employees is a lot more expensive than that performed by independent contractors. The lives of most people working as "independent contractors" are difficult; the hours are long, the pay is marginal, the benefits non-existent. And if injured, these folks are usually on their own.

Listen to the names of some of the plaintiffs in this particular case: Aldivar Brandao, Denisse Peneda, Jai Prem, Pius Awuah, Benecira Cavalcante, Nilton Dos Santos. Can you hear exotic music in the names of people born in other lands? And can you hear something more ominous: the dissonence and dislocation of immigration, the struggle to survive in a new land that seemed full of promise from afar, but which has proven to be harsh, stingy and relentlessly demanding?

Welcome to America, employees of Coverall!

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August 15, 2011


Kevin and Bob Pickell ran KDN Lanchester Insurance Agency in Sinking Spring PA. It's not just the spring that's sunk. The not-so-kissing cousins (bad day photos here) have been convicted of diverting workers comp premium payments from area school systems into their own pockets.

As fraud goes, agents pocketing premiums is pretty dreary stuff: it's not a matter of if, but when they get caught. In this case, the carrier notified one of the schools that premiums had not been paid. In jumps the state attorney general, with the result that the Pickells are going to prison for over a year, followed by restitution and 20 years of probation.

The cousins do not appear to be planning a return to the brokerage business. They have offered the domain site ( for sale. Let's see. Brokers in jail, a bit of bad press. Not exactly a once-in-a-lifetime business opportunity.

Many good folks testified to the character of the defendants. They were known for their generosity in the community, along with living the lavish life style that inevitably accompanies this type of crime: big houses, fancy cars, expensive wines...

Opportunities for Fraud
Agents are just one of a number of parties in the workers comp system who see opportunities for making money the fast and not-exactly-legal way. Along with agents we have:
• Faking injuries
• Lying about health problems that impact their ability to perform jobs safely
• Exaggerating symptoms to prolong disability (malingering)
• Being injured away from work and claiming the injury is work related
• Working a second job (usually under the table) while still collecting indemnity
• Under-reporting payroll
• Misclassifying employees as "independent contractors"
• Misclassifying employees into lower risk - and lower premium - job classes
• Failing to report injuries
• Threatening employees who do report injuries
• Billing insurance companies for treatments not provided
• Exaggerating the nature of services provided
• Performing unnecessary tests
• Selling drugs (pain killers) to injured workers
• Conspiring with attorneys by faking diagnoses of compensable injuries
• Helping workers exaggerate medical symptoms to secure benefits (providing unnecessary neck braces, crutches, slings, etc.)
• Coaching injured workers on malingering
• Helping workers develop a false "injury narrative"
• Stealing settlement dollars (very rare)
Claims adjusters:
• Securing kick-backs on medical or indemnity payments
• Setting up phony claims and pocketing payments
Investment companies:
• Bribing public officials to secure dollars for investment (see the "Coingate" scandal in Ohio)
• Offering (illegal) perks to decision makers who manage public dollars

Despite the myriad opportunities for fraud in the comp system, outright fraud is still relatively rare. The vast majority of transactions within the system, involving all of the above players in every state across the nation, are carried out with integrity and good faith. Nonetheless, eternal vigilance is necessary to ensure that comp dollars are spent prudently, wisely and fairly.

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July 12, 2011


Dr. Jean Zannoni, 77, runs a family practice in Parma, Ohio. It would be a mistake to assume that by specializing in families, she is not interested in treating injured workers. She treats them all right - to pill after pill after pill. She was recently sentenced to two years probation and ordered to pay more than $7,500 in fines and restitution after pleading guilty to theft, attempted workers' compensation fraud and telecommunications fraud.

According to authorities, two Ohio Bureau of Workers Compensation (BWC) undercover agents were provided narcotic medications without proper medical examinations and BWC was billed improperly for the office visit.

Dr. Zannoni instructed her staff (in writing!) to bill all injured workers under the same code and charge BWC $75, regardless of the circumstances of the visit. She also manipulated "pain" ratings to ensure that patients qualified for narcotics. And she continued to prescribe narcotics to patients who were known doctor shoppers, even after receiving warnings from pharmacies, parents, spouses, social service agencies and police departments. Some family, some practice.

A Microcosm
In the scheme of things, Dr. Zannoni is a bit player. But when you try to figure out how narcotics became such a major cost driver in workers comp, you have to take into account doctors like Zannoni, who parlay a little pain into big profits.

Given the scale of her crimes - she overbilled WBC by $65,000 - the penalties in this case (small fine plus probation) seem a bit modest. On the other hand, the (Feel)Good doctor, at 77, is probably nearing the end of her practice, which may well have played into the decision to let her off relatively lightly.

Ironically, if you Google her name, Zannoni's patient ratings are uniformly high (pun intended). One anonymous patient even commented on an article describing her conviction as follows:

This is one of the sweetest most nieve (sic) people on ths planet. I know her personally and she has no idea what goes on. All she knows is how to do is practice medicine and nothing about finances at all. God bless her and I hope everything works out for her sake.

We'll let that stand as written. And one thing is certain: those seeking pills in Parma may not be able to count on Dr. Zannoni any longer, but surely they will find other sources to make their pain go away, to get a little buzzed, and, who knows, make a little money on the side.

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June 13, 2011


DeWayne Sutton worked for Tomco Machining in Dayton, Ohio. When he hurt his back while dismantling some equipment, he followed "best practices" and reported the injury immediately to company owner Jim Tomasiak. The boss pulled a "Trump" - deviating 180 degrees from "best practices" by firing Sutton immediately. No reason was given for the termination. As you would expect, Sutton was able to collect comp benefits (termination is no bar to eligibility), but could he also sue for wrongful termination? In other words, was the termination retaliation for reporting the claim?

Under the Ohio statute, employers are prohibited from firing, demoting or taking punitive action against an employee who files a workers comp claim. The question at issue is one of timing: the claim had been reported to the employer, but not yet filed with the insurer. So did Tomasiak violate the law by firing Sutton in the interval between the injury and the report to the insurer?

Begging to Differ
In a sharply divided opinion (4-3), the Supreme Court of Ohio found in Sutton's favor, sending the case back to the lower court for reconsideration. Chief Justice Maureen O'Connor, writing for the majority, notes:

We find that the General Assembly did not intend to leave a gap in protection during which time employers are permitted to retaliate against employees who might pursue workers' compensation benefits.

The alternative interpretation - that the legislature intentionally left the gap - is at odds with the basic purpose of the anti-retaliation provision, which is "to enable employees to freely exercise their rights without fear of retribution from their employers."

The court minority noted that Sutton was able to collect comp benefits - kind of "no harm, no foul." Then, as Justice Terrence O'Donnell notes:

The majority has today expanded the public policy behind the provisions of (state law) to apply to those persons discharged before filing, instituting or pursuing a workers' compensation claim. This allowance is a legislative prerogative, and in my view, we should follow the law as written and defer to the General Assembly, instead of stretching the extent of protection to fit situations not addressed by the statute.

This is familiar territory in the world of law: liberal interpretation (the majority) versus strict construction (the minority). One vote determined the outcome.

The Biggest Loser
Business owner Tomasiak comes away with a double whammy: he is liable for the comp claim through the experience rating process; having fired Sutton, he is unable to lower the cost of the claim by bringing Sutton back to work on modified duty. Then he faces a wrongful termination lawsuit, which he is probably going to lose. The timing of his action, along with the absence of any stated rationale, reak of retaliation.

Tomasiak's impulsive response to Sutton's injury violated Rule Number One for employers: if employees are not working out, fire them before they get hurt. Once they are injured, comp laws pretty much assume that any firing would be retaliation. For Tomasiak, just trying to run his machine shop in Dayton, Ohio, this is a tough - and expensive - lesson in best practices.

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June 8, 2011


As we noted in a blog earlier this year, the number of fatalities in grain bins reached record levels in 2010. There were 51 grain bin accidents last year, up from 38 in 2009 and the most since tracking began in 1978. Twenty-five people died, and five of them were children under age 16. The previous record for grain bin accidents was 42 in 1993. In response, OSHA has developed an explicit program to improve safety in grain bins. In doing so, they have increased the pressure on bin operators to operate safely. The stakes have been raised beyond even the robust fines that OSHA routinely hands out for violations.

As an example of the new program in action, OSHA has cited Lakeland Feed and Supply in Hamilton, Montana, for exposing workers to grain bin machine guarding and fall hazards, along with other safety and health hazards. At this point the fines total $122,500, but this might change after corrective actions and negotiations.

In detailing the serious violations, OSHA paints the picture of a hazard-filled environment that may well reflect the day-to-day operations of many grain bins across the country:

...Platforms missing guarding; no landing platform on a ladder; unguarded shafts, pulleys, chains and sprockets; the lack of an emergency evacuation plan and no fire alarm system; employees walking on grain in the bins; high levels of potentially explosive dust; the lack of a housekeeping program; not locking out augers when employees enter the bins; exposed live electrical lines; improper electrical wiring for high dust areas; and employees not trained on the hazards and chemicals associated with their work.

Not Exactly Junk Mail
As part of the grain bin initiative, OSHA has written to operators across the country, detailing specific steps to be taken to prevent accidents when workers enter storage bins. These steps include:

Turn off and lock out all powered equipment associated with the bin, including augers used to help move the grain, so that the grain is not being emptied or moving out or into the bin. Standing on moving grain is deadly; the grain can act like 'quicksand' and bury a worker in seconds. Moving grain out of a bin while a worker is in the bin creates a suction that can pull the workers into the grain in seconds.
Prohibit walking down grain and similar practices where an employee walks on grain to make it flow.
Provide all employees a body harness with a lifeline, or a boatswains chair, and ensure that it is secured prior to the employee entering the bin.

Provide an observer stationed outside the bin or silo being entered by an employee. Ensure the observer is equipped to provide assistance and that their only task is to continuously track the employee in the bin. Prohibit workers from entry into bins or silos underneath a bridging condition, or where a build-up of grain products on the sides could fall and bury them.

Test the air within a bin or silo prior to entry for the presence of combustible and toxic gases, and to determine if there is sufficient oxygen.

Ensure a permit is issued for each instance a worker enters a bin or silo, certifying that the precautions listed above have been implemented.

On Notice
Bin operators are on notice that the above safety procedures must be in place. By providing this unambiguous and highly detailed list, OSHA is saying, in effect, "these are the standards. Nothing less is acceptable."

Why does this matter? Attorneys for workers injured in storage bins will review the details of any and all accidents. Where the above standards have not been met - and they are not easy to meet! - these attorneys may aggressively pursue increased sanctions against employers. In many states, injuries due to the "wilful intent" of the employer result in higher indemnity payments. In the event of serious injuries or fatalities, attorneys may attempt to pierce the "exclusive remedy" shield of workers comp and secure substantially higher benefits due to employer "negligence".

In other words, OSHA may have raised the stakes for grain bin operators above the traditional "no fault" level. While there is nothing radically new in the required safety procedures, the fact that OSHA has presented a definitive list means that employers are accountable for each and every one of these procedures. As is customary, violations will result in heavy fines. But in addition to the fines, bin operators may be at risk for exposures well beyond the "usual and customary" comp benefits.

The working conditions in grain bins are extremely challenging. There are critical time pressures, complex mechanical issues, weather concerns and at times, a shortage of trained labor. Teenagers -all too frequently the victims in bin accidents - may or may not take safety precautions seriously. If life on the farm is difficult, life in the bins may be even harder. When it comes to safety and the protection of the people doing the work, OSHA's sympathies are with the workers. In this environment, when serious accidents occur, employers will be judged by a single criteria: did they follow the OSHA book on grain bin safety? If not, bin operators are likely to pay, pay and pay again.

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May 23, 2011


With yesterday's catastrophic tornadoes in Joplin, Missouri, the most recent in a long line of 2011 disasters, the cost of re-insurance is going up. Prior to yesterday, the reinsurance bill for 2011 stood in the vicinity of $50 billion, leaving virtually no room for additional losses through the end of the year. Alas, we now have Missouri, and the year is not even half over, with hurricane season yet to begin.

Risk & Insurance magazine highlights the problems facing reinsurers:

Yvette Essen, an analyst for A.M. Best, said that the catastrophic first quarter means that many reinsurers will struggle to record any full-year underwriting profit for 2011.

"The industry faces further challenges in achieving profitability as the hurricane season approaches and investment yields remain low," she commented.

"While reinsurers continue to maintain sound capital positions, the excess capacity that existed at the prior year-end has clearly been diminished," he said.

Richard Ward, CEO Of Lloyd's of London, warns that the relatively inexpensive cost of insurance is really an illusion: "Prices are dangerously low at present," he told an industry conference. "Clients may think they are getting a bargain. But the fact is that they are buying security. The insurers who write unprofitable business are inevitably the first to collapse when disaster strikes."

Beyond Risk Transfer
It appears we are entering a period of steadily increasing instability in nature. Ferocious storms and floods in the US, the Japan earthquake and tsunami, the volcano in Iceland, the fires in Australia - all flitter across our computer screens and raise the specter of inconceivable loss. Insurance - where it's available - merely provides capital for rebuilding. Much of what is lost cannot be insured and even where there is insurance, what is lost on a personal, family-to-family level cannot be replaced. Yet we see selfless efforts to help survivors, most of whom will demonstrate a remarkable ability to endure. So much of what is precious to these people has been lost, but they will move on. That's human nature at its best.

Meanwhile, the reinsurance market, long in the soft-market doldrums, will finally begin to harden. We will all pay a little more for insurance - and we will complain about it. That, too, is human nature, not at its best, perhaps, but a reflection of these tumultuous times.

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May 19, 2011


Last year 29 coal miners died in an explosion at Massey Energy's Upper Big Branch Mine in West Virginia. Don Blankenship, Massey CEO, blamed the explosion on federal interference and a gigantic methane bubble that percolated up from below the mine shafts. The bubble has burst, but not in the way Blankenship would have you believe.

An independent team appointed by the former West Virginia governor, Joe Manchin, and led by the former federal mine safety chief Davitt McAteer, has issued its findings, which are both unambiguous and scathing. There was no methane bubble. There was, instead, a pattern of negligence by management that led directly to the deaths of the miners.

As summarized in the New York Times, the report is a searing indictment of Massey's management style:

"The story of Upper Big Branch is a cautionary tale of hubris," the report concluded. "A company that was a towering presence in the Appalachian coalfields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk-taking."
The report goes on to say that a "perfect storm" was brewing inside the mine, combining poor ventilation, equipment whose safety mechanisms were not functioning and coal dust, which, contrary to industry rules, had been allowed to accumulate, "behaving like a line of gunpowder carrying the blast forward in multiple directions."

Given the uncompromising language of the report, Massey management may not enjoy the "exclusive remedy" protections of the workers comp statute. They are now vulnerable to charges of criminal negligence. I suspect that attorneys for the widows and children of the miners will look rather closely at the assets of Massey's (now former) CEO.

Farewell, My Ugly
Don Blankenship resigned from his CEO post in December of last year. Don't bother putting up a collection to buy this ethically-challenged titan of business a gold watch. In 2009 he earned $17.8 million, which does not include deferred compensation of an additional $27.2 million. There is no question that Blankenship's leadership created profits for the company. Unfortunately, these profits came at the expense of the environment and of the men who extracted the coal from the West Virginia mountains.

The anecdote that tells you a lot about Blankenship involves his personal water supply. When Massey Energy activity poisoned the water reaching his own home, Blankenship ran a private pipeline to the next town, where clean water was readily available. His neighbors, lacking Blankenship's resources, have to make do with the local, polluted water.

It will be interesting to see what happens next. In a just world, Blankenship would be held accountable for his actions as Massey's CEO. But we do not live in a world where justice prevails very often. Blankenship will likely continue to enjoy his retirement years, drinking clean mountain waters, railing about government interference, buying a few politicians and generally living the good life. We can only hope that each and every night his dreams are haunted by visions of the 29 miners and their struggling families. That would be one form of justice indeed.

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May 12, 2011


A couple of days ago my colleague Julie Ferguson blogged OSHA's new focus on farm safety. We all share the concern for the safety of farm workers. But OSHA is upping the ante in a way that requires the immediate attention of both insurance companies and their clients. As part of their investigation into the deaths of two teenage workers in a silo operated by Haasbach LLC, OSHA issued subpoenas for documents from Haasbach's insurer, Grinnell Mutual Reinsurance Co. OSHA wanted to review safety inspection reports and any follow up documentation from Haasbach. The insurer refused, arguing that the subpoena would discourage businesses from allowing insurers to conduct safety inspections if the material contained in the inspection reports can be used against a business during later litigation or OSHA enforcement proceedings.

The U.S. district court has ordered that the records be given to OSHA.OSHA Assistant Secretary Dr. David Michaels praised the decision. "The court affirmed OSHA's authority to obtain relevant information from an employer's workers' compensation insurance company. This is not surprising legally, but it does illustrate that workers' compensation and OSHA are not separate worlds divorced from each other," he said. "Workers' compensation loss control activities overlap with OSHA's efforts to bring about safe and healthful workplaces, and in order to achieve a safe and healthful working environment for all Americans, all efforts of business, insurance, labor and government must move forward together."

The court ruled that OSHA has jurisdiction to investigate the workplace fatalities, and further has the authority to require the production of relevant evidence and the ability to issue a subpoena to obtain that evidence. The requested documents, which included copies of site safety inspections, applications for insurance coverage for the site, and correspondence between Grinnell and Haasbach concerning the site, were found to "reasonably relate to the investigation of the incident and the question of OSHA jurisdiction," according to the decision.

A Tighter Safety Net
The court's ruling has important implications for both insurers and their clients.

Insurers are required to provide safety services, including site inspections with the findings documented in written reports. Usually, the safety inspector asks for a written response within a set time period. With OSHA potentially accessing these reports, there is liability for insurers: did they identify safety problems? Did they follow up to ensure that the problems were fixed within a reasonable period of time? It's another version of the great liability question: what did you know and when did you know it?

Similarly, the documents put insureds at risk. Safety issues have been identified. How did the business respond? Did they fix the problem? Did they perform the necessary training? Did they document their activities to show good faith in correcting identified concerns?

In all of this activity, candor is essential. The last thing anyone wants - and that anyone certainly includes OSHA - is for this court's ruling to have a chilling effect on the routine inspections performed by insurance companies. The concern is that inspectors, sensing OSHA reading over their shoulders, might hedge the findings just a bit - enough, perhaps, to create an ambiguity in the finding that results in an ineffective and unfocused response by the insured, which, in turn, perpetuates the hazard and leads, perhaps, to a serious injury or even death. That would be an unintended consequence of tragic dimension.

Focus on Safety
As always when OSHA becomes involved, there is a lot of money on the table. Following the fatalities, Haasbach was issued 25 citations with a penalty of $555,000. This was in response to the situation where three (untrained) workers became entrapped in corn more than 30 feet deep. At the time of the incident, the workers were "walking down the corn" to make it flow while machinery used for evacuating the grain was running: all in a day's work on the farm, and extremely hazardous.

It is certainly not in the best interests of insurance companies and their clients to build defenses against potential OSHA involvement. If we all share a commitment to safety - and we must - then an open and candid dialogue is essential. To be sure, both insurers and their clients are "on the hook" once problems have been identified. But surely it is in their combined interests to fix those problems as quickly as possible. Insurers and their clients must keep the focus where it belongs: not on OSHA, but on the moment-to-moment, day-to-day safety of workers on farms, in factories and in every American workplace.

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May 9, 2011


NCCI has released two reports that are essential reading for risk managers and anyone else who enjoys the Big - albeit somewhat gloomy - Picture.

The first report is a summary of workers comp performance through 2010: while many indicators are positive or at least neutral, the major concern is overall performance. The combined ratio for insurers (losses plus expense) is creeping steadily upward: 101 percent in 2008, 110 percent in 2009, 115 percent in 2010. In other words, in 2010 carriers spent 15 percent more than they earned through premiums. Even with improved returns on investments, insurers are caught in the zone where many are losing money, especially those whose combined ratios have drifted above the average.

The troubled economy has complicated matters: as payrolls go down, premiums go down with them. Comp premium peaked in 2005 at $47.8B; in 2010, premium totaled $33.8B. To be sure, fewer people are working, but that often results in increased stresses - and risks - for those who still have jobs.

Finally, there is the highly politicized issue of rates for comp insurance. No state wants to be the first raise the rates, as this increases the cost of doing business and makes the state less competitive in attracting new business. So states hold the line or even force reductions, making all businesses - except insurance related - happy.

The Really Big Picture
For those of you who seek perspectives beyond comp, into the broadest possible, world-wide view of risk transfer, Robert Hartwig of the Insurance Information Institute offers slides that are compelling viewing. He examines the dual specters of terrorism and natural catastrophe. Bin Laden's unlamented death may increase the risk of attack in the coming months, resulting in open-ended exposures for workers comp and property insurance. As for natural disasters, with the spate of earthquakes, tsunamis, and tornadoes, any actuary who is paying attention is having trouble sleeping these days.

Japan's earthquake, tsunami and nuclear plant meltdown appears to be the most expensive natural disaster in history. The total losses are expected to run between $100-300B, of which only a relatively small portion ($45B) is insured. (Government will bear the brunt.)

Tornadoes tearing through mid-America thus far have avoided major population areas, but the recent event at the St. Louis airport raises the specter of urban disaster.

Who Pays?
When calamity strikes, the impact is greatest on reinsurance, which kicks in when limits are reached in-front line policies. With the unprecedented scale of recent events, the cost of reinsurance must go up, and as it does, the cost of insurance for the consumer (business and personal) goes up with it. We live in risky times and the increasing costs of risk transfer reflect our darkening world.

One final note: Hartwig reveals that the 9/11 attacks added 1.9 percent to the combined ratio for 2001, which totaled a robust 121.7 percent. That's a sobering thought for this beautiful spring morning. My advice? Slap on some sunscreen and get out for a stroll. There's no better cure for gloomy data than a walk in the sunshine.

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April 13, 2011


In the ever-useful Oregon rankings, Montana has the dubious distinction of being the second most expensive state for workers compensation. Alaska, with its vast spaces and compelling views of the former Soviet Union, is number one. Gov. Brian Schweitzer recently signed HB 334, a bill designed to lower the mountainous rates. Only time will tell...

It's always interesting to see how a state legislature tackles high comp costs. In Montana, they set out to take a balanced approach, narrowing eligibility but enhancing benefits. While the legislators are patting themselves on the back for achieving their goals, unions have complained that too much of the cost reduction comes at the expense of workers. It usually does.

Here's a glimpse of the bill in action, trying to reduce employer liability for specific exposures:

(2) An injury does not arise out of and in the course of employment when the employee is:

(a) on a paid or unpaid break, is not at a worksite of the employer, and is not performing any specific tasks for the employer during the break; or

(b) engaged in a social or recreational activity, regardless of whether the employer pays for any portion of the activity. The exclusion from coverage of this subsection (2)(b) does not apply to an employee who, at the time of injury, is on paid time while participating in a social or recreational activity or whose presence at the activity is required or requested by the employer. For the purposes of this subsection (2)(b), "requested" means the employer asked the employee to assume duties for the activity so that the employee's presence is not completely voluntary and optional and the injury occurred in the performance of those duties.

At times the revised law reads like a monologue, with legislators trying to anticipate the circumstances of an injury and limiting the comp system in its ability to award benefits.

Rate Pain
The Oregon study illustrates some of the exorbitant (2008) rates paid by Montana employers. For a point of reference, we compare these rates (per $100 of payroll) to those in Massachusetts. (The MA rates are in brackets):

Carpentry shop (2802) $17.85 [$4.53]
Plumbing NOC (5183) $10.44 [$4.10]
Carpentry NOC (5403) $26.91 [$11.80]
Clerical (8810) $0.85 [$0.13]

Massachusetts employers, in a state with six times the population of Montana, spend about $650 million for comp premiums. Montana's current tab - $400 million - is expected to drop about 25 percent as a result of the new law. Even if you reduce the above Montana rates by 25 percent, employers are still confronted with big premium bills. Mount Comp might be substantially lower than it was, but it's still a grueling climb.

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March 22, 2011


We are now a week and a half into the Japanese disaster, which encompassed a terrible trio of catastrophic events: an earthquake, a tsunami, and a near-nuclear meltdown that looked to be vying for a top spot in the record books. The death toll tops 9,000, with another 13,000 still missing. And today at the Fukushima Nuclear Plant, although a large scale meltdown looks to have been narrowly averted, the extent of the radiation leaks and the related damage are still yet to be fully assessed.

The heroes of the past week, those credited with keeping events at the nuclear plant from spiraling irretrievably out of control, are being hailed as "the Fukushima 50." In actual numbers, they are more like 200 courageous souls, taking turns in 50-person shifts while the world watched from outside the 20 kilometer evacuation zone.

When the full extent of the crisis at the Fukushima plant became apparent in the wee hours of March 15, TEPCO wanted to remove all staff. Prime Minister Kan summoned TEPCO President Masataka Shimizu to his Office and told him that leaving was was not an option. "This is not a matter of TEPCO going under; it's about what will become of Japan," he said.

ABC news sheds a bit more light on the team who struggled to restore order to the crippled plant. The crews are though to be hands-on workers, technicians, rather than managers.

"The crews are not necessarily made up of strong young men. Emergency nuclear scenarios suggest asking older retirees to volunteer, not because they're more expendable, or even because they're more skilled, but because even if they're exposed to massive amounts of radiation, history has shown they would die of old age before they die of radiation induced cancers, which can take decades to develop."

And what's the extent of the health risks they are facing? The Power company reports that at least 25 workers and 5 members of Japan's Self Defense Force had were exposed to unsafe levels of radiation. There are other injuries and two workers remain missing. As for "the fifty," ABC says that not all experts believe that the radiation levels the workers are exposed to will be fatal.

"While radiation-induced cancers are a serious worry for those exposed to high doses of radiation, they usually take at least a few years to set in.

"You may see an incidence of cancer 30 years down the road. Cataracts can set in in 30 to 40 years," said Jenkins. "Leukemia showed up within a few years in the atomic bomb survivors, but solid cancers did not appear until 10 years and continue [to show up] to this day," said Hall."

Wikipedia's page on the Fukushima 50 offers more detail about the radiation exposure these workers faced in comparison to that of other nuclear workers.

"The international limit for radiation exposure for nuclear workers is 20 millisievert (20 mSv) per year, averaged over five years, with a limit of 50 mSv in any one year, however for workers performing emergency services EPA guidance on dose limits is 100 mSv when "protecting valuable property" and 250 mSv when the activity is "life saving or protection of large populations."

Prior to the accident, the maximum permissible dose for Japanese nuclear workers was 100 mSv in any one year, but on 15 March 2011, the Japanese Health and Labor Ministry enforced the permitted 250 mSv limit, in light of the situation at the Fukushima Nuclear Power Plant."

For additional perspective on the numbers, see this excellent radiation dose chart.

Revisiting Chernobyl
As we approach the 25 year anniversary of the world's worst nuclear disaster, the inevtiable comparisons have been made. But Japan's a markedly different scenario than the one faced by the workers at Chernobyl, where 29 firefighters, rescuers and nuclear plant workers died in the two months following the nuclear disaster. At least 19 other workers have died since 1987, and others have reportedly died from leukemia and other illnesses. You can read the gruesome story of deceased Fireman Vasily Ignatenko, as told by his wife Lyudmilla Ignatenko.

Subsequent clean-up teams were called The Liquidators of Chernobyl. These were folks tasked with the cleanup. Of this cleanup. Wikipedia says:
Between 1986 and 1992, it is thought between 600,000 and one million people participated in works around Chernobyl and their health was endangered due to radiation. Because of the dissolution of the USSR in the 1990s, evaluations about liquidators' health are difficult, since they come from various countries (mostly Ukraine, Belarus and Russia, but also other former Soviet republics). Furthermore, the government of Russia has never been keen on giving the true figures for the disaster, or even on making serious estimates. However, according to a study by Belarusian physicians, rate of cancers among this population is about four times greater than the rest of the population. (Wikipedia notes that "All the figures quoted by various agencies are controversial.")

Insurance issues related to Japan's disaster
According to the Insurance Information Institute, Japan's earthquake could cost $15 billion to $35 billion, one of the costliest ever. This would be a tough enough kick in the shins for the insurance industry, but III notes that, "... four of the five costliest earthquakes and tsunamis in the past 30 years have occurred within the past 13 months."

See more from III at their excellent resource page on the Japan earthquake and Pacific Tsunamis

Here are some other insurance-related articles that shed light on one or another aspect of this mammoth event.

We aren't up our international compensation law, but our Googling turned up this overview of Workers Accident Compensation in Japan.

Joanne Wojcik tackled the nuclear topic in Business Insurance in her article Coverage restrictions expected to limit nuclear claims (subscription required). We offer this excerpt:

Under Japan's 1961 Law on Compensation for Nuclear Damage, which was amended in 2010, power plant operators' liability for accidents such as those after the earthquake and tsunami is limited to 120 billion yen (about $1.5 billion), with the Japanese government assuming responsibility for any third-party damage or bodily injury claims beyond that amount.

To meet the requirements of the law, Japanese nuclear power plant operators buy property and liability insurance from the Japan Atomic Energy Insurance Pool. JAEIP provides nuclear property, nuclear liability, general liability and terrorism coverage to nuclear power plant operators. However, JAEIP does not sell the utilities coverage for earthquake damage, tsunami damage or business interruption, leaving the Japanese government responsible for those costs.

If a nuclear incident similar to that occurring in Japan were to happen in the United States, the U.S. Price-Anderson Act limits liability for nuclear power plant operators to $12.6 billion.

At Risk Management Monitor, Emily Holbrooke looks at the issue of business interruption and its effects on global corporations. Many think the real story is one of good engineering saving thousands of lives - Jared Wade discusses this in his posting about how Japan's bulding codes prevented casualties.

Also in Business Insurance, Judy Greenwwald looks at the complicated claims process ahead:

Corporate policyholders that do business with companies in Japan face a complicated process when they attempt to tap their contingent business interruption coverage because of the intertwining nature of the disasters that have struck the nation, observers say.

"This is going to be one of the most complicated catastrophes that I've seen," said William Okelson, Chicago-based director of property claims for Lockton Cos. L.L.C. There are "so many variables," including the original quake, the tsunami, resulting fires, nuclear power plant dangers and the government rationing of electricity.

At LexisNexis, Julius Young examines a "what if " scenario: What If? Workers' Comp and Earthquakes. Jon Gelman puts the events in some historical context relative to other large-scale disasters and nuclear events: A Nuclear Workers' Compensation Disaster.

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March 11, 2011


Our thoughts and prayers are with the people in Asia who are suffering through a disaster of unprecedented scale. The digital age allows us to watch the apocalyptic images: entire neighborhoods being swept to sea; burning houses borne upon the dark tide of water and debris; hundreds of vehicles swept along as if they were rudderless boats; the boats themselves powerless against the sheer force of the waters. We engineer our buildings, our infrastructure, our vehicles, our very lives on the assumption that the odds are always with us, that destructive forces of this magnitude are very unlikely to rise up from the depths of the ocean. And yet, on occasion, arise they do.

It will take months to sort out the damages. Indeed, the damage has not even run its brutal and indifferent course. But we cannot allow this horrific moment to pass without at least a glance at the implications for the subject of this blog, the insurance industry. Insurance is all about risk and risk transfer. Individuals and most businesses are too small to absorb the risk of loss that surrounds us. We purchase insurance as a hedge against disaster: loss of life, property, assets, physical ability, etc. The law of large numbers works in favor of the insurer: sell enough policies, expand your markets far and wide, and the risk of loss is spread out over an immense area. A catastrophe in one place is absorbed by the absence of losses elsewhere.

In the scale of what is happening in Japan, there is no elsewhere. No actuarial calculation can take into account the implications of losses on this scale. And even if the actuaries could come up with a number, the cost of the insurance would preclude anyone from buying it.

Here's one relatively minor insurance issue emerging from the rubble in Japan: the quake hit at 2:30 in the afternoon. Many of the people being swept away by the surging waters were working. Their deaths will be compensable under whatever form of workers comp exists in Japan.

Our modern lifestyles do not recognize risk and disruption on this scale. We somehow think ourselves immune from disaster. It brings to mind a poem by Percy Bysshe Shelley about another powerful and confident civilization that could not foresee an end to its dominion:


I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed;
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

A century of horrific wars and occasional natural disasters have taught us that our arrogance and presumed mastery of the world are illusions. The lesson is clear: Ozymandias and his ilk (Muammar Gaddafi comes to mind) rule with arrogance and contempt. By contrast, our actions must be as full of generosity and compassion as possible. The risks that lurk in our lives may be beyond calculation, but what truly matters is our ability to embrace the time given to us and help those whose lives have been devastated by chance.

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March 1, 2011


Dave Duerson was a star safety in the NFL. He used his head in the way that aggressive defensive backs often do - as a battering ram to bring an opponent down, maybe even jar the ball loose. He was articulate, generous and in his post-football life, successful. So it saddened many of his friends and colleagues to learn that he had committed suicide last month. But even in this last, desperate act there was a method to the madness: he shot himself in the chest, so that his brain would be left intact. He was convinced that the downward spiral of his life over the past few years was due to football-related brain damage - chronic traumatic encephalopathy. He texted his ex-wife just before he shot himself, requesting that his brain be given to the NFL brain bank. Just in case she did not get the message, he left a written note with the same instructions.

We have blogged the issue of concussions in the NFL and their potential for long-term brain damage. As this prior blog pointed out, a changing of the NFL's medical guard indicates that the league finally appears willing to confront the issue head on (so to speak). They no longer systematically deny a connection between concussions on the field and severe cognitive problems after football careers come to an end.

Over the past few years, Duerson was in a downward spiral. He lost his business to bankruptcy. He (uncharacteristically) assaulted his wife, who soon felt compelled to end their marriage. While his friends did not see major changes in his behavior, he talked openly of his fears of dementia. He suffered short-term memory loss, blurred vision and pain on the left side of his brain. He looked into the future and despaired at what he saw coming. At the time of his death, Duerson was only 50.

Suicide as Political Act
Duerson's last gesture was an explicitly political act. He was convinced that his life problems - and the rapidly diminishing quality of that life - were directly connected to his years as a football player. So he not only decided to end his life, he made sure that suicide would leave his brain intact for research. The NFL has been (belatedly) collecting the brains of deceased players willing to donate them, to try and determine the impact of repeated violent collisions on aging. At this point, there is not much doubt of the causal connection - not in every individual who played the game, but surely in a significant percentage who suffered from multiple concussions.

With this connection medically proven, the burden falls on the NFL to improve player safety. That will not be easy. This past season, a number of players - most notably the Steelers linebacker James Harrison- complained about the newly implemented fines for helmut to helmut hits, defined as:

"using any part of a players helmet (including the top/crown and forehead/hairline parts) or facemask to butt, spear, or ram an opponent violently or unnecessarily; although such violent or unnecessary use of the helmet is impermissible against any opponent, game officials will give special attention in administering this rule to protect those players who are in virtually defenseless postures..."

Duerson the player would have agreed with Harrison about the rule. Duerson the retiree would have supported it. Experience is an exacting and often cruel teacher. As Duerson's sad demise demonstrates, what we choose to ignore in the prime of life may give birth to demons that haunt us as we age.

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February 14, 2011


If Missouri is the "Show me" state, Pennsylvania is in the running for the "show me the documents" state. They have a way of over-engineering solutions to what may or may not be problems. (See our prior post ["Blood on the Forms"] on requiring injured workers to sign 2 forms at the time of injury.) Now the Keystone state weighs in on the independent contractor conundrum through the recently implemented Construction Workplace Misclassification Act, also known as Act 72.

In tackling the problem of misclassification, Pennsylvania has done something smart: they have limited the scope of the law to the construction industry, where the worst abuses abide. (Massachusetts kicked a hornets nest with an expansive definition of independent contractor that extends well beyond construction.) The statute contains the usual and customary language requiring independent contractors to control the work, work for others and provide their own tools. But in its relentless need for documentation, Pennsylvania requires general contractors and subs to get out the pens and archive some paper. Independent contractors must:
- Have a written contract for every job
- Carry at least $50,000 in general liability coverage for the duration of the job (this requires a certificate of insurance from the agent)
- Document a proprietary interest in their business (how would a sole proprietor do this - tax forms?)
- Realize a profit or suffer a loss for the project (an interesting and potentially problemmatic issue for craftsmen whose spouses are not accountants)

Act 72 prohibits general contractors from forcing subs to sign any contract that results in misclassification. It also forbids retaliation against any person who files a complaint under the law.

The Amish Exception
As we pointed out in a previous blog, Pennsylvania's Amish population (roughly 51,000 total) is generally exempt from insurance requirements. Amish employers are not required to provide social security or workers compensation coverage, and it appears likely that the Amish will be exempt from the new health insurance standards. When a need arises, they pass the (rather old fashioned) hat throughout their community.

So what happens when an Amish (or non-Amish) general contractor hires an Amish sub? Which of Act 72's requirements apply to the Amish? Certainly not the general liability insurance. Perhaps not the "profit and loss" and "proprietary interest" documentation. While we are not suggesting that employers seek out Amish subs to avoid Act 72, it might simplify matters. For everyone else in PA, it's time to focus on the paperwork.

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January 18, 2011


NCCI has published an interesting study on the relationship between obesity and the cost of workers compensation claims. To no one's surprise, the study concludes that medical costs for the same injury are 3 times higher among obese claimants in the first year, rising to five times higher at 60 months. In addition, claims for the non-obese are much more likely to be medical only; obese workers, when injured, tend to lose time and collect indemnity. For the same injury and all else being equal, the range of medical treatment, the costs and the duration of the claim are consistently greater for obese employees.

The study cites CDC data on the incidence of obesity in the general population. In 1990 10 states had incidence rates of obesity under 10% and none were above 15%. By 2009, 33 states had incidence rates equal to or above 25% and nine (mostly deep south) states had rates at 30% or higher.

The study is based upon 27,000 claims, of which 7,000 carried a specific diagnosis for obesity as a co-morbidity. Data wonks will duly note that there must have been a significant number of obese claimants outside the "obese" group, due to the fact that treating doctors would not consistently list obesity under the diagnosis.

Underwriting the Overweight
I feel a great deal of sympathy these days for the challenges facing comp underwriters and actuaries. Their customary approach of using the rear view mirror as the major indicator of future risk is increasingly ineffective. Now you can add the issue of obesity to mostly hidden factors that can seriously skew loss ratios.

The CDC data clearly indicates an alarming upward trend in obesity. Many of the obese are in the workforce. Indeed, companies might hire a person within the normal weight range and then see this individual gain substantial weight during the course of employment. Many of these burgeoning employees are performing physically demanding tasks. When they suffer from back strains, for example, the medical costs associated with treatment are more than double those of the non-obese. (On the other hand, the cost for the medical treatment of carpal tunnel injuries is virtually the same for the obese and non-obese.)

Fire the Big People?
With this data in hand, it may be tempting for employers to avoid hiring the obese and find ways of terminating current employees who tip the scale in the wrong direction. This would eliminate some very productive people. In addition, it raises the specter of discrimination. The Americans with Disabilities Act protects those with disabilities that impact "one or more major life activities." That might - but does necessarily - include the morbidly obese.

The NCCI study raises the issue of higher costs for injuries involving the obese. There is a more proactive way to look at the issue. Employers could focus on incentives to promote wellness. Employees who stay fit could receive enhanced benefits. We have drug-free and smoke-free workplaces. Perhaps it's time for snack-free workplaces - or healthy snacks. Out with soda machines and in with the vitamin water.

It's interesting to note that when opening comp claims, insurers generally do not collect data on height and weight . They really should. Where the data indicates that weight will be a significant factor in recovery, steps could be taken to encourage weight loss as part of the treatment plan. (For an example of court-ordered weight reduction, see our blog on the obese pizza maker here.)

Ultimately, the effort of employers to control losses will come up against the freedom of people to act as they choose. It's one thing to provide incentives for losing weight, it's quite another - especially in the deep south - to take away the Coca Colas. For many strong advocates of the American way, them's fighting words, indeed.

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December 22, 2010


This is a very busy time for delivery companies.Whether it's the post office, UPS or FedEx, there are more packages moving around than people to handle them. The UPS solution is the hiring of 37,500 (!) temporary workers. These folks have been working for a few weeks and will continue working right up until Christmas Eve, when they will all be laid off. Due to the struggling economy, UPS had no trouble filling temporary jobs. This year, many laid off white-collar workers donned the drab brown uniforms and hopped on board delivery trucks, occupying the "jumper" seat next to the regular driver.

The Wall Street Journal has a nice article about this war-scaled ramp up (subscription required). As you can imagine, there is not a whole lot of time for training the new employees: a few tips on lifting "in the power zone," a caution about getting into the truck ("three point contact") and then off you go. The job is a frenzy of lifting, bending, carrying and climbing. These are physically demanding jobs, with relentless exertion required.

Risk Management Nightmare
Which leads to a loaded question for the risk managers at UPS: what percentage of this temporary workforce will be injured on the job? Even if it's only one half of one percent, that would be nearly 200 people. In all likelihood, they will have been laid off before the claim has been filed. And once laid off, these temps will have no loyalty and no commitment to UPS. They will have already handed in their brown uniforms.

More troubling from a risk perspective, the types of injuries may be the most open-ended and expensive claims in the comp system: back, shoulder and knee injuries, slips and falls on ice (for most of the country it is, after all, a rather tough winter). Statistically, you can expect an occasional robbery or animal bite.

All business entails some risk. Hiring strangers is always risky, no matter how thorough the vetting process - and in this case, that process is foreshortened, to say the least. Placing thousands of temporary employees into physically demanding jobs increases risk exponentially.

So when you go home tonight and look for the packages you are expecting, think for a moment on the harried temporary employees who brought them to your door. And say a little prayer, that the New Year brings these former white-collar workers health, happiness...and a job once again suited to their hard-earned skills.

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December 6, 2010


You may recall the New York saga of Compensation Risk Managers (CRM), who single-handedly brought down the entire workers comp self-insurance group (SIG) industry in the empire state. Well, CRM is back in the news, this time in California, where their dubious business practices have collapsed a self-insurance group for the construction industry. The name of the failed SIG is "Contractors Access Program - get it? "CAP." As in, "your exposure is capped; you have nothing to worry about." To paraphrase a legendary President, "we have nothing to fear except fear itself" - to which we must add, unfortunately, the legitimate fear of predatory insurance administrators.

New York regulators took a very hard line in their response to the insolvency of a dozen SIGs operated by CRM. Someone had to make up the deficit created by CRM's mismanagement, so they decided to penalize all the SIGs operating by the rules. This harsh and rather expansive definition of "joint and several liability" led the well-managed SIGs to abandon the state.

At this point, it's not clear how California is going to pursue the $38 million shortfall. They will probably go after the actual participants in CAP, but it's highly unlikely they will find anywhere near the cash to cover the insurance deficit. Meanwhile, eleven of the SIG members are suing CRM, the agent who sold the product and the SIG's board of directors (some of whom are SIG members). If you total up the premiums paid by those filing the lawsuit, you only come up with $5.2 million. So the scale of the losses - $38 million - appears large enough to put every one of the SIG members out of business.

Promises, Promises
One of the interesting aspects of the lawsuit is the way the plaintiffs have quoted the marketing spiel right back at the defendents. They were promised "superior underwriting, claims oversight, loss control and administration." The "rigorous underwriting" would provide savings "while preserving the integrity of the program." Potential clients were assured that their exposure was limited to the premiums paid (a complete misrepresentation of the nature of SIGs) and that reinsurance kicked in on any claim above $500,000. (In reality, there was no reinsurance.) The agent who sold this dubious product promised to function as "much more than a broker." They brought "particular expertise" to the program and would serve as the clients's "partners in risk management functions." Some partner!

What apparently was not disclosed to members and prospects was the fact that the SIG was losing money almost from the very beginning. CRM had a fall out with the original broker, which resulted in $6 million of SIG funds being used to pay him off.

The CRM website is still up, where you can read about "the CRM advantage." They have an advantage, all right: they take advantage of naive and trusting companies seeking a little edge in the competitive comp market. It's a killer edge, to be sure.

Thanks to Work Comp Central (subscription required) for the heads up on this case.

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November 30, 2010


On a recent drive through rural Ohio, I was startled by an unusual image: a horse and buggy crossing over the interstate on a bridge. Later, at a rest stop, a long line of Amish folks, dressed as if from central casting, stood patiently in line at the Burger King. When they departed, I went up to the counter and asked what they had ordered. "Burgers and biscuits, mostly." The Amish get biscuits from Burger King?

This memory came to mind when reading at of a clash involving roofers in the western suburbs of Philadelphia. It seems that the Amish have an unfair advantage when bidding for roofing jobs against non-Amish contractors. The latter must factor in the costs of social security and workers compensation when bidding for work - and as comp practitioners know, the cost of comp for roofers is, well, through the roof. Under federal law, the Amish are exempt from social security; their religion rejects any form of insurance other than Divine. Under Pennsylvania law, they may opt out of workers compensation as well (though some Amish contractors do not). When you factor the costs of these coverages into the work, it's no surprise that Amish bids are routinely 30% or more lower than non-exempt contractors.

In the good times (remember those?), these differences did not matter much, as there was plenty of work for everyone. Today, however, there is a hard-scrabble search for work. Non-Amish contractors complain that the Amish have an unfair competitive advantage.

Lifestyles of the Not-So-Rich and Famous
The Amish also have a lifestyle advantage. They reject many aspects of modern culture. Many, though not all, refuse to operate machinery. Most do not use electricity. They do not have to worry about flat screened TVs, cable, iPods, iPads, cell phones, etc. They cling to a simple lifestyle that explicitly turns its back on what most people think is essential and necessary.

This brings to mind one more image during my brief encounter with the Amish in Ohio. As I was entering the rest stop, an Amish family was exiting. The father, with his wife a few steps behind, led his six children (their families tend to be large). One of the daughters held the hand of the youngest, a sweet blond 4 year old, who was blind. Bringing up the rear came another daughter, about 16, in a long, plain cotton dress that covered her from neck to ankles, over which she wore big, clunky work boots, laced half way up. Her gaze was indefinite, as if she were oblivious to the prosaic surroundings. She was strikingly beautiful.

I could not help but wonder whether she would remain with the culture that nurtured her, or whether she would yield as most of us do to the temptations of the beckoning world, a world full of greed and gadgets, where insurance is an absolutely necessity ...and by no means divine.

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November 8, 2010


On February 19, 2008, Rachel Moltner, a 76 year old New Yorker, went into the Starbucks at 80th Street and York Avenue and ordered a "venti'-sized" tea. Her tea was served to her double-cupped and lidded. She took it back to a table and tried to remove the lid to add sugar. She had difficulty with the lid, and in the course of her attempts to pry it off, the tea spilled onto her left leg and foot. Moltner suffered severe enough burns to require a skin graft. To compound her woes, during her hospital stay she suffered from bed sores and a fractured sacrum and herniated discs caused by a fall out of bed.

Moltner sued Starbucks. In a follow up to the suit, Starbucks asked how much Moltner was seeking, to which she responded, "not more than $3 million." (Even at Starbuck's prices, that's a lot of tea...)

The suit accused Starbucks of serving tea that was too hot and that the serving in a doubled cup was inherently dangerous. She also said Starbucks should have warned her the tea could spill.

The appeals court rejected her case, saying "double-cupping is a method well known in the industry as a way of preventing a cup of hot tea from burning one's hand." Hm. Mitigate one risk, expose another...

Moltner also lost a subsequent appeal, based upon Starbuck's slow response to her initial suit.

Tea Time
David Jaroslawicz, a lawyer for Moltner, said Tuesday's ruling probably ends his client's case.

"The other side presented an old lady knocking over her tea," he said. "The case was really about that Starbucks has a directive to employees that you should not double-cup because it changes the center of gravity and can cause the cup to tip over."

Note to engineers: Does double cupping really change the center of gravity?

Note to risk managers: Double cup to spare the hand or single cup for steadiness?

Better yet, how about taking your afternoon cuppa in a big white reusable porcelain mug? Still risky, to be sure, but slowing down is the best way to prevent bad things from happening, and slowing down is what tea used to be about.

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October 19, 2010


When a laborer is unable to perform physical work, the options are limited, not only for the worker, but for the workers comp system as well. Meet Pennsylvania's Sam Muzzicato. He came to America from his native Italy in 1969. He had only four years of schooling in Italy. He immediately went to work in America and continued working until January 2007, when he injured his back while employed as a laborer for Strow's Plumbing and Heating Company.

Strow's insurer hired a vocational expert to determine Sam's earning power. The expert came up with five possible jobs in the immediate labor market:
- Cashier at a Jiffy Lube
- Teller at a local casino
- Dispatcher for a trucking company
- A customer sales rep
- Front desk clerk in a hotel

Do you see a common denominator in all of these jobs? Some degree of computer literacy is needed. The Administrative Law Judge dismissed the first four jobs as not within Sam's capabilities, but for unknown reasons determined that he could perform the desk clerk position. With this theoretical job available, the ALJ approved a reduction in Sam's weekly indemnity benefit.

Here is the theory in PA law behind the wage reduction:

"[A]n employer may seek modification of a claimant's benefits by either offering the claimant a specific job that it has available that he is capable of performing or establishing earning power through expert opinion evidence."

Sam appealed to the Commonwealth Court, where the judges determined that the inclusion of the single job by the ALJ was capricious, and that Sam was incapable of performing any of the jobs recommended by the voc expert. Sam, in other words, has few, if any, transferable skills. When his body broke down, he had nothing to bring to the marketplace. As a result, his full indemnity will continue.

Broken Bodies
Sam's story is by no means unique. Many of the immigrants who came to this country to find work had limited education in their native lands. Once here, they were too busy or too indifferent to pursue educational goals. They gained a foothold through hard work, perhaps shifting educational goals onto their children. Now as they enter the waning years of employment, their bodies break down. Where once they recovered quickly from workplace injuries, now the pain lingers, eroding their capacity to work. And once out of work, there is literally no place to go.

What lies ahead for the Sam Muzzicatos of the world? While it sounds odd to say it, Sam is lucky that he was injured at work. His back problems will be treated through the comp system for the foreseeable future. He will collect roughly 2/3 of his average weekly wage, tax free, at least until his eligibility for temporary total benefits runs out. After that, he will probably qualify for some form of permanent partial award. Sam, in other words, will transition rather smoothly into retirement through the generosity of the workers comp system.

Strow's Plumbing and Heating will foot the bill through the experience rating process for three years. After that, the insurer will be on the hook for whatever is owed to Sam. Is this fair? Does it make sense? Is Sam being rewarded for his failure over the years to improve his skills through education? Ironically, if Sam did have transferable skills, his benefits would have been reduced, despite the fact that he might not be able to find work in this troubled economy. Would that have been fair? Indeed, in the world of workers comp, as judges parse the letter of the law and and employers struggle to pay the bills and injured workers battle to survive, is fairness even an issue under consideration?

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October 5, 2010


In yesterday's blog on this topic, we told the story of a pizza delivery driver whose undisclosed seizure problem put others (and herself) at risk. Today we examine the inordinate and ultimately terrifying risks that routinely confront the people who deliver pizzas to homes.

The risks of delivery jobs are embodied in one sad tale. Richel Nova, 58, was a hard working immigrant who worked two jobs, one being delivering pizzas for Domino's in Boston. He responded to a call from the Hyde Park neighborhood. The address was a vacant home. He was lured into the house, robbed, stabbed multiple times and left for dead. The three thieves took his money ($100) along with the pizza and drove off in his 1995 Subaru. (The age of the car tells us a lot about Mr. Nova.) The abandoned car was found a bit later, along with the blood-stained pizza box. All but three pieces had been eaten.

Nova's life revolved around his family: twin 20-year-old daughters and an older son. The twins are both juniors in college. All that stood between Nova and a seat at his daughters's graduation next year were a hundred bucks and a pizza to go.

Robberies of delivery people in the Boston area have been a long-standing problem - 52 were reported through mid-September.

Common Ground Among Competitors
The three main pizza chains - Domino's, Pizza Hut and Little Caesar's - have collaborated on developing safety programs for drivers. Among them, they have nearly 90,000 drivers on the road. (Here is the Domino's description of the job.) Statistically, it's not difficult to identify the riskiest neighborhoods for delivery, but the chains face pressure from neighborhood groups and the federal government to provide delivery services without discriminating against the poor.

Back in 2000, Domino's reached an agreement with the Justice Department to formalize a delivery policy for all its restaurants. Reflecting what Domino's said were well-established standard practices, the new guidelines require managers to evaluate crime statistics with local law enforcement agencies and community groups before limiting delivery. As part of that policy, drivers must report any incidences of violence, and delivery limits must be drawn narrowly. (Easier said than done.)

(Sort of) Managing Risk
There are a number of ideas floating around on how drivers should handle what appear to be risky delivery scenarios:
- Require the customer to come to the car to pay for the delivery and pick up the pizza. (This may not be feasible in all circumstances - for example, disabled customers may not be able to come to the street.)
- Require customers to have exact change for their purchase (and hope against hope that they have a bit extra for the tip!)
- Advise drivers not to enter darkened dwellings
- Limit deliveries after certain hours (in the Boston data mentioned above, many of the robberies took place after 9:00 pm.)
- When in doubt, when confronted with what appears to be immediate risk of harm, the driver is instructed to return to the store (and risk the wrath of legitimate, irate customers awaiting their dinners)

For those of us who have never had a gun or knife thrust into our faces, the dangers confronting delivery workers every day are both frightening and unimaginable. For Richal Nova's children, any mention of pizza will haunt their thoughts for the rest of their lives - reminding them of their father's lonely and senseless demise at the hands of cruel thugs with a half-baked plan for a free meal.

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October 4, 2010


Every time I see a marginal car with a pizza delivery sign slapped onto the roof, I think about the driver. How old? How experienced? How desperate to make a few bucks in a tough economy? And from the employer's viewpoint: how competent is the driver? Just how far must an employer go before they entrust a driver with the plastic logo and the insulated bag for delivering pizza to those of us who want dinner delivered in a box?

These thoughts congeal like day-old pizza in the sad case of Nicole Fisk, an 18 year old driver who worked (briefly) for Pizza Hut. Nicole only had her license for 3 months when hired by Pizza Hut in Clairemont CA. She was delivering pizza in November 2008 when she blacked out and drifted across the solid line into oncoming traffic. She slammed into a car operated by Shari Novak, 62, who suffered permanent brain damage and can no longer take care of herself. Shari's mother, Olena, suffered a broken neck.

Who Pays?
The Novaks sued Pizza Hut, arguing that the company was responsible for the collision because they hired Fisk, a relatively inexperienced driver, who had a history of suffering blackout spells. Ah, there's the rub. What did the employer know about Nicole Fisk? Only what she told them. She had a clean record, she carried the necessary insurance and her references were fine. She was not diagnosed with epilepsy until after the crash. Pizza Hut called it an "unforeseeable medical emergency" - which can be used as a defense to a negligence lawsuit.

Jurors rejected the defense, awarding Shari Novak $8.6 million and her mother $2.2 million. As one juror put it, "Fisk should have known she could have a blackout episode because of her medical history."

Here's where it gets interesting and where the issue of employer accountability comes to the fore. A consultant attorney points out that Nicole lied continuously about her health problems. When she first experienced blackouts, she was put on medication for acid reflux (a seemingly bizarre diagnosis, but perhaps based upon the limited information she provided her doctors). She apparently under-reported subsequent problems to these doctors. When she applied for a driver's license, she failed to disclose her medical condition to the Registry. And when she applied for a job at Pizza Hut, she once again lied about her condition and its potential impact on her ability to perform the job safely.

It's not difficult to feel some sympathy for Nicole. She is only 18. Her medical condition frightens her - she probably prefers not to think about it. Like any 18 year old, she wants to drive like her friends and earn a few bucks. In her own mind, she was not endangering herself or anyone else.

Impossible Standard?
While it's important to note that the jury did not find Pizza Hut guilty of negligent hiring, it did conclude that the company is responsible for damages because Fisk was their employee at the time of the accident. John Gomez, the attorney for the Novaks, said that the verdict should send a signal to other companies "to be a little more careful when hiring professional drivers." This is a bit disingenuous. Surely, the attorney is not suggesting that employers (illegally) research medical records on every potential hire. In this case, Pizza Hut followed its own reasonable procedures. Other than hiring a relatively inexperienced driver, they did nothing wrong.

Nicole Fisk was initially named in the personal-injury lawsuit but was later dropped from the case. Not because she was innocent - she is responsible for the tragic events on that November day - but because she had no assets of the magnitude sought - and secured - by the Novak attorneys.

There are few lessons to be learned here. Employers are routinely held accountable for many things which they do not control. It's not so much a matter of accountability as the crass ability to pay. In a case of this scale, with damages this severe, someone must pay. That someone, obviously, is the corporate entity that was unfortunate enough to hire Nicole Fisk.

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September 29, 2010


In November the voters in the Evergreen state have the opportunity to end one of the few remaining monopolistic systems for workers compensation (the three others are North Dakota, Ohio and Wyoming). As you might expect, there is much fulminating and little rational discourse evident in the pre-election build up on Initiative 1082.

Opponents of privitization project visions of greedy insurers denying claims (Hank Greenberg with an ax?), while proponents lampoon the arrogance and incompetence of a bloated state bureaucracy. (If you want to see what passes for humor in the great northwest, check out this rather lame rap video in support of the initiative.)

It's hardly surprising that opponents of the measure view insurers as a greedy, heartless enemy. On the other hand, it's pretty clear that most monopolies tend to evolve (or is it devolve?) into behemoths slow to respond and slow to innovate. Both visions suffer from inaccuracy and distortion.

Who Pays?
In most states, employers bear the full cost of workers comp: employees pay nothing for the premiums and nothing for the treatments. In Washington, there are three funds supported by comp premiums: an indemnity fund; a medical fund; and a supplemental pension fund. Employees contribute through payroll deduction to the latter two funds. The current deduction is 0.1543 percent of earnings, with no caps. If I've done the math right - a big if, unfortunately! - that's about $76 per year for the average worker. Not a lot of money, but the principle is interesting - employees have a little "skin" in the game. Total employee contribution of premiums does reach the substantial level of about 22 percent.

While you would expect small businesses to embrace competition, some oppose 1082 for the simple fact that it will eliminate the employee contribution to premiums and shift the entire burden onto employers. Costs might go up. On the other hand, competition might bring costs down.

Decision Makers
Currently, costs for workers comp in Washington are modest: they rank 38th for cost in the 2008 Oregon survey, with an average rate of $1.98 per $100 of payroll. If the costs were higher, the pressure for change would probably be much more intense. As it is, voters will go the polls as they often do, with a lot of inflammatory rhetoric (and perhaps an annoying rap song) ringing in their ears. Then they will fill out their ballots. The fate of Washington's comp system is in their hands.

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September 13, 2010


Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of "employee" is so inclusive, it's almost impossible to find a truly "independent contractor." Well, the proverbial chickens have come home to roost.

Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 "misclassified" delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the "independent contractor" strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.

FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query "who controls the work?" has been unambiguously, FedEx.

ISP to the Rescue?
As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.

Here are a few of the details:

  • The local driver/manager must operate under a corporate entity recognized by the state(s) in which he or she operates.

  • The driver/manager can hire and fire employees and must provide all mandated benefits to employees, including workers comp

  • Theoretically at least, the driver/manager can be a sole proprietor without employees; in this case, the issue of workers comp coverage is governed by the state statute on sole proprietors (who usually can opt out)

  • The agreement states that FedEx Ground has no authority to "direct as to methods, manner or means" the provision of services.

  • The ISP manager has "exclusive rights" in a specific geographic area

  • While the ISP has the right to decline service, in such cases this triggers the right of FedEx to ensure services

  • Drivers are not compelled to wear FedEx uniforms or drive FedEx vehicles, but they are paid a weekly incentive to do so.
  • As you can see, FedEx is trying to establish independence while still maintaining its identity and its standards. The Attorney General has not made any judgment about the validity of this strategy; she has simply cashed a nice check, in exchange for which she has given FedEx a year to work out the kinks. After the year is up, the FedEx model will likely be challenged once again.

    Not Quite Independent?
    You have to credit the presumably well-paid FedEx team: they have tackled head on the thorny issue of "free from control and direction." On the surface at least, the ISP approach offers a credible if not totally convincing appearance of independence.

    Unfortunately for FedEx, the MA standards have two additional components, neither of which appear to be addressed in the draft ISP agreement: independent contractors must provide a service outside of the general contractor's usual course of business (no way FedEx can do this) and their independence is reflected in their marketing of services beyond a single customer (what would this look like?).

    It will be interesting to see how FedEx responds when local driver/managers stretch the rules and standards in an attempt to assert some real independence. That's where the rubber will meet the road in this seemingly endless saga: a company with a ferocious need to control, giving up control in order to preserve their idiosyncratic business model.

    And some folks say employment law is boring....Stay tuned.

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    August 26, 2010


    Massachusetts has been in the forefront of the independent contractor issue. The state has narrowed the definition of "independent contractor" to the point where almost anybody can be defined as an employee. But how do you enforce this? Where is the leverage to confront employers who are avoiding comp premiums by misclassifying their employees as independent contractors?

    Under the direct influence of labor unions, the Commonwealth has empowered "any 3 persons" to take action against suspected comp fraud. Governor Deval Patrick recently signed a law that allows any 3 people to file suit against an employer who fails to comply with the workers comp statute. If that sounds pretty broad, well, it is. Here is first section of the new law:

    Whenever facts exist showing that an employer has failed to comply with this chapter, then any 3 persons may bring a civil action and that civil action shall be deemed a private attorneys general action....Plaintiffs shall prove a violation of this chapter by a preponderance of the evidence.

    I do wonder what those "facts" and the supporting evidence might look like. Beyond that, this language invites lawsuits for any violation of the workers comp statute, a very wide parameter of possibilities, indeed. The focus, however, will be on premium fraud: deliberate misclassification of employees; paying people under the table; and failing to carry workers comp insurance altogether. The plaintiffs can collect up to $25,000 in unpaid premiums and an additional $25,000 in damages, plus "costs and reasonable attorneys fees."

    These suits must be filed no sooner than 90 days after a policy ends (how would the "3 persons" know this date?). Then the process will take an additional 90 days. So six months after the policy ends, all hell breaks loose.

    Bitter Remedy
    Where are the "3 persons" likely to come from? I'm guessing that disappointed bidders on (increasingly rare) construction projects are likely to team up with disgruntled (former) employees of the successful bidder to form a merry band of 3. You might find three laid off employees/independent contractors jumping in to get back at their former bosses. Heck, the standard of "3 persons" is so low, this game is not much more difficult than playing the state lottery.

    It will be fascinating to watch this new statute roll out. Simmering rivalries are going to boil over. The frictional cost of doing business in the Bay State is about to go up. The ultimate question, of course, is how effective this new weapon against premium fraud will be. To the extent it exposes unfair business practices, it will help level the playing field for all Massachusetts employers. But given the broad and ultimately vague language of the enabling statute, there is plenty of opportunity for abuse in this cure for abuse. From a blogger's perspective, of course, it's just about perfect.

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    June 21, 2010


    A sewer may not be the preferred place to begin the work week, but the working world calls and we must follow. About a year ago, we blogged the sad story of Shlomo and Harel Dahan, respectively the owner and heir of S. Dahan Piping and Heating company in Queens, New York. They were hired to vacuum an 18-foot-deep dry well at a plant owned by Regal Recycling. Harel went in first. When he failed to emerge, his father went in after him. When the father failed to surface, an employee of Regal, Rene Rivas, went in after them. All three were overcome by deadly fumes at the bottom of the well. All three died.

    Now we read in the New York Times that Sarah Dahan, Shlomo's widow and mother of Harel, brought the remains of her husband and son to Israel for burial. She left the company in the hands of Ygal Lalush, a trusted employee. In her absence, Lalush changed the locks, stole the company's four trucks, wrote $30,000 in company checks for his personal benefit and started running the company out of his own home under a different corporate name.

    Ms. Dahan discovered the problem when she returned from Israel. She first tried to resolve the issue directly with Lalush. When that failed, she went to the authorities. Lalush has been charged with fraud, grand larceny, forgery, possession of stolen property and falsifying business records.

    Lessons from the Underground
    We could conjecture about the frailty of human nature and the dark shadows that accompany us all as we make our way through the world. We could wonder at the transformation of a loyal employee into a pathetic crook. (Perhaps his lawyer will chalk it up to post-traumatic stress syndrome!) That aspect of this tale will remain forever hidden, like the contents of the sewers cleaned by S. Dahan Piping and Heating.

    The take-away from this tale lies within the Dahan family: the father who tried in vain to save his son. The mother who fulfilled a commitment by burying her husband and son in Israel and who tried unsuccessfully to convince her wayward employee to abandon his demented plan. There is genuine dignity in these people, who deserved both a better fate and a higher class of employee.

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    June 18, 2010


    The saga of the New York self insurance trusts continues. We reported in April that justice had been served by Judge Kimberly O'Connell, who ruled that requiring solvent trusts to pay for the sins of insolvent trusts was unconstitutional. Now, according to Work Comp Central (subscription required), O'Connell herself has been overruled by a four judge panel, which has reinstated the assessments on the solvent trusts. While the justices are undoubtedly correct in their literal interpretation of the law, the ruling comes under the heading of "let no good deed go unpunished." It may be legal, but it is in no way just.

    Here's the (rotten) deal: 15 self-insurance trusts are shut down by the state. They ran out of money because they under-priced their premiums, under-reserved claims and sold insurance like a ponzi scheme. Oh, they also paid themselves handsomely for their fine work as administrators. These defunct trusts are in the hole to the tune of $500-$600 million. State oversight? There wasn't any.

    Who Pays?
    The WCB decides to assess the remaining, solvent trusts to make up the deficit. In other words, the "joint and several liability" within a trust group now expands to include liability for all trust groups. To be sure, the enabling legislation allows the WCB to do this. After all, someone has to pay and this is New York, so deal with it. In this case, the trusts that operated by the rules, fairly pricing and fairly reserving claims, are penalized for the sins of the clowns who are no longer in business.

    As we pointed out in yesterday's post, a task force has recommended that New York get out of the self insured trust business. We concur. Any state that loads the dice of "joint and several liability" to this absurd point makes a mockery of the concept. Self-insurance is based upon the ability to limit risk and contain exposures. Given New York's operating rules for self-insured trusts, conventional management tools are rendered useless. The liabilities of operating a group trust are uncontrollable and virtually infinite. Why would any company choose this path for managing risk?

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    June 17, 2010


    Two years ago, New York Governor Patterson convened a task force to examine the status of self-insured trusts for workers comp. He was forced to take action when a number of trusts failed, most notably those administered by Compensation Risk Managers (CRM). The insolvent trusts left behind a deficit of $500 million. (See our prior blogs here and here.) The task force recently presented its findings to the governor. In 189 pages of closely reasoned text, the commission recommends that New York abandon this particular model for insurance. The risks, in their view, outweigh the benefits and perhaps most important, the state lacks the resources to adequately monitor how these groups operate from day to day. You cannot trust the trusts.

    The commission zeroed in on what it considers to be the (fatal) flaws in the group trust model:
    : Joint and several liability, where prudent employers are held accountable for the actions of the weakest members
    NOTE: it's one thing to have "joint and several" liability; as the commission points out, it's quite another to actually collect on these obligations: less than 15% of what is owed by participants in the failed trusts has been collected to date.
    : potential conflicts of interest involving group administrators and TPAs, who seek to grow the business by keeping rates artificially low and by understating losses
    : inability of trustees to understand what is really going on
    : inability of the state to monitor and assess the true status of each operating trust

    Death Spiral
    Self insurance groups currently operate successfully in 18 states, but not in New York. As we pointed out in a prior blog, the NY comp board tried to assess all trust members - not just those in the insolvent trusts - to make up the $500 million deficit. The solvent trusts sued and for the moment, have prevailed. (The Held decision can be read in the appendix of the task force report).

    There is a certain logic to assessing all members for the failings of a few, but this only works when you are dealing with very large numbers, so the individual assessments are relatively small. This was not the case back in 2008, when there were about 18,000 employers participating in NY trusts. After all hell broke lose, the number dwindled to 4,000.

    The crippling assessments issued by the comp board to cover the trust deficit created a death spiral, with solvent trusts folding their tents and moving out of the state. Even though those assessments have been retracted by the courts, that action comes too late to save the viable trusts. New York probably has no choice but to abandon the group trust model.

    Rotten Apples
    The New York narrative, as written by the governor's commission, attributes the trust failures to fatal flaws in the business model. But where New York sees an insurance approach that cannot work, other states see vulnerabilities that can be addressed through prudent management. Self-insured groups still operate profitably and effectively in many states. What happened in New York was the result of rogue and perhaps felonious trust management combined with inadequate state oversight. The state failed to see the true status of the troubled trusts in a timely manner and then took exactly the wrong action to correct it. That's not a problem with trusts themselves, but with the people entrusted to run them.

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    June 8, 2010


    We are following the consequences of the gulf oil disaster with increasing despair. Images of oil soaked birds, dead fish, and the serene Gulf waters transformed from the customary beautiful blue-green to an appalling brown. Our thoughts also turn to the men and women laboring under very challenging conditions to contain the impact of this man-made disaster.

    NIOSH has issued the following summary of the exposures facing the recovery workers:

    Chemical exposures may include benzene and other volatile organic compounds, oil mist, polycyclic aromatic hydrocarbons, and diesel fumes. Physical hazards may include ergonomic hazards, excessive noise levels, sun exposure and heat stress. Injuries may occur due to slips, trips, and falls on slippery or uneven walking and working surfaces. Other safety hazards are associated with the use of tools, equipment, machinery, and vehicles. Biological hazards include possible exposure to biting or venomous insects or other animals. Psychological hazards may include witnessing traumatic injuries or death, inability to help affected wildlife, and fatigue.

    You can read the CDC's 96 page opus on managing the exposures to emergency workers here. (I can't help but wonder if this particular web-available document is symbolically collecting dust on the shelf, like so many other well-intentioned but rather long-winded safety manuals - the ones risk managers point to with pride during a tour of an industrial plant.

    "We're Hiring!"
    BP has hired about 22,000 workers to help with the clean up. I wonder how carefully they screened the new hires. Any rapid ramp up is full of risk; the hazards of hiring on this scale for jobs full of open-ended risk is simply beyond calculation. How many of the 22,000 workers will end up with work-related illnesses and injuries? How would you project the future impact on BP's workers comp costs? (Perhaps BP is calling the new hires "independent contractors." Some may well be; most are not.)

    Under regulatory scrutiny, BP has provided some form of rudimentory training and the necessary personal protective equipment (PPE) for the new workers. But how well is the work supervised? With temperatures routinely in the high 80s and the heat index over 100 degrees, how long can people function in the requisite protective suits, steel-toed boots, gloves, hard hats and safety glasses? What is the impact of raw crude on bare skin and laboring lungs?

    Looming Epidemic?
    There have already been reports of illnesses among these workers. Law firms have put out the word that at least one of the dispersants used in the clean up may harm workers:

    OSHA representatives, Obama administration officials and others have expressed concerns that the oil dispersant chemical Corexit may be the source of the illnesses reported on May 26 by cleanup workers. In May, the EPA urged BP to stop using Corexit because of its toxicity. Corexit is manufactured by Nalco, whose board of directors has strong ties to the oil industry, including sharing at least one board member with BP.

    We all feel a sense of urgency on an unprecedented scale as the pristine Gulf waters are sullied by millions of gallons of oil. A huge workforce has been mobilized to help with the clean up. Looming on the distant horizon is the cost of cleaning up the damage to those who are currently engaged in the clean up. It's something we give only passing thought to today. But the time will come when those costs are as conspicuous and nearly as disturbing as the image of an oil-soaked pelican trying to spread its soiled wings, trying and failing to launch itself into the brilliant blue skies of its Gulf home.

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    June 1, 2010


    With a population around 1.5 million and a land mass the size of New England, Idaho is probably not the first state that comes to mind in the national struggle to contain medical costs. Nonetheless, orthopedists in Idaho have managed to attract the attention of the federal government in their effort to increase rates of reimbursement for services. The feds are not happy with the Idaho docs.

    The first problem came with the workers comp fee schedule. The "Resource-Based Relative Value system" set a price of $88 for most orthopedic procedures. The 65 or so orthopedists in Boise got together and decided to refuse to treat workers comp cases. As a result, the Industrial Commission raised the rates by 61 percent. Score one for the docs.

    Emboldened by their success, the docs refused to accept Blue Cross patients under the prevailing fee scheme. But in taking on the conventional health care (as opposed to the state-based workers comp system), the docs crossed a line from a program run exclusively by the states into a behemoth system in which the federal government plays a big role. The feds came down hard with charges of violations of the Sherman Anti-Trust Act. Prosecutors sued five doctors, the Idaho Orthopaedic Society and the Idaho Sports Medicine Institute in Federal Court. If you think about it, it's not hard to see how a bunch of doctors agreeing to hold out for higher reimbursements might fall under the general heading of "price fixing."

    As we have blogged rather frequently, Massachusetts has the lowest fee schedule in the nation. Most orthopedists have responded by refusing to accept the (ridiculously low) rates. But unlike the orthos in Idaho, the MA docs deal with the palty rates on their own. By refusing to accept them, they compel insurers to negotiate higher rates. These negotiated rates vary from doctor to doctor. There is simply no way and no need for the hundreds of orthopedic doctors in MA to agree on rates:it would be like the proverbial herding of cats.

    In Idaho it's different. The state's unique characteristics - the large land mass and relatively small population - make a genuine "conspiracy" possible. The docs all know one another. So what seemed to them a fairly innocent attempt to leverage the system for higher reimbursement rates appeared to the feds as a conspiracy. In other words, their mistake was in sharing information about the rates and in uniting to take action against them. Had they acted individually, there would have been no violation of the anti-trust act.

    War on Docs?
    One blogger with roots in the libertarian Ludvig Von Mises movement sees in the government action a declaration of war against doctors. He believes that doctors will be "forced" to accept the government rates. Not exactly. As we have seen in Massachusetts, individual doctors can accept or reject patients as they please. What they cannot do is collude with fellow doctors to achieve a fee schedule to their liking.

    With rising medical costs looming over every aspect of our economy, this little skirmish in Idaho is simply the opening salvo in what is likely to be a prolonged and painful battle to contain the costs of health care. It's no accident that the Obama health care bill punted on the cost containment issue. One person's cost containment plan is inevitably another's cut in pay.

    In the coming months, the battle of Idaho will move into the great metropolitan areas of our country. Just imagine the formidable barricades to be erected by the men and women in blue scrubs! This will be an interesting brouha, to say the least.

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    May 24, 2010


    Joe Cassano, the man who brought insurance giant AIG - and the world economy - to their knees, has dodged the proverbial bullet: he will not be indicted for his actions in the collapse of AIG's Financial Products unit, which he ran until his resignation in 2008. Federal prosecutors searched diligently for evidence of wrong doing. What they found, however, was evidence of cluelessness. Joe Cassano was no crook: he was just a manager in way over his head. He apparently believed that underwriting credit default swaps was relatively risk free. Oh, well, it seemed like a good idea at the time.

    If no good deed goes unpunished, incompetence on a cosmic level is not without its rewards: Cassano made about $280 million in eight years of running the FP unit, in addition to receiving a performance bonus of $35 million in his final year with the company. That last payment truly boggles the mind. Cassano was paid for high volume sales of a product that destroyed his company.

    Joe Warin and Jim Walden, Cassano's (presumably high paid) attorneys were delighted with the outcome of the investigation:

    Although a two-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client's factual innocence. This result was the product of two things: an innocent client and fair prosecutors and agents. The system worked.

    It would be more accurate to say that the system was worked. As was evident in a prior blog, Cassano was not a nice guy who happened to make a mistake. He was a thug dressed up in a fancy suit. Perhaps on some level it's reassuring that his actions were not criminal, that he acted in the expectation that his company would make money. Cassano certainly made an obscene amount of money, but AIG rank and file, the shareholders and the tax payers have to foot the bill for the mistakes of one greedy goon.

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    May 18, 2010


    Arizona has been getting a lot of criticism lately. Frustrated by the federal government's inability to confront the undocumented worker problem, they took matters into their own hands and passed their own law. Now police are required to stop anyone who "looks illegal" and ask for papers. I'm not sure that illegal immigrants from Ireland have much to worry about, but Hispanics - who make up one third of the state's population - had better be careful. The Arizona legislature missed an opportunity by not requiring Hispanics to wear their documents in a packet around their necks. Perhaps they can amend the law.

    I have been on board with the need to deal with illegal immigration. Back in 2006 I strongly endorsed the congressional initiative to build a wall at the Mexican border. This new version of the "Great Wall" offered an tremendous opportunity to ineffectively seal the border, build a tourist attraction/theme park and temporarily employ thousands of undocumented workers until the project was finished, at which point we would escort the workers through the wall back to Mexico.

    Some people feel that Arizona has created a law that penalizes people simply for looking Hispanic. Others believe that only the federal government has the power to deal with immigration issues. As we await the legal challenges that may or may not resolve the issue, we need to shift gears and recognize an area where the maligned state has actually gotten it right.

    Public Versus Private
    I am referring, of course, to the decision to privatize the state fund for workers comp insurance. Arizona has provided insurance since 1925 through the State Compensation Fund (SCF). With 40 thousand employers and $191.8 million in premiums, SCF is the largest workers' compensation carrier operating in the state, with a 31.5 percent market share.

    One of its subsidiaries, SCF Premier Insurance Co., is the second-largest, with $34.1 million in 2009 direct premiums written. Another subsidiary, SCF Western Insurance Co., is the 10th-largest, with $10.7 million in 2009 direct premiums written. In other words, SCF is by far the dominant player in the insurance market for comp.

    Under the recently signed law, SCF will become a mutual fund in 2013. This move should open the door for more carriers to do business in Arizona, which will join the vast majority of states in operating a private insurance system for workers comp. I find it encouraging that in this area, at least, the goal is not to make the rest of us "Arizonians," but to have Arizona join the mainstream of American culture. Bienvenida, las damas y caballeros!

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    May 10, 2010


    At its annual conference in Orlando, the National Commission on Compensation Insurance (NCCI) recently presented an overview of the state of workers compensation insurance across the country . Dennis Mealy, NCCI's chief actuary, presented to a standing-room only crowd, which is notable in itself, as the normal crowd for an actuary would fit in the proverbial phone booth.

    Anyone with an interest in workers comp should take a peak at Mealy's presentation. As is often the case, viewers will pull out different nuggets, depending upon their points of view. Here's what jumped out at me:

    • From 2008 to 2009 workers comp premiums dropped by 11.8%. No surprise, as premiums are tied to payrolls and the latter have tanked along with the economy. In addition, average premium rates have declined steadily since 2003, as no politician wants to approve a rate hike.
    • Net written premium from 2007 to 2009 is down 23%.
    • The payroll for manufacturing has been on a steady decline over the past two decades.
    • The payrolls for manufacturing and contracting comprise 20% of comp payroll nationwide, but generate 40% of the premium. Again, no surprise, as the manual rates in these areas are higher then the rates in other occupations.
    • Investment gain - the crucial money made off the float of premium dollars - dropped to 7.1% in 2008, after averaging nearly 15% in prior years.
    • The combined ratio for workers comp is running around 110 - in other words, for every dollar insurers collect in premium, they are spending $1.10.
    • Insurers continue to offer premium discounts in order to secure new business or retain existing business (what my colleague Tom Lynch refers to as "eating their young").
    • Frequency of injuries continues to trend downward.
    • The average cost of indemnity per lost-time claim and the average medical cost per claim continue to rise.
    There you have it: premium dollars are down, investment returns are down, and losses are up. These days it's not easy making money in workers comp. On the other hand, the economy seems to be recovering; the prospect of virtually universal health coverage could well have a positive impact on comp; and despite all the problems, residual markets remain small.

    As is usually the case, insurers are betting that they can beat the odds of a tough market: by writing only the best businesses, by preventing injuries through loss control, by managing claims aggressively and by investing prudently.

    There's Always Tomorrow
    What you see from the bridge depends upon what you are looking for: where the despairing see reasons for jumping, the optimist simply enjoys the view. The risk transfer business requires optimism (for everyone, that is, except the actuaries). The great insurance wager never really changes: carriers are betting that premium dollars collected will ultimately exceed what they have to pay out in losses. The negative results of the last few years are viewed as an aberation. Just wait 'til Tomorrow:

    The sun'll come out
    So ya gotta hang on
    'Til tomorrow
    Come what may
    Tomorrow! Tomorrow!
    I love ya Tomorrow!
    You're always
    A day
    A way!

    For insurers, that "tomorrow" hopefully includes more favorable rates, improved return on investment, employers truly committed to safer workplaces, employees who really pay attention, and, while we're making a wish list, selfless attorneys. You gotta love tomorrow!

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    April 27, 2010


    Salverio Todaro, a 68 year old entrepreneur, ran a safety inspection company called SAF Environmental Corporation. You may never have heard of Todaro, but if you live in the New York City area, Todaro may have succeeded in damaging your brain or shortening your life by a number of years. Certified to inspect buildings for lead and asbestos, Todaro rarely actually tested for the deadly substances. Beginning in 1989, he routinely filed bogus inspection reports, including phony lab results, on buildings scheduled for renovation or demolition across the five boroughs. (William Rashbaum of the New York Times provides the appalling details here.)

    Think about the consequences of Todaro's failure to do his job. He gave the green light for projects that put construction workers on hundreds of jobs at immediate risk for exposure to lead and asbestos. These workers ripped apart buildings contaminated with asbestos, raising clouds of toxins for all to breath - construction workers, neighbors, passers by. It will take years for the toxins to do their work, but rest assured, that dreadful work will be done.
    NOTE: I hardly need add that construction workers on the job sites certified as safe by Todaro are unlikely to qualify for workers comp benefits: thanks to Todaro, there are no records of hazardous substances on these sites.

    In one documented case, Todaro was asked to examine an apartment where a young child had suffered from exposure to lead. Todaro gave the building a clean bill of health. As a result, the family had no reason to move, no reason to suspect that every breath their child took put him at risk for further brain damage.

    A Punishment to Fit the Crime
    In an earlier time, we might have pondered Todaro's fate after his death. In Dante's Inferno, the Ninth Circle of Hell is reserved for traitors, who find themselves eternally locked into awkward positions, encased in ice. Todaro betrayed his city and his fellow man, and made a few bucks in the process. But his actual fate is pretty mild by Dante's standards: he is facing four to six years in jail. After that, I imagine, he'll head south to a quiet retirement in Florida. No eternity encased in ice for this despicable betrayer of the public trust.

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    April 26, 2010


    We have been following the implosion of self insurance groups (SIGs) in New York. Back in June 2008, SIGs operated by Compensation Risk Management (CRM) collapsed. CRM had grown their business by offering comp coverage at very low rates. For a long time, they were able to maintain an illusion of profitability by under-reserving losses. Eventually, it all caught up with them.

    When the CRM SIGs went belly up, the state worker's comp board looked around for some free cash to pay for the $450 million in unfunded liabilities incurred by CRM. They decided to penalize all the SIGs that had been operating in the black. In a move stunning for its arrogance (facilitated by legislation passed in 2008), they decided to raise assessments on these SIGs from the modest annual total of $104,000 to a whopping $11.1 million.

    In other words, the insurance groups operating prudently - charging adequate premiums, controlling losses and turning a modest profit - were forced to make up the losses incurred by a company operating like a ponzi scheme. Well, as they like to say in New York: "You gotta problem with that?"

    Acting state Supreme Court Justice Kimberly O'Connor had a problem with it. She ruled on April 14 that the 2008 laws that empowered the comp board to assess the SIGs were unconstitutional, as were the assessments issued by the board.

    Justice Too Late
    Unfortunately, judicial relief comes long after the once-profitable SIGs have folded their tents. First Cardinal once operated 13 SIGs in New York, with $166 million in premium. When hit with the exponential increase in assessments, First Cardinal decided to move its business out of the state (in itself a sure sign of management that was paying attention). They stopped writing in New York and laid off the 57 (innocent) workers who were doing a good job of managing the New York business.

    You may recall the old saying: "The wheels of justice grind slow but they grind exceeding fine." In this case, justice - and fairness - were eventually served. But the pace of the process seems to have crushed the parties harmed by an unjust law.

    Of course, the comp board believes that the assessments are legal and is planning to appeal. That should add a few more months to this ridiculous situation.

    "You gotta problem with that?" Indeed, I do.

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    April 12, 2010


    In our first blog of the Upper Big Branch mine disaster that took 29 lives last week, we made no attempt to point fingers. It was a time for mourning, for acknowledging the sacrifices of the brave men whose jobs never see the light of day. Well, now that the final death toll has been rendered - there were no survivors - it's time for some accountability. Let's begin at the top.

    The CEO for Massey Energy is Don Blankenship. He is a man of humble and hard-scrabble beginnings, raised by a single mother. He worked as a union miner (an irony that will soon become evident) and attended Marshall University, where he received a degree in accounting. He worked for Massey Energy in the accounting department. where his fiscal skills and his penchant for cost controls helped him rise in the ranks, culminating in his becoming CEO in 2000. He is a vehement foe of organized labor, along with government regulations and the "the hoax and ponzi scheme" of global warming. (His business is coal, so his disbelief in global warming runs as deep as his mines.) Blankenship constantly battles regulators over safety infractions, including adequate ventilation of the mines (which at this point appears to be a major factor in last week's exlosion).

    While famous for his focus on production, Blankenship does give lip service to safety. In a July 2008 depostion defending Massey Energy's safety record, he appears to talk the talk:

    "As an accountant, I know that safety is an important cost control. So even if I were so calloused, which I am not, as to believe that safety should be sacrificed for production, I would understand that it doesn't make any sense because the accidents and so forth cause you to have more costs."

    But somehow, in the dust and drive of production goals and profits, safety falls by the wayside. Blankenship does not walk the walk - or, as we are talking mines, he does not crawl the crawl.

    Management Styles
    There are clues to his management style in his personal life (a rather critical summary of which appeared in Business Week). His maid quit, saying the working conditions were intolerable. Ever the bean counter, the politically connected Blankenship successfully fought her application for unemployment benefits. The case wended its way to the West Virginia Supreme Court, where the maid prevailed. Two of the court's justices said that "the unrefuted evidence" before the state unemployment agency showed that Blankenship "physically grabbed" the maid, threw food after she brought back the wrong fast-food order, and tore a tie rack and coat hanger out of a closet after she forgot to leave the hanger out for his coat.

    "This shocking conduct" showed that she was, in effect, fired because she felt compelled to quit, the justices said. They said the conduct was "reminiscent of slavery and is an affront to common decency."

    The same, alas, could be said of Blankenship's management of Massey Energy.

    Humble No More
    Don Blankenship earned about $11 million in 2008. Not bad for a man of humble beginnings. As for the survivors of the miners killed last week, they must turn to the West Virginia workers comp system, which will provide indemnity for widows and dependents. (It appears that Massey Energy is self insured for comp - a penny-pinching decision that is about to haunt Blankenship, big time.)

    The company is also vulnerable under West Virginia law for civil suits: comp's "exclusive remedy" provision can be transcended if you can prove "deliberate intent." I would say that repeated stalling, appealing, stonewalling and dismissal of documented safety violations is likely to reach the "deliberate" standard.

    You may remember the song "Sixteen Tons" - made famous by Tennesse Ernie Ford:

    You load sixteen tons, what do you get?
    Another day older and deeper in debt.
    Saint Peter, don't you call me, 'cause I can't go;
    I owe my soul to the company store.

    Surely the miners had souls to put in hock. That may be more than can be said for the man who currently runs the company store.

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    April 6, 2010


    Whatever you may be doing as you read this, take a moment to focus on your breath - the simple act of breathing in fresh air and then exhaling. Then think for a moment of the all the people who work in conditions where clean air is nowhere to be found. Think especially of the miners working deep in the earth, extracting minerals which benefit us all.

    I often wonder what compels people to choose work in such dire conditions. For many, it's the only work available. For others, it's just what they know. Here is a passage, quoted in a lovely essay by Colin Nicholson, from one of my very favorite writers, Alistair MacLeod of Cape Breton Island, Canada (whose books Island and No Great Mischief are simply wonderful). MacLeod's family emigrated from the Scottish highlands in the late 1700s and found work in the Canadian mines:

    Once you start it takes a hold of you, once you drink underground water, you will always come back to drink some more. The water gets into your blood. It is in all of our blood. We have been working in the mines here since 1873.

    Here he describes a young boy in his first working day underground:

    And there was scarcely thirty-six inches of headroom where we sprawled, my father shovelling over his shoulder like the machine he had almost become while I tried to do what I was told and to be unafraid of the roof coming in or of the rats that brushed my face, or of the water that numbed my legs, my stomach, and my testicles or of the fact that at times I could not breathe because the powder-heavy air was so foul and had been breathed before.

    I am haunted this morning by the thought of 25 miners in West Virginia, whose last breaths were taken 1000 feet below the earth's surface. For each, there was a first terrifying day in the mines, perhaps following their grandfathers, fathers or uncles into tunnels deep below the surface. Over time, the terror receded, followed by the grim routine of working in the dark and breathing powder-heavy air that had been breathed before.

    In the coming weeks, there will be many questions about mine safety, company policies and procedures, and survival benefits for the families. But today, there is simply the hope that the bodies can be recovered and brought one last time to the earth's surface. In a concluding irony, the final resting place for these men will be far above the chambers where they worked and where they died.

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    April 2, 2010


    We have blogged the sad tale of housekeepers at the Hyatt Regency Boston, who were fired and replaced by low wage workers hired by an outsourcing firm. The workers unknowingly trained their replacements in their final months on the job.

    Katie Johnston Chace of the Boston Globe has done a follow up on the 98 laid off workers. It's a sad story of broken dreams and piling debts. Sixty of the workers have been unable to find work.

    As Northeastern labor economist Andy Sum puts it: "At the low end of the ladder, it's not only that the unemployment rate is high, but that the number of applicants for every job is extraordinarily high."

    At the time of the firings, there was a lot of bad publicity for Hyatt. The hotel workers union estimates a loss of $3.7 million in revenues. Fighting back, Hyatt says that the job restructuring was the result of "challenging economic conditions.'' As we pointed out in a previous blog, the hotel might have saved a lot of money simply by improving the safety and training of housekeepers; their injury rates - and associated costs - were double that of other major chains.

    Business as Usual
    Hyatt spokeswoman Amy Patti said it was interesting the union would "boast about actions they have taken to drive dollars away from Boston and put additional jobs at risk in this difficult economy.''

    Well, Amy, sort of. The union wants people to keep on spending in Boston, just at other hotels. They might start with the Boston Park Plaza, which has hired four of the former Hyatt workers into housekeeping jobs with full wages and benefits. When introduced to the team, their new co-workers burst into applause.

    That's a nice coda for 4 percent of the Hyatt workers. For the remainder, no applause and, for the moment, little hope. It's like the end of Tchaikovsky's Symphony Number 6 ("Pathetique"), which after much drama simply fades away into silence at the end. Hyatt knew they would take a hit at the time of the firings. They also knew that memory spans are short and that business would return to normal in a few months. Throw out a few bargain rates and customers will come surging back. It's the American way and it works like a charm.

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    March 29, 2010


    Performance incentive programs are a good idea - except when they aren't. The Insider has always viewed such programs with ambivalence: yes, it's a good idea to reward employees for safe performance over a given time period. The problem is that these programs can discourage employees from reporting legitimate injuries. And the employee who does report an injury - the guy or gal who breaks the string of injury-free days - may incur the resentment of fellow workers. "You blew the pizza and the draw for a TV because you cut your hand!" It can be yet another form of the great American tradition, blaming the victim.

    Then there are the rogue performance incentive programs, where non-reporting of injuries is embedded in the work culture. Which brings us to California. (Is it my imagination, or does every conceivable scam bring us to California?)

    At the Smurfit-Stone Container Corporation, the performance incentive program rewarded managers for not reporting workers comp claims. The company's motto is "solving it from all sides" - and it appears that one of the sides is, well, illegal.

    David Polk, 53, and Douglas Tateoka, 61, pleaded no contest Wednesday to charges of concealing events related to on-the-job injuries and conspiring to deny injured workers their benefits. The two are scheduled for sentencing May 20 in Monterey County Superior Court.

    Employees were discouraged from reporting workers comp claims. When injured, they were treated outside of the comp system: the employer took care of the medical bills. It's not clear whether any attempt was made to pay indemnity for lost time. I doubt it.

    As is usual and customary in California, doctors figured out a way to make a few bucks in the scam: in this case, Steven Davis of Davis Chiropractic, who once worked for Surfit-Stone as a human relations manager, and Eugene Guzman, a physician's assistant at Pinnacle Urgent Care. Both are facing charges in the fraud.

    Whose Incentive?
    Any performance incentive program that focuses exclusively on managers is immediately suspect: a legitimate program rewards workers first, then managers, for good safety performance.

    Performance incentive programs have a positive role in many workplaces, but it's crucial to align the incentives with the realities of the workplace. These programs should celebrate safe performance without penalizing or ostracizing employees who suffer injuries on the job. Beyond that, performance incentives must never trump employee rights under workers comp laws. It's one thing to reward safe performance; it's quite another to stifle claims reporting and the awarding of statutory benefits.

    Managers at box manufacturer Smurfit-Stone tried thinking out of the box to lower their comp costs. Now they are on their way to a concrete box with bars on the windows. They are about to participate in a very effective performance disincentive program, one that most of us try diligently to avoid.

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    March 26, 2010


    Bryan Griffin was a pilot for Australia's Qantas Air from 1966 to 1982. In 1979 he began to have "uncontrollable urges" to switch off the engines in mid-flight in order to bring down the airplane. He would leave the flight deck and smoke a few cigarettes until he calmed down. He made no attempt to hide his problem - he talked to his colleagues about it. Qantas had him examined and treated by several doctors, but the problems continued, including the urge to "scream and cry." He routinely ignored instructions and repeatedly missed radio and altitude calls. On a flight from Singapore to Sydney, he felt his hand "being abused by the uncontrollable pull of the start levers" - which, if pulled, would kill the engines.

    OK. Not exactly "pilot of the month" stuff. There are a couple of intriguing aspects to this tale.

    First, Qantas made the management decision to keep Griffin on the job. While the Insider normally recommends following a "return to work/stay at work" protocol, in this case, "staying at work" for three years with severe mental illness clearly put far too many people at risk. Griffin was incapable of performing his job safely; he should have been put on indefinite leave until his mental state stabilized beyond any reasonable doubt.

    Griffin continued to fly until he retired in 1982 with a diagnosis of anxiety, depression and obsessive compulsive disorder.

    Indemnity for Working?
    Here is the second unusual aspect to this case: Nearly 30 years after his retirement, Griffin has been awarded $208,000 by an industrial compensation commission, which ruled that his mental problems were exacerbated by his continuing to work. The Workers Compensation Commission found that the pilot's condition had been worsened by continuing to fly for Qantas until his 1982 retirement. The financial award covers "loss of earnings, medical expenses and legal costs."

    While I am no expert in the intricacies of comp as it operates down under, I am confused by this award. How can you suffer a "loss of earnings" when you continue to work? How does workers comp indemnity come to play in a situation where there was no lost time? Perhaps the commission assumes that if Griffin had been grounded during his prolonged period of mental disability, he eventually would have been cured and then would have been to continue his career with Qantas beyond 1982. In other words, Griffin's premature retirement was caused by making him work while he was suicidal. If that is the reasoning, it's a bit of a stretch.

    I have one additional question for the commission: why did it take nearly 30 years to reach this conclusion?

    Qantas is considering an appeal on this ruling. I think they should shut up and cut the check. Any additional proceedings might further expose their amazingly reckless decision to keep Griffin in the cockpit. That is negligent entrustment at its very worst. Ironically, had Griffin succumbed to his demons and crashed the plane, we might never have known the real cause of the accident. As it is, Qantas is lucky that both Griffin and his hundreds of passengers survived. Air travel is stressful enough without having to worry about a pilot with a barely controllable urge to crash the plane.

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    March 23, 2010


    Three months ago we blogged the ongoing agony of Bath Iron Works (BIW), the people who build destroyers for the navy. You may recall that BIW self insures for workers comp, and as such must pay the "usual and customary" fees for medical services provided to injured workers. There are only two categories of payers who are stuck with usual and customary fees: self insureds and uninsureds. BIW has been waiting 18 years for Maine to come up with a fee schedule. Eighteen years! The Board in charge of developing the fee schedule is asking for...a little more time.

    So what's the problem? Paul Dionne, the Chairman of the Maine Workers Comp Board - the board responsible for developing the fee schedule - is also board chairman of Central Maine Healthcare Corporation - which stands to lose a lot of money once the fee schedule is implemented. Dionne is compensated by the comp board and by Central Maine Healthcare. If he were really candid, he might admit that his idea of a fee schedule is "usual and customary" fees. Dionne claims they are really getting close to the point where they will be able to issue a draft fee schedule for public comment.

    Timely Remedies?
    As reported by Lindsay Tice in the Lewiston Sun Journal, BIW has filed suit, claiming that Dionne has a conflict of interest. This is their second lawsuit. Back in 2006 they sued the board for its (then) 14 year failure to implement a fee schedule. The judge sided with BIW and ordered the board to create the fee schedule. Four years later...well, you get the drift (and I do mean drift!).

    Dionne has consulted with an attorney, who advised him that there was a "potential" for a conflict of interest. (Brilliant work, counsel!) Dionne is seeking a second opinion from the board's general counsel. Here's a second opinion: it's a conflict of interest!!!

    Dionne claims that, if necessary, he will fully disclose his personal interests, as he has done in the past. Sure, Paul. The foxes are promising better management of the chicken coop. Foxes love chickens. They are very committed to raising the "usual and customary" chickens, fat and healthy.

    Start Over?
    The sheer passage of time, now approaching two full decades, has compromised the Maine fee schedule beyond recognition. It has become an embarassment. It's unlikely that any fee schedule issued by this board will be credible. Perhaps it's time to create a truly independent body to develop the fee schedule. The bad news for BIW is that this would further delay the regulatory relief they have long sought. The good news is that the fee schedule might actually lower the fees.

    During this prolonged process, BIW has tumbled down the rabbit hole, Maine version, into a world where nothing is quite what it seems. BIW - in the unlikely role of Alice, meets a cheshire cat, with a grin like Paul Dionne's:

    `Cheshire Puss, ...Would you tell me, please, which way I ought to go from here?'
    `That depends a good deal on where you want to get to,' said the Cat.
    `I don't much care where--' said Alice.
    `Then it doesn't matter which way you go,' said the Cat.
    `--so long as I get SOMEWHERE,' Alice added as an explanation.
    `Oh, you're sure to do that,' said the Cat, `if you only walk long enough.'

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    March 19, 2010


    Joseph Casias was the Associate of the Year in 2008 for the Walmart in Battle Creek, Michigan. He achieved this despite his ongoing struggle with sinus cancer and an inoperable brain tumor. During his five years with the organization, the 29 year old Casias went to work every day determined to be the best. To help manage the pain that accompanied his challenging illness, his doctor prescribed medical marijuana, which is legal in Michigan. Casias used the drug only at home and was never "high" when he reported for work. (See our recent post on medical marijuana here.)

    Last November Casias sprained his knee at work. Walmart ran a routine drug screen following the injury. Unsurprisingly, Casias tested positive for marijuana. Despite the doctor's prescription, Walmart terminated Casias for violation of the company drug policy. Despite the legality of Casias's pot use, the company appears to be on firm ground: as with smokers in many states, companies are free to impose their own prohibitions on the use of otherwise legal products.

    Casias collected unemployment insurance after his termination. Now it appears that Walmart has had second thoughts about that, too. They are contesting his UI eligibility, as he was terminated for cause. Casias has already been collecting UI for over three months, so he is likely nearing the end of the benefit. But when Walmart sees a penny on the floor, they will push old ladies aside to get it.

    Company Speech, Company Soul
    In a recent ruling, the U.S. Supreme Court determined that corporations have the same free speech rights as do individuals. Perhaps the court will be tempted to take it one step further and rule that corporations have souls.

    One look at Walmart should convince them otherwise. In their typical tone-deaf manner, Walmart has acted within legal parameters; Casias was in technical violation of company drug policy, even though his drug use was medically necessary and presented no risk to the employee, co-workers or the public. Casias was an award-winning employee - but, I suspect, a drag on the company health plan. So Walmart seized the opportunity of a failed drug test to show Casias the door.

    As usual, Walmart shoppers, there are plenty of specials today, but don't bother looking in aisle three for remnants of compassion or a company soul .

    Note: We have blogged Walmart's compassion struggles many times. Just enter "Walmart" into the site search engine in the column to the right.

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    March 8, 2010


    As the holder of a couple hundred shares of AIG stock (your condolences are accepted), I feel compelled to track the remnants of the former empire, rather like an archeologist who finds fragments of an ancient civilization buried in a forgotten forest. The latest twist involves a lawsuit by two former female staffers in AIG's Financial Products unit - the unit at the very heart of AIG's collapse. Susan Potter, 56, and Deonna Taylor, 62, both former VPs, have filed suit alleging that Joe Cassano, the now-fabled head of the operation, favored younger staffers and ran the rogue operation like a "boy's club." Now that's a shock!

    Potter and Taylor said that managers misled them about salary caps, paid younger, male employees more for similar work and fired them in retaliation for filing discrimination charges. Cassano's lawyer is disappointed by the lawsuit, because his client treated staff "fairly." This will be one fascinating discovery.

    Raging Bull Management
    Cassano is not actually a defendent in the lawsuit, as his employment ended prior to the firing of both women. But his over-sized personality placed a stamp as clear as a neck tatoo on the entire operation.

    To get a flavor for Cassano's modus operandi, check out the fascinating August 2009 profile by Michael Lewis in Vanity Fair. Here is an example [obscenity alert]:

    "One day he got me on the phone and was pissed off about a trade that had lost money," says a Connecticut trader. "He said, 'When you lose money it's my fucking money. Say it.' I said, 'What?' 'Say "Joe, it's your fucking money!"' So I said, 'It's your fucking money, Joe.'"

    Here's another example of micro-management, Cassano style:

    According to traders, Cassano was one of those people whose insecurities manifested themselves in a need for obedience and total control. "One day he came in and saw that someone had left the weights on the Smith machine, in the gym," says a source in Connecticut. "He was literally walking around looking for people who looked buff, trying to find the guy who did it. He was screaming, 'Who left the fucking weight on the fucking Smith machine? Who left the fucking weight on the fucking Smith machine?'" If that rings a bell it may be because you read The Caine Mutiny and recall Captain Queeg scouring the ship to find out who had stolen the strawberries. Even by the standards of Wall Street villains, whose character flaws wind up being exaggerated to fit the crime, Cassano was a cartoon despot.

    Joe Cassano famously stated on an investor conference call: "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 on any of those transactions."

    Ah, the irony of that line: AIG stock was trading around $55 when Cassano spoke. After all the losses and the $182 billion government bailout, the stock is worth...about a buck.

    It appears that Cassano believed his own blustery rhetoric. He was no Bernie Madoff. He was Joe Cassano, True Believer:

    "When he said that he could not envision losses, that we wouldn't lose a dime, I am positive that he believed that," says one of the traders. The problem with Joe Cassano wasn't that he knew he was wrong. It was that it was too important to him that he be right. More than anything, Joe Cassano wanted to be one of Wall Street's big shots. He wound up being its perfect customer.

    Serving Justice?
    All of which leads me back to Susan Potter and Deonna Taylor. Their complaints are likely true, yet I am having some difficulty summoning up sympathy for them. They were part of a pirate crew. They simply wanted an equal share of ill-gotten bounty. Yes, they were forced to walk the plank (terminated) in 2008 (Potter) and 2009 (Taylor). But the entire operation is scheduled for shut down later this year.

    The atmosphere in the financial products operation must have been difficult for middle-aged managers, especially women. Taylor and Potter were probably paid less than their male counterparts. But when you look at the actual work of the unit, which brought the world-wide financial system to its knees, it's difficult to feel sorry for them. Had they turned whistle blowers, had they been fired for calling attention to the house of cards being built by Joe Cassano and his pirate crew, I might feel different about their plight.

    We'll let Jim Walden, Cassano's attorney, have the last word: Financial Products "had many capable women at all levels, including in senior management, who thrived under Joe's supervision, including these plaintiffs. That they would now turn around and accuse Joe of tolerating, let alone encouraging, chauvinism is disappointing indeed. Joe Cassano hired, promoted and supported employees based upon a single criteria: merit."

    We can probably reduce Cassano's philosophy to a single criteria, but it would not be "merit." "Greed" is more like it, unadulterated, F-bomb greed.

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    March 5, 2010


    William Ogletree practices personal injury law in Texas. On the most recent New Year's Eve he planned to fly from Houston to Las Vegas, presumably to celebrate the new year with libation, games of chance, and, who knows, a little extra fun in the city that tells no tales. Prior to his flight, he had dinner in the airport food court. He ate a slice of pizza, if you must know, and the service was lousy. But the real bummer involved the loss of a black leather coat, Polo brand, extra large, with a plaid lining. Ogletree was very fond of the coat, but he left it behind after his dinner. We have all lost things in the course of our lives. Most of us chalk it up to inattention, punish ourselves for being forgetful and move on. But not William Ogletree, esq. Someone not named Ogletree is going to pay for the lost coat.

    As we read in the Smoking Gun blog, Ogletree has notified the operator of the food court, Continental Airlines and the city of Houston that he is holding them responsible for what happened to his coveted coat. Sure, he forgot it, but as soon as he exited the food court, the three parties assumed liability for the coat. They are jointly and severally on the hook for taking control of his lost property and securing it until he was able to claim it. He is kind of pessimistic that any of the parties will be able to locate the coat: "I am looking forward to discovering how all of you deal with lost property in the airport.I suspect that your record is dismal and that employee theft runs rampant." [An image comes to mind: an underpaid waitress leaving work in an elegant coat that is three sizes too large.]

    The Clock is Ticking
    Ogletree has given the three parties 10 days to come up with the coat or $800 to replace it. After that, he sues. Now you might think that Ogletree has a pretty weak case and that the three parties will blow him off. Don't be so sure. If you go to his firm's website, you will find a "settlement calculator" which helps people determine just how much they are owed. Here are the elements entering into the calculation:

    • Medical Expenses $
    • Future Medical Expenses $
    • Rehabilitation $
    • Prosthetics $
    • Lost Wages $
    • Future Lost Wages $
    • Pain and Suffering $
    • Future Pain and Suffering $
    • Disability $
    • Future Disability $
    • Loss of Quality of Life $
    • Future Loss of Quality of Life $
    • Impairment $
    • Future Impairment $
    • Disfigurement $
    • Loss of Consortium $
    • Loss of Services $
    I am sure that Attorney Ogletree has already plugged in his numbers and the $800 is chump change compared to the "future pain and suffering, future loss of quality of life, and future loss of consortium" directly connected to the loss of his black leather coat, Polo brand, extra large with a plaid lining. I would advise the three parties to pony up $266.66 apiece and pay the man his money. As Shakespeare meant to say, "Hell hath no fury like an attorney scorned."

    Posted by Jon Coppelman

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    February 22, 2010


    Joseph Stack set his house on fire and then piloted a small plane into a building housing the IRS in Austin, Texas. His daughter calls him a hero. Most of us would call him a terrorist. But whatever you call him, he was motivated in part by section 1706 of the 1986 Tax Reforms. Stack was a software engineer, and thus was directly impacted by the following language in the statute, which forbids the hiring of software engineers as independent contractors:

    (d) EXCEPTION. - This section shall not apply in the case of an individual who pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work.

    As a result of this unusual and highly specific language, programmers are almost always compelled to work as employees. Unlike the situation for most workers - who may or may not meet the criteria for independence - there is virtually no wriggle room for engineers.

    Stack's self-identity as a tax protester goes deeper and taps a rich pathological vein. Envious of the tax exempt status granted to religious organizations, he tried to establish his own church, in his own home. Ten years and $40,000 in tax liabilities later, he gave it up. But he surely did not forget, nor did his daughter, Samantha Bell, who appears to be the last remaining worshipper at the defunct church.

    Bell concedes that her father's actions were "inappropriate." Nonetheless, she considers him a hero for taking a stand for "justice." Some stand, some notion of justice! In addition to his own life, Stack's violent act took the life of IRS manager Vernon Hunter and had the potential for killing many more innocent people.

    Ironically, the national consensus building around independent contractors is quite the opposite of what Stack envisioned. There is a concerted effort at the federal and state levels to view most working relationships as employer/employee. The burden of proof has shifted onto the companies (most notoriously, FedEx) that try to avoid taxes by calling people "independent contractors."

    Joseph Stack might have thought himself a martyr for the cause of tax reform. He is surely something else: a symbol of the violence, fanaticism and rage that threatens to destabilize the most enduring democracy the world has ever known. Not exactly my idea of a hero.

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    February 11, 2010


    It will be years before we know the full implications of Toyota's recall problem, but a few things are already evident. In its relentless push to become the world's number one car manufacturer, Toyota lost its corporate soul (to the extent, of course, that any corporation has a soul). As with any business, performance measurement is a month to month, year by year priority. At this point, it appears that Toyota's primary measurement involved gross sales. Since 2003 the company has ignored alarming signs that their quality control was slipping dramatically. Long known as the producer of reliable, if somewhat pedestrian, cars, Toyota tried to become all things to all drivers. They expanded production capacity across the world as their market share grew. They buried the competition, but in doing so, dug a rather big hole for themselves. They will surely survive, but what form will the survival take?

    The old adage "be careful what you wish for" should be engraved over every Toyota plant. They wanted to dominate the market and now they dominate the market. Alas, their cars are prone to uncontrollable accelation and compromised braking. A rather unfortunate combination, to say the least.

    Acceleration and Stopping
    As evidence of the acceleration problem accumulated - going back to the mid-2000s - Toyota entrenched itself in a denial stance. Finally, they acknowledged a problem with the floor mats. They fixed that. Then they admitted to a defect in brake pedal design, which is the subject of the current recall: they are attaching a small plastic shim to the brake pedal to fix that. Now there are indications that a problem may exist in the computers that determine gas feed. To date, Toyota has not conceded on this last potential source of the acceleration problem. If they are wrong on this one, it's virtually three strikes and you're out.

    The braking issues in the Prius involve a sophisticated mechanism which seeks to transform the natural friction in braking into energy to charge the car's battery. The good news is that the battery runs longer. The bad news, of course, is that you might not be able to stop the car.

    From a risk management perspective, rapid growth is frought with dangers. On the employment side, you are bringing in (thousands of) strangers to make your product. On the management side, your lines of communication are stretched to the breaking point (no pun intended): a work culture that was successful for a relatively small company might prove inefficient and even disastrous for a world-wide organization. Toyota executives may think that today's company is simply an extension of the modest, diligent operation that entered the world market some decades ago, but size matters. Toyota the Giant is no longer "the little engine that could."

    Blame the Media?
    One dealer thinks the media has created the problem. Tammy Darvish, who operates 4 dealerships in the Washington, D.C. area, thinks Toyota's commitment to safety is equal to that of other manufacturers. "I don't want to minimize importance of any safety matter. But I think the media has made a sport out of sensationalizing something that is very common: a recall. I sell Chryslers, and they had 18 recalls last year. Did you read about any of those?"

    So Toyota's commitment to safety is no different from any other manufacturer. That's a comforting thought! True, the whole problem has been sensationalized. The image of 3,000 pound vehicles hurtling out of control is, well, sensational. It would be nice to think that Toyota will do a little soul searching and re-commit to the values that made them successful: producing a safe, high quality vehicle that accelerates when you want it to and stops when you press the brake. Anything less from Toyota at this point would be, to put it bluntly, criminal.

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    January 4, 2010


    Way back in November 2005 we blogged the interesting issue of donning and doffing: whether the time meatpackers spend at the beginning of work putting on protective gear and taking it off at the end of the shift is time on task and compensable. The 2005 ruling of the U.S. Supreme Court went in favor of the workers, but other courts have split on the issue. Now 4th U.S. Circuit Court of Appeals in Richmond has once again ruled against the workers.

    The court held that putting on and taking off the gear is "changing clothes" and thus is not necessarily compensable under the Federal Labor Standards Act.

    "This sort of fact-intensive determination has classically been grist for the mill of collective bargaining, and Congress ensured that employers and unions could keep it that way by enacting Section 203 (o)," Judge J. Harvie Wilkinson III wrote for the three-judge panel. We assume that the salaried Judge Wilkinson was amply paid during the time he donned his robes to issue the ruling.

    Clothes Make the Man
    The district court has a rather expansive view of what comprises clothing: workers, members of United Food & Commercial Workers Local 27, each must wear steel-toe shoes, a smock, a plastic apron, safety glasses, ear plugs, a "bump cap," a hair net, rubber gloves, mesh sleeves and arm shields to do the work, which includes the hanging, eviscerating and de-boning of chickens.

    "Because many work clothes are protective to some extent, the distinction urged upon us by the employees would be difficult, if not impossible, for courts to administer in a consistent and coherent manner," the judge wrote, before also rejecting the plaintiffs' argument about the definition of "changing."

    What is at stake here is fifteen minutes of pay twice each shift, presumably at or near minimum wage. Call it four bucks per shift per worker. With 250 workers involved in the class action suit, that's a total of about $1,000 per workforce shift. Having lost the suit, the workers will be paid only for their gruesome "time on task."

    As most of the workers are non-English speaking, the union stewards will have to translate the court's ruling into their native tongue(s). I trust that the workers will be dressed for the occasion in street clothes: it's pretty difficult to understand the court's subtle distinctions when you are encased in steel-toe shoes, a smock, a plastic apron, safety glasses, ear plugs, a "bump cap," a hair net, rubber gloves, mesh sleeves and arm shields. Then again, perhaps their attorney should have made his case in court while dressed in full slaughterhouse regalia: the visual evidence distinguishing ordinary clothing from personal protective equipment might have been compelling enough for even a judge to understand.

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    December 18, 2009


    How would you like a job that pays $12,000 a year, where 1 percent of the workforce is killed annually and hundreds of others are seriously maimed? I didn't think so. You would probably take a pass on working for Titan Corporation (now part of L-3) as an interpreter for the U.S. armed forces in Iraq. The L-3 website promises that "as a member of the L-3 Communications team, you will be exposed to the most exciting career adventures situated on the cutting edge of technology." Alas, it's not just the technology that is cutting edge. The roadside bombs cut pretty deeply, too.

    We read in the Los Angeles Times about the sad fate of translators in Iraq. There are about 8,000 in all. Over the five year period from 2003 to 2008, 360 were killed. Those who were lucky enough to survive were often shipped to Jordan for treatment. The workers comp benefits fell under the Defense Base Act and were administered by AIG, among others. (See our previous blog here.) According to some of the wounded, they were offered a stark choice: accept a proposed settlement (which absolved the insurer of any future costs) or be shipped back to Iraq, where retaliation and death awaited former employees of the U.S.

    The Times article describes the life of Malek Hadi, an Iraqi national who lost a leg and several fingers in a roadside bombing. He now struggles to survive in Arlington, Texas. At first, he was unable to collect any benefits:

    Internal AIG documents indicate that a claims examiner withheld Hadi's benefits in an effort to force him to accept the lump sum. Hadi was "clearly entitled" to benefits, a different AIG examiner wrote in a memo dated August 2008. The company had not paid because the previous examiner "was trying to get the claimant to decide whether to settle his claim," the memo said.

    Malik now receives the maximum monthly disability benefit - a whopping $612 per month. He has been diagnosed with post-traumatic stress syndrome, but AIG has refused to cover any treatments. Perhaps they are waiting for a second opinion from the company shrink? Meanwhile, Malik will just have to deal with it!

    Former insiders at AIG describe how the game is played:

    "If you're missing one piece of documentation, you got denied," said Colleen Driscoll, who oversaw the handling of interpreters' insurance claims for L-3. "These guys get murdered coming and going to work, and AIG turns them down because they don't have a letter from the insurgents."
    Driscoll, a former United Nations refugee official, left L-3 in 2007. She said the cause was a dispute with company executives over treatment of injured interpreters.
    She and another former L-3 official, Jennifer Armstrong, said their experience suggested that 10% to 20% of the company's Iraqi workers who should have received benefits were denied.

    AIG stock is currently trading at the equivalent of about $1.40 a share. It would be nice to think that this was the market's judgment on the way things are being handled in Iraq, but that, of course, has nothing to do with it. The market, not exactly known for its humanitarian concerns, is punishing AIG for financial - not ethical - sins. Indeed, the market might well approve of the way the injured, the maimed and the dead are being squeezed in this mockery of a benefits program. After all, indemnity and medical expenditures are being kept as low as possible and that can only help support AIG's battered bottom line.

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    November 23, 2009


    My blog post of last Thursday (19 November 2009) addressing why workers' compensation costs in Massachusetts are the lowest in the nation, while benefits are among the highest drew a mild pushback from Mark Walls, who manages the excellent LinkedIn Workers' Compensation Forum. Mark wrote:

    "Working for an excess carrier, I would never have expected Massachusetts to be considered a "low cost" state. In Massachusetts you cannot settle medical, and there are COLA's on the lifetime benefits. In my world, it's a high cost state.

    I guess it's all about your perspective."

    And he's right- it is all about perspective. Mark also wrote, "I'm a claims guy," and the blog post in question was all about premium rates. Sometimes, what appears logical when looking at claims can appear illogical when viewed through the prism of premium rates.

    I can certainly understand why claims professionals in Massachusetts might be a bit frustrated, because not being able to settle the medical portion of a claim, along with having to contend with annual Cost of Living Adjustments, tends to obliterate predictability.

    The perspective Mark mentions changes, however, when one considers a workers' compensation program unique to the Massachusetts voluntary market, a program that substantially increases premium collected in the state while not driving up premium rates: the All Risk Adjustment Program, or, as it's better known, the ARAP Surcharge.

    In all 38 NCCI states, the ARAP, a sort of second experience modification that penalizes severity more than frequency, exists as the Assigned Risk Adjustment Program and is found in the Residual, but not in the Voluntary, market. This is supposed to provide even more of an incentive for employers in the Pool to do the right things to get themselves into the voluntary market. It's a debit mod only. In Massachusetts, however, the ARAP can be found in both the Residual and Voluntary markets. If an employer in the Voluntary market has a high experience modification, it will also most likely find itself with an ARAP surcharge, anywhere from 1% to 25%, which is applied to the standard modified premium.

    For example, say a company in the Voluntary market has a manual premium of $100,000, an experience modification of 1.5 and an ARAP of 1.2. The resultant total premium will be $180,000. Think of the $30,000 ARAP charge as compound interest. This means that Massachusetts premiums are more sensitive to losses than premiums in other states, even "loss cost" states.

    And why shouldn't an employer with high claim severity pay more for workers' compensation? Why should employers with low claim severity subsidize those with high claim severity? Although many in industry abhor the idea of the Voluntary market ARAP, it seems to me that Massachusetts is doing the fair and reasonable thing.

    In 2007, ARAP surcharges in Massachusetts brought in additional premium of $60 million, or about 7% of total premium in the state. However, this should decline fairly significantly in 2008 and going forward for two reasons:

    • First, until 2008, the maximum ARAP surcharge was 49%; in 2008, the maximum was lowered to 25%;
    • Second, Massachusetts has been hard hit by the recession, causing payrolls to decrease substantially; lower payrolls result in lower premiums.

    The Massachusetts Workers' Compensation Rating and Inspection Bureau is now engaged in the monumental task of putting together a rate filing to be submitted in 2010. It will be interesting, indeed, to see to what extent lowering the maximum ARAP surcharge from 49% to 25% impacts the filing.

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    November 20, 2009


    Back in September we blogged the mass layoffs of housekeepers at the Hyatt Hotels in Boston. After unknowingly training their replacements, long-term employees were laid off, their jobs taken over by employees of a temp firm called Hospitality Staffing Solutions (HSS). Given the the low wages and marginal benefits offered the replacement workers, this solution was lacking in hospitality, to say the least.

    Well, there is more to the story. As we read in an article by Steven Greenhouse in the New York Times, a study is about to be published in the American Journal of Industrial Medicine on the disproportionate rate of injuries among housekeeping staff in several hotel chains. The findings of the report were presented to the annual meeting of the American Plublic Health Association in Philadelphia.

    Would it surprise you to learn that injury rates among housekeepers in the Hyatt chain are nearly double that of the Hilton Hotels? Or that injury rates for hispanic and asian workers were twice as high as those for other workers? The study focused on 50 unionized properties and examined 2,865 injuries over a three-year span. The highest injury rate for housekeepers was at the Hyatt chain, at 10.4 percent, and lowest at the Hilton chain, at 5.47 percent.

    Root Causes
    Let's put on our MBA hats and perform a little "causal chain" analysis. The Hyatt Hotels find themselves paying too much for workers comp coverage. The high rate of injuries among housekeepers is driving up their costs. With cost reduction as the over-riding goal, the hotel strikes a deal with HSS, outsourcing the jobs. The cost of labor acquired through HSS is certainly lower for Hyatt (even when you factor in HSS admin and profit), but HSS also assumes responsibility for any workers comp losses. It is incidental and perhaps irrelevant to Hyatt that the work is being performed at much lower wage rates and with fewer benefits. From the Hyatt perspective, the goal has been achieved: hourly labor costs have been reduced and someone else is holding the bag on the cost of injuries.

    When you ask the wrong question, you often end up with dubious answers - and, in this case, a public relations nightmare. The right question, of course, is why are Hyatt housekeepers suffering injuries at twice the rate of Hilton employees? As we back up the causal chain, the MBAs at Hyatt should have zeroed in on the real issues: Are we providing the requisite orientation and training for our employees? Are supervisors focused on best ergonomic practices? How well are we managing injured workers: do we provide prompt treatment and speed return to work through modified duty?

    Hyatt opted to throw out the housekeepers with the bathwater- a solution that immediately gave rise to largely unforeseen problems, the most prominent being a tongue-lashing from Massachusetts Governor Deval Patrick. In full disaster-containment mode, Hyatt has offered to continue health insurance coverage and maintain wages of laid off employees - if they agree to join the ranks of HSS. (This "loss leader" of higher wages and benefits comes to an abrupt end next spring.)

    One way or another, Hyatt will ride out the PR storm, but the fundamental problem of unsafe practices among housekeepers remains. Perhaps HSS, in the midst of slashing wages and benefits, will commit to making the work and the working conditions safer. I'm not holding my breath. In the meantime, the rooms at the Hyatt will continue to appear spotless, despite the fact that no one seems to care about the people who make them that way.

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    November 17, 2009


    Well, bust our balloons and call us surprised!

    We learned yesterday that the Lexis Nexis Workers' Compensation Law Center has honored the Workers Comp Insider with the award of Top National Workers' Compensation blog of 2009. With so many excellent blogs being written now, we're proud and humbled at the same time.

    When we created the Insider in September 2003, we hoped that we'd attract others to join the insurance blogosphere, but we never imagined that so many superb professionals would join the blogging rolls. Now, to be singled out for this honor is more than a little gratifying.

    I need to take a moment to commend and thank Julie Ferguson for hatching the idea in 2003 and for managing the enterprise ever since. Julie is one of, if not the, nation's foremost blog experts, and we are lucky indeed to have her at Lynch Ryan. Moreover, she's an excellent writer who's written about a third of all our blog posts.

    And where would we be without the tireless search for blogging excellence exemplified every day by Jon Coppelman, a bona fide workers' compensation guru. Jon's posts are always interesting, thought-provoking, honest and well-sourced. Judging by your comments, they can also be provocative and controversial, but that's what the medium is all about. I'm thankful for Jon's expertise and his friendship.

    In making the award, here's what the Lexis Nexis Workers' Compensation Law Center said about the Insider:

    Workers' Comp Insider's excellent coverage this past year of the side effects of the economic recession on workers' compensation, from government bailouts to bankruptcy to fraud and more, made it our choice for the Top Blog of the Year 2009 on national workers' compensation and workplace issues. Workers' Comp Insider also proved again the power of a company blog to showcase the expertise of its employees as evidenced this year by articles in both The Washington Post and the Las Vegas Sun, which cited the Workers' Comp Insider on the issues of death from a workplace injury and controlling workers' comp costs, respectively. Workers' Comp Insider's in-depth research to uncover the best government and industry websites and blogs in the blogosphere was second to none in 2009, and enabled policymakers, journalists, and anyone with an interest in and passion for workers' compensation and workplace safety to do a deep dive into a collection of online resources that they may never have heard of otherwise.

    All of us at Lynch Ryan are committed to doing everything in our power during the coming year to justify this award. Thanks again to Lexis Nexis and thanks to our readers for joining us on the ever-fascinating journey that is workers compensation.

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    October 27, 2009


    Labor officials of three states have written to FedEx, announcing their intention to file suit for "widespread, long-term, and unlawful employment practices." We have blogged this employment law conundrum many times (search "independent contractors" in the box to the right). There are at least two mysteries in this action: why only three states are participating (FedEx has lost court cases in at least six states and doomed to lose in many others) and why the states chose to sue at this particular time.

    FedEx has until today to file objections to the suit. The complaint was filed from the office of the attorney general in New York and included the signatures of officials from Montana and New Jersey (a somewhat odd triumvirate). Their letter is addressed to William Conley, Esq., managing director of the FedEx Legal Department. With an office in Moon Township PA, Conley may end up mooning the AGs in response - after all, FedEx thus far has shown little interest in conventional employment standards. Mr. Conley runs what must be a very busy office, as there have been numerous court challenges to the FedEx business model. FedEx calls their delivery drivers "independent contractors," even though the drivers must wear FedEx uniforms (no white sox!), drive FedEx trucks, adhere to FedEx timetables, use FedEx scanners and meet detailed FedEx standards. Drivers they are; independent they are not.

    The AGs are seeking restitution, damages, civil penalties and other unspecified types of relief.

    Is It Legal, Or Is It FedEx?
    In some instances, individuals take over FedEx routes and hire others to do the driving. Even though these subcontractor drivers must meet the explicit FedEx standards, the entrepreneurs managing the routes can run the businesses with at least some degree of independence. But where the driver has no employees and simply covers the route for FedEx, there is no credible case to be made for independence.

    The FedEx business model has been languishing in state courts for years. Meanwhile, thousands of drivers have labored without a safety net. They work without benefits. If injured, they are completely on their own. It is not difficult to imagine the sense of frustration and outrage that led to this legal action. As for the timing, the three states are filing suit just a few days before Halloween, when ghosts and goblins will prowl dark streets in search of a candy fix. It's as good a time as any to bury this bogus incarnation of the "independent contractor" concept once and for all.

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    October 8, 2009


    Stephen Zaczynski, 49, is a lieutenant with the Connecticut Department of Correction. He claimed an on-the-job injury in September of 2008 and collected over $12,000 in benefits. While on disability, he continued to run a company he co-owned, New England Pellet. People in need of pellets pre-paid for the product, which, unfortunately for them, was never delivered. The company closed soon after Zaczynski went out on comp and filed for bankruptcy protection in January. To complete the trifecta, it appears that Zaczynski did not carry workers comp protection for his employees.

    Let's see if we've got this one straight: Zaczynski collects comp for an injury that did not disable him, freeing him up to run a business that did not deliver the product that his customers paid for - a product at least theoretically handled by employees who were not covered by workers comp insurance. (Perhaps they were "independent contractors"?)

    Zaczynski has a court date on October 20, where he faces charges of first-degree larceny, workers comp fraud and failure to maintain workers comp insurance.

    His attorney, Jim Oliver, denies all the charges: "I do not believe that a crime has been committed by Stephen. We intend to vigorously defend all claims."

    Oliver may have a case. In not delivering the pellets, Zaczynski perhaps was not performing work that exceeded the medical restrictions that kept him out of work. (We have no way of knowing whether the DOC tried to bring him back to work on light duty - as a lieutenant, this would surely have been an option.) While not delivering the product reduced the workplace hazards for his employees - less material handling, for sure - Zaczynski would still be required to provide workers comp protection, assuming these folks were, in fact, employees of the company. There's usually not a lot of wiggle room on that issue.

    Finally, failure to deliver the pellets certainly appears to be a form of larceny, but theft on a much bigger scale worked out pretty well for the giant banks, mortgage companies and insurers, so perhaps it can work for Stephen, too. In the final analysis, his problem may be one of scale: he just didn't think big enough. If you're not going to deliver the goods, you want to screw people out of more than a few pellets for a stove. Next time, Stephen, think big, really big. It's the American way.

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    September 29, 2009


    AIG may have lost a bit of its swagger - that's what happens when your stock tanks and the government has to bail you out to the tune of $150 billion, give or take a few billion. But tough guys don't dance, they fight back. AIG is suing NCCI and a host of major workers comp carriers (Travelers, The Hartford, Liberty Mutual, etc.) for under-reporting comp premiums and conspiring to harm AIG. That's right. All those bullies have been picking on AIG.

    AIG's lawsuit is in direct response to an eerily similar suit filed by NCCI against AIG, accusing the staggering behemoth of under-reporting its share of premiums in nationwide assigned risk pools. This suit, filed in U. S. District Court, was dismissed by Judge Robert Gettlemen, who found that NCCI lacked legal standing to file it. The fallen banner has been quickly retrieved by Liberty Mutual, among others, who intend to refile the complaint. After all, it is AIG's direct competitors who would have been harmed if, indeed, AIG under-reported premiums.

    Badda Bing, Badda Boom
    Which leads us to the not-so-lovely, two-can-tango result of AIG counter-suing, alleging a conspiracy to shift costs to AIG. "AIG's complaint asserts that a number of its competitors under-reported their workers compensation premiums over many years and formed an illegal conspiracy to conceal that fact and to harm AIG," said company spokesman Mark Herr.

    It's a shame that this colorful gang war has to play out in sedate courtrooms, with immaculately dressed lawyers mouthing lines better suited for Brando, Pacino and Cagney. After all, these are suits filed under anti-racketeering laws. It's doubtful that the original crafters of the RICO legislation had insurance giants in mind when they fashioned this weapon to attack organized crime.

    AIG stock is trading near $46, which sounds pretty good when compared to the under-a-dollar price of just a few weeks back. But appearances can be deceptive. To avoid the humiliation of trading as a penny stock, AIG did a reverse 20 for 1, carving each share into 20 pieces. For long-term shareholders, that $46 is really just two bucks and change. (Go ahead, shareholders, celebrate with a bottle of two buck chuck!)

    "You gotta problem with that?" No, sir, no problem at all. I'm just walking down the street with my hands in my pockets, minding my own business. I'm not looking for trouble. What you folks do with all those premium dollars, all that TARP money, all those securitized loans, that's your business. I wish you the best, I really do. And by the way, that's a swell suit you're wearing. A really nice fit. Would you mind my asking how much it cost...?

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    September 22, 2009


    Lucine Williams, 41, worked as a housekeeper for the Hyatt hotel chain in Boston for over 20 years. She earned $15.32 an hour, plus a fairly robust benefit package that included health, dental and a 401(k). That's where Katie Johnson Chases's story begins in the Boston Globe, but it hardly ends there.

    Last month Ms. Williams and her co-workers were asked to train some new workers, who were going to fill in during vacations. It turns out that these trainees were employees of Hospitality Staffing Solutions, a Georgia-based company with offices proliferating across America.

    At the end of August, Hyatt laid off Lucine and 100 other housekeeping employees. They were replaced by Hospitality employees, who make $8.00 an hour with no benefits. Heck, people complain about outsourcing jobs to the third world. Now you can bring third world jobs to your workplace!

    A little number crunching reveals the potential profit margins. If we assume that the benefits once paid to housekeepers at the Hyatt added about 35 per cent to the payroll, the hourly cost of labor was over $20. Hospitality Staffing pays its workers $8.00 and limits benefits to what is required by law. On their website, they say they can save companies up to 12 percent on labor costs. If you subtract 12 percent from $20, Hospitality would bill Hyatt about $17.60 per hour. That might not sound like much, but multiply it every week by a payroll for 100 housekeepers and you are talking serious savings. How that savings relates to the lives of long-time, loyal workers is another question.

    Outsourcing Poverty
    Hospitality Staffing presents itself as a female owned company: Kathryne King is the "owner." John King is the Chairman. All but one of the other senior staff are men. Their website features smiling, well dressed workers. One spokesperson for the company described the wages as "competitive." Competitive with what?

    It's important to note that Hyatt's major competitors in the Boston area, the Hilton and Marriott chains, are not planning on using this particular cost-saving measure. They prefer to cultivate a loyal and stable staff and pay them decent wages for physically demanding work. One wonders where Hospitality Staffing finds people desperate enough to work for low wages and no benefits who can still provide an acceptable level of service to the host company.

    Paul Sacco, president of the Massachusetts Lodging Association, has no problem with Hyatt's strategy. He points out that outsourcing has been going on for years at companies around the country. He says the move will save Hyatt money and will not affect the hotel guests. "If you stayed at the Hyatt last night and you bumped into the housekeeper, would you notice a difference?"

    Excellent point, Paul. Guests at the Hyatt Harborside will still enjoy the amenities: the "celebrated architectural details such as an inlaid marble floor map, ornate dome ceiling and exterior lighthouse and beacon accents." Guests are not likely to spend much time worrying about Lucine Williams, an out-of-work single mother, and her 13 year old asthmatic child. They will, however, be quick to complain if the bed is not well made, if the bathroom is not spotless and if there is no bed-time mint on the pillow.

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    September 15, 2009


    Hawwah Santiago was a "sandwich artist" at a Subway restaurant in New Smyrna Beach, Florida. She was fired after refusing to remove her nose ring while at work. Visible body piercings (other than earrings) violated the company dress code. Ms. Santiago sued, claiming that the nose ring was a practice of her Nuwaibian religion. The Nuwaibians, based in Eatonton GA, are a black supremacist cult with an elaborate set of beliefs, some of which require an inordinate degree of faith. Here is a very brief sample, courtesy of Wickipedia:

    The Illuminati have nurtured a child, Satan's son, who was born on 6 June 1966 at the Dakota House on 72nd Street in New York to Jacqueline Kennedy Onassis of the Rothschild/Kennedy families. The Pope was present at the birth and performed necromantic ceremonies. The child was raised by former U.S. president Richard Nixon and now lives in Belgium, where it is hooked up bodily to a computer called "The Beast 3M" or "3666. [Hmmm. Wonder what brand of virus control is used on the computer.]
    There is an underground road connecting New York and London.

    The issue here is not the quality of Santiago's beliefs, but whether these beliefs entitle her to an exemption from company dress policy. The EEOC supported her charge of religious discrimination in the firing and brought suit against the employer. (While a government agency may not be in an ideal position to determine where religion ends and whackiness begins, the EEOC appears to have erred on the side of inclusiveness.)

    A jury found that Ms. Santiago did not wear the nose ring because of a "sincerely held religious belief." Not satisfied, the EEOC sought injunctive relief and punitive damages. But the court dismissed the case. Judge John Antoon II wrote: "The EEOC's own publications acknowledge that some inquiry into the sincerity of an employee's belief is appropriate. Otherwise, an employer would have to grant an accommodation any time an employee requested one."

    The leader of the Nuwaubians, Dwight York, currently rules his flock from a jail cell, where he resides under a sentence of more than 135 years for racketeering and child molestation ("suffer the children"?). Oh, ye of little faith! Someday in the not-too-distant future, York will begin his leisurely stroll through the underground road that runs from New York to London. Deep beneath the turbulent waters of the Atlantic Ocean, he will doubtless pause along the way for a delicious sub, lovingly prepared by a sandwich artist with dazzling piercings. When he emerges at last in London - near the lions guarding Nelson's column, one assumes - the doubters will be vanquished and Nuwaibian claims for religious accommodation will finally be deemed credible.

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    August 19, 2009


    California has a California-sized fraud problem, with much of action in the medical arena. Unscrupulous providers are billing for services that are never provided, often under the names of people who have never been injured. It's identity theft targeted at businesses, not individuals. In California's $7 billion comp system (down from $21 billion just a few years ago), fraud is a significant cost driver.

    Here is just one example of medical billing fraud, involving the Los Angeles Unified School District. In August of 2006 the district received a bill for lab services involving a principal injured in a fall the previous May. Unfortunately for the perpetrator, one James Wilson, the principal had died prior to the date of the lab test. (Comp is rarely interested in post-mortems.) Wilson was a financial rep at Cedars-Sinai Medical center - a highly reputable institution - and had access to patient medical records. He was convicted on five felony counts and sentenced to 4+ years in prison.

    As we read in the LA Times, a task force of private and public employers, including the Walt Disney Co., came up with an intriguing solution: require insurers to send notices to injured workers to check whether they actually received all the medical services billed. To eliminate the suspense, I will tell you now that the bill died in committee, at the request of the insurance industry. As much as the Insider detests fraud, we're with the carriers on this one.

    Junk Mail?
    The fraud problem is very real, but this particular solution is flawed. Too many assumptions are embedded in the approach. The bill assumes that:
    - the carrier has a valid address for the individual
    - the individual will read and understand the mailing, which is likely to contain technical information on treatments provided. (The claimant may be non-English speaking and/or illiterate.)
    - the individual will take the time to fill out the form and respond, even though there is no direct incentive to do so
    - the individual is not a willing participant in the fraud (having received a few bucks for the effort)

    The fundamental flaw is that injured workers have no direct financial stake in fraud: they are held harmless in the comp system, with no co-pays, no deductibles and no premiums. The stake holders are the employer, who either pays for insurance or is self-insured, and the carrier/TPA, who under this bill is confronted with the significant cost of mailings (perhaps multiple mailings to individual claimants) and the arduous task of logging responses, which would be random: most would indicate no problems, while those pointing to fraud might well come from folks who simply did not understand the questions. This solution is equivalent to using a shotgun to eliminate a bunch of (very pesky and rather deadly) mosquitoes.

    There may be a quick fix to make this approach somewhat more effective: send the confirmation of services to the employer. That way a vested stake-holder would be given useful information and would have an incentive to follow up on it. The employer could sit down with the individual and verify the treatments. Any problems could be relayed to the carrier. In this approach, the scale of the effort becomes more manageable, as the burden falls on hundreds of thousands of employers, as opposed to a few hundred carrier/TPAs.

    A cost-benefit analysis would probably place this fraud buster where it currently resides, in the circular file. It's always tempting to legislate solutions to intractable problems, but alas, mandated solutions often become a new set of problems. Administrators, employers and carriers need a variety of tools to tackle fraud. This aborted bill is not exactly what the prudent doctor would have ordered.

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    August 12, 2009


    The King Arthur Lounge in Chelsea, MA does not exactly bring to mind the Knights of the Round Table. It's a tough place in a tough town - a strip joint with a motel attached (don't ask, don't tell). The strippers had to work under some pretty difficult conditions. They were hired as independent contractors. They paid a $35 fee for every shift. There were no wages, just customer tips. They provided their own (easily removable) costumes. When they moved to the darker regions of the bar and provided "private shows" (please don't ask, don't tell!), they had to turn over one third of their earnings to management.

    Jonathan Saltzman tells the story in the Boston Globe: About 70 strippers, led by Lucienne Chaves, a 32 year old former stripper, filed suit, alleging in a class action that they were not independent contractors, but employees entitled to minimum wages and benefits. Their lawyer, Shannon Liss-Riordan, compared the strippers to indentured servants: "They weren't making any wage. Imagine a restaurant where a waiter has to pay to come to work and hand over a portion of the tips."

    Robert Berluti, King Arthur's lawyer, countered that some strippers made hundreds of dollars a shift. He argued that the strippers were truly independent contractors, picking their own music, costumes, partners and routines.

    Judge Frances McIntyre did not buy management's argument. "A court would need to be blind to human instinct [indeed!] to decide that live nude entertainment was the equivalent to the wallpaper of routinely-televised matches, games...and sports talk in such a place. The dancing is an integral part of King Arthur's business." She went on to say that the club hired and fired strippers, determined their hours and made hiring decisions solely on looks. In other words, the strippers were employees.

    Mr. Berluti lamented the burden of overcoming Massachusett's strict standards for independent contractors. "This was a case where the judge was saddled with a MA law that makes it an outlier with respect to the rest of the country." Does Berluti really think the outcome would have been different if the law had been more ambiguous?

    Debt Collection
    The strippers have been awarded thousands of dollars in damages. It will be interesting to see if they can collect. As noted above, King Arthur's Lounge is a tough place. Back in 1982, there was an argument between Alfred Mattuchio and an off-duty Everett MA police officer named John McLeod. The cop left the lounge and returned with several fellow officers, armed with nightsticks, baseball bats and tire irons. They attacked a dozen patrons and employees, one of whom was beaten to death. Four cops were indicted and three were convicted. The Insider wonders which, if any, of the King Arthur employees injured in the fracas collected workers comp.

    The chivalry of the original Round Table still lives in some places, but not, alas, in the dank recesses of King Arthur's Lounge.

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    August 10, 2009


    We live, alas, in interesting times. As the health care debate spirals downward, the fault lines in our culture become more and more evident. On one side, anti-reformers stack town meetings to prevent any meaningful dialogue from taking place. These folks are even trying to intimidate unions. What am I missing here? Who is supposed to intimidate whom? On both sides of this momentous debate, pockets are being stuffed with special interest money. This makes the ultimate outcome - whether status quo or some degree of reform - highly suspect. The notion of genuine debate and civil discourse have disappeared altogether.

    Which leads us back for a moment to the lingering conflict between UPS and FedEx. Back in December, we blogged FedEx's unusual charter:

    FedEx began 35 years ago as an airline. As such, it fell under the Railway Labor Act of 1926, which made unionization of public and commercial transport companies extremely difficult. By contrast, UPS began as a trucking company and was subject to the National Labor Relations Act from day one. UPS is unionized: they pay workers more than FedEx, they provide better benefits.

    It would be to UPS's advantage to remove their fierce competitor from the Railway Labor Act and force them to operate under the NLRA. That requires an act of congress, so it's no surprise that UPS has been aggressively lobbying congress for this change. They say they want to level the playing field.

    Level playing fields are fine. The devil is in the details: how do you accomplish your goal? Apparently, by playing unfairly. UPS has been accused of forcing union members to write to their congressmen, urging passage of legislation to eliminate the FedEx exemption. The letters bombarding congress appear to express the views of individual UPS drivers. In fact, many are based upon prescribed forms. We read in the Washington Post:

    Officials with UPS and the International Brotherhood of Teamsters, which represents 240,000 UPS drivers, acknowledge that the company has paid for workers' time to pen many of the letters and has supplied the envelopes, paper and stamps needed to mail thousands of them to Congress. UPS spokesman Malcolm Berkley said the effort was "totally voluntary, and any allegations to the contrary are ridiculous."
    But Internet sites dedicated to UPS-related discussions feature dozens of accounts from anonymous employees who in recent weeks have said they were forced to write the letters or felt they would be punished for not doing so. Such tactics could run afoul of both labor laws and lobbying disclosure requirements, according to legal experts.

    So it appears that UPS may be violating labor laws in order to force FedEx to operate under labor laws. Were you expecting anything different?

    In one of Norman Rockwell's many iconic images, a humbly dressed man stands up in a town meeting to express his opinion. The painting is entitled "Freedom of Speech." We could certainly argue the degree to which such freedoms ever existed. But it's all too clear that Rockwell's image bears no relation to what is occurring today. If he were to depict our present situation, we would see an enraged citizen shouting down his local congressman. This individual would waive an inflammatory poster complete with Nazi symbols. In his pocket, we might glimpse the bus ticket that brought him into town. In the corner we might see an innocent mother, huddling to protect her child from the pending violence.

    We are currently facing many complex issues, ranging from FedEx's status as an employer to the health care options for every American. There are pros and cons to every path. No one really knows how to get from point A to point B. Indeed, we may not even agree on what point B is. But when civil discourse deteriorates into the ravings of the mob, we all lose. If winning is defined by who shouts the loudest, who cheats the most effectively, who succeeds in intimidating the oppostion, there will be no victory for anyone.

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    July 29, 2009


    Back in May, we blogged the appalling story of Albania Deleon, a legal immigrant who founded Environmental Compliance Training (ECT), the largest asbestos removal training school in New England. Despite the fact that the training only requires 32 hours, she frequently sold certificates of completion to "students" who never attended classes. In other words, she sent these marginal workers - many of them undocumented - into asbestos-ridden jobsites with no preparation whatsoever.

    Well, Albania, meet Chong-mun Chae, an illegal immigrant who ran a Queens-based asbestos removal company apparently modeled on ECT standards. Chae claimed to have only one employee, a receptionist. In other words, his company removed asbestos from job sites all over New York, but he accomplished this without any workers. By calling his workforce "independent contractors," he avoided workers comp premiums to the tune of $1.6 million. As we read in the New York Times, Chae has been sentenced to 4 years in prison, to be followed by deportation to South Korea.

    Chae avoided detection for over a decade by frequently changing the name of the company. He was not without a sense of humor - let's call it diabolical - as one of his company's incarnations was "Charlie Brown Services." His premium avoidance scheme was exposed when an investigator read a report filed by Chae stating that he had no workers. You might think that a connection would easily be made between a company with hundreds of thousands in billings and no payroll, but that was not the case. In our collective haste to get rid of asbestos, we try not to think very much about the people actually performing the work.

    Killer Jobs
    Chae, like Albania Deleon, is getting off lightly. After all, he has only been convicted of insurance fraud. At some point in the not-too-distant future, when Chae is enjoying his retirement in South Korea, he will be guilty of murder, as his phantom workforce and their families succomb to debilitating lung disease. We don't know who they are or where they live. Collectively, perhaps we don't really care.

    Entrepreneurs like Chae and Deleon exploit the margins of the working world, removing a deadly menace in a deadly manner. They offer jobs that pay relatively well, to a workforce that labors in the shadows. Chae and Deleon are nothing less than murderers. It's too bad that our system of justice is incapable of holding them accountable for their deeds.

    If hell operated a dating service, surely the decrepid Chae and the fugitive Deleon would be a match: at 71, he is a lot older, where Deleon is a single mother with a now-abandoned 3 year old child. Despite the difference in ages, however, they have a lot in common. They have ruined hundreds of lives, wreaked havoc on thousands of families and reaped the profits of a corrupt business scheme. With values like those, age is surely no barrier.

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    June 22, 2009


    The Defense Base Act (DBA) was enacted in 1941, to cover the injuries to civilian employees - primarily a few hundred engineers - during the second world war. The act might have worked then, but it certainly is not working now, nearly 70 years later. As we have blogged in the past, the DBA is a boondoggle, generating huge profits for a small number of insurance carriers and routinely devastating both the civilian workers wounded or killed in war zones and their families. There are over 10,000 claims filed each year: the medical only claims are usually paid; the indemnity claims are dissected, inspected, detected, and ultimately, rejected. A handful of insurers (AIG, CNA among others) are making big bucks at the expense of the wounded and the dead.
    NOTE: As bad as the situation is for U.S. citizens wounded and killed in Iraq, it is far worse for foreign nationals.

    The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee held a hearing last week on the DBA. The title of the hearing betrays an (understandable) prejudice: "After Injury, the Battle Begins: Evaluating Workers' Compensation for Civilian Contractors in War Zones." The hearing focused on the handling of workers' compensation insurance for federal contractors working overseas, specifically on the inordinate delays in compensation running parallel to the enormous profits for insurers. Among those testifying were Deputy Labor Secretary Seth Harris; Timothy Newman, Kevin Smith and John Woodson, former civilian contractors in Iraq; Kristian Moor, president of AIU Holdings, Inc., a division of AIG; George Fay, executive vice president for Worldwide P&C Claims, CNA Financial; and Gary Pitts of Pitts and Mills Attorneys at-Law.

    Kristian Moore defended AIG's decisions and motives, pointing the finger at a lack of Labor Department oversight and a system overtaxed with cases. "We are doing everything we can do," suggested Charles Schader, senior vice president and chief claims officer for AIU Holdings. Yeah, everything you can do to make money.

    At the conclusion of the hearing, Dennis Kucinich (D-Ohio) warned AIG executives that he plans to demand copies of internal memos and documents that will link claims denials to the company's profits. Most of us do not get terribly excited by the prospect of reading claim files, but these will undoubtedly provide some compelling reading. While I doubt that the subcommittee will find a direct, written link between denials and profits, the rationale for the individual claim denials - in the face of compelling evidence of compensability - should prove riveting. Was it incompetence or was it greed? Something cruel, heartless and cynical took place in the back rooms of carriers with responsibility for civilian claims. If you like Edgar Alan Poe, you'll love the claims files of AIG and CNA.

    Risky Job, Risky Work
    Seth Harris, the new deputy secretary at the U.S. Department of Labor, is in charge of this mess for the government. He's been on the job for 3½ weeks. Congratulations on the new job, Seth! (You might want to keep your resume circulating.) Seth has been working less than a month, but he has already figured out that the system is in need of fundamental change.

    The work of insurers usually involves risk transfer. Under the perverse incentives of the DBA, the risk is absorbed by taxpayers, the pain falls on civilian workers and their families, and the profits - running from 37 to 50 percent of premiums - are pocketed by the carriers. Risk without transfer. It's amazing that AIG can generate this level of profit in one division and still only trade at $1.40 a share. I guess that they have been looking for risk in all the wrong places.

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    June 9, 2009


    If health care reform is the proverbial 800 pound gorilla, then the medical portion of workers comp is a 15 pound Maine Coon cat: it might big for a cat, but compared to a giant gorilla, it is barely noticeable. Nonetheless, this cat is blessed with a very strong notion of what it needs. As the nation moves closer to universal health care, the implications for workers comp are both profound and troubling. Comp medical services comprise a mere 2% of total medical expenditures, so policy makers in Washington will be inclined to ignore its special needs. That could create profound problems for the employers, insurers, and state administrators who deal with comp issues.

    There are a number of key reasons why reform of health care may undermine the ability of states to deliver a quality workers comp system. (We previously blogged these issues here, here and here.) In order to provide some focus for the pending debates, here is a brief summary of how comp fits into the overall medical universe:

    The focus is similar but not identical
    The general health care system focuses on the prevention of what can be prevented and the treatment of that which can be treated, up to limits of coveraged defined in specific health plans. The overall goal is to preserve the life and health of individuals and families. This system provides treatment from conception up to the moment of death.
    The comp system has a much narrower focus: comp provides treatment only to workers who are in the course and scope of employment. Comp treats work-related injury and illness, with the specific goal of returning injured/ill workers to productive employment.

    Eligibility is Radically Different
    The general health system provides defined services to individuals and families. Virtually any illness or injury is covered, including many forms of mental illness.
    Comp covers only what occurs during work and is proven to be work-related, with an almost phobic disregard for mental impairments.

    The cost structures are very different
    In general healthcare, the premiums for coverage are paid by individuals and their employers. Depending upon the plan, individuals and their family members assume at least some of the cost of treatment, through premiums, co-pays and deductibles. The trend has been to shift more and more of the costs onto the consumer (which, in turn, becomes an incentive to reduce utilization).
    In comp, employees never pay comp premiums and are never charged co-pays or deductibles. Injured workers are covered from the first dollar. Thus, only the employer, self-insured or who purchases mandatory coverage, and the insurer have the incentive to control costs. No such incentive exists for injured workers.

    There are Perverse Incentives in the Comp System
    Under comp, injured workers are paid not to work (indemnity). They may not like their jobs. They may malinger, seeking treatment more often than medically necessary (no co-pays to discourage them), thus prolonging disability in order to avoid work. The incentives for returning injured/ill employees to work lie primarily with the employer (who pays the premiums or is self insured) and the carrier (who pays the bills, which may exceed the premiums collected).

    For employees with minimal job skills and perhaps no job to return to, the incentive for remaining on comp as long as possible is powerful.

    Comp is a State-Based Program
    The new mandates for health insurance coverage will come from the federal government. Comp, by contrast, is strictly a state by state program. The new federal mandates (eg., employee choice of doctor) may well conflict with long-established systems.

    Policy makers are trying to create a new paradigm for medical coverage in the twenty first century: truly, a daunting task. Ultimately, the new direction for health care will be driven by cost and coverage. Whether the providers are public, private or both, health care cost controls and rationing will lurk in the shadows: will there be a cap on total expenditures for any given individual and any given conditions? Will there be limits on end-of-life services? How much of the costs will be shifted to consumers? What incentives will be created to reduce utilization?

    In stark contrast, comp is and will remain an early 20th century system, based upon an industrial world that no longer exists. It already provides virtually universal coverage for people who work. The costs belong exclusively to employers and carriers; there is no cost-shifting onto injured workers and there are no incentives for these workers to limit expenditures. The over-arching goals are returning injured workers to productive employment and providing lifetime benefits for the totally disabled.

    So it all comes down to this: When and if the 800 pound gorilla that is universal health care actually sits down, will it be beside - or on top of - the comp coon cat? Will the federal mandates take into account the unique and idiosyncratic needs of the comp model, or will the new mandates inadvertently crush the system, state by state by state?

    There are often unintended consequences when well-intentioned humans try to solve gargantuan problems. Let's hope that the comp system does not fall victim to this fundamental law of human endeavor.

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    May 29, 2009


    In the world of workers comp, there is no lack of opportunity for fraud. We've seen doctors rip off the system by billing for services that were either never provided or not needed. We've seen employees fake injuries (relatively rare) or malinger on comp long after injuries have healed. We've seen insurance agents pocket money intended for insurance premiums. We've seen insurance adjusters embezzle claims funds. We've seen state comp bureaus (Ohio) engage in fraud. And we've seen employers rip of the system in a number of ingenious ways.

    Which brings us to the saga of NBC Contractors (presumably no relation to the television network), a California general contractor. Three owners of the company - Monica Mui Ung, 49, of Alamo; Joey Ruan, 31, of San Leandro; and Tin Wai Wu, 28, of Millbrae - have been charged with 48 counts of insurance fraud, labor code violations and tax fraud. Bail was set at $535,000 for each of them. (You can check out their bare-bones website here.)

    With Ung listed as the (minority, female) owner, NBC Contractors qualified for preferential treatment on public projects. Between 2003 and 2007 they successfully bid on 27 public works projects, including El Cerrito City Hall and Piedmont Elementary School.

    Cheater's Delight
    According the indictment, NBC used a trifecta of cost cutting measures:
    1. They underpaid workers comp premiums a total of $1.45 million, by misclassifying their workers into lower risk occupations and by under-stating payrolls
    2. They violated fair labor standards, by failing to pay for overtime or sick leave, impacting 19 workers a total of $3.6 million
    3. They underpaid payroll taxes on workers, depriving state and federal government of tax revenues

    With these (criminal) "cost savings," NBC was able to underbid their competitors. These business practices cheated a lot of people: NBC's own workers, their insurance carrier, their competitors, and all law-abiding businesses who played by the rules. We can only hope that the quality of their work was up to standards, which would at least keep their customers off of the long list of parties directly injured by their actions.

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    May 18, 2009


    Albania Deleon is a entrepreneur. A legal immigrant and naturalized citizen from the Dominican Republic, she founded and operated Environmental Compliance Training (ECT) in Methuen, Massachusetts, the largest asbestos removal training school in New England. Between 2001 and 2007, she trained over 2,500 people in the intricacies of asbestos removal. Except that she didn't. Instead, she would fill out tests for certificate applicants and enter a passing grade. For $400, the (usually undocumented) worker was handed a certificate and then placed in a job through Deleon's other enterprise, Methuen Abatement Staffing. Her temporary workers handled hazardous abatement jobs throughout New England. (You can read the sorry details in a fine article by Beth Daley of the Boston Globe here.)

    By the way, the training involves a total of 32 hours - not much of an investment in a life or death matter. (Some ECT students paid $350 and actually completed the training; for an additional 50 bucks, you could skip the training, pocket the certificate and get right to work, earning upwards of $15 per hour.)

    ECT "graduates" went in to hundreds of schools, hospitals, churches, libraries, and homes throughout New England to remove asbestos. Most of them had no idea what they were supposed to do. Now there is deep concern that the workers, mostly young men from Central America, breathed the fibers, which can lodge in the lungs and lead to death decades later. Most had no idea how to properly wear a respirator.

    In addition to their own exposure, these workers may have exposed their families to the cancer risk. Asbestos workers, if not properly trained, can inadvertently carry the fibers home on their clothes or hair.

    More than a third of the 12,750 asbestos worker licenses and renewals issued in Massachusetts between 2002 and 2007 went to ECT "graduates." In New Hampshire, it was more than two-thirds.

    Crocodile Tears
    In November 2008 Deleon was convicted on 28 felony counts. Shortly before her sentencing, she wrote a rambling, hand-written letter to the sentencing judge. Among other things, she wrote:

    "I pray that God will forgive my soul and allow me to atone the rest of my life repaying and repairing the harm I have done. This is my solemn promise...I commit myself to work ceacelessly [sic] to make restitution to the government and to the keeper of my soul until I draw my last breath life (sic)."

    The reference to "last breath" is especially ironic, given that many of her "students" - along with innocent family members - will suffer excruciatingly painful deaths, as their breathing slowly and inexorably shuts down.

    Facing more than 7 years in prison, Deleon skipped town. There is a warrant out for her arrest. Oh, she abandoned her 3 year old son in the process. Alas, it appears that "the keeper of her soul" doesn't have a whole lot to work with...

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    April 28, 2009


    The Sioux Fall Storm are members of the Indoor Football league (not to be confused with the Arena Football League, although, truth be told, I am confused). They have won the league championship four years in a row (bet you did not know that) and were well on their way to a 5th title, having won their first six games in 2009. Then they made a big mistake. They neglected to purchase workers comp insurance for the team.

    The league owners, all of whom have had hopes of a championship crushed by the relentless Storm, came up with a set of sanctions unique in the history of workers comp. The owners forced the Storm to forfeit the first six games of the season (6 and 0 instantly becomes 0 and 6). In addition, the Storm is only allowed to dress 20 players for future games (other teams can have 21). Finally, if the Storm should overcome the formidable obstacle of six losses and reach the playoffs, they are not allowed to host the initial playoff game. That sounds like roughing the franchise to me!

    League owners have converted one team's failure to buy insurance into leverage to ensure that someone else - anyone else - wins the title this year. I have no idea which teams are any good, so I have handicapped my preferences based solely upon the intriguing names:
    Billings Outlaws
    Bloomington Extremes
    Maryland Maniacs (I am not making this stuff up!)
    Omaha Beef
    RiverCity Rage
    Everett (WA) Destroyers

    And then there is the Kent*. No, not the Kent Asterisks. This is either an expansion team or inactive franchise, currently lacking a name. Given that they represent Seattle, I think something nerdy might be in order: The Kent Keyboards? Or given the need to project a violent image, how about the Kent (Hard Drive) Crashers?

    Comp in Professional Sports
    We have blogged the uneasy fit between workers comp and professional athletes. There really is no class that reflects the risks of being a football player. Given that the estimated premium for covering the Storm is about $200,000, it appears that insurance coverage per player runs in the range of $8,000 to $10,000.

    Storm team President Colin Steen is not happy with the penalty:
    "Clearly, these outrageously harsh punitive measures, imposed by a majority vote of IFL team owners, are intended to place the Sioux Falls Storm and its players at a competitive disadvantage against the other teams in the League for the remainder of the season and into the playoffs for a mistake that was totally unrelated to competition on the field."

    Steen is correct, but unfortunately his only recourse puts the issue right back into the hands of the same resentful owners who dreamed up the sanctions. In other words, it may be roughing the franchise, but the call stands.

    This situation reeks of conflict of interest. It's admirable and necessary to enforce insurance requirements on all teams, but in this case, the penalty is totally out of alignment with the infraction. It's piling on - a fairness problem in most endeavors, but perhaps appropriate for indoor football.

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    April 21, 2009


    AIG has been in the news mostly for its ingenious method of losing money: insuring the riskiest possible financial transactions and tanking after these risks go bad. But give the biggest insurance company in the world some credit. They still know how to make money the old fashioned way: collecting premiums and denying claims. To be sure, this strategy is not easy to do in the states, where public scrutiny is never more than a phone call away. But it works rather effectively in Iraq.

    T. Christian Miller from Propublica and Doug Smith from the LA Times have described in great detail how AIG transformed Iraq into a business opportunity with an enormous upside. AIG is the predominant workers comp carrier in the war-torn country, insuring civilian workers. When these workers are injured - and the injuries can be devastating - AIG has routinely denied their claims for basic medical care, artificial limbs and desparately needed counseling for post-traumatic stress syndrome. More than 1,400 civilian workers have died and 31,000 have been wounded or injured in the two war zones.

    Insurers have collected more than $1.5 billion in premiums paid by U.S. taxpayers and have earned nearly $600 million in profit, according to congressional investigators. That's nearly 40 percent profit after expenses - an unheard of loss ratio in the states.

    Collect and Deny
    The AIG strategy is deceptively simple: first, charge exorbitant fees for premiums, roughly 100 percent of a worker's pay. (Don't feel sorry for the companies paying these premiums; they are fully reimbursed by taxpayers.) Then, accept all the small claims and fight almost any claim involving lost time (more than four days of disability). Delay, delay, delay. Never make a payment until ordered to do so by a court.

    The denial rate on serious claims is pretty astonishing: about 44 percent. How could you argue that any injury - let alone a serious one - is not work-related, as civilian employees are in Iraq for one purpose, supporting the war effort? In addition, fully half the claims for PTSD are denied. All this in the context of a war where catastrophic injuries are all too common and legitimate PTSD is as prevalent as cuts in a glass factory. How many state-side workers have watched co-workers blown to pieces by roadside bombs? Do you think that such incidents might qualify as PTSD?

    AIG used the argument of extremely high-risk working conditions to boost the premiums. Then they turned around and used the strategy of denial to boost profits. Who says capitalism is dead?

    I suppose you could argue that this reporting is just piling on poor AIG.The behemoth just cannot catch a PR break. Oh, well, dear reader, don't waste too much energy feeling sorry for AIG. After all, you are paying for AIG big time: in the bailout that exceeds $200 billion; in the war-based premiums that generate profits nearing 40 percent; and in all likelihood, in the social costs of caring for devastated civilian employees, who have so much difficulty accessing the comp benefits to which they are entitled.

    AIG may not know diddly about the risk in risky financial vehicles, but they certainly know how to make money in conventional comp insurance. Of course, it helps that the injured workers are so invisible, like obscure figures in a desert sand storm, struggling blindly to find some kind of shelter in a harsh and unsympathetic world.

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    March 31, 2009


    Back in September we blogged a lawsuit filed by three former wrestlers of World Wrestling Entertainment (WWE), the colorful circus of flying bodies managed by Vince McMahon. The wrestlers claimed that they were not independent contractors, but employees of WWE and entitled to all the benefits of employment. We guessed that Vince would be crushed in court. Well, we guessed wrong.

    Judge Peter Dorsey of the U. S. District in Connecticut has dismissed all the charges against the formidably muscled McMahon. The judge found no merit in the three fundamental assertions of the plaintiffs:
    : that WWE failed to withhold taxes (no harm to the individuals, the judge said)
    : that the three grapplers were denied the "rights and benefits" of employment (no specifics in the filing, so the judge ruled against them)
    : That WWE benefitted from "unjust enrichment" (again, the judge found no basis in law for this assertion)

    One thing puzzles me about the findings. Nowhere does Judge Dorsey consider the fundamental test for independent contractors: who controls the work? Here's what the IRS has to say about the issue:

    The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

    Despite the fact that every match is scripted from introductions to outcome ("means and methods"), despite the fact that these "independent contractors" have no control whatsoever over their work: when to show up, how to perform the job, whether or not to lose the match...Despite these compelling indications that they are indeed employees, the judge has determined that they are not.

    I believe the plaintiffs dropped the proverbial ball when they failed to mention at least one benefit near and dear to the Insider: workers comp. WWE offered a workplace full of unusual hazards. (Ever try cracking a folding chair over the head of a co-worker without hurting him?) Despite the fixed outcomes, injuries are commonplace in this high-risk field of endeavor. Yet these three wrestlers - along with their fellow independent contractor colleagues - are on their own for the inevitable injuries that occur in the course and scope of their work.

    Hope for FedEx?
    While the judge dismissed this particular lawsuit on technicalities, I wonder how he would view the contracts between FedEx and its "independent contractor" drivers. Perhaps he would stick to the letter of the written agreements and, once again, ignore the core issue of who controls the work. So there may be hope for FedEx's battered business model, at least in one U.S. District court.

    In the meantime, when your channel surfing brings you to the scripted mayhem of the WWE, pause for a moment and consider the fate of the behemoths pummeling each other with abandon. They may appear to be working in a collaborative - if cartoon-violent - manner; they may appear to be following a script written by others, but don't be fooled. As far as the law is concerned, WWE performers are independent contractors, answerable to no one but themselves. I suppose that makes wrestling matches real. Now if they could just get those comically incompetent refs to do their jobs...

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    March 16, 2009


    We continue to be amazed at the ongoing saga of AIG. We learn in Sunday's New York Times that 400 employees of the financial products unit (yes, the geniuses who destroyed the company) are receiving bonuses ranging from $1,000 (the hard-working and relatively innocent) to $6.5 million (the brains behind the fiasco). Commitments to pay these bonuses were made in the spring, after the troubles began, but before the proverbial all hell broke loose. Outside counsel (presumably paid at their usual and customary rates - and no doubt in advance) confirmed that the promised bonuses must be paid.

    AIG's current CEO, Ed Liddy, expained to Treasury Secretary Tim Geithner that the bonuses were needed to keep the most skilled executives. "We cannot attract and retain the best the brightest talent [unfortunate choice of words, Ed] to lead and staff the AIG businesses - which are now being operated principally on behalf of American taxpayers - if employees believe their compensation is subject to continued and arbitrary [arbitrary?] adjustment by the U.S. Treasury."

    So the bonuses are being paid with taxpayer dollars: had AIG been allowed to fail, there would be no money to pay these obligations. We surmise that the checks were cashed immediately, before the feds had an opportunity to figure out a way to shut this scam down.

    As a tax-paying owner of AIG, you will be delighted to know that the top 25 executives of the financial products unit - all of whom needed the incentive of huge bonuses to stay on the job - have agreed to reduce their salaries for the remainder of the year to one measly dollar. Their pay is finally aligned with their performance. And for the record, that annual salary won't buy them a cup of coffee, but it will cover more than one share of AIG stock.

    If AIG survives this current crisis, the company will be on the hook to repay the bonuses to taxpayers. Don't hold your breath. The company that is too big to fail probably should fail, precisely because it is too big.

    Is there a moral to this sordid saga? Perhaps. The Bhagavad Gita, India's great spiritual document, describes three gates to hell: lust, anger and greed. Perhaps I am hallucinating, but I believe the logo inscribed over the third gate is that of its most recent corporate sponsor, AIG.

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    March 11, 2009


    I have a few shares of AIG stock, which is currently trading at 35 cents a share. I do not like to dwell on the pathetic disappearance of this particular asset, so it's an opportune time to seek comfort in history. This is not the first collapse of a financial empire, nor will it be the last.

    The financial products division that brought down AIG rented space at One Curzon Street , a tony part of London. The building, owned by the Abu Dhabi royal family, features elegant curves, polished white stone, sweeping windows and a panoramic atrium. On the street it's known as the hedge fund hotel. Its tenants include GLG Partners, a once high-flying fund that has fallen on hard times, the struggling Swiss bank UBS, and on the fifth floor, its most famous tenant, AIG.

    Nice digs for Joe Cassano and his crew. A great place to gamble with other people's money and pocket nearly $300 million in personal swag. If you are going to lose half a trillion dollars, you may as well do it in style. The bad news is that tax payers have already ponied up over $200 billion to cover Cassano's bad bets. The really bad news is that we may eventually be on for more than double that amount!

    The Fall of Empires
    Joe Cassano, the son of New York City cop, became a financial moghul, hanging his hat in the fanciest building on Curzon street. The street was named, of course, for Lord Curzon, one of the great figures of the Victorian age. Curzon's fame derived mostly from his time as Viceroy of India. He shot tigers from the backs of elephants, took his afternoon tea on the veranda, and made policy for India's millions. Like most of the British administrators who ran India, he came away with a substantial personal fortune.

    In 1899, India suffered from a terrible famine. The death toll was six to nine million people, give or take a couple million. Among other administrative actions taken during the crisis, Curzon cut back on rations, which he characterized as "dangerously high" and tightened relief eligibility requirements. You know: stiff upper lip and all that. Even as Curzon ruled India with an arrogant hand, a dimunitive Indian national named Mohandas K. Ghandi was organizing fellow Indians in South Africa. Ghandi would eventually lead the movement toward self rule for India, and in doing so, would bring a formal end to the British Empire.

    Curzon was born at Kedleston Hall, built on the site where his family, who were of Norman ancestry, had lived since the twelfth century. While at Oxford, he was the inspiration for a piece of doggerel which stuck with him in later life:

    My name is George Nathaniel Curzon,
    I am a most superior person.
    My cheeks are pink, my hair is sleek,
    I dine at Blenheim twice a week.

    Joe Cassano cannot match Curzon's pedigree, but he surely lost more money than Curzon ever dreamed of. Joe did his thing and brought down the biggest insurance company in the world. One hundred years from now, other folks, consumed by a similar raw greed, will bring down some corporate entity beyond our current imagining. But one thing is certain. The street where the debacle takes place will not be named Cassano Way.

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    March 3, 2009


    In most states, owner/officers of a company can opt out of workers comp coverage. So would it surprise you to learn that the scammers have parlayed this exemption into a scheme to avoid comp premiums? I didn't think so. (On the scale running from naive to cynical, Insider readers inevitably tend toward the latter.)

    Contractors Asset Protection Association (ConAPA), a company based in California, helps companies avoid comp premiums by designating employees in high rate occupations as stock-owning corporate officers. (The company website - no surpise - is down.) The California exemption applies to company officers who are also the sole shareholders of a corporation. So the folks at ConAPA don't just have employers give workers inflated titles, they also issue these workers worthless shares of stock.

    ConAPA focused on industries with high injury rates and expensive comp costs: housekeepers, security guards, roofers, maintenance and cooks. Thus, a housekeeper might become a "senior vice president, facilities." A roofer becomes "VP for environmental protection."

    Jerry Brown (yes, that Jerry Brown), California's attorney general, sued a similar operation called PacifiStaff in 2007. One of their clients, the now defunct Pic-A-Bagel, refused to pay the claim of a baker who carried the impressive title "Senior Vice President of Dough Making" (sounds more like a CFO). The denial fell apart on the employee's testimony: he was never asked if he wanted to become a company officer and was not aware of any ownership in the corporation. That kind of ignorance is usually reserved for former presidents of brokerage houses or AIG, folks who never seem to have any idea how we got into the current mess. At least the poor bagel maker knows how the flour got onto the kitchen floor...

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    December 19, 2008


    We have frequently blogged the labor issues at FedEx, the ubiquitous delivery giant. FedEx relies on "independent contractor" drivers for business and neighborhood deliveries. An interesting article by Corey Dade in the Wall Street Journal (subscription required) discusses the potential impact of a Democratic Congress on FedEx's business model. An 800 pound gorilla has just taken a seat in the board room beside FedEx CEO Fred Smith.

    FedEx began 35 years ago as an airline. As such, it fell under the Railway Labor Act of 1926, which made unionization of public and commercial transport companies extremely difficult. By contrast, UPS began as a trucking company and was subject to the National Labor Relations Act from day one. UPS is unionized: they pay workers more than FedEx, they provide better benefits. (Of course, the Wall Street Journal points out that these higher wages and benefits have hurt the growth of UPS stock.)

    With the pending Democratic control of Congress, FedEx finds its business model under fire. Representative James Oberstar (D-Minnesota) will propose an amendment to the Federal Aviation Administration Act that would remove truck drivers, couriers and other FedEx employees from the Railway Labor Act. In other words, the door to unionization will be thrown wide open.

    The Journal article does not mention the difficulties that FedEx has had in state courts, where their so-called "independent contractor" drivers, who wear FedEx uniforms and drive FedEx trucks, have been consistently found to be FedEx employees. FedEx finds itself caught in a big squeeze: potential changes in enabling legislation opening the door to unions plus state level pressures to reclassify 15,000 drivers as employees. The entire business model is at risk.

    FedEx has remained profitable during the recent downturn, posting a 3% increase in net income. Nonetheless, CEO Smith has voluntarily reduced his own salary by 20% and has given up his bonus. The company has also cut wages for all employees and stopped contributing to employee retirement plans. Because the workforce is union-free, the company has been able to react quickly and unilaterally to reduce (payroll) expenses.

    This type of maneuvering would be much more difficult - if not impossible - under a unionized workforce. Rates of pay, benefits and working conditions are all subject to collective bargaining - never a speedy process when take-aways are on the table. It's ironic that the very flexibility that keeps FedEx profitable during this economic downtime is also the source of FedEx's troubles in the long run. It's always difficult to predict the future, but the 800 pound gorilla stalking FedEx appears ready to light up a cigar.

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    December 9, 2008


    On December 1 we blogged the story of Taneka Talley, an employee of the Dollar Tree stores who was stabbed to death at work by a deranged racist. We believed that Talley's death was compensable under workers comp, as she died at work, performing her job (she was stocking shelves at the time of the assault). Dollar Tree's TPA denied the claim under the theory that the death was not work related because the killer was motivated solely by Talley's race (she was African American). A few of our readers agreed with the denial.

    This was no personal dispute. Talley and her assailant had no prior relationship. She died because she was in the wrong place at the wrong time. If she had been stabbed on the street, there would be no workers comp claim. But she died while working, so in our view her orphaned son is entitled to benefits.

    Dollar Tree's mission statement refers specifically to the importance of good judgment: "Do the right thing for the right reasons." Well, Dollar Tree has now agreed to pay the full amount allowed by California workers comp for death benefits. The company's statement asserts that it was acting voluntarily because "we feel this is the right thing to do." Mission accomplished!

    In this emotion-laden situation, a literal and nit-picking interpretation of the law is simply not in the company's best interests. To be sure, a case for denial can be made. They might even prevail in workers comp court (we doubt it), but Dollar Tree had much to lose in the court of public opinion. Some customers had called for a nationwide boycott and protesters picketed the Fairfield store where Talley died. With this agreement to pay the claim in full, Dollar Tree ends a public relations nightmare and preserves its standing in the community. Dimes to dollars, that's money well spent.

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    December 4, 2008


    Jdimytai "Jimbo" Damour took a temp job for the Christmas rush at the Walmart in Green Acres Mall on Long Island. Some rush. When a crowd of bargain hunters pushed into the store at 5 am on "Black Friday," Damour, a 34 year old who weighed 270 pounds, fell to the floor and was trampled. He died within an hour of heart failure. Undeterred by Damour's plight, many shoppers pushed on toward the electronics department, where big screen TVs were going for $800.

    Damour was employed through Labor Now, a temp agency. Because Walmart was not the employer of record, Damour's family has a number of options for legal recourse. They have filed suit in the Bronx Supreme Court, alleging that Damour's death was caused by "the carelessness, reckless negligence, wanton disregard for public safety and gross negligence" in the "staging, conducting and advertising for sales events."

    The lawsuit names Walmart, the shopping mall and the security company employed by Wal-Mart to control the crowd. Heck, they may as well include the advertising company that stirred up the masses. Despite what appears to be a good faith - albeit unsuccessful - effort to control the mob, the settlement is likely to be substantial.

    The Green Acres Mall, where the incident took place, has a troubled past. According to New York Times reporters Ken Belson and Karen Zraick, the mall opened in 1956 on the site of the Curtiss Wright Airport. It was one of the first open-air shopping centers on Long Island, with 1.2 million square feet of retail space. In the 1980s, the mall was dubbed the "car theft capital" of Long Island. In 1990, four moviegoers were shot, one fatally, when two groups of teens opened fire in a movie theatre. What was playing? Appropriately enough, The Godfather, Part III.

    The most telling comment concerning this sorry indictment of consumer mania came from an anonymous employee stationed at the time of the mayhem in the electronics department. "It was crazy. The deals weren't even that good."

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    December 2, 2008


    For many of us, Amityville NY brings to mind a book (and movie) called the Amityville Horror, which tell the story of an innocent couple moving into a house whose prior inhabitants had been murdered. The house is haunted by the ghosts of the deceased. If the story were to happen again, the house would surely be cleaned by Icon Cleaners.

    New York's Labor Department has determined that Icon Cleaners unlawfully deducted hundreds of thousands of dollars from the paychecks of their 170 cleaners. Icon called these people independent contractor "technicians" - all of whom wore Icon uniforms, worked under Icon control and used Icon equipment. Not only were they not independent, they labored under conditions of virtual servitude.

    Here's how Icon functioned: each employee was forced to pay a $500 security deposit upon being hired at the company, which could either be paid for up front or deducted from subsequent paychecks. ("Congratulations on your new job, sucker!"). Technicians often found their paychecks reduced for a variety of (illegal) reasons:

    - In the event that a customer was not satisfied with the service provided by the company, or if the wrong services were rendered, a deduction was made from the employee’s paycheck.
    - In instances where the company was doing a promotional campaign on discounted services, these discounts were taken out of employee paychecks.(!)
    - If an employee indicated that he or she needed extra assistance on a particular project, in some instances Icon Cleaning would provide another worker for the project and that worker’s wages were deducted from the requesting employee’s paycheck.
    - If a customer provided a check to the employee and it bounced, the employee was required make up for the lost revenues through payroll deductions.

    Technicians worked up to 12 hours a day, 60 hours a week cleaning air ducts and carpets in private homes and businsses. After the illegal deductions had been made, some workers brought home less than $100 in a given week. They had been taken to the proverbial cleaners.

    It's not surprising to find that customer satisfaction mirrored the working conditions; you can read some disgruntled customer comments here.

    There is no mention of worker immigration status in the press release from the Department of Labor, but I suspect that illegal workers would be more likely to tolerate these intolerable working conditions. It's ironic, of course, that Icon is in the cleaning business. When it comes to fundamental employee rights, it doesn't get any dirtier than this.

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    October 23, 2008


    We are all struggling to keep our bearings in a world where the conventional compass is spinning madly. The economic crisis has sent the stock market plummeting and has impacted every aspect of our lives. We wake up with the same thoughts that Alice had, following her fall down the rabbit hole:

    I wonder if I've been changed in the night? Let me think. Was I the same when I got up this morning? I almost think I can remember feeling a little different. But if I'm not the same, the next question is 'Who in the world am I?' Ah, that's the great puzzle!

    Great puzzle, indeed. For what it's worth, here are just some of the financial crisis implications for workers compensation:

    Illegal Immigrants: Our colleague Peter Rousmaniere has done a great job of keeping us up to date on immigration issues. He points out that all states (with the single exception of Wyoming) provide at least some comp benefits to injured, undocumented workers. Ironically, the collapse of the economy may be accomplishing what an ineffective Congress has been unable to do: with jobs becoming more difficult to find, many illegal immigrants are returning to their native countries. The scale of this exodus is only likely to impact the overall numbers if the recession turns into a full-scale depression. That is one "solution" to the undocumented worker problem that no one wants to see.

    Older Workers: many older workers have seen retirement nest-eggs - in the form of equity in a home and stocks - disappear altogether in just a few weeks. These people will do everything they can to stay employed. Older bodies break down and are slower to heal. There are profound and as yet unknown implications for the workers comp system.

    Lay offs: There are a number of factors leading to the loss of jobs, most of them related to tightening credit. Work has dried up in construction and related industries. Consumer-based industries, confronted with reduced demand, are cutting back on inventories. With credit more difficult and more expensive to secure, companies are having difficulty making payrolls. This means lay offs. Once the employer-employee bond is broken, desperate unemployed workers will scramble for any benefits they can find: while unemployment insurance provides support for just 26 weeks, workers comp can help pay the bills for years...

    Commercial insurance: Insurers make money by conservatively investing premium dollars in the market. The float from invested dollars provides an essential cushion for covering future losses. Well, the float is no longer floating - it has sunk. Blue chip stocks have been transformed into cow chips. As a result, the margin of error for insurers is much tighter than it was just a few months ago.

    A Dark Wonderland
    We live in interesting times. The Republicans accuse the Democrats of socialism, even as they provide a socialistic intervention for Wall Street. The federal government cannot find money to rebuild our crumbling infrastructure, but suddenly $700 billion is "freed up" (actually, put on the credit card) to bail out the financial system. We all recognize the need to reduce our dependence on foreign oil, even as the earth cries out for less harmful forms of energy. Then oil, impacted by the collapsing economy, suddenly becomes cheap again. Is it my imagination, or is there less urgency in the talk about alternative energy sources?

    The once reliable assumptions - steady growth, blue chip reliability, stability in the markets - have suddenly evaporated. We have tumbled down the rabbit hole and our world is becoming "curiouser and curiouser." We have returned to a cruder form of the fundamentals, as outlined by the mock turtle: Reeling and Writhing, of course, to begin with, and then the different branches of arithmetic -- Ambition, Distraction, Uglification, and Derision. In these undesirable respects, we are doing pretty well!

    The Gryphon reminds us: "The adventures first… explanations take such a dreadful time." Alas, we are still in the middle of our adventure, with no reasonable explanations in sight...

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    October 8, 2008


    One of the many fascinating sidebars in the decline and fall of the AIG empire is the saga of Joe Cassano. He was the genius behind AIG's Financial Products Unit, which insured high risk sub-prime mortgage deals. In other words, he is the man most responsible for AIG's abrupt demise. Perhaps you are wondering how much money Cassano made in the course of destroying AIG. Beyond that, I am sure you are concerned that Cassano may now be struggling, like the rest of us, to make ends meet. Well, this is at least one problem that you can take off your worry list.

    Cassano raked in $280 million over an eight year period beginning in 2000. That's an average of $35 million a year - pretty good even by professional athlete standards. Keep in mind that his salary and bonus were based on the scale of business generated by his virtually unmonitored unit. Cassano and his colleagues siphoned off 30 percent of every dollar generated in his (non insurance) division. The more they wrote, the more they made. And because AIG was so well collateralized, the company did not have to back up the risks with outside capital. Sweet. Like stealing candy from a blind man, right?

    OK, it kind of fell apart once the nature of the risk became public. By February 29 of this year, losses in the Financial Products Unit reached $11 billion. Cassano was fired (appropriately enough on Leap Day). That's the fate you would expect for a man who almost single-handedly brought down the largest insurance company in the world. Of course, he was allowed to keep his bonuses, which totalled $35 million. A man's gotta live.

    Free Market Run Amok
    Congress has been interviewing former AIG executives. These former "masters of the universe" sound, well, both stupid and greedy. Former CEO Marty Sullivan was grilled by lawmakers for urging a compensation committee meeting in March (just weeks after Cassano was fired) to exclude losses from AIG's Financial Products unit when calculating bonuses.

    Accused of helping himself to more compensation, Sullivan said he did it to retain key executives. "I was focusing on them more than me." What a guy. Sullivan himself was unretained shortly after this board meeting.

    Would you be surprised to learn that Cassano is still on retainer as a consultant to AIG? His fee is his usual and customary $1 million a month. Why is he on retainer? Sullivan explained to Congress: "I wanted to retain the 20-year knowledge that Mr. Cassano had." Gee, Marty, the guy lost $11 billion. How did you come up with a pricetag for that kind of expertise?

    The Shank from a Tanked Hank
    Hank Greenberg was too ill to testify directly in Congress; heck, if you lost $6 billion over one weekend, you might feel a little under the weather, too. He submitted written testimony denying any knowledge of Cassano's risky actions. After detailing how he built up A.I.G. since the late 1960s and saying he placed tough controls on its derivatives business, Mr. Greenberg said the volume of A.I.G.’s credit default insurance business “exploded after I left the company in March 2005.”

    Hank asserted that the company wrote as many credit default swaps on collateralized debt obligations in the nine months following his departure as it did in the preceding seven years. Maybe so. That might mean that just half the losses associated with this particular unit of AIG - $5.5 billion - occurred under his watch. Interesting enough, that is roughly the amount Hank lost when the stock tanked. Poetic justice, perhaps, of a very crude sort.

    The most stinging assessment of AIG's demise came from Lynn Turner, the former chief accountant at the SEC. When the hapless Robert Willumstad, yet another short-term AIG CEO, blamed the problems on financial discosure laws, Turner replied: "That’s like blaming the thermometer, folks, for a fever." Touche. And good riddance.

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    September 16, 2008


    The collapse of AIG over the course of just a few days may be astonishing, but in some respects, it is not surprising. A few years ago, AIG stock sold for $100. Today, it's listed at $1.54. AIG is all about risk: much of it reasonable, but a significant portion of it fatally flawed. Remember David Halberstam's "The Best and the Brightest" - the story of how very bright men, led by Robert MacNamara, led this nation astray into the swamps of Vietnam? Now the very bright folks at AIG are up to their necks in an another repulsive form of the Big Muddy.

    Our colleague Joe Paduda has a personal story to tell about AIG: he once worked for the behemoth insurer and was asked to sit in on a meeting of the executive staff, all of whom reported to the legendary Hank Greenberg. (We blogged a strange attempt to clean up Hank's public image here.) Hank had one question for everyone sitting around the conference table: how much money has your division made? No excuses. No stories about value added. No details about lives made better or risks averted. Hank wants to see the bucks! Grown men quaked as the time came to make their presentations.

    As the owner of 12 percent of AIG, Hank just took a very expensive bath. He lost more money this weekend than all the readers of this blog will collectively make in their lifetimes.

    So how did this happen? How did the biggest insurer on the planet suddenly run out of money?

    Risk Transfer for Dummies
    One of AIG's business units sold credit protection against the possibility of default in a variety of assets, including, of course, sub-prime mortgages. (Why were so many astute business people so anxious to lend money to folks they knew could not pay it back? What am I missing here?) AIG has lost at least $18 billion over the last three quarters. And according to some reports, they continued to understate the scale of the losses as recently as last week. Like their compatriots at the now-defunct Lehman Brothers, they kept paddling their canoes up de Nile.

    The irony is that AIG has plenty of money. Unfortunately, it's tied up in the form of reserves, spread across their multi-faceted insurance operations. It's money set aside to pay claims. It appears that New York state is allowing AIG to access some of these reserves for cash flow. (Presumably, this will not impact AIG's ability to pay claims...) This will fall far short of the approximately $75 billion that AIG needs to survive the crisis.

    Thus we have the bizarre prospect of a mostly profitable company going belly up because of the losses in one of its divisions. It's too bad Hank was forced out of the company by the now departed Elliot Spitzer. I would love to have been at a recent roundtable of company executives, answering Hank's one and only question.

    The derivatives whiz pulls on the collar of his $400 shirt and sweats into his coffee mug. He mutters almost inaudibly, "$75 billion."

    Hank lights up like a pinball machine: "You made $75 billion?"

    Derivatives whiz whispers: "Lost."

    Hank turns the color of an uncooked lobster: "Lost? You lost $75 billion?" Hank reaches across the table to throttle the whiz, but something seizes his body from within and sprawls him across the table. He is trying to talk, but no words are coming out of his mouth. A coffee colored foam dribbles from his lips.

    It looks like a medical crisis, but no one moves. They just sit in their chairs, looking down at the table and straightening the lapels on their $2,000 suits...

    OK, I'm no Raymond Chandler. But then again, not even Chandler could come up with a story as full of greed and self-deception as that of the once mighty AIG.

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    September 3, 2008


    I'm feeling Vince McMahon's pain. It's as if someone picked me up, body slammed me and then whacked me with a folding chair. Talk about ingratitude!

    Three wrestlers affiliated with McMahon's colorful World Wrestling Enterprises (WWE) are suing the muscled entrepreneur. Scott Levy (AKA Raven), Christopher Klucsarits (Chris Kanyon) and Michael Sanders say they are WWE employees. McMahon says they are independent contractors. Maybe Raven, Kanyon and Sanders should dress up in FedEx uniforms and pile drive the haughty McMahon into the canvas.

    As with FedEx drivers, the wrestlers have a pretty strong case. After all, I am shocked (shocked!) to report that wrestling matches are scripted. The "independent contractor" work is totally controlled by the writers at WWE: the wrestlers fall and rise on cue. They win when they are supposed to win and lose when they are supposed to lose. The remarkably ineffective officiating is also fixed. Given that the primary work of the WWE is wrestling, it's pretty tough to make a case that the wrestlers themselves are independent contractors. Without the work of the wrestlers, WWE ceases to exist (as FedEx disappears without its "contractor" drivers). Vince is going to lose this one.

    I do have a suggestion for McMahon. Hold a mock trial in the ring: dress the wrestlers up as a judge and a bunch of lawyers. They could shout their speeches into a microphone and then pummel each other into submission. Under the script, of course, McMahon, bloodied and defiant, his fancy silk tie ripped to shreds, would ultimately prevail.

    In the real courts of Connecticut, the procedure will be quite civilized and the outcome will likely go the other way. Given the scripted nature of the entertainment, it will prove very difficult, if not impossible, to demonstrate true independence for the wrestlers. While they do provide their own tools (costumes and make up, along with an occasional 2 x 4), every move is dictated by management. Wrestling is "entertainment" and the participants are actors.

    This particular form of entertainment may seem far-removed from the traditional stage, where an actor is:

    ... a poor player
    That struts and frets his hour upon the stage,
    And then is heard no more. It is a tale
    Told by an idiot, full of sound and fury,
    Signifying nothing.

    We might well argue that life in general has more meaning than this despairing assessment by a beleaguered MacBeth. But in the case of the WWE, it's spot on.

    Thanks to Overlawyered and Daniel Schwartz for a heads up on this irresistable item.

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    July 28, 2008


    When it comes to fraud in workers comp, we usually look to employers, doctors and lawyers. They go after the big bucks. While there are opportunities for ordinary workers to exploit the system, most decline to do it. Today we examine two claims, both involving real injuries and both involving fraud. Coincidentally, it's a bi-coastal story.

    Let's begin in the east, in Gardner, Massachusetts, where Erik Teong managed a Shell Station. On October 28, 2006, Teong reported to Gardner police that he had been assaulted and robbed while taking cash receipts to the bank. He sported a bruised face and injured eye.

    The police did not buy his story. He eventually confessed to stealing the $7,000 deposit. In February 2007 he was charged with larceny and making a false report of a crime. In April, he pled guilty to both charges and was sentenced to one year of probation. He also must pay the insurance company $7,900 (to repay the "stolen" payroll).

    The injury to his eye? Teong told police that he had a friend give him a hard punch to the face, to make his story more credible. The hapless Teong has permanently damaged his vision. And because the injury appeared to occur in the course of employment, Teong filed a comp claim. AIG, the comp insurer (with a few problems of their own!), paid his $16,000 medical fees and $3,000 indemnity. Now AIG wants its money back. They referred the matter to the fraud bureau, which led to Teong's indictment by a Worcester County grand jury.

    So Teong has earned himself a place in the Hall of Fame for Incompetent Criminals. He botched the fake robbery. His friend all-too-convincingly smashed him in the face. He has to repay the medical expenses and ill-gotten indemnity. And to top it off, given his permanently impaired vision, he may have trouble reading the charges against him.

    California Scheming
    Now let's hop across the continent to the Lake Tahoe, where Nicholas Jason Beaver resides. Nick worked for the Sierra-at-Tahoe resort, but busy as a Beaver he was not: the resort told him they would not rehire him for the following season. One night, after a few beers with his buddies, Nick decided to get even. He decided get himself injured on the job.

    On April 9, 2004 Nick jumped up and down on a snow bridge that covered the top of percolation test hole. After three or four jumps, he broke through the bridge and fell into the 5 foot deep hole, injuring his knee. He collected comp (the injured knee required surgery) and then decided to sue the resort: he wanted to pierce comp's "exclusive remedy" shield due to the resort's "extreme negligence" in allowing an "unprotected" hole to exist on their grounds. (Nick's story belongs in the burgeoning archives defining the word "chutzpah.") The resort spent $40,000 defending itself and over $42,000 in medical bills on Nick's injured knee. They offered Nick $110,000 to make the case go away.

    Nick refused to accept the chump change. He apparently told his buddies that he wanted really big bucks. At that point, one of the (disgusted) friends who witnessed the incident dropped a dime on him. His friends were given immunity from prosecution; while technically co-conspirators, they did not benefit financially from the fraud. Nick was convicted of stealing more than $65,000 and now faces up to four years in prison.

    Benefit of the Doubt?
    Erik and Nick were both injured on the job, but their injuries were part of a conscious effort to defraud the employer and insurer. Their stories demonstrate how the comp system defaults toward accepting a reported claim: Erik and Nick both were successful in accessing comp benefits for their injuries. The wheels of justice in these cases ground a bit slowly, but they did grind exceedingly fine. The pain of the actual injuries, with the exception of Erik's impaired vision, has already faded. But the pain of lives ruined by impulsive greed will linger for a long, long time.

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    June 19, 2008


    Imagine you are an attorney in Massachusetts looking for a little work. The Office of Labor and Workforce Development (OLWD), a state agency, hires you and 10 other attorneys to examine applications for unemployment insurance. Normally, this work would be performed by state employees, but the combination of cost-efficiency lay offs and a bad economy has caused a surge in applications. The state pays you through a 1099 form. You are responsible for your own taxes. And you soon find yourself in the middle of a story concocted by Franz Kafka.

    In a parallel operation (bordering on a parallel universe), Governor Deval Patrick has announced a crackdown on employers who commit fraud by misclassifying workers to avoid paying workers comp insurance, plus state and federal taxes. The governor creates an Underground Economy Task Force to ferret out abuses of the independent contractor designation. The task force the OLWD. (You can read the AFL-CIO's endorsement of the task force here.)

    These two worlds collided when someone (presumably a state employee affiliated with the unions who lost employees in lay offs) dropped a dime on OLWD, complaining that the 11 attorneys hired as "independent contractors" were performing the job duties of regular employees. So now OLWD is being scrutinized by its own task force. We can only hope that members of the task force are state employees, and not "independent contractors" who have signed on to carry out a short-term project: an image arises of a dog furiously pursuing its own tail.

    Management Conumdrum
    Many employers face the conundrum embodied in this situation: when you have more work than you can handle - especially on a short-term basis - it's convenient to hire temporary "independent contractor" consultants to carry out the work. Hiring is much easier; there are no long term commitments. When the work has been completed, you simply terminate the contracts.

    Because there is such widespread abuse of the "independent contractor" designation (did someone say "FedEX"?), these convenient arrangements are now routinely challenged. At OLWD, the questioners themselves have been called into question.

    Suzanne Bump, the state's secretary of Labor and Workforce Development, is not using the word "investigation" to characterize her examination of this particular form of outsourcing. She points out that the practice began in the prior (Republican) adminstration, which had enthusiastically reduced the size of the state's workforce, only to discover they did not have enough people to do the necessary work.

    "We are taking steps to reverse this practice and are looking to hire more review examiners on a permanent basis when possible," Bump stated. This in itself raises a problem: by creating regular, full-time positions to handle the jobs, the state will have to grow the budget. Regular employees cost more than "independent contractors" because you have to pay for insurance and taxes (which is one of the reasons they hired independent contractors in the first place).

    What used to be routine HR functions have become enormously complicated. I am sympathetic to all employers who have to work through these often paradoxical issues. When it comes to managing a business in these challenging times, we find ourselves lost in a dimly lit, endless corridor, characters in a Kafka story, looking for the room where all the answers are rumored to reside. Like the good folks at OLWD, we eventually conclude that the room does not exist.

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    June 12, 2008


    Yesterday we blogged the death of Lauro Ortega, who was crushed while excavating a building site in New York. We assumed that he was protected by workers comp, even as his lawyer pursued more lucrative remedies from the (recently indicted) employer, William Lattarulo. It appears that we were just a bit naive. Ortega was an illegal immigrant, working construction jobs on a cash-only basis. He labored long hours, six days a week, sending most of his earnings home to his family in Cuenca, Ecuador.

    "He came to this country to work. He liked to do it. That was his love," his brother is quoted as saying. Ortega lived in a tiny apartment by himself; he spoke to his wife and children every day. He had very little life outside of work, with Sundays reserved for church. He would have preferred to stay in Ecuador, but there was no work available. He came to this country for one simple reason: it's where the jobs - and the money - are.

    There will be readers who lack sympathy for Ortega. He was here illegally. He was paid under the table. He took his chances and reaped a harsh reward. At best, he is viewed with considerable ambiguity: he was here illegally, but to some degree our laws still protect him as a worker. His family will receive some compensation for his untimely death: either in the form of workers compensation (presumably paid out of the state fund) or tort liability stemming from his employer's negligence. It will take some time, but eventually his family will receive financial support simply because Ortega died at work in America.

    I am struck by the quiet desperation that brought Ortega to New York. I am impressed by his willingness to work hard, every day, and use his earnings to support a wife and two children back home. I am saddened by his sudden and very unnecessary death. And I am frustrated by the stalemate in Congress, which has been unable to construct a reasonable and just solution to what has become an intractable problem of enormous magnitude. There are over 12 million workers like Ortega, all of whom are here illegally and most of whom are working hard and doing jobs that need to be done.

    Yes, they are illegal. And yes, we need their services. Two simple, contradictory facts. What, if anything, are we going to do about it?

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    June 11, 2008


    William Lattarulo owns several buildings and vacant lots in Brooklyn NY. Back in March, his workers were digging a foundation for a commercial laundry at 791 Glenmore Ave, when a more experienced contractor warned Lattarulo of an immediate hazard: the excavation had reached a level below the foundation of the adjacent building. He advised Latturo to install underpins to make the excavation site more stable.

    Instead of stopping the work, Lattarulo ordered his employees to keep digging. Moments later, the wall of the adjacent building collapsed, crushing Louro Ortega, a 30 year old laborer who had been on the job just two days.

    "I don't think I killed that kid," Lattarulo is quoted as saying. "They're just looking for someone to blame for all this" (an apparent reference to the spate of construction-related fatalities in the city).

    The attorney for Ortega, Kenneth Halperin, says the accident never should have happened. "They failed to make sure the foundation wall was stable. No one checked anything."

    In the New York minute it took to snuff out the life of Louro Ortega, Mr. Lattarulo went from entrepreneur to defendant. He has been charged with manslaughter. Even if he is successful in avoiding jail time, he faces long and expensive days in court, trying to defend himself against charges of negligence.

    Beyond Exclusive Remedy
    Under most circumstances, workers comp offers the only recourse for a deceased employee and his family. Comp is an exclusive remedy. As we have blogged in the past, "substantial certainty" that an injury would occur is one of the factors that can help victims pierce the exclusive remedy shield. Lattarulo's actions appear to be so egregious, so likely to result in bodily harm, the doors to tort liability have been thrown wide open.

    For the time being, workers comp will cover the cost of Ortega's funeral and provide his wife and two children with some modest level of support. Attorney Halperin will certainly not be content with that. He will pursue the big bucks that accompany criminal negligence. Mr. Lattarulo is about to learn that business owners can be held accountable for what in retrospect was an ad hoc and hasty decision. He thought he was just digging a hole for a new building. Through his dismal judgment, he dug a grave for an innocent worker and inadvertantly buried his own modest ambitions in the same rubble.

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    May 19, 2008


    Postville Iowa is a one traffic light town with a population of 2,300 people. Last Monday, as we read in the Washington Post, 17 percent of the town's residents were arrested in a raid coordinated by the Immigration and Customs Enforcement (ICE). All were employees of AgriProcessors, the nation's largest producer of kosher meats.

    The unusual story goes back to 1987, when Aaron Rubashkin and other members of a Lubavitch Hasidic sect moved from Brooklyn to (mostly Lutheran) Postville. That would have been a culture shock (on both sides) worth observing. In the years since, AgriProcessors has established itself as the town's main employer. The company has also become notable for dubious workplace practices: routine violations of fair employment laws, hiring underaged workers, falsifying documents on workers, wastewater pollution problems and inhumane slaughtering of animals.

    So once again (remember New Bedford?) we have one of those highly ambiguous situations: the feds raid an employer who is exploiting undocumented labor. Federal actions have a veneer of concern for the workers, but these quickly evaporate in the context of ICE's primary function: arresting and deporting illegal workers. Some of these undocumented workers have been with the company from the beginning. As Eduardo Santos, 27, a worker who lost two fingers in the plant put it: "The raid was fair...but it's bad for everybody. There's no work."

    Eduardo, if you will forgive the pun, has put his finger on the crux of the matter. These are jobs few are willing to take. The working conditions are abominable. The company owners may invoke a "higher law" in attempting to follow kosher rules, but they are demonstrably deficient in their application of the more mundane laws which govern the way we work.

    Big Fish, Little Fish
    There is a sense in all of this that the workers may not be the primary target of the raid.(See an excellent summary by Debra Nussbaum Cohen in the Jewish Weekly.) To be sure, the workers face very difficult times, leading inevitably to deportation for most. The feds, however, have positioned themselves to go after AgriProcessors's owners. Rabbi Sholom Rubashkin, the plant operator, finds himself accountable to rather formidable authorities of the conventional sort.

    There are no clear winners here. The workers have been freed from jobs which they willingly embraced; they are about to be thrown out of their adopted community. Jewish consumers have lost their primary source of kosher meats. The town of Postville has lost its primary employer and will soon see the evisceration of its tax base.

    The Postville saga is indicative of the overall undocumented worker dilemma: workers of last resort tolerate intolerable conditions because they are not supposed to be here in the first place. They take jobs no one else will take. Their pay and conditions fail to meet our basic standards, but are still far superior to what is generally available in Guatamala and Mexico, where most of these particular workers came from.

    The ICE raids put a temporary halt to unacceptable working conditions in one small town. A handful of undocumented workers will be sent home. Some managers might end up in jail. It's not even a drop in the proverbial bucket. It's a drop in the ocean. Nonetheless, if members of Congress pay attention to the single drop hitting the water, they might remember it. They might actually try to do something about it.

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    May 13, 2008


    As if Fed Ex did not have enough problems, the company with the unusual staffing model is now being sued by some shareholders. Given that the suit has been filed by Local 51 of the Plumbers and Pipefitters Pension Fund, it's no surprise to find that the suit attacks the business model of hiring "independent contractors" to carry out the core activities of the company. FedEx has hired over 15,000 of these "contractors" to deliver the goods: in FedEx uniforms and FedEx trucks, along company assigned routes, with company approved hair styles ...and no white socks!

    FedEx dismisses the suit as "frivolous." Company spokesman Maury Lane asserts that "FedEx has a long record of providing outstanding shareholder value and is led by a board of successful and experienced directors..." To which Dan Newman, attorney for the disgruntled stockholders, replies: "There's nothing frivolous about illegally exploiting workers and cheating on taxes -- it's gross mismanagement and a grave breach of fiduciary duty." Ouch!

    The lawsuit includes a chart of compensation for FedEx directors, which has risen from a minimum of $48,000 in 2002 to the current minimum of $160,000. For most directors, the annual pay is $220,000. Not bad for independent board members (who don't have to wear uniforms, who wear any color socks they like and who can drive any vehicle, the fancier the better).

    Despite a series of losses in state courts and with the IRS, the company continues to defend the fundamental business model. They say that drivers can buy multiple routes and hire people to work those routes for them, thus making the route owners "entrepreneurs." True enough. But the key word is "can." Most can't and most don't. The vast majority of the 15,000 drivers have no employees and are not entrepreneurs. They are by any reasonable standard employees of FedEx, carrying out the basic work of the company.

    At some point, sooner or later, FedEx will probably have to throw in the towel. Then they will face a huge bill for retroactive benefits (including workers comp) owed to their employees. The stock will surely take a big hit. I'd like to think that the directors who have managed this dubious experiment in outsourcing might actually be held accountable. But FedEx's team of seasoned (and I do mean seasoned) litigators will make sure that never happens.

    NOTE: Type "FedEx" in the search box to access our numerous blogs on this topic.

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    May 2, 2008


    Joshua Christopherson is a supervisor of sales for Prosper, Inc., a Utah company that peddles on-line training and motivation courses. The courses range in price from $3,000 to $15,000. By most accounts Christopherson is a decent enough guy, albeit a bit obsessed with the performance of his sales team. He apparently read about an incident involving the ancient Greek philosopher Socrates, who plunged a student's head under water and then told him that his yearning for learning must equal his (underwater) yearning for air. Like any good manager looking for an edge, Christopherson decided to bring this aggressive "Socratic method" to his team.

    Chad Hudgens, a member of the under-performing sales group, made the mistake of volunteering for the "team-building exercise." In a park outside Prosper's offices, he lay on his back with his head downhill. Co-workers knelt on either side and pinned his arms. Christopherson proceeded to pour water from a jug over his nose and mouth.

    "So they held me down," Hudgens reports. "...I can't scream because the water's going down my throat...Toward the end, I'm starting to black out. I think I am drowning."

    After finishing with Hudgens, Christopherson told the assembled sales team:"You saw how hard Chad fought for air right there. I want you to go back inside and fight that hard to make sales." Let's give Christopherson some credit: that is one sales lesson no one is likely to forget!

    Ignorance or Evil?
    I assume you may share my puzzlement at the thought process that led Christopherson to his training plan. Perhaps we find a clue in the May newsletter from Prosper, which offers the following message:

    In business and in life, we are often inspired in some way or another to do the things we do. Each of us has something that inspires us, be it a friend, a goal, a dream, or even a Mother. As many of us reflect this time of year on the inspiration that comes from our Mothers, the focus of the newsletter this month is inspiration.

    So maybe Christopherson's mother inspired him to do it? In any event, and no surprise here, Hudgens is suing his (former) employer for torturing him. Prosper Inc. maintains that what Christopherson did was unauthorized, overzealous and misguided, but it falls short of torture.

    "We are not the mean waterboarding company that people think we are," says the aptly named George Brunt, general counsel for the company. He adds that Christopherson is a "nice, sensitive guy."

    Hudgens claims that the harassment was not limited to the water boarding. If the 10-person sales team went a day without a sale, members had to work the next day standing up - Christopherson removed all the chairs.

    Management Philosophy 101
    The original Socrates was a very interesting fellow, one who might well be confused by what passes for society these days. In the dialogue Meno, Socrates tries to determine whether virtue is inherent in us or whether it can be taught. This leads to an investigation of the nature of virtue itself. Although his direct answer is that virtue is unteachable, Socrates does propose the doctrine of recollection to explain why we nevertheless are in possession of significant knowledge about such matters. He argues that knowledge and virtue are so closely related that no human ever knowingly does evil: we all invariably do what we believe to be best.

    Given the hindsight of a couple of thousand years, I'd say Socrates was spot off on this one. But he may have a point with the hapless Christopherson. He was doing what he thought to be best. He was trying to make a point. The fact that his method demonstrated an alarming lack of compassion and common sense is probably more a symptom of ignorance than sheer evil. As far as the victim is concerned, however, that is a distinction without a difference.

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    April 11, 2008


    The Arthur Avenue Bakery in the Bronx NY is famous for its cannoli and crusty bread. The bread is not the only crusty item at the bakery. We read in the NY Times that the 50 year old institution is suddenly famous for unfair labor practices: some employees worked 12 hour days for $50 a day - an hourly rate of $4.16, well below the state's minimum wage of $7.15. The bakery does not carry workers comp insurance. New employees often worked the first week without any pay. Some employees have not been paid for over a month. Occasionally, pay checks bounced. All in all, the bakery seems to be lacking in dough.

    State officials deemed the conditions so unfair to employees, they shut the business down. The bakery can re-open only if they pay $140,000 in back wages and $37,500 in penalties for not carrying comp. That's a lot of cannolis!

    Despite the stop-work order, it appears that the bakery may still be operating. Manager Walter Galiano says he is still doing business. (The state vows to look into this.) Arthur also questions the penalty and back wage calculations of the state labor investigators. "The high school they went to did their math differently from the way my high school did math."

    It would be interesting to check out the problems in Walter's old math book:

    Walter runs a bakery. If one of his employees works a 12 hour day and the minimum wage is $7.15, how much does Walter pay the employee?
    Answer: Whatever he feels like.

    You've heard of the new math. This is New York math. You gotta problem with that?

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    April 4, 2008


    Back in November, just before Thanksgiving, we blogged the story of Deborah Shank, a 52 year old woman who stocked shelves in Wal-Mart's Cape Girardieu, Missouri store. Here's how we described the situation:

    Seven years ago, [Deborah] was perusing yard sales with a friend when a tractor trailer plowed into her van. She was left with permanent brain damage. Walmart paid about $470,000 in medical expenses. The Shanks sued the trucking company and collected about $1 million, the limit of liability under the company's policy.

    Jim Shank, Deborah's husband, used his portion of the settlement to buy an accessible home for his disabled wife. After paying legal fees, his wife was left with $417,000 to help supplement her care. End of sad story? Not quite.

    When she signed onto the Walmart health plan, Deborah agreed that her employer would be first in line for payment out of any subrogation. [This type of language in employer health insurance policies is becoming increasingly popular.] Walmart sued Deborah for $470,000 plus legal expenses - in other words, they are suing for more than the balance of her settlement funds. They rejected the Shank's offer to settle for a portion of their costs. And of course, Walmart being Walmart, they have won the suit.

    Despite the odds, at the time of the blog Jim Shank was pursuing an appeal to the Missouri Supreme Court. We predicted he would lose and he did. End of family, end of story?

    Not Quite.

    The Court of Public Opinion
    In an extraordinary and totally uncharacteristic move, Wal-Mart has backed away from its claim on Deborah Shank's settlement. They won, but they have generously decided not to collect. Pat Curran, Wal-Mart's Executive VP for operations wrote to Jim Shank: "Occasionally, others help us step back and look at a situation in a different way. This is one of those times. We have all been moved by Ms Shank's extraordinary situation."

    Curran said that Wal-Mart would drop its claim and would work with the family on Shank's continuing care, adding: "We are sorry for any additional stress this uncertainty has placed on you and your family."

    When Jim shank received the letter at the beginning of April, he thought it was an April Fool's joke. It's no joke. Wal-Mart, invincible in the courts, has surrendered to the devastated and defenseless Shanks.

    When the original story broke, we acknowledged that Wal-Mart was within its rights to seek reimbursement for expenditures under the employee health plan. Nonetheless, we awarded the retailing behemoth a turkey, for turning a tone-deaf ear on the pain and sorrow of the Shank family. (Their son, Jeremy, was killed in Iraq shortly after their case was dismissed at the appeals court level.) Wal-Mart has finally come to realize that there may actually be something more important than the bottom line. They have taken a huge PR hit for their relentless focus on cost-cutting perfection. Pursuing the Shank family may have been legally sound, but it was utterly lacking in compassion. Sure, America loves a bargain, but we believe in fairness, too.

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    March 6, 2008


    Health Wonkery runs a wide gamut this week: we have big Pharma front and center with cowardly marketing, poison in the pills and a controversial study that finds a racial factor in whether meds are taken properly; we have extremely divergent views on health care reform, from single payer and a big role for government to status quo and no role for government; we have Canada backpedaling on a call for fewer doctors; and finally, a story about bad boys (and girls) being bad: incompetent agent, inattentive insured, aggressive insurer. Never a dull moment in wonk world!

    Let's get to it.

    Taking the "S" out of STDs? Fard Johnmar, writing at Envisioning 2.0, focuses on an interesting side of the Gardasil debate: Merck's unwillingness to use "sex" to sell its new product for preventing sexually transmitted diseases (STDs). Fard speculates that fear of the "abstinence only" crowd may be behind the strategy. It's ironic, of course, that we live in a culture willing to use sex to sell everything from cars to shampoo.

    Terror in small places:Here are two terrifying posts (one and two) from Roy Poses, which raise the issue of what's in those little pills we routinely swallow:

    The story began with a sudden increase in the rate of severe adverse effects occurring after the administration of heparin, a 70+ year old anti-clotting drug. Attention first focused on a Baxter International facility in New Jersey, but then it turned out the heparin was not really made there, and was traced to a factory in China, which, it turns out, was never inspected by the US FDA or any government agency from the US or China. Furthermore, that factory actually didn't make the heparin either, but obtained heparin from middle-men in China, who in turn apparently got the heparin from a number of suppliers, including tiny "workshops," where conditions were unsanitary and primitive, and which were never inspected by anyone. And the top leaders of the American companies involved denied they actually knew where the heparin was coming from. This sorry tale of mismanagement raises doubt about the most basic quality of the US (and world) drug supply, so in some ways is even more serious than most of the cases heretofore reported on Health Care Renewal.

    White Collar Racketeering: New York Personal Injury Attorney offers two hits (one and two) with anti-Kudos all around: Allstate, along with doctors and medical consulting companies, was sued for for racketeering for doing rigged "independent" medical exams to cut short payments to treating doctors. This suit follows by one month a similar one against State Farm.

    What consumers want: Jane Sarasohn-Kahn at Health Populi finds much wisdom in a Deloitte survey regarding health insurance. Most Americans are looking for a consumer driven product - as opposed to the industry-driven products currently available.

    Heart Failure and Race: Jason Shafrin at Healthcare-economist explores the causes of high chronic heart failure in racial minorities. A paper by Emilia Simeonova claims that 5% is due to differences in doctor quality, 20% is due to differences in socio-economic factors, but vast majority of the mortality differences are due to the fact that blacks are less likely to take their medication than whites.

    Medicare Advantage (or Disadvantage): David Harlow at health care law blog examines the question of whether higher costs for Medicare Advantage plans are excessive or worthwhile.

    Bad Boys and Girls: Henry Stern at Insureblog presents "Bad Boys, Bad Boys, Whatcha Gonna Do When They Come for You?" He asks, "what do an incompetent insurance agent, an unscrupulous client and a possibly negligent insurer have in common?"

    Aids in Africa: GrrlScientist at Living the Scientific Life reviews the book The Invisible Cure: Africa, the West, and the Fight Against AIDS. The book, by Helen Epstein, is a clear-eyed look at the African AIDS epidemic and the West's often misguided attempts to assist in this battle. Grrlscientist highly recommends the book. We highly recommend her review, which summarizes the aids crisis in its most potent environment.

    Frivolous Lawsuits: Jose DeJesus MD presents Discouraging Frivolous Malpractice Lawsuits posted at Physician Entrepreneur.

    Single Payer System: Ian Welsh at Firedoglake explores the ethics and politics of a single payer system and opines that, one way or another, we are all in this together.

    Too Many/Too Few Docs? From our neighbor to the north, Sam Solomon of Canadianmedicineblogspot ponders the Canadian shift from "too many docs" to "not enough." He finds a muddied logic in the twists and turns of Canadian public policy.

    Policy Debate: Jane Hiebert-White of Health Affairs Blog hosts a debate between Rep. Jim Cooper (D-TN) and Rep. Paul Ryan (R-WI) on the rapidly rising health spending projections--is it a market issue or government problem? Ryan and Cooper could hardly be further apart in their views - in itself an indication of how far we are from solving the national health care problem.

    Not All Policies are Alike: Louise at Colorado Health Insurance Insider Blog challenges the notion that health insurance is a digital switch, where people either have it or do not. She finds many variations in coverage and deductibles. In the current market, there are many sizes and some don't fit anyone at all.

    Local Solutions? Which leads us to Drew Weilage at Our Own System. Drew thinks a global solution is simply out of reach. He recommends solving problems locally. (After reading the two congressional entries above, you might be inclined to agree.)

    That's it for this week. Assuming all these problems will not be resolved in the next few days, Health Wonk Review will back at it soon. Stay posted.

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    March 4, 2008


    Joe Juran died this week, at the ripe age of 103. You may or may not know him by name, but his remarkable contributions to management are visible in worksites around the globe. In 1937, he coined the Pareto Principle, also known as the 80-20 rule, which states that 80% of effects come from 20% of causes. As a theory it achieved a sort of universality that could be applied to almost anything, from 20% of customers buying 80% of products, to 80% of production errors being made by 20% of workers, or 80% of the medical costs deriving from 20% of the patients.

    Juran's story, summarized nicely by Claudia Luther in the Los Angeles Times, is so classically American, it seems a cliche. He was born Dec. 24, 1904, in Braila, Romania, the son of a cobbler. When he was 5, his father left for the United States to try to improve the family's financial situation. (Had his father stayed put in Romania, Joe would have perished in the Holocaust, his name - and his contributions - erased from history).

    Small, wiry and smart, Joseph went to work when he was 8, driving a team of horses, selling shoes and bookkeeping for a local icehouse, among many other jobs. The first in his family to attend college, Juran earned a bachelor's degree in electrical engineering at the University of Minnesota and a law degree at Loyola University. In 1924, he went to work for Western Electric's Hawthorne plant in Cicero, Ill.

    At that time Joe entered the workforce, quality control generally meant inspection: the products were made, inspected and, if they didn't make the grade, rejected. Juran thought this was backward, that quality should be instilled long before the product got made.

    In centuries past, "the typical craftsman was his own customer, over and over and over again," Juran told Jane Gaboury in an interview for the Institute of Industrial Engineers.

    "That is to say, because the craftsman himself performed every step of the process of, say, barrelmaking, he could see and correct whatever mistakes he made along the way, and avoid them the next time," Juran said.

    That ability was lost as manufacturing became compartmentalized. Juran's solution was to re-empower the managers and workers who had been disempowered by the manufacturing process.

    The Making of Japan
    Joe was part of the team of consultants who revolutionized manufacturing in Japan. Along with W. Edwards Deming, Philip Crosby and Armand Fiegenbaum, Joe helped transform "made in Japan" from an insult to the highest possible compliment.

    "The Japanese found they couldn't sell their products because they had a very bad quality reputation," Juran told Industrial Engineer magazine in a 2002 interview. "Of course when you can't sell your product the chief executives are going to move in, and that's what happened." With the help of Juran and the other consultants, senior management embedded the "quality" message in every aspect of the manufacturing process.

    Juran brought a uniquely practical perspective to his work. He believed that the human factors in production were paramount, especially the work of managers, and that quality problems should be solved systemically. Juran focused on the fundamental sequence in production management: market research, product design, product development, production and sales. He believed that quality work had to be properly valued by everyone involved - from the lowest-level worker to the CEO.

    Joe Juran's business education began behind a set of horses when he was not quite 10 years old. It ended, finally, after nearly a century of paying attention in his idiosyncratic and brilliant way. If the goal of life is to be of use, then Joe Juran lived a very good life indeed.

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    February 25, 2008


    The fact that a U. S. Senator has filed a bill on independent contractors is not a major news item. But the senator is Barack Obama, and the bill, S. 2044, is entitled "Independent Contractor Proper Classification Act." Obama has zeroed in on an issue of abiding interest to the Insider - and to all who deal with employment issues on a daily basis. (Search this site for our many postings.)

    Obama's bill would amend the Revenue Act of 1978 in three key areas:
    1. Requires employers to treat workers misclassified as independent contractors as employees for employment tax purposes;
    2. Repeals a ban on Treasury regulations or revenue rulings on employee/independent contractor classification issues; and
    3. Eliminates the defense of "industry practice" as a justification for misclassifying workers as independent contractors.

    The bill enables workers to petition the Treasury Secretary for clarification of their status. It prohibits employer retaliation against any workers filing these petitions. Language describing the petition process would be added to required workplace postings regarding employment rights. Finally, the bill requires any employer hiring an "independent contractor" to provide the following notice to the individual:

    Each employer shall notify any individual who is an independent contractor...of the Federal tax obligations of an independent contractor, the labor and employment law protections that do not apply to independent contractors, and the right of such independent contractors to seek a status determinations from the IRS.

    The FedEx Factor
    Obama's bill may well languish in committee. But to the degree it reveals the presidential candidate's thinking, it is significant. I imagine that FedEx is paying close attention: the embattled delivery behemoth is fighting - and losing - a state-by-state defense of its hiring practices. Those ubiquitous "independent contractor" drivers, in their cool FedEx trucks and natty FedEx uniforms, are looking more like employees every passing day. If S. 2044 becomes law, or if Obama's quest for the presidency succeeds, FedEx will probably have to throw in the towel. In the meantime, FedEx is undoubtedly writing a few hefty checks to a candidate whose name rhymes with "pain."

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    February 19, 2008


    Our colleague Peter Rousmaniere has a fascinating article on PPOs in the current issue of Risk & Insurance magazine, entitled "Has Competition Vanished?" Coventry has become the 900 pound gorilla of workers comp medical services, with 4,700 hospitals and 580,000 doctors. Through the aggressive use of acquisitions and partnerships, Coventry is approaching monopolistic status. The question, of course, is what this means for the carriers and employers using the network for workers comp. Is the Big Kahuna delivering quality services?

    Coventry begins with a promise to their payers: they will secure medical services at a discount. According to one source, Coventry slashes more than 30 percent off state fee schedules. While this might be appropriate in states with inflated fee schedules (Connecticut comes to mind), it is definitely counter-productive where fee schedules are already putting the squeeze on providers. When you are dealing with as many providers as Coventry, it is tempting to grow fat off the small margin of a small margin. Unfortunately, slashing fees is no quarantee of quality. In addition, it's often an invitation for providers to rely on quantity to make for skimpy reimbursements: repeated (and unnecessary) visits become "just what the doctor ordered."

    With its sophisticated understanding of the market it now dominates, Coventry is hedging its bets. They struck a deal with Aetna to sell and market the latter's innovative program, Aetna Workers Comp Access. Aetna is building a network of providers selected for good clinical outcomes and economy in treatment. They have built 27 networks so far, with more on the way. Aetna is onto something important: instead of relying on discounts, they are looking for providers who understand return-to-work philosophy. Their primary concern is the quality and effectiveness of treatment.

    Aetna is moving in the right direction. I hope they offer medical providers financial incentives for speeding the return-to-work process. Rather than demanding discounts, they should offer a reimbursement scheme that rewards results: fee schedule plus, not minus.

    It will be intriguing to watch the partnering ritual between humongous Coventry and willowy Aetna. In many respects they are unlikely partners, with diametrically opposed philosophies. In the struggle between cost cutting and treatment quality, something has to give (and it's usually quality). I'd like to think that Coventry will see the value of paying more for something that produces better results. If they do, we may see something truly unique: a big gorilla that really knows how to dance.

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    February 14, 2008


    Chad Hennings spent nine years as a lineman for the Dallas Cowboys. He accounted for 28 sacks, 6 fumble recoveries, 4 return yards and 1 touchdown in 107 games before retiring after the 2000 season. He also suffered permanent damage to his back. The question is whether or not his work-related back injury is compensable under the Texas workers comp system.

    The Texas workers' comp law treats pro athletes as a special class. Under Texas Labor Code §406.095(a), a pro athlete "employed under a contract for hire or a collective bargaining agreement who is entitled to benefits for medical care and weekly benefits that are equal to or greater than the benefits provided" by workers' comp must make an election between the two types of benefits. At first glance, it's a no-brainer. Henning's benefit package as a player dwarfs benefits under the comp system: he earned $1.4 million in salary and benefits in his final season with the Cowboys, including $225,000 under an "injury-protection clause," $38,921.98 from the Cowboys to cover his medical costs and $87,500 in severance pay.

    Reversing Field
    At first, the court system threw Hennings for a loss. The 10th Court's original July 23, 2007, opinion deemed Hennings' overall contractual package of salary and medical benefits during his pro football career to be higher than benefits available under workers' comp, thus rendering Hennings ineligible for such benefits under Texas law. But in its Jan. 30 opinion, the court reversed itself and upheld a jury finding that, in Hennings' case, workers' comp was a better deal for him because of its longer duration. After re-consideration, the court separated the indemnity benefit (where comp was insignificant) from the medical (where taken over a lifetime, comp might well exceed the deal offered by the Cowboys). In other words, Hennings's medical benefit of $38,921 might well prove less than the lifetime medical charges for treating his back problems. Heck, he could blow through that in a single surgery.

    Based upon the Court's ruling, a Texas-size door has been opened for all professional athletes in the state to access the robust medical benefits of the workers comp system.

    The decision may not help many retired pro athletes, because it may be too late for them to seek workers' compensation; the statute of limitations may have run on their potential claims. (Most states require that claims be filed within 2 years or less of the occurrence.) Going forward, I would not be surprised to see players routinely file comp claims immediately after injuries, knowing that they will not qualify for benefits in the short run, but protecting their interests once they quit the game.

    Rate Setting Dilemma
    If professional athletes are increasingly successful in their efforts to win workers comp benefits, insurance carriers and regulators will face an interesting dilemma: determining an actuarially defensible rate for coverage. Right now, the Scopes classification manual offers just two classes for professional athletes:

    Class code 9178 Athletic Team or Park: Non-Contact sports. Applies to players, coaches, managers or umpires and includes all players on the salary list of the insured, whether regularly played or not. Non-contact sports include baseball and basketball.

    NOTE: Authors of the Manual obviously did not see the Detroit Piston "bad boys" in their prime!
    Class code 9179 Athletic Team or Park: Contact Sports. Applies to players, coaches, managers or umpires...Contact sports include football, hockey and roller derbies.

    As a point of reference, the current rate for class 9178 in Massachusetts is $23.11. Oddly enough, the rate for 9179 (contact sports) is slightly lower at $22.55. That is well below the rates for roofers and steel erectors.

    NCCI might want to consider some serious revisions to the Scopes Manual. To begin with, separate classes are needed for coaches (relatively modest exposures) and players (huge exposures). They might even want to approach it in a manner similar to the construction industry, where the payroll is broken out by activity: field goal kickers, for example, are lower risks than lineman. Running backs are always at risk for knee injuries. And after the most recent SuperBowl, it appears that quarterbacks take their lives in their hands with every snap of the ball.

    A Parallel Universe?
    Professional athletes and workers comp are an odd mix. Where comp offers a combinatin of indemnity and medical benefits, for athletes the only issue is medical. With their enormous salaries, athletes will rarely have a need for indemnity benefits, which top out around $50,000 a year in even the more generous states. Medical benefits are a different matter entirely. When it comes to work-related injuries, comp provides lifetime coverage, with no co-pays, no deductibles and no time limits. Comp offers the best medical coverage of any kind, anywhere in the world. Just what a disabled athlete needs...

    The permanent partial and permanent total exposures for football players are humongous: concussions, back injuries, blown out knees, torn rotator cuffs, torn biceps, nerve damage. Feed the injury data from pro football and pro baseball to an actuary and you'll generate a rate that exceeds the current top ticket professions of structural steel erectors and lumberjacks. The rate would soar well above $100 per one hundred dollars of payroll.

    The optimum solution lies outside of the comp system. Workers comp indemnity is simply not crafted to protect the interests of (wildly overpaid) athletes. The players associations of the various professional sports need to sit down with management and craft a parallel universe: not the conventional workers comp system, but a combination of income protection and lifetime medical benefits that contemplate the real risks inherent in professional sports.

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    February 1, 2008


    As the Super Bowl looms over the weekend, our thoughts turn toward the challenge of personnel management. Most of us are periodically involved in hiring decisions: for some, it's a major responsibility, for others, an occasional task. Some applicants come across as a perfect match (and turn into a bust) while others are nervous and unimpressive, yet turn into the perfect employee. For all the psychological profiling, background checks and careful reading of the resume, it's never an exact science.

    Case and point: Tom Brady, the quarterback for the New England Patriots. He was chosen by the Patriots in the sixth round of the draft, the 199th player selected. The physical skills he demonstrated at the "combine" were modest, to say the least. Quite a few quarterbacks were chosen ahead of him. Yet he has risen to the pinnacle of his sport, mentioned in the same breath with the legendary Unitas, Montana and Bradshaw.

    This raises some fundamental questions about hiring: how do you distinguish among applicants? How do you ferret out the intangibles that separate a good candidate from a great one? How can you eliminate the candidate who sounds good but lacks passion and identify the one who really wants the job?

    In an article in the Boston Globe, John Powers dissects the qualities that made Brady special from the moment he showed up in training camp:

    "Nobody expects anything of you," Brady says. "You just show up and you're trying to make the team. You're trying to bring your playbook to the meetings and not forget it in the room. When you're a first-round pick, everybody's counting on you to come in and save the franchise." No one had any notion that Brady was special; unlike Eli Manning, his New York Giant counterpart with an impeccable bloodline and the burden of a number one selection in the draft, Brady was able to develop outside of the limelight.

    Early on coach Bill Belichick noticed Brady's knack for command and control. "You could really see some of Tom's leadership taking over at that point, even though it was with other rookies. You could see him handle the team, handle the call, getting people lined up and making sure everybody knew what to do." Brady, the consummate team player, made everyone around him better.

    Nobody in the locker room worked harder or studied more diligently, then or now, than Brady. He was driven, he later acknowledged, by the insecurity of the perennial backup, the kid who couldn't play on a winless high school freshman team, who began Michigan as a seventh-stringer. "You don't forget where you came from," Brady once said. "The scars that you have from those days are deep scars."

    Good Managers are Hard to Find
    As we watch the game this Sunday, it will be fascinating to see the two outstanding quarterbacks carry out their management roles. They represent the full hiring spectrum: the cannot miss, high profile number one versus the after-thought, the long-shot (who is no longer either). Regardless of the outcome, athletic scouts and personnel managers of businesses across the world will share a common thought: how do you find the real deals in leadership? How do you master the art of hiring?

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    January 25, 2008


    Back in April of 2006 we blogged the strange story of Alarm One, a security company with an odd way of motivating employees: to stimulate sales, they routinely punished low performers by throwing pies at them, feeding them baby food, making them wear diapers and even spanking them in front of their colleagues. Hey, it worked for the Three Stooges, didn't it? It did not work for Janet Orlando, a 53 year old woman who felt humiliated by the public thrashing.

    Orlando sued the company for $1.2 million. She won. She was awarded $10,000 for economic loss, $40,000 for future medical costs and $450,000 for emotional distress, pain and suffering. She was given an additional $1.2 million in punitive damages for sexual harassment.

    So far, Orlando has not been able to collect a penny. Now, on appeal, the company's lawyer, Poncho Baker, has prevailed. His argument is that the spankings were part of a "voluntary program" to build camaraderie and were not discriminatory because they were administered to both male and female workers. This is called the "equal opportunity harassment" defense. A three-judge panel of the state Court of Appeal has overturned the verdict, ruling that the jury was given improper instructions. The judges said the jury wasn’t instructed that one vital element of proving that sexual harassment occurred is showing the action was directed at a woman because of her gender. Orlando cannot prove that the humiliation was directed personally at her. She was one humiliated person among many and gender was not a factor.

    The "equal opportunity harasser" defense immediately gives rise to a compelling "quality of worklife" issue. Why would anyone choose to work for a company that routinely humiliates its employees? Perhaps the Animal House atmosphere appeals to some people. But this approach to a career would wear thin pretty quickly. The alarm bells should have gone off at Alarm One - and Orlando should have walked right out the door.

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    January 23, 2008


    If it isn't clear by now, the Insider believes in a sense of humor. A few laughs help us get through the working day. So it is with some ambivalence that we tackle the issue of the Tribune Newspaper's new Employee Handbook. Written by a non-lawyer, the handbook attempts to present the myriad issues contained in a handbook in a light, rather flippant tone. It's a fun read. But alas, it's like "shooting the bird" at a policeman: it might be protected as "free speech," but it's still not a very good idea.

    Sexual Harassment
    The Handbook opens the section on harassment with a warning to people who might be sensitive to the actions of others:

    4.1 Working at Tribune means accepting a creative, quirky, intelligent, odd, humorous, diverse, opinionated and sometimes annoying atmosphere.
    4.2 Working at Tribune means accepting that sometimes you might hear a word that you, personnally, might not use. You might experience an attitude that you don't share. You might hear a joke that might not consider funny. That is because a loose, fun, non-linear atmosphere is important to the creative process.
    4.3 This should be understood, should not be a surprise and is not considered harassment.

    Any joke? In any context? The Tribune is basically telling employees to chill out. The sublimely tasteless Borat would love it. This "values statement" is far too general. It could make anyone squirm, not just a labor attorney.

    Drug Policy
    Here again, you will find language that is unprecedented for an employee handbook:

    7.1 If you use or abuse alcohol or drugs and fail to perform the duties required by your job acceptably, you are likely to be terminated. ..Coming to work drunk is bad judgment.
    7.2 If you do not use or abuse alcohol or drugs and fail to perform the duties required by your job acceptably, you are likely to be terminated.

    The first section seems to imply that being stoned at work is ok, as long as you can still do your job. Yikes! The second section has nothing to do with drug abuse and certainly does not belong in this section of the handbook. It seems to imply that you'd be better off stoned at work and doing your job well - as opposed to sober and performing badly. That certainly reflects the Hollywood version of the newspaper business, but it does not belong in a handbook.

    Disability and Workers Comp
    The disability statement is pretty straight forward, although it places the burden squarely on the employee:

    3.1 Tribune will make reasonable accommodations if you have a disability and are otherwise qualified to perform your job.
    3.2 If you need an accommodation, tell your supervisor.

    Here is the complete section on workers comp leave:

    17.1 State law dictates how Workers' Compensation is handled.
    17.2 Please let your supervisor know immediately if you're hurt on the job.
    17.3 If this injury is also considered to be a serious health condition under FMLA, Workers' Compensation Leave will be counted as, and run at the same time as FML.

    This a bit thin, to say the least. The handbook should emphasize the importance of working safely, reporting all hazards and management's commitment to speed return to work through the use of temporary modified duty.

    Employee Rights: No Laughing Matter
    Employee Handbooks are generally regarded as quasi-legal contracts, primarily designed to outline the rights and benefits of employment and limit the employer's exposure to lawsuits. Handbooks are rarely read, and when they are, it's not for the entertainment value. The Tribune's attempt to have their handbook mirror the creativity valued in the workplace is well intentioned, but incredibly risky. It won't take long for labor attorneys to pounce and when they do, the Tribune will have to back-pedal furiously to contain the damage. This particular handbook may get a "high five" from Borat, but it's no way to define the employment relationship.

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    January 8, 2008


    Back in December we blogged a legislative remedy that backfired in New Hampshire: House Bill 471 eliminated the exemption for corporate officers and directors from workers comp coverage. Given the state's extremely high costs for comp, this created an immediate outcry. We compared it to the weather on top of Mount Washington, which at the time was minus 13 degrees with the wind howling at 93 miles per hour.

    Well, today things look a lot milder. Mount Washington is enjoying relatively mild weather (38 degrees, with a modest wind of 42 mph). And the newly reconvened legislature has already amended House Bill 471 by restoring the exemption for corporate officers and directors.

    Governor Lynch jumped on the bandwagon: "I will sign this law as soon as possible and I applaud the bipartisan leadership of the House and Senate for listening to the concerns of small business..."

    Lasting Solutions
    As we mentioned in our previous blog, New Hampshire still has a very big problem, driven by its disproportionately high rates for comp coverage in the construction trades. The legislature would do well to figure out why these rates are among the highest in the country. It's fine to exempt business owners from coverage, but that does not address the burdensome costs faced by contractors with employees. These folks are being hammered by costs that are twice as high as their competitors in neighboring states. By allowing business owners to opt out of the system, New Hampshire has bought itself a little time. But just as the mild conditions on Mt. Washington are soon to end, they had best start focusing on long-term solutions that bring rates into alignment with other states. Anything less would be like climbing Mt. Washington in January with nothing more than a backpack and an extra layer of clothes. A very bad idea indeed!

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    December 10, 2007


    There are many permutations in the employer/independent contractor matrix. The Texas Supreme Court has ruled in Entergy v. Summers that the employees of a subcontractor - in this case, International Maintenance Corp (IMC) - can be considered employees of the general contractor. The United Steel Workers cry foul: without the remedy of tort liability, they argue, employers can get away with murder.

    This case brings us to the heart of workers comp system. Entergy hired IMC to perform maintenance, including "water and turbine-related, generator-related work" at its plant in Sabine LA. In the contract, Entergy defined IMC as an "independent contractor" but also stipulated that Entergy could use a "statutory employee" defense against liability. An addendum to the contract recognized Entergy as the statutory employer of IMC employees (while IMC remained the "direct employer"). Most significant for our purposes, Entergy paid the workers compensation premiums on all IMC employees working on their premises. (Of course, IMC employees were not parties to the written agreements between their employer and Entergy.)

    When John Summers was injured, he collected workers comp. However, he subsequently sued Entergy as a third party for negligence. Entergy sought dismissal under summary judgment, arguing that that it was a general contractor and Summers's virtual employer and was thus shielded from tort liability. First they won, then the lost on appeal. Finally, at the Texas Supreme Court, they won again.

    The court relied on a couple of definitions:
    - A "subcontractor" is a person who contracts with a general contractor to perform all or part of the work or services that the GC has undertaken to perform." With equipment maintenance a key part of Entergy operations, the IMC people appear to fall under this definition.
    - The court goes on to say that a premises owner is not precluded from meeting the definition of "general contractor." (The appeals court based its reinstatement of the claim in part on this issue.)

    Comp vs. Tort Liability
    Here's how the steelworkers frame the issue:

    Worker’s compensation was never intended to compensate an injured worker fully and deals with compensation only and not prevention of an unsafe workplace. Benefits decrease dramatically regardless of the severity of the injury. Even though a worker may not be recovered or be able to fully recover, he or she is thrown out of the system when the benefits end. Workers’ compensation also does not include non-economic damages like the pain and suffering of a worker burned severely on the job and the costs his or her family bear because of the injury.

    This is an interesting argument, but one that butts up against the very nature of workers comp, which is by definition the "exclusive remedy" for workplace injuries involving employees. To be sure, the benefits provided for catastophic injury are often inadequate. Comp does not take into account pain and suffering. It is by nature "no fault" - its goal is to cover medical costs and replace lost wages. There are built-in limitations in benefits that come into play as you go from state to state. It's an imperfect system. Nonetheless, comp provides the primary protection for workers across the country.

    While the Steelworkers Union finds no incentive in the comp system to provide a safe workplace, employers (and general contractors) are penalized for high losses. Comp is experience rated: this year's losses translate into future increases in cost. To be sure, employers in IMC's line of work - energy-related companies - often have poor safety records (did someone mention BP?). Once the "exclusive remedy" protection is breached - as happened with the explosions at the BP plant - liability soars into the stratosphere.

    The steelworker's argument is not really with the "pro-business" Texas Supreme Court - it is with the nature of workers comp itself. Comp is a no-fault system designed to protect employees who suffer work-related injuries. It also protects employers by limiting their liability. Comp is not perfect. The benefits can be stingy. But once an employer-employee relationship is established, comp is the exclusive remedy in all but a very few cases. Once Entergy took on the payment of workers comp premiums for IMC workers, the potential for tort recovery all but disappeared.

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    December 7, 2007


    It's Friday - a good time to kick the hornet's nest of illegal immigration and see what happens. Mitt Romney wants to be the baddest Republican dude on illegals - toss 'em out, every last one of the 12 or so million. His position on undocumented workers is similar to former MA Governor Bill Weld's position on crime: "somewhere to the right of Attila the Hun."

    So it's with considerable embarassment that Romney is exposed as someone who is dependent upon the labor of undocumented workers (just like the rest of us). First, it was his lawn company, which used undocumented workers, promised not to, and then was caught doing it again. Safe to say their bid was one of the lowest - as their labor costs would be lower than a competitor hiring U.S. citizens.

    Then Romney gets his house painted (salmon color, for those of you who might be interested). He chose Olympic Painting and Roofing, a contractor with a long history of employment problems. (Romney probably liked the name - it reminded him of his success in running the Olympic games.) The Boston Globe quotes Olympic owner George Vasiliades as denying that he employed illegal immigrants at Romney's house - or anyplace else.

    Vasiliades's record is spotty, to say the least. In 1998, he pleaded guilty to workers' compensation fraud charges and failing to pay unemployment tax contributions. He was sentenced to one year probation, and ordered to pay a $250 fine, court costs, and $4,880 in restitution to three employees. Olympic is currently under investigation by the attorney general's office for allegedly paying numerous workers off the books.

    Olympic is also part of a federal investigation into the Aug. 31 death of Benedelso Ovalle of Lynn, who fell from a 2 1/2-story church in Salem while working for an Olympic subcontractor, BC Construction. Ovalle was a 17-year-old illegal immigrant from Guatemala, according to his family's lawyer, Anne Gugino Carrigan. According to the police report, Ovalle was not wearing a safety harness before he fell, and neither were two of five other workers at the scene. (Perhaps the safety manual was written in English.)

    Of course, Vasiliades defends himself by asserting that he is not responsible for the actions of a subcontractor. I'm sure he was shocked - shocked! - that no fall protection was in place.

    Frozen Rhetoric?
    As part of his Iowa strategy, Romney is working diligently to secure the endorsement of U.S. Representative Steve King, who has identified illegal immigration as the most important litmus test for Republican presidential candidates. When King selected a contractor to paint his own house, he was not content to secure verbal assurances that all the employees doing the work had proper documentation. He decided to hang around the house while they were working, listening oh-so-carefully for Spanish accents - a sure sign (for King at least) of illegality. Maybe Romney could pick up a few tricks about household management from King.

    This post began with the image of a hornet's nest. Let's end with one, too. Driving to work on this frozen Friday, I saw a bird perched beside a huge football-sized nest. All the insect inhabitants were presumably frozen. The bird was plucking them out and eating them, one by one, as if they were delicacies on a platter. That image may contain a lesson for all the politicians trying to confront the undocumented worker dilemma: let's chill out. Let's avoid inflaming an already over-heated situation. Sometimes a little perspective and dispassion can take the sting out of an issue and make it more manageable. After all, come spring, someone has to mow the lawns and paint the houses.

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    October 24, 2007


    According to NBC, the southern California fires represent the single largest movement of Americans since the civil war. Nearly one million people were evacuated, including hospitals, nursing homes, and prisons. A state of emergency was declared in 7 counties. As of this morning, 640 square miles had burned. According to preliminary estimates by the Insurance Information Institute, insured losses are expected to exceed $500 million. News reports state that overall costs are expected to be measured in billions. Historically, the most expensive California fire was the 1991 Oakland Hills fire.

    The media focus has been on the fire itself, the massive evacuation, and the loss of homes, but the impact of the fire on local businesses has also been enormous. In addition to property damage and temporary business interruption for many, nearly all employers will cope with an increase in post-disaster stress in their work force. Destruction of homes will cause disruption, stress, and hardship for thousands of employees.

    From a business perspective, the enormity of events is partially depicted by the experience of local post offices, 25 of which were closed yesterday. While mail might be delivered through rain, sleet and snow, fire posed a more formidable obstacle. USPS was unable to deliver mail to 478,000 homes and business in evacuated neighborhoods.

    Massive evacuations, many mandatory, shut down scores of businesses. For some employers that have roles in responding to emergencies, such as hospitals, utilities, and public safety and infrastructure concerns, the need for employees intensifies during emergencies. At the same time, employees who are asked to work longer hours are often caught between the double bind of work responsibilities and caring for family needs.

    Many businesses in non-essential sectors such as the technology industry simply closed in deference to their employees' family needs and in response to official requests to keep nonessential persons off the roads. According to NPR, Qualcomm, PETCO and Jack in the Box — along with many of the region's major employers — all pared down their staffs. Some large employers communicated with employees on their websites. NASSCO General Dynamics posted notices of shift cancellations due to air quality, the San Diego Zoo offered a page of emergency employee information, including work status and payroll notices, and SHARP Heath care noted the the rising demand for services and reminded employees of available day care services.

    Health & safety concerns
    Despite the scope of the fires, loss of life has been minimal, in no small part due to the reverse 911 emergency notification system and the efforts of heroic firefighters and rescue workers. Unsurprisingly, those battling the blaze are bearing the brunt of the injuries during the fire. CNN reports that at least 70 people have been injured, including 34 firefighters. The Scripps hospital website says that their hospitals and urgent-care facilities have treated 166 patients with fire-related injuries or conditions, including respiratory distress, fall-related injuries, chest pain, hypertension, sinus infections, minor burns and anxiety. Scripps offers a page of respiratory health advice during wildfires.

    In the coming days, employers should be prepared to deal with stress reactions among employees. According to Mental Health America, some common reactions to disasters include:

    • Disbelief and shock
    • Disorientation; difficulty making decisions or concentrating
    • Apathy and emotional numbing
    • Nightmares and reoccurring thoughts about the event
    • Irritability and anger
    • Sadness and depression
    • Feeling powerless
    • Changes in eating patterns; loss of appetite or overeating
    • Crying for "no apparent reason
    • Headaches, back pains and stomach problems
    • Increased use of alcohol and drugs

    For ongoing information on insurance-related matters:
    Insurance information Network of California
    California Department of Insurance

    For fire-related and relief news:
    Web-technologies have offered a rich new source for communications. The article "Using social media services to track the California fires" offers an overview of the way these technologies have been harnessed to provide real time updates and communications. Individual bloggers have been supplementing more traditional news sources. Here are a few interesting sources:
    Google map -a notated with evacuation areas, fire updates, and more
    @KPBS - Twitter feed from KPBS
    @nateritter - Twitter feed from a local
    SignOnSanDiego Forums - from the San Diego Union Tribune

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    October 23, 2007


    The law firm Sidley Austin has agreed to pay $27.5 million to end an age discrimination suit involving 32 former partners. All were demoted from partner to counsel status back in 1999. Most were in their 50s and 60s. The EEOC says that the former partners, having no control over this management decision, were employees. Sidley begs to differ, but has agreed to pay anyway. Sidley is humongous: with over 1,700 lawyers across the world, only a small percentage of the workforce was involved in this particular lawsuit.

    In the rarified world of corporate law, partners are co-equals. They are generally not considered to be employees. But ultimate decision-making at Sidley was in the hands of an unelected executive committee. That committee decided on the demotions and in doing so, created at least for a moment in time a new class of employees.

    Even in writing the hefty check, Sidley concedes very little. "The Firm [I love the capital "F"!] believes that settling this case is preferable to the costs and uncertainties of continued litigation." Sidley agreed that the affected partners were employees subject to the ADEA "for the purposes of resolution of this matter." That is as stingy a concession as you will ever see, but then again, these are attorneys. On the other hand, the size of the settlement speaks for itself (in a language most attorneys understand very well.)

    Sidley's unsuccessful defense was based upon their contention that the demotions were the result of performance. That kind of slur might work against the average working stiff, but not for high powered attorneys. Indeed, the prospect of the EEOC rummaging through performance documentation did not just freak out Sidley management; some of the impacted former partners objected as well.

    The settlement will result in payments ranging from $122,169 to $1.84 millon. Chump change, perhaps, in the world of corporate law. Even the smallest of these payments looks huge in the world of workers comp, where a lifetime of pain and disability often translates into a few thousand dollars.

    Who Rules?
    The core issue here involves management authority. The demoted Sidley partners simply lacked the key powers of partnership. They rarely met as a group (it would require a convention center) and they never had the opportunity to vote on major issues. Though powerful and autonomous in much of their work, the demoted partners were powerless when it came to determining their own status in the Firm.

    The issue of partner versus employee is still very ambiguous. This hefty settlement has undoubtedly sent hundreds of law firms across the country scurrying to review their governing procedures. There is one thing they will not lack as they parse out the rights and responsibilities of partnership: access to counsel.

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    October 17, 2007


    Three FedEx Ground employees brought a class action suit in California, contending that they are employees, not independent contractors, of the ubiquitous delivery company. They won at the initial trial, they won on two appeals and now they have won (for the most part) on the third appeal. The ruling lays out in compelling detail the employment law issues in this long-standing dispute. (Here and here are just a couple of samples of our prior coverage.)

    The ruling states that "in practice, the work performed by the drivers is wholly integrated into FedEx’s operation. The drivers look like FedEx employees, act like FedEx employees, are paid like FedEx employees, and receive many employee benefits."

    I don't think you can state the problem any better than the original court, which described the Operating Agreement as “a brilliantly drafted contract creating the constraints of an employment relationship with [the drivers] in the guise of an independent contractor model." FedEx “not only has the right to control, but has close to absolute actual control over [the drivers] based upon interpretation and obfuscation.” The ruling goes on to site FedEx’s control over every "exquisite detail" of the drivers’ performance, including the color of their socks [no white] and the style of their hair [no pony tails].

    No doubt at all about the color of the feathers: "The essence of the trial court’s statement of decision is that if it looks like a duck, walks like a duck, swims like a duck, and quacks like a duck, it is a duck." These drivers (and thousands of others across the country) are employees.

    The appeals court did reject some of the prior award. Here's one item that may break the hearts of our colleagues at the bar: Estrada’s motion asked for $619,691 in costs and $6,789,325 for his attorneys’ fees, a total of $7,409,016 -- plus a 2.0 multiplier as compensation for delay and contingency, a total of $14,818,032. The appeals court found this excessive and asked the lower court to revisit the issue of fees.

    What about Workers Compensation?
    The court addresses the issue of workers comp only marginally. The drivers were required to purchase "work accident" insurance. They sought reimbursement for this expense, which the appeals court granted. However, the court did not address the issue of retroactive workers comp coverage for all FedEx drivers. Given that these "independent contractors" are actually employees, and regardless of this accident insurance (which is unlikely to be as generous as workers comp), what is the status of all the drivers injured during the course and scope of their FedEx employment? Among the many retroactive liabilities looming for FedEx as they lose appeals at different levels of the judicial system, this may be one of the biggest.

    As the (politically incorrect) saying goes, "it ain't over 'til the fat lady sings." FedEx surely has the deep pockets needed to continue their doomed appeals. But I do think I see a fat duck, waddling to the front of the stage, about to break into song.

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    October 15, 2007


    Back in February of 2005 we blogged the case of Margaret Morse, a member of the Legion of Mary, a volunteer group affiliated with Christ King church in Wisconsin. In the course of delivering a statue of the Virgin Mary to a parishioner, she ran a red light and crashed into a vehicle driven by Hjalmar Heikkinen, an 82 year old barber. Heikkinen was paralyzed. A jury awarded him $17 million - and tapped the liability policy of the church to pay it. The case reached the Wisconsin Supreme Court, where a split ruling (3 to 3) sustained the original award.

    There apparently was language in the church's insurance policy that included coverage for volunteers. While the Legion of Mary operated with considerable independence from the church itself, it was founded in 1968 with the support of a parish priest. It's not far fetched to say that the specific action involved here - delivery of the statue - was related to the core function of the church. But then, any act of kindness might fall under that very wide umbrella!

    Liability for Volunteers
    Beyond the unfortunate circumstances of this case, anyone using volunteers needs to be aware of potential liabilities. In our increasingly litigious society, prudent managers must take the extra step to protect their companies/organizations. Here are a few very basic steps in managing volunteers:
    - If they're going to drive at any time, check the driving records. If the record is spotty or poor, do not allow them to drive while carrying out volunteer duties.
    - If they are near children or vulnerable adults, or entering private homes, run a criminal background check
    - Require a resume. It's important to know who they are and where they come from.
    - Train, orient, supervise and document. The services might be free, but proper management requires the commitment of adequate resources.
    - If they are not working out, terminate the relationship. As in regular hiring, it's important to take action before serious problems emerge.

    It's not at all clear that any actions would have insulated the church from this unexpected liability. The court's ruling has stretched the definition of volunteer and liability to the limits. Nonetheless, when it comes to volunteers in general, it is indeed time to look the gift horse in the mouth. The notion that services do not "cost" anything is attractive, especially in the non-profit world. But in a culture that puts a price on everything, everything has a cost. The cost of volunteers lies in the essential screening, training and supervision. Anything less opens the door to very big liabilities indeed.

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    October 10, 2007


    Delphi, the auto parts maker working its way through bankruptcy, has a new problem. The U. S. Equal Employment Opportunity Commission (EEOC) has sued the company under the ADA for making illegal inquiries about employee medical conditions and retaliating against those who refused.

    In 2004 Delphi implemented a policy requiring any and all workers returning from sick leave to sign releases permitting the company to access their medical records. While we can sympathize with the company's desire to ensure that employees are fit for work, this policy goes way beyond any such concerns. Apparently, the company required employees to sign this release, even if they only missed a day or two. If employees refused to sign, they were terminated.

    "The ADA prohibits employers from making inquiries as to whether an employee is an individual with a disability unless the inquiry is shown to be job-related and consistent with business necessity," the EEOC stated in the complaint.

    The application of the ADA in this situation is a bit of a stretch. Perhaps the EEOC could not find any statute that really fit the circumstances. (HIPAA does not quite fit, either.) Delphi is not discriminating against the disabled - they are inappropriately perusing medical records, under the dubious reasoning that a short absence from work inherently involves high risk in returning to work.

    The Need to Communicate
    There are a number of circumstances following sick leave where an employer might need to talk to the employee's doctor. For example, an employee might be prescribed a medication that impacts alertness and the ability to operate machinery. Or an employee with a non-work related injury might not be able to perform his or her regular job safely without some accommodation. Delphi's mistake - and it's a big one - is to require every employee taking sick leave for any reason to sign a medical release. This is not job and employee specific: it's the kind of fishing expedition that confidentiality requirements explicitly prohibit.

    Employers can and should secure an informed "release for full duty" from the treating physician when the need arises. When the circumstances require it, employers should communicate with doctors to ensure that the employee and co-workers are safe. Employers can and should require employees to disclose any medical conditions or prescriptions that directly impact the ability to perform the work safely (so that reasonable accommodations can be provided). But that is a long way from assuming that any and every absence is cause for examining medical records. That's not business necessity; it's an invasion of privacy. Whether filed under HIPAA, the ADA or some other statute, it's one business practice that needs to stop immediately. If Delphi has any business savvy, they already will have taken steps to end this blatantly inappopropriate practice.

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    September 14, 2007


    Here's an update on a case we recently blogged. Edgar Velasquez worked for Billy G's Tree Service in Rhode Island. He sliced open his face with a chain saw (ouch!). When he tried to file for workers comp benefits, his employer fired him. Edgar was an undocumented worker. The employer did not carry workers comp insurance.

    On August 2, 2006, Edgar went to the Garrahy Courthouse in Providence for a hearing on his comp claim. He was met outside by immigration agents, accompanied by Billy Gorman, his former boss. As he watched the agents take Edgar away, Gorman was heard to say "Adios, Edgar." Edgar was deported to Mexico later that month. (Gee, I wonder who dropped a dime...)

    Edgar, who lives in a remote mountain village in the state of Chiapas, has not received any further medical treatment for his injury. The scar on his face is still infected. Ho, Hum. Another immigrant worker screwed by an unscrupulous employer. End of story? Not quite.

    Billy Gorman has a few legal problems of his own. He is being sued by the state for running a business without the requisite workers comp insurance. And Rhode Islanders, who recognize a serious injustice when they see it, are raising money to return Edgar to this country - so he can pursue his comp claim, among other possible legal remedies against Gorman.

    Ah, but how will Edgar get back into the country, when he was here illegally at the time of the injury? Germann Murguia, the Mexican consul general in Boston, says they are trying to bring Edgar back through a humanitarian visa. "This is up to the American authorities, but we are trying to do as much as possible. He deserves compensation."

    I wonder if Billy has a call into his congressman, expressing his moral outrage that Edgar might be allowed back in. "He never should have been here in the first place!"

    Gorman's lawyer, Michael St. Pierre, reports that Gorman has no assets to satisfy the claim, which exceeds $70,000 in medical bills alone. St. Pierre also says that Edgar may not have met the definition of "employee." I guess he must have been an independent contractor.

    Here's hoping that Edgar finds his way back to America for a brief and legal visit. He needs some medical attention for his injury. And he deserves the opportunity to watch them put the cuffs on his former boss and to say, with all due sincerity, "Adios, Billy."

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    September 12, 2007


    As we approach the fourth anniversary of the Workers Comp Insider (September 17, 2003), it's a good time to step back and ask a fundamental question: Why are we doing this? Four years ago Tom, Julie and I observed that there were a lot of bloggers tackling a lot of issues, but they mostly involved isolated individuals pursuing a particular passion. Businesses in general seemed disinterested and our particular focus, the insurance industry, was totally missing in action from the blogsphere.

    As a company specializing in designing and fine tuning loss control and risk management programs for employers and insurers, Lynch Ryan saw an opportunity. With its infinite, instantaneous reach, the web offered a virtual forum for exploring the many ramifications of workers comp. As consultants, we wanted to create a meaningful and objective means of communicating issues related to the key comp constituencies:
    - helping employers minimize the cost of risk, while still managing their injured employees
    - supporting insurance companies in risk selection and in the education of policy holders
    - guiding injured employees back to gainful employment
    - facilitating medical provider interaction with injured employees, their employers and insurers (and helping them survive increasingly stingy payment schemes)
    - guiding states through the complex task of legislative reform, where they must balance the needs of injured employees, employers, insurers and medical providers, without allowing the cost of insurance to drive business out of state
    - alerting workers' comp professionals and risk managers to issues of compelling interest which they might not otherwise encounter

    Fertile Ground
    Over our four years as bloggers, we have examined managed care, coverage for independent contractors, the practices (good, bad and indifferent) of insurance carriers, the impact of designer drugs on the cost of insurance. We have discussed fraud in Ohio, legislative reform in dozens of states, the use (and abuse) of temporary modified duty, myriad safety issues - cell phone use while driving, heat in the summer, cold in the winter. We have highlighted the aging American workforce and the implications for workers comp in the years ahead. We have explored the profound implications for the comp system of the millions of workers lacking health insurance, along with the nation's dilemma dealing with 12 million undocumented workers. And that's just a hint of the fertile ground we have plowed, up to five times a week, for over 200 weeks. Dull it isn't!

    We also have created and refined a website that makes accessing web resources as easy as possible, linking our readers to business, risk management and health-related resources. In addition, you can use our robust search engine to explore nearly 800 blog entries by content area. All modesty aside, we think that the Insider has become the best workers comp reference library on the net.

    How are We Doing?
    We think it's working pretty well. We have as many as 20,000 hits a month, with several thousands of loyal readers and hundreds of casual visitors seeking inforation on a specific issue. Readership has increased steadily from month to month. We are approaching our goal of becoming the "go to" site for workers comp issues.

    And, although Google and others call several times a month, we don't allow advertising, except for a small banner that links to LynchRyan, our parent company.

    All of which leads to a very fundamental question for any business: is it worth the effort? Is this free service in any way profitable? That's not an easy question to answer - and in some respects, it's the wrong question. But in the interests of full disclosure and the candor to which we are committed, yes, we have established long term and meaningful relationships with a number of insurance companies and employers who found us through the blog. The considerable effort easily pays for itself.

    But even if the blog were a "loss leader" we would probably continue the effort. We are filling a definite need on the web, providing a balanced and objective view of risk management and risk transfer issues, with a special focus on workers comp. Our goal is to provide our readers with a reliable, well written and entertaining news source that reflects our abiding passion and our many years in the field. And whatever you think of the Insider, you'll have to agree on one thing: the price is right.

    Your comments are always welcome.

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    September 4, 2007


    What better way to herald the end of summer by returning to the issue that just won't go away: workers comp coverage for sole proprietors and independent contractors. Massachusetts has just taken an extraordinary step that provides a strong incentive for sole proprietors to "opt in" to the comp system.

    Under the old rules, any sole proprietor seeking comp coverage was assumed to make the state average weekly wage (SAWW). In MA, that is a whopping $52,000 per year. While MA enjoys some of the lowest rates for comp coverage in the nation, that high wage base drives up the cost of comp:
    - for a $5.00 rate, the annual premium would be $2,600
    - for a $10.00 rate, the annual premium would be $5,200

    Those can be tough numbers for a lone craftsman trying to operate his/her own business. Especially when you consider that the weighted average median wage of all sole proprietors in the state is only $35,843. The result, of course, was that most sole proprietors gave up the notion of participating in the comp system. The coverage was way too expensive. They opted out in droves.

    Recognizing the powerful disincentives to select coverage, the MA Workers Compensation Rating and Inspection Bureau decided to make the coverage more affordable. They have dropped the wage base by 30 per cent, to 70 per cent of the state AWW, effective August 1, 2007. Now, when a sole proprietor chooses to be covered, the premium is based upon an annual wage of just $36,400. This means that the cost of coverage is suddenly pretty reasonable:
    - for a $5.00 rate, the comp coverage costs $1,820
    - for a $10.00 rate, the coverage costs $3,640

    A Comp Bargain
    For marginal sole proprietors, with annual billings below the $36,400 level, there is still a strong incentive to opt out of the system. However, for the many skilled tradesmen who routinely bill well above the $36,400 level, workers comp has suddenly become a bargain. A skilled mason or carpenter might bill upwards of $75,000 or more per year. Nonetheless, the cost of comp coverage will be based upon a much lower wage level. In effect, well established sole proprietors now enjoy comp rates that might be 50 per cent or more lower than the rate for competitors with employees working in the same trade.

    Which leads to one more very important consideration for general contractors in MA: in the construction field, sole proprietors are a common sight. We have blogged about the MA crack down to push coverage deep into the subcontractor and sub-subcontractor levels. (See just a couple of our prior blogs here & here.) At premium audit, if a GC shows a certificate of insurance from a sole proprietor sub who has "opted out" of coverage, the cost of that coverage is added to the GC's payroll for premium calculation. Now GCs have a very compelling argument to encourage their sole proprietor contractors to opt in for coverage: "Don't wait for me to charge back the cost of comp. Take advantage of the suppressed rates and choose coverage on your own. You benefit from a lower rate and you have the advantage of knowing the cost of coverage up front." For sole proprietors who routinely have billings above the $36,400 level, this is truly a no brainer.

    It will be interesting to see if other states follow the MA lead in this important policy area. Surrounding states use a very high wage standard for calculating sole proprietor premiums: in Connecticut, $56,200. In New Hampshire, $58,100. When you factor in the very high rates for comp in these states, the cost of insurance for sole proprietors is truly prohibitive. That's no welcome mat. It's a kick in the butt toward the door.

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    August 27, 2007


    Jay Fishman, CEO of The Travelers, offers an interesting perspective on the current state of hurricane risk. (As the piece appears in the Wall Street Journal, availability is limited to subscribers.) The article is entitled, "Before the Next "Big One" Hits." That's ironic, of course, because nothing meaningful will be done until well after the next big one hits. Nonetheless, Fishman's perspective is worth examining.

    Fishman looks at the current chaos governing state regulated coastal property insurance from Maine to Texas. Not surprisingly, he sees a lot of problems. With over half the American population living within 50 miles of the coast, with coastal development continuing at an alarming pace, and with the prospect of bigger and more powerful storms developing in our oceans, many carriers are running for higher ground. Fishman believes that they might be more inclined to stay if the rules governing property insurance had some federal oversight. That's an unusual perspective, coming from a CEO.

    Bring in the Feds
    Fishman would like to see a federally regulated "Coastal Hurricane Zone" running from Texas to Maine. The feds would regulate and oversee wind underwriting by private insurers, including pricing. A federal role would increase consistency from state to state and offer a more stable set of rules - rules that might provide insurers with the confidence to make long-term commitments and investments of capital. Premiums would be subject to regulation: if they exceed the payouts over a period of time, property owners would receive a rebate. If the rates prove inadequate, they would be allowed to rise. A federal presence might pre-empt the current absurd situation in Florida, where tax payers enjoy depressed rates for coastal coverage, with the prospect of mortgaging the future when the next big storm hits (see our "Risk Management for Dummies" posting here). A federal role would benefit consumers by providing more transparent pricing and standardized "rights and responsibilities."

    Fishman recognizes that some coastal risks exceed reasonable rate making. In these situations, he recommends temporary, transitional subsidies, extending 10 or 15 years. Here, those unable to pay the rates associated with the risk would receive a tax credit; on the other hand, those able to pay might face a surcharge to help balance the books. This is Robin Hood in a rain slicker, perhaps, but it's an idea worth further scrutiny.

    Wind and Water
    Risk mitigation under global warming's unprecedented and poorly understood circumstances must go beyond the pricing and wording of insurance policies. Fishman would like to see a proactive approach with some serious traction in two key areas:
    - establishment and enforcement of credible building codes
    - improved land management, with the preservation of coastal wetlands a major priority

    Fishman is careful to call all of this "wind underwriting." He clearly is not contemplating an expansion of standard policies to include water damage. (Did someone say Dickie Scruggs?) From his CEO perspective, risk transfer must be both reasonable and profitable. The fact that he welcomes a federal role in developing the rules is a clear indication that the current situation is untenable. The free market for coastal property insurance is floundering on the rocks. Fishman is not alone in looking to the federal government to build the needed lighthouse.

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    August 8, 2007


    With Congress failing to pass immigration reform, Homeland Security is about to turn up the heat on big businesses. We read in the New York Times that new rules are about to be issued, requiring employers to fire workers who use false social security numbers. Homeland Security is also planning to step up the raids on workplaces across the country. In the chess game that is immigration policy, the pawns are about to get crushed.

    "We are tough and we are going to get even tougher," says the aptly named Russ Knocke, a spokesman for Homeland Security. "There are not going to be any more excuses for employers, and there will be serious consequences for those that choose to blatantly disregard the law."

    Wrong Numbers
    Here's how the new enforcement program will work: Social Security will issue no-match letters to large employers where they find a significant number of incorrect numbers. These letters are issued only to employers with at least 10 mismatches, when these workers represent at least one half of 1 percent of the total workforce. Do the math: the enforcement effort is limited to employers with at least 2,000 employees. The key target of the enforcement effort is big business.
    FOLLOW UP NOTE: Redo the math! A reader points out (see comments) that this new program may well impact much smaller employers, with as few as 50 employees. So the impact is potentially much greater than I originally thought. And as for mistakes in my math, alas, this is by no means the first.

    Once employers receive the no-match letters, they have 14 days to check for clerical errors and consult with the employees to correct any mistakes. If they cannot come up with a valid social security number, they must fire the employees or face fines of up to $10,000.

    Immigrant advocacy groups fear the consequences: massive lay offs accompanied by a surge in the "underground" workforce. Add to this the complete absence of safety enforcement for most undocument workers and you have a truly volatile mix.

    There is an over-arching irony in this situation: most of the undocumented workers who will lose their jobs under this program are performing valuable and valued work. They have taken on jobs that credentialed workers traditionally reject: work that is too hard, with pay that is too low and working conditions that are too miserable. Many of these important jobs will remain vacant. Beyond the misery of the families and communities hosting these workers, we will all see a signficant increase in the cost of living. Sure, it's trouble for American business. But soon enough it will become trouble for all of us.

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    July 23, 2007


    Back in June we blogged the interesting case of Tony Boyle, who was awarded over $600,000 for wrongful termination after his employer, Weyerhauser, put him in a modified duty job that aggravated his work-related condition. I half expected to hear from the employer, defending their modified duty program. Instead, I am on notice from Mr. Boyle's attorney that we have defamed his client.

    The point of contention was my conjecture (and it was a conjecture), that Boyle had been prescribed narcotic pain medication for his serious lower back injury (two herniated discs). After all, such drugs are the most frequently prescribed medications in the workers comp system (see prior blog here.) Attorney Richard Yaskin asserts that there is no evidence for the claim that Boyle "failed a company drug test." He further asserts that Boyle was taking anti-inflammatories and muscle relaxers.

    As a blogger, I rely on a variety of sources: in this case, two newspaper articles. Renee Winkler wrote in the Courier-Post that "when (Boyle) was terminated, company officials said he was violating the substance abuse policy." I (mis)interpreted that to mean he had failed a drug test. In the other source, Pete McCarthy wrote in the Gloucester County Times that Boyle "was prescribed two painkillers by the company's workers' compensation doctor, and told to work light duty...Within two months, Boyle was fired. He had been accused of violating company policy by taking prescription medication while operating machinery."

    So here's where my reading of the articles led me astray: both articles refer to violation of the company substance abuse policy. McCarthy referred to painkillers (which frequently involve narcotics). I was wrong to assume that the violation involved prescribed narcotics and also mistakenly assumed that the violation involved a failed drug test. Indeed, the situation is even more bizarre than I originally had thought: Boyle was fired for operating equipment while taking anti-inflammatories and muscle relaxers, both necessitated by his work-related injury.

    So in the interest of keeping the Insider outside of the courtroom, we publish the following retraction:

    LynchRyan and reporter Jon Coppelman regret the erroneous statements concerning Mr. Tony Boyle of Washington, Twp., NJ in the Workers' Comp Insider welog of June 26, 2007. The posting inaccurately states that Mr. Boyle was taking prescribed "narcotics" and that: "...he failed a company drug test."

    Indeed, Mr. Boyle's prescribed medications, Soma (Carisoprodol) and Celebrex, are not "narcotics." Further, Mr. Boyle never failed a drug test in connection with his Weyerhauser employment.

    LynchRyan regrets any misunderstanding caused by publication of the original Weblog.

    Our sympathies in this situation clearly remain with Mr. Boyle. We had no intention of defaming him. In fact, given the severity of his injury, a short-term prescription for a narcotic medication would have been medically appropriate. Good for him that he worked through the pain and the injury with non-narcotics, and good for him that he is back to productive employment. And thanks to Attorney Yaskin for helping to clarify the situation.

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    June 21, 2007


    Thirty two Westchester county businesses were busted today for workers comp fraud. All submitted written documentation to the state that they had no employees. The nature of the businesses indicates otherwise: the list of violators is limited to pizza parlors, delis and restaurants. While it is commendable that the state is going after companies for avoiding comp, we cannot give too much credit here: it's kind of obvious that any pizza parlor, deli or restaurant requires more than one person to operate.

    Each of the business owners is charged under state workers’ compensation law and state penal law with fraudulent practices, a Class E felony; first degree offering a false instrument for filing, a Class E felony; and failing to secure Workers’ Compensation benefits for employees, a misdemeanor. The crimes are punishable by up to four years in prison.

    “Workers comp fraud is a felony in New York State,” says Fraud Inspector General John H. Burgher. “We are confident that these arrests will send a clear message that we are aggressively looking for employers who don’t abide by our workers’ compensation laws.”

    The Board levied a total of $550,000 in penalties among these business, which were calculated at $250 for every 10 days the employers were out of compliance prior to April 12. Following that date, a key piece of Governor Eliot Spitzer’s workers’ compensation reform initiative became effective, raising the penalty to $1,000 for every 10 days out of compliance. The employers were assessed the higher penalty for noncompliance after April 12.

    Some of the fines look pretty hefty: $33,800 for Apple's Deli; $15,300 for Mount Vernon Pizza; and a whopping $62,500 for Roberto's Pizza and Pasta. Any way you look at it, that's a lot of slices. Of course, the only meaningful comparison would include the total comp premiums that these businesses avoided paying. And more important, you wonder how many employees of these companies were instructed not to report injuries, or who were fired when they got hurt. How many of these employees were undocumented and paid under the table?

    This is a sorry saga, indeed, where much of the pain and suffering is well hidden. You would hope that the affluent folks in Westchester County might think twice about the cheap labor and shady business practices that help support their lifestyles. But who has time for moral niceties, when you barely have time to grab a slice with pepperoni on your way to picking up the kids at soccer practice?

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    June 12, 2007


    Frank Lima works for the Los Angeles Fire Department, where he oversees the screening of recruits. Back in 2004 he was supervising a training drill that involved hoisting heavy ladders against a building. A woman trainee later complained that she was singled out and harassed during the drill.

    Soon after, Assistant Fire Chief Andy Fox told Lima that women have to be treated differently, in order to boost their numbers in the department. Women had to receive preferential treatment. Lima was at first suspended two days for the ladder incident. Then the suspension was rescinded and Lima received a reprimand.

    Lima sued the city, alleging that he suffered heart problems and stress after the department tried to punish him and subsequently denied him certain assignments. A jury recently awarded Lima $3.75 million, including $2.96 million for pain and suffering. That seems like a lot of money under the circumstances, but this is, after all, California. And there is no doubt that Lima was put in an untenable position. In the aftermath of the lawsuit, Andy Fox, formerly in charge of the Department's disciplinary system, was reassigned. He now oversees risk management. (I will let our risk management readers figure out the logic of this particular demotion...)

    In its haste to increase the number of women fire fighters - with pressure coming directly from City Hall - the department clearly put Lima in an impossible bind. He was given specific criteria for evaluating all applicants, and then told to fudge the criteria for one particular group. He was ordered to cut women some slack. The fundamental questions, of course, are what the essential functions of the job are and the degree to which women can perform them. I wonder whether moving those heavy ladders is something any and every fire fighter has to be able to do. Essential functions are not necessarily performed frequently, but in this specific job they might well involve the ability to save lives under very challenging circumstances.

    The Fire Department unfairly asked Lima to compromise his standards. They should have examined the standards objectively and determined whether they were reasonable and necessary, or whether they simply created artificial barriers to women who want to fight fires. This is an organization issue, not something that should have been dumped into the lap of one individual.

    Testing the Tests
    Given the liabilities that accompany the decision to hire someone, employers are trying to reduce risk by learning more and more about job applicants. Some of the approaches are crude: eliminating any applicant who fails a drug test. Some are more sophisticated: the use of credit and medical histories, psychological testing and physical profiling (no obese people need apply). Ultimately, all screening techniques boil down to a single issue: who is eliminated and why?

    The EEOC is looking into the whole issue of pre-employment testing and employee profiling. Clearly, this is an area with a lot of potential for discrimination and abuse. The EEOC is examining written tests, the use of criminal and credit histories as a basis for selection, medical exclusions in hiring, and employer best practices.

    Firefighter Lima's lawsuit should serve as a reminder: whatever tools and standards employers use to screen applicants, they must strive for transparency. Establish reasonable criteria and apply them uniformly. If the criteria have a disproportionate impact on one segment of applicants, re-examine the criteria carefully. (We blogged just such a situation here.) Make sure that your standards are up to standard. This is not easy, nor is it static. Today's accepted standard is tomorrow's act of discrimination. Employers are being buffetted by powerful and conflicting pressures. As Lima's story clearly demonstrates, the consequences for doing the "right thing" in the wrong way are severe. His saga is a lesson for us all.

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    June 5, 2007


    Jeffry Armbruster runs 22 convenience stores and gas stations in Ohio. Like many business owners, he thinks he pays too much for workers compensation coverage. But unlike most business owners, as a state senator in his scandal-ridden state, he was in a position to do something about it. He initiated some informal talks with the folks at the Bureau of Workers Compensation and walked away with an 88 percent rate reduction. I'm sure his being the vice chair of a committee that dealt with the bureau's legislative needs had nothing to do with the favorable treatment. He was simply reaping the just rewards of an awesome safety program! Now the former senator (term limits, not voter nausea) is facing a conflict-of-interest investigation and possible criminal charges. When it comes to conflicts of interest, our man Armbruster is a master.

    A google search reveals that back in 2002 he tried to do a favor for Gino Zomparelli, executive director of the Ohio Turnpike Authority. Armbruster tried to raise the floor for no-bid contracts to $50,000 (a 500 percent increase). Unfortunately for Zomparelli, some turnpike workers dropped a dime and an investigation followed - one that revealed that Gino and his staff were already raking in gifts from contractors, including football and baseball tickets, dining and entertainment. All these nice goodies even with very low limits for no-bid contracts in effect. Gino and a bunch of other authority administrators were forced to resign.

    Armbruster was a member of a committee overseeing the turnpike authority when he filed the bill. Rather than apologizing for what appears to be a blatant disregard for his legislative role, Armbruster said that he was merely serving as "a bridge between the legislature and the commission." Some bridge!

    In 2004 the ethically challenged senator had to file for bankruptcy. His gasoline supplier stopped deliveries when he fell behind to the tune of $198,722. He also owed money to the state on his 19 lottery terminals. After some hasty negotiations, Shell resumed deliveries and the state lottery commission allowed him to resume ticket sales (cutting the senator a break - now that's a shocker!). By the way, Armbruster sits on the board of the national convenience store operators association. He's also on their legislation subcommittee. His type of experience is priceless! (Well, not exactly lacking a price...)

    I suspect that the road ahead for the former senator is full of concrete and steel: no, he won't be building roads or adding to his convenience store empire. He'll be joining a number of his Ohio colleagues in the slammer (most notably the infamous coin dealer Tommy Noe), where he'll have plenty of time to contemplate the sudden demise of Ohio's quid pro quo politics. And we all thought corruption on this scale disappeared with Tammany Hall ...

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    June 4, 2007


    In March of 2004 four contract employees of Blackwater Security Consulting were sent out into the streets of Iraq to provide an escort to a food convoy. They lacked heavy armour, they were never briefed on the nature and parameters of the job, and there was no pre-mission reconaissance. Oh, they also lacked a street map. You will remember these four men: they were ambushed and shot by insurgents, their bodies were burned, and the charred remains were hung from a bridge across the Euphrates River in Fallujah.

    We know that these contract employees were covered by workers comp (see Julie Ferguson's previous blog here.) But what about employer negligence? Is Blackwater accountable in any way for these deaths? We may never know. We read in the Gulf Times, that after years of legal wrangling, the case has been sent to arbitration, where the proceedings will remain confidential and the rulings will be binding.

    Prior to working, all Blackwater contract employees sign a document releasing the company from "any liability whatsoever" even if it is the result of "negligence, gross negligence, omissions or failure to guard or warn against dangerous conditions." I hardly need add that such language in a stateside employment contract would be illegal and unenforceable. But in Iraq, birthplace of the middle east's new democracy, anything goes.

    Lawyers for the four workers had hoped to invalidate the contract itself: the lawsuit alleged that Blackwater broke explicit terms of its contract by sending the men off without sufficient preparation and protection. Blackwater is lucky that Iraq is beyond the reach of OSHA, where employers must provide a workplace free from unusual risk of injury. As Borat would say: "Not!"

    Unprotected Emigrants
    we have been blogging the plight of undocumented workers in this country: substandard working conditions; substandard pay; marginal benefits. Despite all these problems, they may have better employment protections than contractors in Iraq. We are sending U.S. citizens into harms way with virtually no employer accountability and no protection.

    Lawyers view the judge's decision in this particular case as a victory for Blackwater. Even if the company has to pay for these deaths, their approach to employment - the blanket release of employer accountability for any and all of the dangers that employees face in Iraq - remains intact.

    Put enough money on the table and people will sign anything. It's only in the agony of retrospection that the consequences of a simple signature are truly understood. Nearly one thousand private contractors have died in Iraq. I wonder how their parents, widows and children view in hindsight the hefty hourly wages available in that absurdly dangerous country. Perhaps the families have a newfound appreciation for the protections offered to all workers in America, where we at least theoretically hold employers accountable for the way they train and support their employees.

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    May 29, 2007


    Felicia Dunn-Jones was a civil rights lawyer who worked one block away from the World Trade Center. She fled the office on 9/11, inhaling dust from the falling towers. She was covered with ash laced with asbestos and other hazardous material as she ran for safety. Now, nearly six years later, over five years after her death, New York City Medical Examiner Dr. Charles Hirsch has determined that Dunn-Jones's death was related to the 9/11 attack. In the days and months following the attact, Dunn-Jones developed a serious cough and had trouble breathing. She died five months later.

    Dr. Hirsch has amended Dunn-Jones's death certificate to indicate that exposure to trade center dust "was contributory to her death." The manner of death thus changes from natural causes to homicide.

    The medical examiner still has some doubts as to whether the trade center dust caused the sarcoidosis that killed Ms. Dunn-Jones. He suspects it was a pre-existing condition, nonetheless clearly and significantly aggravated by the exposure on 9/11.

    Who Pays?
    The issue for Dunn-Jones's family is not one of payment. They have already received $2.6 million from the Victim Compensation Fund. But it does raise an interesting question relative to workers compensation: was Dunn-Jones's illness work-related?

    In the moments following the attack, Dunn-Jones fled her office. Technically, once she reached the streets, she was no longer at work...She was commuting, heading away from work. She eventually made her way home to Staten Island.

    An administrative law judge could reasonably conclude that this is not a work-related illness. Dunn-Jones happened to be at work, which happened to be near the World Trade Center, which happened to be attacked. Once she fled the building, she was a commuter (a commuter suffering from terror, but a commuter nonetheless). On the other hand, an equally reasonable judge might lean toward compensability, based upon the fact that Dunn-Jones was at work when the attack took place - and it was physically impossible for her to remain there. She was not engaged in an ordinary commute, but a horrific flight from immanent danger.

    Perhaps these are morbid distinctions that most of us would prefer to ignore. But the center attack is certainly not the last incident of its kind. Millions of employers are paying for workers comp policies, under the assumption that employees are covered for work-related injury and illness. If and when the next attack comes, the issue of compensability will quickly become paramount. It is no exaggeration to state that the future of the insurance industry as a whole might be at stake.

    In the meantime, we would do well to return to the Book of Common Prayer for consolation. Sure, we are inclined in this country to translate tragedy into dollars. Someone must pay for all the pain, suffering and loss. But beyond the issue of jackpot settlements lies the simple fact of our mortality. "Earth to earth, ashes to ashes, dust to dust."

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    May 18, 2007


    The recent passing of Jerry Falwell reminds us that family values are definitely in the eye of the beholder. One's man's family values are quickly transformed into fear and loathing for others with different values. For too many people, it's not enough to develop and embrace your own values: you have to convince others to join you - or persecute/diminish/destroy them in the process. We are social creatures, but the socialization process itself is not always a pretty sight. Which leads us to the ever-divisive issue of immigration reform.

    As one who has been critical of Congress for its inability to do anything about the immigration mess, I am happy to see some progress. We finally have on the table proposed legislation that would legitimize (to some degree) 12 millon or so undocumented immigrants and set up a structure for admitting an additional 400,000 per year. But with the print on the 300+ page bill barely dry, the attacks have already begun.

    "This is amnesty for criminals!" cries the right.

    "Unfair to families and labor!" cries the left.

    The bill attempts to be pragmatic. No ideologue will embrace it. You could argue that in trying to stake out the shaky middle ground, the bill makes everyone unhappy. Indeed, this is such a volatile issue, there may not be a viable middle ground.

    Unintended Consequences
    Whatever the final shape of the legislation - assuming something is ultimately passed and signed into law - there are going to be unintended consequences of substantial magnitude.

    The left fears that the bill will reduce wages. But wages are already suppressed by this huge, undocumented workforce. Once these people are credentialed, their wages and benefits are going to go up. Undocumented workers live in constant fear of discovery. They are willing to work for less, forego benefits to which they are entitled, and generally live beneath society's radar, in order to avoid arrest and deportation. Once they have the new "Z" visas, their working conditions should improve. And as this change takes root, we will all feel the result in the form of higher prices.

    As for outrage on the right - that we are rewarding criminal behavior - the intent of the bill is to decriminalize an essential component of the workforce. It would be logistically impossible and economically disastrous to deport 12 million people. They are performing vital jobs, often in abominable working conditions. They are here because we need them. Thus it is no great concession for Congress to legitimize these people: realistically, we have little choice.

    We have already commented on another goal of the bill, to stop the influx of illegal immigrants through enhanced border vigilance. I personally am looking forward to the construction of America's Great Wall. It will cost billions. It will prove remarkably ineffective. And the only people willing to build it will be the people it is meant to keep out. Under the family values of American labor, the working conditions in the deserts of Arizona, New Mexico and Texas are unacceptable. Only the truly desperate would accept these jobs...and we all know who they are. So we'd best build the wall before we hand out the new Z visas. Once immigrant workers have their visas, they won't want the jobs either.

    So let's get going. I can already envision Vladimir Putin, Russia's ethically challenged ruler, standing on the Mexican side of the wall and calling out: "Mr. President, tear down this wall!"

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    May 15, 2007


    Three executives of Purdue Pharma have agreed to pay fines totalling $635 million to resolve charges relating to the marketing of Oxycontin. The company admits to understating the risks involved with this potent drug and to deliberately misleading doctors and the public about its addictive qualities. From 1996 to 2001 the company claimed that Oxycontin was a "miracle" drug, safer than rival medications. Alas, it turns out that the drug was subject to abuse and led rapidly to addiction. And the company apparently knew this all along.

    The pleas involved Michael Friedman, CEO, Howard Udel, the chief legal officer, and Dr. Paul Goldenheim, the former head of research. While claiming to have taken steps to prevent misstatements in the promotion of the drug, Mike, Howie and Paul pled guilty under the legal principle that holds high-level executives accountable for the improper acts of others. I'm sure that they privately berated their marketing department for the lies and deceptions, even as the dollars began to roll in.

    Company revenues associated with OxyContin between 2000 and 2006 approached $10 billion. So the $635 million fine, while appearing hefty, is about six per cent of revenues. As a tax on criminal negligence, that isn't bad. Even Al Capone would have approved.

    You don't achieve overwhelming market share by sitting around and waiting for doctors to discover you. It takes very aggressive marketing and, in this case, pretty dramatic misreprentation to dominate the market for pain killers. The company told two fundamental lies in their drive to sell their product:
    1. That OxyContin was less addictive than other opiates. It's not.
    2. That the drug was less readily subject to abuse. Not true.

    It turns out that OxyContin is highly addictive and the company knew it. In addition, they put a warning right on the label not to crush the pill and ingest/inject it. You might get stoned. You might, indeed. By crushing the pill, users circumvent the "time release" characteristic and access the full power in one overwhelming (and highly addicting) moment.

    Purdue Pharma did a great job of pushing (that is the operative word) OxyContin deep into the medical system. Originally intended for treatment of extreme pain in cancer patients, the company's marketers successfully presented it as the drug of choice for common ailments such as routine back pain. That's why it rose to prominence in the workers comp system. (See our post here.)

    The Great American Success Story?
    In the ideal world, when a drug is created, it will be prescribed prudently and carefully, and only for the purposes for which it was intended. When you develop an effective product to manage extreme pain, you would limit its use to cases of extreme pain. That's in the ideal system - not exactly how you would describe the current status of health care in America.

    The real American way is achieving market saturation, market dominance, even if your product is best used by a limited population. And to dominate the market, you tell people what they want to hear: the product is extremely safe and effective. It works better than anything else. And heck, if you have a workers comp claim, the prescription won't cost the employee a dime! We'll even give them 50 tabs, 40 more than they really need for their little back strain, so they can generate some income on the side.

    This country has locked up more people for using and abusing drugs than any country in history. We have a real problem with people getting stoned. Nonetheless, when a legitimate company becomes a pusher, when their misrepresentations and outright lies lead to addiction and death, nothing much happens. If Mike, Howie and Paul sold a few ounces of marijuana or crack cocaine, or even a few tabs of OxyContin, to an undercover agent, they'd be going to jail for a long, long time.

    But after their enterprise made billions, Purdue Pharma hired Rudy Giuliani Partners LLC to work out a deal with the prosecutors. In case you're wondering, Giuliani Partners is "dedicated to helping leaders solve critical strategic issues, accelerate growth, and enhance the reputation and brand of their organizations in the context of strongly held values."

    Hmm. This drug scandal certainly became an embarassing "strategic issue" for Purdue Pharma. As for "enhancing the reputation and the context of strongly held values" - I'm still trying to figure out what the company's core values are. Your guess is as good as mine. In any event, Guiliani Partners undoubtedly earned a hefty fee. Once you get beyond a few days of bad press, Mike, Howie and Paul are still very free and very rich. Overall, you'd have to say that Rudy's boys cut them a pretty good deal, one that even the bootlegger Capone would appreciate.

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    May 9, 2007


    Fleece on Earth (FOE) makes clothing for babies and children. Pretty cute stuff, if you're into knit caps with lobsters on them. This is a small, Vermont-based business, relying in part on knitters working from their homes. FOE provides the patterns and the yarn. The knitters work at their own pace, with their own tools, and are even free (to some extent) to make changes in the patterns. They are paid for each finished product. So are these home knitters employees of the company or independent contractors? Yes, it's "independent contractor versus employee" - the issue that simply won't go away.

    The Vermont Department of Labor stumbled upon this situation when one of the knitters was laid off from an unrelated job (in respite care). In questioning her about her employment, they learned of her work for FOE. She was not seeking unemployment from FOE, but the state bureaucrats included FOE in their analysis. They found that the knitter, along with 3 fellow knitters and one sewer, were indeed employees of FOE. As a result, they sent a bill for unemployment insurance to the company. The company appealed and the case went all the way to the Vermont Supreme Court.

    It's interesting to note that this ruling has nothing to do with the wishes of the knitters themselves. They don't want to be employees. They prefer being independent.

    An amicus brief was filed on behalf of the employer by the National Foundation of Independent Businesses. NFIB argues that the knitters are truly independent. In their extensive brief, they cite among many other things the 1921 case of Kelley's Dependents v. Hoosac Lumber:

    If the employer may specify the result only, and the worker may adopt such means and methods as he (sic) chooses to accomplish that result, then the latter is not an employee, but an independent contractor.

    A divided Vermont Supreme Court found that the knitters are indeed employees of the company. (Can FedEx be far behind?) Three justices in the majority ruled, with two additional justices dissenting. The split verdict probably indicates that there will be additional litigation in the Green Mountain state.

    Repetitive Motion?
    Having opened the door to unemployment insurance, the court has not specifically addressed the possibility of workers compensation coverage for the knitters. (Knitting, I hardly need add, is highly repetitive work.) Erin Gallivan, the company's attorney, believes that workers comp is calculated under a different criterion. I'm not so sure. The Department of Labor has determined that the workers are employees. The knitters could (but most likely won't) seek protections and benefits under Fair Labor Standards, workers compensation and discrimination laws. It will be very interesting to see what happens when the comp insurer completes its audit at the end of the policy year: my guess is that the auditor will add the 1099 forms for the knitters to the company payroll, thus retroactively increasing comp premiums.

    These knitters are caught up in a very big and very broad net, one that seeks to eliminate long-standing practices for avoiding payment of insurance premiums on workers who really do not meet the criteria for independence. I am sympathetic to the argument that these knitters are really independent, but such disputes do not occur in a vaccuum. The solution for the bigger problem has overwhelmed these home-based workers in Vermont and it is likely to do the same for thousands of small artisans across the country. In the warp and weave of employment, you can probably make the case that most of us are employees at least part of the time.

    We'll keep you posted.

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    April 17, 2007


    We recently blogged the publication of OSHA's list of 14,000 employers with "high" workplace injury and illness rates. One of the links posts the list as an Excel spread sheet, so you can search, state by state, to find the names of frequent flyers.

    But what exactly does the list tell us? Is it automatically an indicator of a safety-deficient employer? Is OSHA handing out "the Scarlet O"?

    In their own press release, OSHA backpedals from the start. While they are publicizing their list of 14,000 workplaces with "high" injury and illness rates, they are quick to add that help (OSHA itself) is readily available. OSHA states that the notification "was a proactive step to motivate employers to take steps now to reduce those rates and improve the safety and health environment in their workplaces."

    "This identification process is meant to raise awareness that injuries and illnesses are high at these facilities," said Assistant Secretary of Labor for OSHA Edwin G. Foulke, Jr. (You may remember Foulkie from a prior blog on fatality rates. He is still presumably doing a heck of a job.) "Our goal is to identify workplaces where injury and illness rates are high and to persuade employers to use resources at their disposal to address these hazards and reduce occupational injuries and illnesses."

    So OSHA has pointed a finger at a few thousand employers. Just how should they take this news?

    Inadequate Data
    OSHA uses employer-reported data from 2005. The 14,000 workplaces identified had 5.3 or more injuries or illnesses resulting in days away from work, restricted work activity, or job transfer (DART) for every 100 full-time workers. The national average for all industries during 2005 was 2.4 DART instances for every 100 workers.

    There are a few problems with OSHA's data:
    First, the information, because it is self-reported, is not very accurate. Many employers have no clue how to fill out the forms. They make a lot of mistakes. (For the most part they err on the side of omission, rather than over-reporting their rates.)
    Second, some employers are over-zealous in their own reporting. They report everything, which may give the appearance of higher-than-average rates, but really reflects higher-than-average safety awareness (especially in regard to incidents that do not result in lost time).
    Third, the data lumps too many items together: they include not just incidents resulting in days away from work (the most reliable indicator of safety issues), but incidents requiring modified duty or job transfer. That's a very broad net.
    Finally, a single incident rate for all industries is pretty meaningless. The rates should be industry specific.

    Even as they publish this somewhat embarassing list, OSHA is not concerned enough to schedule visits to the violators. Later this year they will announce a "limited" number of companies for targeted inspections.

    If OSHA is really serious about profiling high risk employers, they need to do some more homework. For starters, they could lobby their fellow feds at the Bureau of Labor Statistics (BLS) to revive the data collection effort that came to an abrupt halt in the early 1990s. BLS used to publish some very useful and compelling data, including the average number of lost workday cases and case rates by specific industry. Those benchmarks were extremely helpful for employers trying to answer the key question: How are we doing relative to others in our same type of business?

    OSHA as Officer Friendly?
    Mr. Foulke's tenure at OSHA has been characterized by a lot of platitudes and not much in the way of enforcement. We are in an era of "self-enforcement" - which works for some and does not work at all for others. Here's a quote from a speech Foulke gave to the national tower erectors association:

    Here is an analogy anyone can relate to: When you see a police officer on a street corner, you are not afraid of him. You might even go up and ask for directions and you'll be grateful for the advice. However, you are also aware that if you run a red light, that same friendly, helpful police officer will issue you a ticket that could result in your paying a hefty fine for breaking the law. This is how I want all employers to think of OSHA.

    Hmm, OSHA as Officer Friendly. If you belong to a racial minority, or if you are an undocumented immigrant, you might well be afraid of the cop on the corner. In many instances, you would be too afraid to ask his advice. In addition, if you did run the red light, you might or might not get a ticket. Those in powerful places have ways to make those tickets disappear, while most of us have no option but paying the fine. The analogy is a bit more complicated than Foulke would admit.

    When we think of OSHA in its current form, we see the federal agency responsible for workplace safety pandering to the powerful, whether safety conscious or not, and ignoring the interests of the worker. The agency, driven by hard-line ideology, is out of balance.

    In the final analysis, can we do anything useful with OSHA's list of 14,000 "high frequency" employers? Probably not. OSHA's "Scarlet O" is neither a badge of shame nor honor. It doesn't mean much of anything. It's really just a big fat zero.

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    April 12, 2007


    Covenant Transport describes itself as a "faith based" company operating out of Chattanooga, Tennessee. Their website states: "At Covenant Transport, our values drive our performance, as proven by industry statistics ranking us one of the ten largest truckload carriers in the United States measured by revenue."

    That's an interesting sentence. The fact that they rank in the top 10 largest carriers "proves" that their values drive their performance. No. It just proves that they are big. When it comes to values, whether faith based or not, Covenant is downright pagan.

    We read in the Insurance Journal, in an article by Bill Poovey, that Chancery Judge Frank Brown has blocked Covenant from forcing employees to sign away their workers' compensation benefits. Employees had been asked to sign a form, entitled "notice of waiver by employee for benefits provided by the Tennessee workers' compensation law." The form appeared to originate at the state's Division of Workers Comp. It's apparently a forgery. Beyond that, under Tennessee law (and in most states) you cannot sign away your rights to workers compensation. It's part of the covenant, if you will, between employers and their employees.

    A quick search of the web finds some distinctly negative views of Covenant's operation (here and here). While postings from a few disgruntled truckers is nothing definitive, Covenant is about to answer to a higher (if not the highest) authority: the judge has scheduled a hearing for April 24. Covenant will likely learn that forging documents and coercing employees to sign them is illegal, if not an act of "bad faith." Not exactly what you'd expect from a faith-based company.

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    April 6, 2007


    When you talk to insurers doing business in New York, they are quick to point to New York Labor Law as a very big problem. The law, going back to 1885, holds employers absolutely and completely liable for any injuries resulting from a fall. This liability is over and above workers compensation. Injured workers can (and often do) sue for damages that go far beyond the wage replacement and medical bills paid by comp. I imagine that the building of skyscrapers was a big factor in the law's original passing. But it applies to every form of building, from Trump's glitziest tower to a strip mall in Poughkeepsie.

    Any law that's been around for 120 years has an extraordinary pedigree, and this one is no exception. Attorney Andrew Siracuse - a proponent of the statute - has made a lot of useful history and case law available here. The original statute (S.18) required proof that the owner "knowingly and negligently" caused the injury by fall. That was was soon amended (in 1897) to remove any mitigating circumstances for employers. In other words, the law does not take into account prior safety training, the availability of personal protective equipment or other attempts to reduce job site risk. Nor does the law care if the employee acted negligently, was stoned, or failed to use available safety equipment. Employee falls, employer pays. Employers are absolutely liable. It's that simple.

    The law holds employers to perhaps the highest standard for safety in the world. Here's the language of an amendment from 1921:

    A person employing or directing another to perform labor of any kind in the erection, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to be furnished or erected for the performance of such labor, scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes and other mechanical contrivances which shall be so constructed, placed and operated as to give proper protection to a person so employed or directed.

    Any fall is presumed to be the result of a failure on the part of the general contractor/employer. In New York, there is no such thing as a free fall.

    Impact of Workers Comp Reforms
    The arguments, pro and con, continue to this day. Attempts to modify the law have repeatedly failed. To be sure, the law provides an important safety net for seriously injured construction workers. (It also pays the painter, standing on a bucket in a closet, who injures himself in a fall totalling 24 inches.) Given the historically paltry benefits available under the state's workers comp law (see our prior blog here), some form of additional benefits was probably necessary. Try living in New York on $400 a week indemnity. The new reforms up the maximum indemnity to $600, but that will still not support a well-paid construction worker and his/her family. If New York really wants to make the Labor Law obsolete, they need to mirror Massachusetts in offering a maximum weekly benefit of $1,000+.

    There is one part of this situation that puzzles me. Every state builds tall buildings. Every construction project involves the risk of falling. But only New York has chosen to move beyond comp's "exclusive remedy" benefits to offer tort liability to workers in construction. Only New York has held contractors to the highest possible standard - and has done so for 120 years. Has this unique standard actually reduced the number of falls in New York? Has New York succeeded in creating safer workplaces, by hammering employers and their insurers with higher costs? I doubt it.

    On the other hand, there are times when I am happy that workers carry the extra protection. One only need glance at a recent fatal fall in Buffalo, involving Jonathan Fundalinski, a 24 year old worker. We read in the Insurance Journal that the construction crew began erecting a safety railing minutes after Fundalinski plunged 30 feet to his death. According to police, the crew ignored repeated orders to stop as paramedics battled to revive the victim. The irony is that even if the crew was able to convince authorities that the railing had been in place before the fall, it wouldn't make any difference. It might support their case in some other state, but not in New York. Railing or no railing, the contractor is liable for the fatal fall of a young worker. They are going to pay, big time. And in this particular case, that's a good thing.

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    March 21, 2007


    When a plant closes, the bond between employer and employee is broken. We often find that long-term employees, stung by the loss of jobs, file workers comp claims. Given the cumulative trauma of industrial work, the claims are often supported by objective medical evidence. With no opportunity to accommodate injuries through modified duty, the employer is stuck with the bills, which can be substantial. Most employers throw up their hands and write off the claims as an uncontrollable cost of doing business.

    Which brings us to the case of Melard Manufacturing in Passaic, New Jersey, cogently outlined by Greg Saitz in the New Jersey Star Ledger. Melard, a manufacturer of bathroom fixtures, closed in 2002, laying off the entire workforce of 111 people. Enter Michael Policastro, an attorney at the time for Ginarte O'Dwyer Winograd and Laracuente (the website speaks for itself). Policastro aggressively recruited the laid off employees and filed workers comp claims on their behalf. Policastro must have been pretty convincing, as more than 80 of the workers filed claims.

    Unfortunately, Policastro was more focused on quantity than quality. Most of the claims were identical except for the personal identifying information. The law firm apparently directed employees to provide false information to doctors. Subsequent exams by company doctors found virtually no disability attributable to work.

    The Company Fights Back
    In 2004 Bath Unlimited, the successor company to Melard, sued the law firm and the employees in federal court under the RICO statute. By this time, Policastro had left the law firm. Gilante was represented by Alan Zegas. Zegas claims that "the Ginarte firm did whatever was in its power to do to protect the workers." Which turns out to be absolutely nothing. The law firm settled out of court, leaving the 84 workers on their own.

    Judge Chesler ruled in favor of Bath Unlimited, signing a default judgment of $2.2 million against the former employees. These are people who made less than $20,000 a year, working in an aging plant under difficult (if not substandard) working conditions. That comes down to $26,000 per employee (more than any of them made in a given year).

    One of the many fascinating aspects of this case is the basis for the $2.2 million fine. Included in the calculation are at least two compensable claims, totaling about $36,000. Under federal rules, the judge tripled these amounts and added attorney costs. Thus a federal judge rules the awarding of benefits to be fraudulent, even though a state judge found that at least one of the claims, involving lung damage, was related to the working environment.

    While we don't have all the facts, we can come to a few conclusions:
    - the mass filing of identical claims does reveal a pattern of racketeering
    - the law firm apparently instigated the filings
    - while the employees had reason to be upset at the plant closing, signing onto these contrived claims was a serious error (in fact, a criminal act)
    - The interests of the laid off workers were poorly represented in federal court
    - Bath Unlimited won't be able to buy a pair of crutches with the money they collect from these indigent, uneducated, unskilled and perhaps permanently unemployed workers

    Fed vs State
    The lingering issue is one of jurisdiction. The New Jersey workers comp system continues to handle the claims, one at a time. In at least two cases so far, they have concluded that the former employees suffered compensable injuries. The broad net of fraud cast over all 84 employees has apparently included at least a few legitimate claims. Will the judge continue to add the compensable claims to the fines? Will he hold the employees in contempt if they cannot come up with the big bucks? Does Bath Unlimited really want to see these people locked up?

    We hope that employees who experience a plant closing find better legal advice than that offered to the Melard workers. We also hope that employers contemplating a plant closing take affirmative steps to transition their employees, first and foremost by providing job search assistance. If comp claims are filed at the time of the closing or soon after, they should be managed aggressively and humanely: the legitimate, work-related injuries should be paid; the fraudulent claims should be denied. The broad brush of the RICO statute is almost never needed and should be an absolute last resort.

    Business necessity sometimes requires the closing of a plant. But managers should never lose sight of the contributions made by a committed workforce. Shut the door if you must, but try not to slam it in the faces of your people.

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    March 13, 2007


    Let's sidestep for a moment the momentous reforms in New York's workers comp system, and focus instead on some big names in the Big Apple. When Elliott Spitzer began running for governor, he had a long list of people who would never vote for him. AGs make a lot of enemies. At the top of the list, perhaps, was Maurice "Hank" Greenberg, whose long tenure at AIG came to an abrupt end after some spade work by Spitzer and his staff. To add insult to family injury, Greenberg's son was ousted from Marsh & McLennon after a similar investigation. We can assume that the Greenberg's money was on "anyone but Elliott."

    Having just conquered the comp demons, Spitzer now finds himself going after another behemoth: New York's bloated, expensive, and all-too-often incompetent hospital system. Spitzer wrote a letter to hundreds of hospital trustees arguing that "New York's health care system is broken" and that "New Yorkers pay far too much and get far too little in return" for health care. (Read the letter here.)

    If Spitzer ever meets with the hospital folks for a friendly chat, he might well find himself with his favorite beverage in the Greenberg Pavilion of the Cornell-Weill Medical Center on Manhattan's East Side. That's "Weill" as in Sandy Weill, another of Spitzer's targets and "Greenberg" as in Hank Greenberg himself. Greenberg father and son are trustees of New York-Presbyterian Hospital, and one can only imagine their response upon receiving a letter from Mr. Spitzer, in which the governor asks them to "join me as a partner." I wouldn't drink anything from that glass, Elliott!

    In the Tank
    Since his forced retirement from AIG, Hank has not "gone gentle into that good night." That's hardly his style. Greenberg continues to churn out positive PR, as should any member in good standing of the Forbes billionaires. In a fascinating article in the Boston Globe by Peter J. Howe, we read that Greenberg engaged the services of an academic spin-control company called eSapience, one of whose senior executives is Richard Schmalensee, the dean of MIT's prestigious Sloan School of Management. Alas, eSapience finds itself having to sue Hank for failure to pay a two million dollar bill. Chump change for Hank, perhaps, but he probably didn't get where he is by paying all of his bills.

    The suit, filed in US District Court in Boston, exposes the inner workings of academic public relations. It isn't pretty. Schmalensee charges up to $1,000 an hour to meet with industry leaders at New York power lunches. He and eSapience executives even set up a new think tank, the Barbon Institute, specifically to provide an objective-sounding and credible platform for Greenberg to give the keynote address - at the St. Regis, no less. (Gee, they could have called it the Barbery Institute, in honor of the infamous pirates, or perhaps the Bourbon Institute, in honor of the social drinking that's built into the eSapience tab.)

    The website for the Barbon Institute has disappeared, but a related link reveals the subject matter of the custom-built platform for Greenberg: September 15, 2006, Barbon Institute, The Role of Insurance and Management of Risk in the 21st Century, New York, NY. That's a bit global for the typical academic, but a softball down the middle for Greenberg.

    Academic Integrity...For a Price
    On its website, eSapience describes itself as not merely a public relations firm, but "a new media and research entity that shapes the debate on issues that intersect law, economics, and policy" through "a global network of academics and other public intellectuals." In other words, their contribution to spin control is adding an academic veneer. They make you look good by packaging you and your issue in an academic robe. Yecch!

    The lawsuit reveals some spicy details of their work with Greenberg. eSapience was trying to line up a New York Times journalist who might be inclined to write an article "sympathetically portraying " Greenberg's side of his legal battle with Spitzer. No such article was ever published - I guess Judith Miller was tied up with other issues. Nonetheless, it's inspiring to know that the effort was made.

    eSapience ran up bills approaching $1 million a month. The hefty charges "reflected the level of detail, sophistication, and status necessary to present Greenberg in the best light and to assure the presence and participation of key intellectual and public figures" at the events where he was invited. When you cut through the academic jargon, they're basically saying that Greenberg had a rotten image, so they had to grease a lot of palms to make him look good. Nice job, fellas. Now all you have to do is figure out how to collect your fees.

    So here we have the best minds in academia against the street smart, tough-as-nails Greenberg. Maybe they should bring in an arbitrator and find a quiet corner of the Greenberg Pavilion to work out their differences. No matter where they do the talking, and as much as I respect the brilliant professors, my money is on Greenberg.

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    March 7, 2007


    When the Department of Defense completed its elaborate procurement process for military vests and backpacks, they selected Michael Bianco, Inc. of New Bedford MA. It's pretty safe to assume that Bianco was the low bidder. They certainly should have been. After all, most of their workforce was comprised of illegal immigrants. Fearing exposure, the workers tolerated sweatshop conditions. Bianco's low bid was made possible by its severely deflated labor costs.

    Yesterday, the plant was raided by immigration officers and police, who rounded up 350 workers (70 per cent of the total workforce). The scene was chaotic: police guarded exits while other officers grabbed fleeing workers and shouted at them to lie on the ground. Several officers drew handguns. Workers trying to exit the building were confronted with bone chilling temperatures...and more police.

    Francesco Insolia, the owner of Bianco, was also arrested, along with three of his managers. They also busted Luis Torres, who worked in a music store across the street from the factory and apparently provided fake IDs to some of the workers.

    Today we read that as many as 100 children were left stranded after their parents were caught in the round up. One local official calls it an "humanitarian crisis."

    Victimized Victims
    Affidavits allege that Insolia preferred to hire illegal immigrants because they were desperate for jobs and willing to put up with atrocious working conditions. He even helped them secure forged identity papers, referring them to vendors who would produce the documents for about $120. As for the working conditions, workers were routinely denied overtime pay, docked 15 minutes for every minute late and fined for talking on the job or spending more than two minutes in the plant's "squalid" rest rooms. Sure, but at least the vests and backpacks were made in America!

    Ironically, the 11 month investigation began with a tip from a disgruntled employee, who was angry that the company had told workers they could leave the building when an immigration raid was taking place at a nearby factory. Hiring illegal workers was clearly a core element of Bianco's business strategy.

    The sporadic raids that round up illegal immigrants are not a serious attempt to tackle the problem. As we've pointed out in previous blogs, with approximately 12 million undocumented workers in the country, 350 workers in New Bedford doesn't even qualify as a drop in the bucket. The raids offer nothing more than symbolism: at last we are "doing something" about the problem.

    It is ironic, of course, that poor working conditions become part of the story. Sub-standard conditions? What a shock! We are so concerned about these poor, exploited workers, we're going to arrest them in one terrifying swoop, clap on the cuffs and, eventually, deport them.

    These raids are not motived by humanitarian concerns. This is the politics of immigration, pure and simple. Of course the working conditions are poor. Of course the wages are illegally low. That's the whole point of illegal workers: they are cheaper than home-grown American labor.

    New Bedford's Whaling Industry
    While processing the undocumented workers, I hope the immigration officials take a few moments to visit New Bedford's lovely whaling museum, operated as a government service. The exhibits are quite compelling. I remember in particular the replica of a whaling boat, where youngsters could squeeze themselves into the tiny spaces allotted to the crew for sleeping. The quarters were located right below the area where barrels of whale oil were stored, so sleeping sailors were often awakened by oil leaking on their heads. Yuk! Intolerable working conditions from another generation altogether. It's a good thing that those days of exploited labor are so far behind us, isn't it?

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    February 26, 2007


    With 15,000 "independent contractor" drivers across America, FedEx is in the midst of a huge experiment in human resources. The fundamental question, of course, is whether their decision to contract out a significant portion of their basic operations is legal. A number of states (Including California, New Jersey, Montana and Massachusetts) have ruled that the drivers are actually employees, entitled to all the benefits of employment, including workers comp. We have blogged the issue a number of times, and will continue to do so.

    The adverse findings have not slowed down the ubiquitous delivery company. They are appealing all the losses and are confident that their strategy is both legal and appropriate. It's certainly no secret. They stipulate the nature of the relationship with drivers up front and in writing. Only time will tell if they will prevail. Despite their chain of losses in a number of state courts, it appears that they can operate comfortably in at least one jurisdiction.

    In April 2002 Edward Maskowsky began operating a FedEx pick up and delivery service in Connecticut. In an hour-long orientation meeting, the company made it very clear that he was to function as an "independent contractor." To set up the business, he purchased a truck, insurance, uniforms and his own disability policy. He filed taxes as a sole proprietor in 2002 through 2004.

    Maskowsky suffered a lumbar spine injury in April 2005. He collected weekly indemnity benefits from his disability carrier, which also paid some of his medical expenses. We can safely assume that the benefits under the disability policy were substantially less than those under workers comp. No disability insurance can match the zero co-pays and zero deductibles of workers comp.

    Seeking better benefits, Maskowsky filed a workers comp claim, alleging he was an employee of FedEx. In his claim, he stated that FedEx controlled the means and methods of how he conducted his delivery service within the specified route. Maskowsky's attorney did not have to dig deep to find a rationale for the claim. There are entire websites devoted to proving that FedEx drivers are really employees of the company.

    FedEx countered with documentation that Maskowsky, from day one, knew that he was an "independent contractor."

    Workers Comp Fraud
    George Waldron, a Commissioner in Connnecticut's workers comp bureau, found in favor of FedEx. You can find his terse ruling here. We might be tempted to conclude that the commissioner buys the FedEx theory of employment, hook, line and sinker. I'm not so sure. Maskowsky's claim was undermined by a rather startling fact: during the period he worked for FedEx, he engaged in workers comp fraud.

    As an "independent contractor" for FedEx, Maskowsky was free to hire others to perform the work (provided, of course, that they followed the strict FedEx rules and wore the FedEx uniform). He apparently hired at least one person to carry out some of the work. Thus Maskowsky himself became an employer. (In doing so, he inadvertantly strengthened FedEx's argument that he is an independent contractor - employees cannot contract out their responsibilities). However, he chose to pay his employee in cash. He did not provide any benefits. You can almost sense the rage as Commissioner Waldron typed (or dictated) these words: "The claimant did not provide workers' compensation insurance for his employee."

    It is a very, very bad idea to seek coverage under the comp umbrella, while declining to provide this same coverage for your own employee! Waldron hoists Maskowsky on his own petard. As for other FedEx drivers in Connecticut, they should assume for the moment that they are indeed independent contractors. And they better make sure that they secure coverage for any and all employees, lest they end up like Maskowsky, at risk for being charged with workers comp fraud.

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    January 24, 2007


    We read in the New York Times that State Farm has suddenly agreed to accept liability for many of the claims it had previously denied in Katrina-ravaged Mississippi. The giant insurer has set aside a minimum of $80 million to settle 640 lawsuits. They have also agreed to re-open 35,000 denied claims. In most cases, home owners will collect half of the policy value. In a few cases, they will cash out at full value.

    This is a dramatic turnaround from the insurer's prior position: they based their initial denials on the premise that most, if not all, the damage from Katrina was caused by storm surge (flooding is not covered by conventional homeowner's insurance) and not by wind (wind damage would be compensable). In the final analysis, I doubt that they are backing away from the scientific premise of their denials. They still probably believe that they are on solid legal ground for denying the claims. No, in the end, State Farm has agreed to pay claims it really feels are not compensable for one simple reason. They are still in the insurance business. They still want to sell policies. And the negative fallout from their routine denial of Katrina claims threatened their core reputation, the brand name they have so carefully cultivated over the years.

    The Times article quotes Randy Maniloff, a lawyer at White & Williams in Philadelphia who represents insurance companies. He said yesterday that it was clear that the bad publicity had been a big factor in State Farm’s decision to settle. “They spent 80 years building up a brand,” he said, “and the adverse publicity from these lawsuits has been clearly doing damage to the brand. It just flies in the face of their portrayal of themselves as good neighbors.”

    When we first blogged this issue, we raised the irony of State Farm's "good neighbor" tag line. Real neighbors help out regardless of the circumstances. In contrast, corporate "good neighbors" might well use the small print of an insurance policy to serve stock holders and maximize profits. If that means boarding up entire communities, so be it. There is at least some legitimacy to State Farm's original position. The case can be made that this capitulation is wrong and sets a dangerous precedent for the industry. Other carriers now have to scramble to recalculate their earnings statements. In addition, all purveyers of home owners insurance are revising policies to clearly and explicitly exclude storm surges from future coverage. But they are all going to help pay for Katrina.

    Business and The Public Good
    The scale of this disaster was so great, it transcends the insurance industry itself. While insurers are extremely reluctant to compromise the sacred language of the policy, they are involved here in something much greater than corporate bottom lines. Entire communities have been wiped out. The scale of displacement caused by Katrina is unprecedented in American history. State Farm's settlement is a small part of a great public good. As a result of this agreement, desperately needed cash will begin flowing at long last into the devastated communities. The rebuilding will finally gather some momentum. At the same time, State Farm can credibly tout itself again as a "good neighbor." Not the most willing, perhaps, and not entirely convinced they want to be doing it. Nonetheless, for the people of Mississippi, State Farm, like a good neighbor, is finally there.

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    January 19, 2007


    As we head toward the climax of the football season, with just four teams left on the path to the Superbowl, we read in the New York Times (registration required) that the big hits we cheer for may be causing permanent damage.

    In November, Andre Waters, a 44 year old former safety for the Philadelphia Eagles, killed himself. He may have been a great safety, but he did not perform his job safely. He was famous for his relentless style and his ferocious hits. Waters thought he might have had as many as 15 concussions during his career. "I just wouldn't say anything. I'd sniff some smelling salts, then go back in there."

    For the moment, we will pass on the question whether Waters's death - despite the wilful intent - is work-related and possibly compensable under workers comp.

    Chris Nowinski, a former lineman for Harvard and professional wrestler, convinced Waters's family to provide brain tissues for testing. The results revealed the brain of an 85 year old man with early stage Alzheimer's. Nowinski himself suffers from bouts of depression, which he relates directly to his half dozen concussions. "I have maybe a small window of understanding that other people don't," he says, "just because I have certain bad days when my brain doesn't work as well as it does on other days...But I know and understand...because I know it'll probably be fine tomorrow." Of course, Nowinski is only 28 years old. I wonder how he'll feel at 44.

    The NFL policy on concussions is what you might label "wishful thinking." They allow players who sustain a concussion to return to play the same day if they appear to have recovered. Despite a concussion, the Jets' Laveranues Coles was available during the playoffs, as is the Colts' Cato June, who suffered a concussion last week and who looks forward to jamming his helmet in the bodies of the New England Patriots this week. The NFL's mild traumatic brain injury committee has published several papers in the journal Neurosurgery defending the practice. They see no signs of neurocognitive decline among the players returning to "work" immediately after being injured. But Nowinski points out that these studies are limited to active players. When you look at players after retirement, the picture is not so rosy.

    In a survey of more than 2,500 former players, the Center for the Study of Retired Athletes found that those who had sustained three or more concussions were three times more likely to develop earlier onset of Alzheimer's. A new study finds a similar correlation with depression. That's after just three concussions. The odds against Andre Waters, with his 15 or so concussions, must have been formidable.

    Let the Games Begin!
    Humankind needs danger-ridden spectacles. We cheer on our gladiators, even as we deride the behemoths from the other city. According to Wikipedia, the Roman gladiators were less prone to killing off the losers than Hollywood has led us to believe. Some died, some lived to fight another day. After three years of toil, the best-performing gladiators of old could retire and live the good life. Not all that different from modern times. But at what price? When the spectators have left the stadium, when the awards have all been handed out, we're left with the walking wounded, the ones who paid the price. It's enough to give us pause, but not for long, as we breathlessly look forward to the Sunday kick off.

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    January 3, 2007


    Back in July 2005 we blogged the way Walmart squeezes its vendors to achieve the lowest possible prices. Today we read in the Wall Street Journal (paid subscription required) that the behemoth retailer is instituting a computerized scheduling system that enables it to use the same squeeze tactics on its own employees. Now that's a shocker!

    The plan involves moving workers from predictable shifts to a staffing pattern that is based on the number of customers in stores through the day and week. Workers may be asked to be "on call" to meet customer surges, or sent home because of a lull, resulting, of course, in less pay. The new systems also alert managers when a worker is approaching full-time status or overtime, which would require higher wages and benefits. Such individuals are red flagged - "descheduled" - so payroll costs remain as low as possible. Oh, the marvels of computerization! (I doubt the programmers at Kronos, who devised this system, are subject to similar payroll and benefit caps.)

    What does this mean for Walmart workers? They might not know when or if they will need a babysitter or whether they will work enough hours to pay that month's bills. They might have trouble scheduling doctor appointments. Senior employees, whose hourly rates are higher, might find themselves scheduled for fewer and fewer hours. Rather than working three eight-hour days, someone might now be plugged into six four-hour days, mornings one week and evenings the next. Unless they live near the store, they're going to spend a lot more time commuting.

    The benefits to the company are pretty obvious: lower payroll costs; less time spent on scheduling for local managers; and more people on the floor when you need them, especially during midday and evening shopping surges. The goal of "enhancing the shopping experience" will be readily achieved. As for the problems the new system creates for workers, Walmart apparently will just take their chances. As they say, if you want make wine, you have to crush the grapes.

    Compensable "To and Fro"
    By instituting this extreme version of flex scheduling, Walmart has inadvertantly opened the door to new workers comp liabilities. Normally, the "to and fro" commuting time for employees is not covered by workers comp. Your workday - and your comp coverage - begin when you arrive at the workplace. However, in most states there is an exception for "on call" workers. Because they have no set schedule, but must appear when called (or leave when no longer needed), workers comp coverage begins when they receive the call and head out to work and it continues when they are sent home. Their coverage includes the commute in both directions. Walmart may have succeeded in reducing the payroll, but they have significantly increased their workers comp exposures. (Given the management style at Walmart, they cannot be comfortable with the fact that commuting itself is totally unsupervised.)

    I imagine that Walmart managers will not lose much sleep over this problem. Filing a claim for a work-related injury - whether it occurs onsite or off - is probably a daunting and perhaps even intimidating process. If this new scheduling system succeeds in lowering costs, it will surely be copied by others. Wall Street will love it. It's good for consumers, eternally in search of bargain prices. It's good for shareholders: lower payroll costs means higher profitability. Sure, it's tough on the marginally skilled workers trying to raise families and balance their own budgets. If they don't like it, they can go work for Target or Radio Shack (where they will find similar systems already in place).

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    December 1, 2006


    In March of 2005 we blogged the issue of firing people who smoke. At that time, we wrote about the strict non-smoking policies of Weyco, a company in the health care field. When you're in health care, prohibiting smoking is a logical extension of your fundamental business. But what if you're in the lawn care business? Can you still fire people who smoke off the job?

    The Scotts Company did just that. They fired 30 year old Scott (obviously no relation!) Rodrigues of Bourne, Massachusetts, when a drug test came up positive for nicotine. Scott is now suing Scott for violating his privacy and civil rights. The company, a subsidiary of Scotts-Miracle Gro, Inc., instituted a policy early this year forbidding smoking, on or off the job. The policy has only been implemented in the 20 states that apparently allow it (which include Massachusetts). The company is upfront about the requirement. It's posted on the website for potential hires. They perform a post-hire test on all new employees for nicotine. Their stated goal is to promote healthy lifestyles and hold down insurance costs. [IMPORTANT NOTE: They are self-insured for health.]

    Rodrigues, a pack a day smoker, says he never indulged in the habit during his few weeks on the job. Ironically, he was trying to quit. Alas, he was chewing nicotine-loaded Nicorette gum on his way to the drug test! (Needless to add, he drove to the test without bothering to ask what they were going to test for.)

    Massachusetts has never specifically addressed the issue of smoker's rights. Mr. Rodrigues's attorney, Harvey Schwartz, says that testing for nicotine would be OK if the substance directly affected the work, which it does not. "Being compelled to provide a urine sample and the information that the sample contains is a violation of his privacy, where it has no relation to his job."

    Other attorneys believe that the company is on solid ground. They see a legitimate business interest for not hiring smokers. As with so many issues impacting the workplace, the final decision will be up to the courts.

    Health Insurance and Comp
    The Insider is especially intrigued by the self-insurance angle. The Scott Company recognizes the well-documented relationship between smoking and myriad health problems. They assume that by not hiring smokers, the cost of their workers's health insurance will go down. That's true up to a point. While they can try to dictate the behavior of their employees, they cannot impose their standards on the employee's family members. A non-smoking employee might well go home to a house full of second-hand smoke. Could you be fired for being married to a smoker?

    Beyond that, there is the issue of exposure to the "Miracle-Gro" chemicals that the company spreads on lawns. If an employee were to develop lung cancer, and if the employee demonstrates that he does not smoke (using his clean nicotine tests as proof), he might have a clear path to demonstrating that his illness is work-related and thus compensable under workers comp. That would surely be an unintended consequence of a non-smoking policy.

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    November 29, 2006


    Judge Stanwood R. Duval Jr of the Federal District Court in New Orleans has opened the door to payments for homeowners whose homes were destroyed by Katrina. Or has he? We read in the New York Times that some insurers must pay for damage because the flooding in New Orleans was due to human error - specifically, the failure of man-made levees to hold back the water. Because most insurance policies do not specifically exclude "man-made" flood disasters, the judge has determined that the insurers must pay. On the other hand, he says that State Farm and the Hartford are off the hook because their policies do not provide coverage for flooding "regardless of cause."

    While lawyers for the homeowners are calling this a major breakthrough, defense lawyers see it as a temporary set back. They are confident that the judge's parsing of the policy language will be overturned at the appeals court level.

    "The judge reached the wrong conclusion," said Robert Hartwig, chief economist at the Insurance Information Institute. "The policies clearly exclude flood-related damage under any and all circumstances. We do not believe the decision will be upheld."

    With over 200,000 homes and thousands of businesses damaged or destroyed by the flooding in New Orleans, there are billions at stake. Beyond that, the future of the city itself is uncertain, as billions in promised federal aid has failed to reach the people who need it.

    Comp is Really Different
    All of this litigation, the months and years of uncertainty for all parties involved, stand in stark contrast to the workers comp system. For those of us who deal with comp every day, we are reminded that comp is a no fault system that operates with generous parameters of compensability. If you are "in the course and scope of employment," if you are in fact someone's employee, your injury is likely to be compensable. Once a claim is reported to the carrier, the insurer usually has just a couple of weeks to determine compensability and start making payments. This standard can be difficult to meet and creates headaches for claims adjusters. But the great benefit is that it takes uncertainty off the table for injured workers and their families. They don't have to scrounge for food and shelter while their case wends its way through the courts.

    We will follow the fate of New Orleans property owners with great interest. It will be fascinating to see if Judge Duval's ruling opens the floodgates to significant payments to home owners or just ends up being another judicial "distinction without a difference." The future of a city - and possibly that of the insurance industry - may well hang in the balance.

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    November 20, 2006


    A couple of recent stories in the news highlight the problem that never seems to go away, the status of independent contractors. One story deals with union in-roads at FedEx, the giant delivery company. In the other story, the pervasive use of "independent contractors" (often undocumented workers) in construction keeps the cost of building down and keeps the profits high. Misclassifying people as "independent contractors" is a problem that is not about to go away anytime soon.

    The Duck Begins to Quack
    Let's begin with FedEx. (And no, we are not referring to Kevin Federline, tossed out by bride Brittany Spears, and now referred to as "FedEx.") A number of times, the Insider has blogged the FedEx strategy of calling their drivers "independent contractors." The drivers wear FedEx uniforms. They drive (leased) trucks with the FedEx logo. But the company stands by its assertion that they are not FedEx employees.

    After 20 years of failures, the Teamsters appear to have won an election in Wilmington MA, where drivers voted 24 to 8 to affiliate with the union. (Previously they had lost 44 out of 46 votes.) The election was held on October 20, but votes could not be counted until the National Relations Labor Board (NLRB) determined that the drivers were indeed employees of the FedEx ground unit and not, as the company contends, independent contractors. Needless to add, FedEx is appealing. They believe that the union employed "unfair tactics" in the election.

    Sean O'Brien, Local 25 president, said "we've finally infliltrated FedEx with a solid victory. Now it's a matter of getting a strong contract...We think this will inspire other locations around the country."
    NOTE: In the interests of balance, the Insider is compelled to point out that Mr. O'Brien himself is not without controversy. His father, Billy O’Brien, used to head the Teamster's local movie unit when it was the target of federal probes earlier this decade over allegations of shakedowns and physical threats against movie-set employees in Boston. Nonetheless, Mr. O'Brien claims that his organizers did everything "by the book." (We will not attempt to figure out which book he is referring to...)

    In the final analysis, the status of FedEx drivers will not be a matter of driver choice, of union vs. non-union, but a matter of interpretation of labor law. Bob Bedford, deputy regional attorney at the Boston NLRB, has concluded that FedEx asserts substantial control over the drivers and over the way they perform their jobs. The drivers work to FedEx schedules and follow FedEx driving and delivery guidelines. They walk like ducks. They quack like ducks. Eventually, once their many appeals have been exhausted, FedEx will have to accept the fact that their "independent contractor" drivers are really employees. And as far as the Insider is concerned, that will be just ducky.

    Undocumented = Independent?
    Robert Knox writes in the Boston Globe about the wide-spread tendency in the construction industry to avoid safety and insurance requirements by misclassifying undocumented workers as "independent contractors." This may be news, but it's certainly not new. There are a lot of incentives for calling workers "independent." It's a lot cheaper. You pay them less; you pay them in cash. You can hire undocumented workers who would otherwise fail to meet basic employment standards. You can avoid safety requirements mandated for regular employees. You don't have to pay benefits. You don't have to pay taxes (neither, for that matter, does the employee).

    Why would a GC allow subs to function this way? Because it lowers the cost of doing business, which in turn leads directly to higher profits. For the most part, despite some efforts to tighten accountability for GCs, there are usually few if any consequences for tolerating undocumented workers on the jobsite.

    Knox quotes a 2004 study by researchers at the University of Massachusetts and Harvard University, which concluded that one in every seven construction workers was misclassified as an independent contractor. The researchers estimated that the illegal practice costs the state $7 million a year in worker's compensation premiums, $4 million a year in payroll taxes, and $4 million a year in unemployment insurance payments. Specialists say the costs to taxpayers have continued to climb.

    When you think about it, there are really very few true "independent contractors" in the workforce. Most of us seem to be under the control and direction of someone else. There are two major obstacles to owning up to this employer responsibility: money and accountability. It's cheaper and it's a lot easier to wash your hands of the employer's many responsibilities and expenses. We all benefit financially from the dubious practice of calling employees "independent contractors." For that reason alone, it's going to take a long, long time to fix the problem, if indeed, we have the collective willpower to fix it at all.

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    November 14, 2006


    As part of our effort to keep readers informed of the latest management trends in the workplace, the Insider focuses today on contemporary acronyms: an update of the latest compressed nuggets that are finding their way into common speech. Well, not so common, perhaps. We begin with the admirable work of Megan Aemmer at MSN, who offers the latest in acro-speak making the office rounds:

    1. A2O (Apples to Oranges): A comparison of dissimilar things; an inappropriate comparison. "I think we should ignore Smith's suggestion; the analysis is totally A2O."

    2. B2B (Business to Business): Marketing-speak for a business supplying another business, as opposed to consumers or government. "They're strictly B2B, so you won't find their products in retail stores."

    3. BHNC (Big Hat, No Cattle): Adapted from cowboy parlance. Used to describe someone who is all talk and no action, full of self-importance, and/or a poser. "She brags about her 'fabulous' job all the time, but she's BHNC."

    4. CLM (Career-Limiting Move): A move that blocks your career path, or gets you fired, as in: "Wow, he made a real CLM when he showed up an hour late for the big pitch meeting."

    5. CTD (Circling the Drain): Something that is on its last breath and about to die. Possibly related to disposing of a dead pet goldfish or a similar flushing-something-down-the-toilet scenario. "We all know the project is CTD, so most of us have started looking for new jobs."

    6. FUD (Fear, Uncertainty, Doubt): A marketing tactic used by companies (often computer-related), FUD is used to scare consumers into staying with their product instead of trying the competitor's new product. "You could go with Company B, but their servers might crash on you."

    7. MEGO (My Eyes Glazed Over): A sign of extreme boredom. "I had a serious case of MEGO after that accounting presentation."

    8. PEBCAK (Problem Exists Between Chair and Keyboard): Tech-speak used when the "problem" is within hearing range. "I took a look at her machine and it's clearly a PEBCAK situation," said one technician to the other.

    9. PURE (Previously Undiscovered Recruiting Error): A new employee who isn't working out as well as expected; an employee who looked good on paper but isn't cutting it on the job. "The new assistant buyer is definitely a PURE. Her qualifications are stellar, but she's so rude!"

    10. WIIFM (What's In It for Me?): A key question in communication. People aren't going to be interested in hearing your pitch if they can't see what's in it for them. "Jones completely failed to sell the new PR campaign. The client just didn't see the WIIFM factor in his pitch."

    Acronyms have been around at least since the 1940s. First and foremost in the creation of these curious and often annoying devices is the government, and more specifically, the military. Here are a few choice items:

    EDAC: Error Detection and Correction. Or Economic Defense Advisory Committee. Or Equipment Distribution and Conditions Report. [Take your pick.]

    PA: There are 41 possible meanings here, ranging from pad abort to proponent agency.

    MA: From Military Advisor to Mission Abort, you have 17 options here (including, of course, the Insider's home state).

    LEMUF: Limit of Error on Material Unaccounted For. [As awkward as this formation appears, there is ample opportunity to use it in Iraq.]

    Before we put this topic to rest, check out the link to medical acronyms in yesterday's blog by our colleague Julie Ferguson. A couple of examples: LOBNH - Lights On But Nobody Home. Or how about two acronyms for parents: HIVI - Husband Is Village Idiot; HMF - Hysterical Mother Figure. A lot of these acronyms are pretty outrageous, not to mention, obscene, sexist, agist and racist. Unlike the military acronyms, these are intended to be humorous.

    Meanwhile, we''d best sign off, before your blogger turns PEBCAK and begins CTDing. We don't want our valued readers to go MEGO. After all, we're all about B2B and we can't afford to have you look PURE or stumble onto a CLM so early in the work week!

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    November 3, 2006


    Bath Iron Works (BIW) builds ships. The first was The Cottage City, a passenger steamer completed in 1890. Over the past two decades, their work has been limited to building destroyers for the US Navy. We read in the Kennebec Journal that the builder of destroyers is being clobbered by the high cost of medical care for injured workers. There's supposed to be a fee schedule capping the cost of medical services in Maine, but the workers comp board has never been able to reach agreement on the rates. So BIW is suing the workers'comp board to implement the fee schedule. Imagine: a major employer suing government to implement regulations! What brought about this irony-laced situation?

    Deadlocked Board
    Maine was supposed to implement a fee schedule for all medical services fourteen years ago. Ten years ago the board approved a list of fees for doctor visits, but after that they got stuck. They have been unable to come up with set fees for such key items as operating rooms, hospital beds or other hospital services and equipment. That kind of tells you that doctors were unable to lobby against the rate setters, but hospitals - with their collective clout - succeeded very nicely.

    In the absence of a fee schedule, self-insured BIW has to pay the "usual and customary fees" for all hospital services. We all know what that means: you have to pay the fees that have become highly unusual and no longer customary. Large insurers might be able to negotiate their own rates. But BIW is on its own in the workers comp system. They have no friends in high places and no leverage for negotiating the fees.

    Gunboats on the Kennebec?
    BIW's lawsuit provides an example of a worker who was injured and needed surgery at a cost of nearly $6,500. BIW asked the workers' comp board to allow the company to examine the hospital's records and present evidence that the fee was higher than average. (Given that almost no one pays "usual and customary" rates, the fees were probably inflated.) But the hearing officer denied the request for records and refused to hear the company's arguments.

    He ordered BIW to pay the bill, saying that since the board had never adopted a fee schedule, the question of whether the bill was reasonable was irrelevant. (Given the apparent arrogance of the hearing officer, we can imagine that BIW had fantasies of sending one of their boats up the Kennebec River to offer him an opinion of their own. Alas, the Kennebec is so shallow, it might float logs and canoes, but certainly not a destroyer.)

    Breaking the Logjam
    Paul Dionne is the executive director of the workers' comp board. He notes that the comprehensive fee schedule for hospitals and surgical centers has never come up for a vote. The board has been deadlocked on the issue for over a decade. Up until 2004, the board consisted of four members nominated by labor groups and four by management groups. They could not reach agreement on the fee schedule. Finally, frustration with the deadlock resulted in legislative action. The board has now been reconstituted into three labor representatives, three management representatives and Dionne himself, who chairs the panel and has a vote. We get the impression that Dionne has a mandate to build a fee schedule for Maine.

    A group representing doctors, hospitals and other health care providers was asked last year to come up with their own fee schedule, but that panel reported earlier this year that it couldn't reach a consensus. Well, duh. That's like asking people how big a pay cut they would like this year. Fee schedules are not likely to emerge through a democratic process, especially when you limit the discussion to stake holders.

    The Massachusetts Example
    Maine does not have far to look for a fee schedule that radically reduced the costs of workers comp. The Bay State has one of the lowest fee schedules in the nation, with the fees tied to Medicare rates. You won't find a single hospital that's happy with these rates (indeed, they are too low), but the fact is that in Massachusetts the medical portion of total workers comp costs is around 36% (compared to nearly 60% in many other states).

    In practice, the scheduled fees in Massachusetts don't always prevail. Insurers often have to negotiate higher than fee schedule rates for specialty services. But overall, the fee schedule has driven down the cost of comp for the state's employers.

    The bottom line is fairly simple: if you want to reduce the cost of workers comp, someone has to pay. Injured employees pay through reduced benefits. Fee schedules make health providers pay. In the absence of a fee schedule, Maine is a relatively high cost state (ranked 13th overall in 2004). By contrast, Massachusetts is ranked 45th.

    BIW's lawsuit is likely to provide the kick in the pants that Maine needs to get this particular administrative chore accomplished. Until they do, BIW will continue to pay a premium for medical services: highly unusual, not exactly customary and very expensive, indeed.

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    October 30, 2006


    The Insider recently participated in the Aging Workforce Summit, a meeting of the minds focused on retirement in America. The conference took place on the 80th floor of the Aon Center in Chicago. The views of Chicago and Lake Michigan were supposed to be spectacular, but for the duration of the conference the building was socked in a fog, so all you could see from the windows was an indeterminate white haze - rather appropriate, given the foggy futures confronting a huge proportion of workers in America.

    One participant quoted the late Ernest Hemingway: "Retirement is the ugliest word in the language." Setting aside Hemingway's horrendous approach to his own pending retirement (he blew his brains out with a rifle), the quote raises a valid point. The boomer generation, long a staple of the American workforce, is starting to make its slow, inexorable exit from work, but in typical boomer fashion, they are not "going gentle into that good night." In fact, many boomers are planning to work well beyond the conventional retirement ages of 62 and 65. They are doing this for two fundamental reasons:
    : Many want to work because they view retirement as boring
    : Many must work, because they lack the financial means to retire

    Are you saving enough?
    Experts in a variety of fields presented some pretty startling data. Jack VanDerhei, director of research at Employee Benefit Research Institute (EBRI), discussed the paradigm shift in retirement funding: employers have abandoned "defined benefit" programs, which offer a guaranteed monthly benefit that would ensure a secure retirement (and which cost companies billions because retirees are living longer). Instead, employees are offered "defined contribution" programs, through which they essentially fund their own retirement, with no guarantees. They set aside a certain amount each month, which is matched to some degree by the employer. The money is invested in stocks and bonds. If the investments do well, the employee might be OK. If the investment tanks (or the employee cannot put enough money in the account), there is virtually no prospect of a secure retirement.

    Guess what? Most of us are not setting enough aside. If you're wondering where you stand, check out EBRI's "choose to save" calculator (there's a lot of useful information at this website). Here's a hint: if you're saving less than 15%, you're probably not saving enough. And if you're unfortunate enough to work in the lower quartile of the economy, and you are approaching retirement with very little in your retirement account, the projected required savings might actually exceed your total income! Yikes!

    Welcome Mat from the Labor Market
    Fortunately for the boomers, the labor market really needs their continued participation. Ed Vitalos, from IBM's consulting arm, pointed out that there simply aren't enough replacement workers ready to take on the jobs currently performed by (aging) boomers. In fact, there are already substantial shortfalls in a number of areas, including long haul trucking, engineering, mining, healthcare, government, aerospace and utilities. Because it takes time to train for these professions, employers are trying to incentivize current workers to stay on the job. They are offering very creative packages to accomplish this goal, including flex-time, creative benefit packages and work-from-home options. One company had the brilliant idea of offering scholarships for the grandchildren in return for the continued participation of their valued older workers.

    Steven Sass, from Boston College's Center for Retirement Reseach, offered a sober assessment of the crisis facing many American workers. He anticipates cuts in social security, as fully one third of the population enters retirement. Because we are living longer, we have to work longer. Sass projects that working until age 70 is the most efficient way of overcoming a lack of savings prior to retirement. Sass's solution is likely to work for white collar workers, but what happens to the blue collar worker, the tradesman, the factory worker, the driver, the utility worker? How well will their bodies hold up after a lifetime of wear and tear on the job? How can you be sure that they are able to perform physically demanding jobs safely ? Finally, what about the workers whose bodies succomb to the wear and tear of a lifetime - who cannot continue working and who have little or nothing saved for retirement? These folks have the prospect of living out their "golden years" in abject poverty.

    As we track the evolving issue of older and older workers, the Insider will focus its attention on the implications for workers comp. We know from prior blogs that older workers have fewer injuries, but when they get hurt, it takes longer for them to recover. We know that they are more prone to suffer from shoulder and repetitive motion injuries. We also know that the cost of treating an injured worker goes up with age. The Aging Workforce Summit has shown that many older workers lack retirement resources. They cannot stop working without plummeting into poverty. When you combine the injury and disability implications of an aging workforce with the economic necessity that drives worker behavior, you truly have a potentially toxic mix for workers comp system.

    Looking ahead, managers need to shift their focus onto the unique challenges of an aging workforce. The continuing participation in the labor market of older workers is basically both positive and necessary. At the same time, managers need to keep their eyes open to new and unprecedented risks as these valued people labor on past normal retirement age. Managers need to take proactive steps to ensure that workers comp does not become the default retirement program for employees who either are performing tasks they can no longer handle safely or for workers who happen to have no retirement funding at all.

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    September 21, 2006


    The Insider has apparently underestimated the will and the wisdom (if not the wit) of the US House of Representatives. We thought they were incapable of confronting the crisis of 12 million undocumented workers. OK, we were wrong. Now that the House has voted to build a 700 mile wall along the Mexican border, we're on board. We're part of the team. And we have some suggestions for transforming this brilliant piece of legislation into a public sector bonanza.

    Designing the Wall
    In determining a design for the wall, we do not have to reinvent the proverbial wheel. After all, the Chinese built a splendid wall, beginning the work 200 years before the birth of Christ and completing it in the 1600s. As Richard Nixon observed when he visited that famous landmark: "It sure is a Great Wall." The Chinese wall is nearly 4,000 miles long; the Great American wall will be a puny 700 miles. How difficult could that be?

    Now, cynics will point out that the Chinese wall did not really accomplish its goal - keeping out the nomadic tribes that periodically destroyed the great Chinese cities. The final invaders, the Manchus, convinced a guardian of the gate to open a door and they simply walked through. (No danger of that happening here. Our private sector guards will be impervious to bribes.) Legend has it that it took three days for the Manchu army to complete their passage through the gate. Once they took over China, the wall immediately became obsolete.
    Important note: The Great Wall may have failed in its defense-of-China role, but today it is a great tourist attraction. If we play our cards right, we might have a Disney-esque Wonder of the World that will turn the barren borderlands of Texas and Arizona into a leading tourist destination!

    As for the design itself, now that the Big Dig project has been completed in Boston (except for a few, ahem, modest repairs, where the tunnel roofs are collapsing), we have a pool of engineers willing to lend their expertise. If you can build a tunnel, heck, you can build a wall.

    Constructing the Wall
    After designing an impenetrable, weather-proof, permanent and aesthetically pleasing barrier, the next problem will be building it. Constructing a wall across the desert does raise some interesting challenges. The desert does not offer comfortable working conditions, the type favored by American labor. There may well be health issues, dealing with all that sand and wind (as in Iraq). The Chinese, of course, could conscript a virtually unlimited population to work on the wall. We don't have that option.

    The labor problem, like the wall itself, is not insurmountable. We'll do what we did after the World Trade Center collapsed and after Katrina devastated the southern coastline. We'll build the wall...with undocumented laborers! We can pay them below market wages. We'll scimp on the benefits - they just send their earnings across the border to support their families anyway. And when they whine about working conditions and work-related injuries, we'll deny their claims.

    Best of all, as soon as these illegal workers complete the job, we'll just escort them through the door to the other side of the wall. Sayonara, baby!

    Paying for the Wall
    The current budget for the project is about $7 billion. The original budget for the Big Dig was about $3 billion, but the final accounting came to $15 billion (and still counting). The Big Dig is the most expensive public works project in American history. Well, records are made to be broken. We can project the Great American Wall's ultimate cost to be something in the vicinity of $30 billion. It's a bargain!

    Now if we can just figure out how to prevent those darn smugglers from using boats to drop people off along the thousands of miles of unguarded coastline. Hmm.

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    August 15, 2006


    When the talk turns to workers comp fraud, the default assumption is that the employee is the culprit. In reality, employer fraud is a huge problem, of a scope that many in the industry would say dwarfs claimant fraud. According to Loretta Worters of the Insurance Information Institute in a recent article in the San Antonio Business Journal, premium fraud may cost the insurance industry as much as $30 billion a year.

    In the same article, Dennis Jay of the Coalition Against Insurance Fraud suggests that premium fraud might be committed frequently because there is little enforcement. In describing the nature of the fraud, he states:

    Workers' compensation rates ... are based primarily on three areas: 1) the amount of payroll; 2) the degree of risk -- construction work is riskier than secretarial work; and 3) the claims experience of the company.

    "It's basically done by businesses that fail to disclose the true character of the risk they present," Jay says. "A company can lie about these three areas to try to reduce their overall premium."

    Prevalence: an ongoing problem
    On any given week, a cursory search of the news turns up multiple instance of employer fraud:

    The nature of the beast
    Workers compensation is compulsory insurance in every state but Texas. With some few exceptions, all employers are mandated by law to carry workers compensation insurance. Employers commit fraud when they fail to secure or maintain workers compensation coverage for their employees, or try to reduce their obligations by intentionally misclassifying employees or under reporting payroll.

    Fraud schemes hurt us all. First and most importantly, injured workers are often left without recourse or forced to bring suit to pay for medical care. Honest employers also pay for the misdeeds of fraudulent employers through higher premiums as insurer costs "trickle down." In some industries, such as general contracting, honest employers may also suffer a competitive disadvantage since fraud perpetrators have a lower cost of doing business and can offer lower prices in competitive or bidding situations.

    Spotting employer fraud
    Employer fraud often surfaces after an injury occurs when investigations reveal that an employer lacks coverage entirely or lacks coverage for a portion of the work force, such as workers wrongly categorized as independent contractors. One infamous case of this nature involved the owners of the Station nightclub in Rhode Island who faced a million dollar fine for failure to carry workers compensation insurance. This failure was revealed when the families of four deceased employees were left without benefits.

    Certain industries – such as businesses that employ a high number of contract, temporary, or seasonal workers - are rife with potential for fraud. In Florida last year, a sweep of construction sites resulted in more than 90 stop work orders. Some potential fraud indicators that companies may be trying to avoid regulatory compliance include businesses that pay people in cash or that have complex organizational structures and multiple business names. For a more comprehensive list of potential indicators, see Ohio's list of red flags for workers compensation.

    Is my employer compliant?
    If you suspect that your employer doesn't have workers comp coverage, what can you do? Most states have mandatory posting requirements so you can look on bulletin boards to see if these and other employee right-to-know postings and licenses are current. In many states, employees or job candidates can check on whether an employer is insured by calling the state workers compensation authority. Many states also have fraud hot lines where workers can anonymously report suspected fraud. A Google search of workers compensation fraud hot lines turns up many numbers, or you can check with your specific state insurance bureau.

    Prior postings on this topic:
    Employer Fraud: In Search of a Level Playing Field
    Proliferation of premium fraud

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    August 1, 2006


    Our colleague Peter Rousmaniere continues to track the rocky road to a new immigration policy in his invaluable working immigrants blog. He brings our attention to the new federal emphasis on enforcement. The administration is cracking down on employers of illegal immigrants, not just slapping wrists as in the past, but slapping on handcuffs as well.

    Julia Preston writes in the New York Times (registration required) that immigration agents went after the Garcia Labor Company, a temporary worker contractor that provides low-wage laborers to businesses from Pennsylvania to Texas. The feds brought a 40-count indictment, part of a new strategy by immigration officials to clamp down on employers of illegal immigrant laborers.

    Maximino Garcia, the president of the company, was charged with aiding illegal immigrants and money laundering. If convicted, Mr. Garcia, who pleaded not guilty, could serve 20 years in jail and forfeit his headquarters building and $12 million.

    Fear and Loathing Among Immigrants
    The new policy is beginning to create an environment of fear in Ohio’s immigrant communities.

    “It’s a very uneasy feeling,” said Sister Teresa Ann Wolf, a Roman Catholic nun who works with immigrant workers in Canton, Ohio. “People are afraid to leave the house to go to the store. They are afraid to come to church.”

    While the old immigration agency brought just 25 criminal charges against employers in 2002, this year Immigration and Customs Enforcement has already made 445 criminal arrests of employers. Some 2,700 immigrant workers were caught up in those operations, and most were deported.

    Hiring illegal immigrants “has been a low-risk, high-reward enterprise,” said Brian M. Moskowitz, the agency’s special agent in charge for Ohio and Michigan. “We want to send the message that your cost of business just went up because you risk your livelihood, your corporate reputation and your personal freedom.” They may well send a message, but are they really proposing a crack down that will encompasses literally millions of people?

    The President's Strategy
    President Bush is pushing for enforcement in order to pre-empt his party's right wing. He probably still has hopes of developing a more balanced approach, combining a new registration and certification process for illegal immigrants with more robust enforcement. At the moment, however, the policy is dramatically out of balance, emphasizing pure enforcement without offering immigrants any new paths to legitimacy. As a result, more and more immigrant labor will be driven underground. This strategy puts undocumented workers at high risk. Safety standards, already compromised among this population, will erode even further. Wages and benefits will drop and exploitation will increase.

    It is neither feasible nor desirable to totally eliminate undocumented workers. Throwing out a few thousand people and locking up a few employers are not going to solve any problems. The big crack down is the symptom of failure: we need these marginalized workers and we need to figure out how to legitimize their role in our economy. For the moment at least, we lack both the will and the compassion to develop a lasting solution.

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    July 5, 2006


    President Bush appears ready to abandon his uncharacteristically centrist position on immigration reform. Up until recently, he supported the Senate bill, which combines enhanced enforcement at the border with opportunities for illegal immigrants to take steps toward citizenship. He developed this position out of his experience as the governor of Texas, where he saw first hand the problems in border enforcement and the valuable work performed by undocumented workers. The business element of his party generally supports the "wink wink" approach, as it provides the most workers at the lowest cost.

    We read in the New York Times (registration required) that Bush is under intense pressure from his conservative wing to back off his moderate position on immigration. He appears to be shifting toward the hard-line House approach, contemplating an "enforcement first" strategy that would seal the borders and toss out all 12 million undocumented workers, no matter how long they have been in the country. (We have blogged previously just how difficult it would be to identify and remove 12 million people, let alone seal our borders.) Under a House bill sponsored by Rep. Mike Pence of Indiana, undocumented workers, after returning home, could sign up at privately-run manpower operations in their native countries, where they might or might not be able to re-enter this country as guest workers (can you spell "bribery"?).

    How long would it take to ship out all of undocumented immigrants? Just how will local law enforcement approach the problem? Governor Romney of Massachusetts, another Republican with presidential ambitions, wants to use the state police to identify and arrest illegal immigrants. Peter Rousmaniere of working immigrants links us to a Boston Globe article on this dubious idea. The state cops certainly could make a few arrests pretty quickly, as the workers cleaning their barracks are mostly undocumented. Beyond this handful, the process for identifying, arresting and deporting hundreds of thousands of people remains in doubt.

    A Modest Proposal
    The Insider is sensitive to the myriad logistical problems in rounding up and shipping out 12 million people. After all, we had trouble with the temporary evacuation of a few thousand people in hurricane-ravaged New Orleans. Can you imagine the traffic jam at the Mexican border when the deporation program gathers some momentum?

    We would like to move the debate forward with a plan of our own. To separate the legal residents of this country from the illegal, we propose a national identity system. We are tired of the debate over its feasibility. Let's go with the subcutaneous version, which implants a computer chip with personal identifiers under the skin of every documented citizen, regardless of age. As for newborns, let's cut the cord, wash them up and immediately inject the little chip into their torsos. Welcome to America, baby!

    Then we install monitors everywhere: on bus and train turnstiles, in airport security systems, in the doorways of every business in America, in every condo and yes, in every private home. You try to enter without the embedded chip, an alarm goes off and you're busted. We have plenty of empty factories to use as temporary detention facilities. To discourage the manufacture and sale of counterfeit chips, we make it a capital crime.

    One of the many advantages of this comprehensive system is that you can track every movement of every citizen, 24/7. To defer the rather substantial costs of implementing the program, you simply sell the invaluable data to private companies. They'll love it!

    I have to admit there are a couple of minor problems in this proposal that need to be worked out. The first problem, which we share with the honorable representative from Indiana, is to figure out who will cut the lawns, clean the houses, take out the trash, build the homes and bag the groceries when we lose 12 million workers in one fell swoop. There's going to be one heck of a labor shortage for a considerable period of time.

    The second problem is perhaps more subjective. The only people walking around with complete freedom, with the privacy and independence envisioned by our founders, may be the illegal immigrants who lacked the documentation to qualify for an identity chip. They will be truly free, if only for a few precious moments until the alarms go off and the hand cuffs go on. As for the rest of us, the price of freedom and liberty may well be freedom and liberty themselves. A modest price for a modest proposal. The good news is that we will finally be rid of the people who snuck across our borders to take on the back-breaking jobs that no one else apparently wanted.

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    June 6, 2006


    The U.S. House and Senate have each passed a bill relating to immigration. The Bills are so far apart, it's hard to imagine the conferees finding much common ground, other than tightening up border security. The House wants to criminalize all illegals and those who support them; the Senate wants a worker amnesty program that gradually offers illegals who have been in the country for a few years the opportunity to become citizens. As House conferee James Sensenbrenner (R- Wisconsin) says,"This is the toughest thing that I have ever been asked to do in 27 1/2 years in Congress and 10 years prior to that in the Wisconsin Legislature."

    Section 202 of the House bill may be at the center of the debate. It criminalizes a number of activities that are routinely performed by religious leaders, social service workers, health workers, and community activists. It makes criminal any act that "assists…encourages…directs or induces a person to reside in or remain in the United States…knowing or in reckless disregard of the fact that such person is an alien."

    While I have little use for the hard-headed, rigid standards embodied in this House bill, I was surpised to find that Sensenbrenner seems to understand the economic implications of any change in the status quo. He is among the first public figures to address what ultimately is a fundamental problem with the Senate's solution. It's going to cost a lot of money.

    Sensenbrenner is quoted as saying: I do not support anything that is an amnesty. The real problem with the Senate bill is that the people who would apply for amnesty would end up pricing themselves out of the market in many of the jobs that they currently hold. Amnesty is not going to be as successful as its supporters think because if someone legalizes themselves and then they end up paying Social Security taxes and state and federal securities, and increase their cost to their employer. If there are more illegal immigrants out there, they are simply going to fire the person who has been legalized and hire the illegal immigrant.

    Sensenbrenner is correct. A worker in a certified amnesty program becomes a more expensive worker. Not just in the taxes paid, but more importantly in the health benefits, safety programs and workers comp insurance that provide the standard (and expensive) safety net for most workers in this country. Amnesty will drive up the cost of labor. And Sensenbrenner points out that the many illegal who are not eligible for amnesty will continue to operate as the second class workers who provide needed services for less-than-market rates.

    Sensenbrenner does not envision a mass deportation of illegal immigrants. He thinks they will deport themselves: If we shut off the jobs by enforcing employer sanctions, many of the illegal immigrants will simply decide to go home because they cannot make money in the United States. And you will see an attrition. This sounds intentionally naive. Perhaps more likely, a punitive law will drive illegal workers deeper into the underground economy, where working conditions will become even worse than they are now.

    Bush Speaks
    Contrary to many of his policies, which shift hard to the right, President Bush has outlined a position on the immigration bill which adheres to the middle ground. Here's a quote from a recent speech:

    Some members of Congress argue that no one who came to this country illegally should be allowed to continue living and working in our country, and that any plan that allows them to stay equals amnesty, no matter how many conditions we impose. Listen, I appreciate the members are acting on deeply felt principles. I understand that. Yet I also believe that the approach they suggest is wrong and unrealistic. There's a rational middle ground between granting an automatic path to citizenship for every illegal immigrant and a program that requires every illegal immigrant to leave. The middle ground recognizes there are differences between an illegal immigrant who crossed the border recently, and someone who has worked here for many years who's got a home, a family, and a clean record. [Bush's conservative critics are likely to find the time frame differential a "distinction without a difference."]

    My position is clear: I believe that illegal immigrants who have roots in our country and who want to stay should have to pay a meaningful penalty for breaking the law, to pay their taxes, to learn English, and to work in a job for a number of years. People who meet these conditions should be eventually permitted to apply for citizenship like other foreign workers. But approval would not be automatic. They would have to wait in line behind those who played by the rules and followed the law. This isn't amnesty. It is a practical and reasonable way for those who have broken the law to pay their debt to society and demonstrate the character that makes a good citizen.

    Slavery, Revisited
    The fault lines on this issue are very deep and enormously divisive. There are no easy answers. The Chamber of Commerce, which supports most of the Senate bill, wants some form of guest worker program, but they will not be happy with any increases in the cost of labor. The sentiments for shutting the borders and tossing out the illegals will continue to percolate. What's likely to happen? We're betting on a continuation of the "wink wink" status quo. Despite the increasing carnage among illegal workers in our most dangerous industries, despite the rampant abuse of vulnerable workers, doing nothing may prove more practical than changing the nation's laws.

    We are facing a paradox similar to that of our slave-owning founding fathers. They were enlightenment thinkers of the highest order. They saw clearly the problems and paradoxes inherent in slavery, the blatant contradiction to the values embodied in new nation's brilliant constitution. Nonetheless, they were unable to end the abominable institution themselves. They left that task to future generations. They were hopelessly addicted to cheap labor.

    Well, folks, so are we. That's why it's so hard to envision any comprehensive solution that addresses the disparities of our second class, immigrant workforce. It's the right thing to do, but it will hurt where we as a nation are most sensitive: in our wallets and purses.

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    May 25, 2006


    The Insider has followed trial of former Enron CEO Ken Lay with considerable interest. Just as we like to track the memory lapses of CEOs who plagiarize the work of others (did someone say "Raytheon"?), we are intrigued when one of the most powerful corporate leaders in America claims that he didn't know what his people were doing. "You just do your thing and tell me about it when you get around to it. Even better, don't tell me. I don't want to know." Yeah, right. Throughout the trial, Lay continued to blame his fall on the Wall Street Journal. Bad press caused a collapse in confidence. The Journal, of course, is famous for its muckraking attacks on corporate giants. One after another, the Fortune 500 fall.

    Insider readers might enjoy a visit to Ken Lay's own website, where his Barnum-like persona is in full swing. He hasn't had a chance to update the site with details of his conviction (that might take a while). Meanwhile, here's an annotated look at his most recent letter to the world:

    As my trial draws to a close, I reflect back on my case. [Do I ever!] The trial began in late January, and the defense rested on Monday, May 8. [The legal fees are amazing. I sure hope my alma mater returns $1.1m I gave to them.] The jury is now deliberating on the case. [Here's hoping for a hung jury!]

    I wanted the truth to come out about Enron, and elected to testify on my own behalf. [These two items are not necessarily related.] I believe that my legal team and I brought out important facts about Enron and its collapse. [We also omitted certain facts that we considered, well, immaterial.]

    Enron was a strong, profitable, growing company even into the fourth quarter of 2001. In February 2001, I stepped down as CEO of Enron. I was confident that Enron was financially strong, highly profitable and growing rapidly and we had the numbers to prove it. [Boy, did we have the numbers. You want numbers? I'll give you numbers!]

    Yet, in less than 10 months, in December 2001, Enron was forced to file for bankruptcy protection. Although many events contributed to Enron’s bankruptcy, the actual triggering event for Enron’s bankruptcy was the loss of confidence by the financial community and by Enron’s trading counter parties, which began a collapse that ultimately could not be reversed. The notion that Andrew Fastow, Enron’s CFO, might be involved in illegal activities provoked the loss of confidence, leading to a classic run on the bank. This business was dependent on trust—and the actions of Andrew Fastow and his cohorts breached that trust. The result for Enron, its shareholders, employees, retirees and others was catastrophic. [The corollary of trust is the sucker. See P. T. Barnum, even if he never really said it.]

    I failed to save the company that I helped build and loved. As I have said many times, I am devastated by this failure and its negative impact on so many lives. [Good thing I salted away a fortune prior to the collapse.] But failure does not equate to a crime. [To quote the immortal Richard M. Nixon: "I am not a crook."]

    Reviewing the government’s case against me, I believe that the Enron Task Force did not fulfill the burden of proof. The vast majority of the Enron Task Force witnesses in this case reached plea agreements with the government, which made testifying against others in their best interest. [Excuse me, but the former employees presumably plea bargained because they were guilty.]

    Instead, the Enron Task Force spent days upon days raising arguable issues not in any way related to the charges in the indictment against me in an effort to personally attack me and make the jury question my character. We firmly believe that the jury will see through this maneuver. [Mission accomplished. The jury saw right through all the maneuvers...]

    I have read that some people were surprised by my forcefulness when I testified on my own behalf. I will continue to forcefully defend myself against all false accusations as I proclaim my innocence of the crimes of which I have been accused. We are confident that I will be found not guilty of all charges. [OK, we're not so confident about that any more. However, we are confident that we will prevail on appeal. After that, we are confident that we will win a Presidential pardon. One hundred thousand smackeroos ought to buy you something! If that fails, I'll, I'll rat out someone else. Let's make a deal!]

    Thank you. [And good night]

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    May 18, 2006


    Company outings should be a time to kick back, relax and enjoy some sun. Well, maybe. Employers need to stay alert to the potential liabilities that linger whenever they host employees at a company-sponsored event. We have blogged the dangers of serving alcohol at company events and the open-ended risks involved in hosting company outings. Now we read of a strange case in New York that may expand company exposures just a little bit further.

    The $200G Torpedo
    The case involves Phyllis Caliano-Bahaj, who was relaxing on a beach chair at a state park in New York, watching her 8-year-old son and three other children. Suddenly, an approaching storm blew in with 29-mph winds. A beach umbrella flew about 20 feet into the air and slammed into Ms. Caliano-Bahaj's forehead, causing a severe cut and some permanent nerve damage. She sued the state. The state claimed that the umbrella belonged to another beach patron, not the lifeguards employed by the park. A judge said it didn't matter who owned the umbrella. The lifeguards, knowing the storm was coming, should have ordered all umbrellas down. As a result, the state settled the case of what one newspaper is calling "the $200G torpedo."

    Where the state was held liable in this situation, it is not difficult to foresee liability for employers under comparable circumstances. You host a picnic at a park. Employees bring their own coolers, beach towels and umbrellas. A wind blows in, wreaks havoc, and someone is hit by a flying umbrella (or a wayward frisbee, or the edge of a kite...). It's no stretch to assume that employers will be held accountable for any injuries. The injuries may or may not fall under workers comp, depending upon whether the event was truly voluntary (no comp coverage) or employees were expected to show up (likely to be compensable).

    We are not suggesting that employers forego company sponsored recreation. Team building can be an important part of attracting and retaining good employees. We're all for fun and games. But employers need to keep an eye on the risk exposures every step of the way. One person's fun can be another's torment (see a recent example here). Employers need to remember that any convening of the workforce assumes the employer-employee relationship. Yes, it's fun to have fun and connect as friends, but ultimately, employers retain a level of responsibility that goes beyond the bonds of friendship. So make your summer plans. Have a good time. But remember: being an employer is similar to being a parent. Your responsibilities never really end.

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    May 10, 2006


    Let's say you run a large insurance company. You sell through your own agents, one of whom has been a marginal performer for many years. You place the employee on probation several times, but he seems to be trying hard, so you continue his employment. This individual suffers from bi-polar disorder. Over the course of a decade, he goes out on FMLA leave a couple of times for treatment of his mental illness. When his doctors release him for full duty with no restrictions, he returns to work, but the poor performance continues. Finally, you give up. In accordance with company policy, you ask him to pack up his personal belongings and you escort him to the door.

    He sues. You lose.

    An article in the Boston Globe by Diane Lewis provides the details. A federal jury has awarded $1.3 million to a veteran insurance agent with bipolar disorder who alleged he was fired as a result of his disability.

    The 11-member jury awarded Kevin W. Tobin, 60, $500,000 in emotional distress damages, $439,315 in lost wages, and $416,664 in lost pension and retirement benefits caused by his termination by Liberty Mutual Insurance Co. in January 2001.

    In court papers, the company argued that from 1992 to 2001, Tobin failed to meet minimum standards and was placed on probation several times. The company also claimed that he rarely ''prospected" for new business.

    Tobin's attorney, Frank Frisoli, argued during the trial that the insurance company did not adequately accommodate Tobin's disability as required by the Americans with Disability Act. During the trial, Frisoli said, Liberty Mutual argued that Tobin did not have a disability even though it had approved two prior disability leaves and created a reentry program to help the insurance agent improve his job performance.

    Frisoli maintained yesterday that his client would have been able to perform the essential functions of his job if he had received the same amount of help as others in his office, including a top performer who was given three assistants. By contrast, Frisoli said, his client received sporadic assistance from a service representative who supervised other representatives and was not always available.

    ''He had difficulty going from task to task," said Frisoli. ''But he was willing to work long hours and he did it regularly to make up the work."

    A Warning for Employers
    It's premature to draw extensive conclusions from the limited information in this article, but here's the part that might truly alarm employers: by approving FMLA leave, Liberty appears to have undermined its contention that Tobin did not have a disability. (On the other hand, if they tried to deny his leave to seek treatment, they surely would have violated the ADA.) More important, once an employer approves FMLA leave (for an employee's physical or mental disability), you may be on the hook for a wide range of "reasonable accommodations," even if none are requested and even though eligibility for FMLA leave does not necessarily mean that the employee meets the ADA definition.

    Liberty had a marginal employee. While they did try to provide some re-entry support to Tobin when he returned from his disability-related leave, they allocated most of their resources where they had the optimum effect on the bottom line: high achievers got extra administrative support. The low achiever, Mr. Tobin, got little help. Tobin's attorney was apparently able to transform this "business as usual" scenario into a "failure to accommodate." In other words, because of Mr. Tobin's disability, Liberty had an obligation to dedicate additional resources to bring him up to minimal standards. Liberty's lawyers failed to convince the jury that Tobin was simply unable to perform the essential functions of the job.

    This case embodies a very tricky human resource issue that could confront almost any employer. From this distance, the jury award appears to blur the line between an employee's ability to perform the essential functions of the job and the employer's obligation to accommodate. It remains to be seen whether this is an important precedent, or something that will disappear in the course of Liberty's appeal. In the meantime, employers might want to begin to make a connection between FMLA leave and the obligation to reasonably accommodate.

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    May 8, 2006


    The Insider is determined to do its part in preparing the nation for a flu pandemic. Although the President did not specifically mention bloggers in his mobilization plans, we think that blogs offer a unique tool for getting out the word and for maintaining communications under adverse circumstances. Best of all, you don't have to come within three feet of a blogger to access the information.

    The President states that "our efforts require the participation of, and coordination by, all levels of government and segments of society. State and local governments must be prepared, and my Administration will work with them to provide the necessary guidance in order to best protect their citizens. No less important will be the actions of individual citizens, whose participation is necessary to the success of these efforts."

    Initial response to the President's plans have tended toward scepticism. There seems to be a sense at the state level that the feds don't plan to take much responsibility; that much of the burden will fall at the state and local levels; and that not much in the way of federal resources will reach the states as they confront the awesome challenges of a pandemic. It's like waiting for Katrina without a storm track.

    Unity or Chaos?
    The President tells us that "our Nation will face this global threat united in purpose and united in action in order to best protect our families, our communities, our nation, and our world from the threat of pandemic influenza." The Insider is not so sure about the unity in action. If the pandemic is as horrific as some project, we may see more chaos than unity. But one way or the other, we'll probably muddle on through.

    For larger businesses who want to give it a shot, the CDC has put together a comprehensive planning checklist. It's full of generic advice that is certainly useful, but may prove really difficult to implement. For example, one recommendation is to "establish policies for employees who have been exposed to pandemic influenza, are suspected to be ill, or become ill at the worksite (e.g., infection control response, immediate mandatory sick leave)." How would you define and implement "immediate mandatory sick leave"? Many employers will balk at the prospect of uniformed guards, in protective masks, escorting unwilling workers to their cars. Most HR departments would need a few months to work out the kinks in this one policy area.

    Basic Hygiene
    No matter how sophisticated your planning may be, executing a flu game plan may come down to the basics. People should not get too close to one another (stay at least three feet apart). Most important, people have to know how to cough and sneeze. The government has a poster (available in five languages) here.

    Here's the text of the poster, with a few annotations:

    To help stop the spread of germs,

    Cover your mouth and nose with a tissue when you cough or sneeze. [Have you ever noticed how many people routinely fail to do this? For people who do it wrong, should progressive discipline apply, or is it "one unprotected sneeze" and you're tossed out of the workplace?]
    If you don't have a tissue, cough or sneeze into your upper sleeve, not your hands. [Might work in a factory, but not practical for those in Armani suits.]
    Put your used tissue in the waste basket. [Most industrial workplaces I've toured lack waste baskets.]
    Clean your hands after coughing or sneezing. [If you wash after each cough/sneeze, as you're supposed to, there will be a lot of lost productivity.]

    Wash with soap and water. {Assumes that these are readily available.]
    Clean with alcohol-based hand cleaner.
    [Might not be practical in many work environments.]

    Just-In-Time Management
    I have a strong suspicion that very few companies (and few families) will take the necessary steps to prepare for the Big One. When it comes to what appear to be remote risks, we all practice just-in-time management and hope for the best.

    In a pandemic, as long as electrical power is available, people should be able to access computers and communicate over the net. Many, the Insider included, will be able to work from remote locations. Sooner or later you may want to check out an interesting, net-grown resource called fluwiki. Based upon the open-sourced format of Wikipedia, fluwiki is public flu compendium, focused in a very practical way on managing families and businesses during a pandemic. The home-grown survival lists are more entertaining that those provided by the CDC. Even if you are convinced that this pandemic will never happen, you might want to save this site under your favorites for future reference. You never know when it might come in handy.

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    April 26, 2006


    You have a valued employee - a good producer - with a drinking problem. Ever since a traumatic divorce, his performance has suffered. He misses a meeting with a major client. You encourage him to seek help through the Employee Assistance Program. He voluntarily enters a detoxification program. He participates in Alcoholics Anonymous twice a week. He sees a counselor.

    Yet his performance continues to erode. You suspect he may be drinking again. You call him into your office. He seems a bit spacy - might be taking a decongestant for a cold. You don't smell any alcohol, but you ask him if he had been drinking. He looks at you unflinchingly and says no. You give him yet another stern warning that unless his performance improves immediately, you will have to terminate him.

    You're trying to be a good manager. You really want to help this guy, a valued employee. But how far do you go? When do you draw the line? You shake your head as he walks out of your office.

    Judgment Call
    The last thing on your mind at that particular moment is being sued for negligence. But for Ed Arlin, a manager at Unigraphic Solutions (UGS), that's exactly what happened after Thomas Wellinger left his office on May 3, 2005. Some three hours later, apparently on his way to an appointment with his psychiatrist, Wellinger drove his car at 70 mph into another vehicle, killing a mother and her two children. He was intoxicated to the point of no return, with a blood alcohol level at the literally staggering level of .40.

    Where did Arlin go wrong? Did he wait too long to take action? In trying to help Wellinger, did he become an enabler?

    Wellinger was just sentenced to a minimum of 19 years in prison. But the case does not end there. For Arlin and other managers at UGS, there is no end in sight. Gary Weinstein, whose family was wiped out on that fateful day last May, has filed a civil suit. So far, the police have been unable to trace Wellinger's movements on the day of the crash. So Weinstein cannot sue a bar for serving too much liquor. His only recourse at this moment is to sue the employer, who last saw the employee some hours prior to the accident. And based upon police reports, no one at the employer, Arlin included, had any awareness that Wellinger had been drinking on that day.

    My guess is that there will be a settlement - a large one, at that. Even though UGS managers appeared to be on top of the situation; even though they made the accommodations that we hope considerate employers will make; even though they apparently had no direct knowledge of Wellinger's impairment on that particular day. Despite all of these factors, they are still likely to pay. Why? Because an innocent party has suffered tremendous harm and UGS, with its deep pockets (AKA liability insurance), is closest to the situation.

    A Manager's Nightmare
    Without question, Wellinger himself is responsible for what happened last May. He's on his way to jail. But in our system, every decision made by his employer will now be carefully scrutinized. If UGS could do it over again, they probably would have terminated Wellinger when his drinking resumed after detox; while recovering alcoholics are a protected class under the Americans with Disabilities Act, there are no such protections for active drinkers. UGS, in trying to do the right thing by Wellinger, ultimately made a wrong decision. It's a managers' nightmare. You make decisions every day, in the course and flow of the business. You have no way of knowing which decisions will come back to haunt you. As he wends through the civil trial with its endless depositions and testimony, Ed Arlin will have more than enough opportunity to second guess himself. It's not going to be easy for a manager who was simply trying to do the right thing.

    NOTE: For additional background on this situation, check out our prior blogs here and here.

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    April 24, 2006


    To hell with the truth! As the history of the world proves, the truth has no bearing on anything. It's irrelevant and immaterial, as the lawyers say. The lie of a pipe dream is what gives life to the whole misbegotten mad lot of us, drunk or sober. (The Iceman Cometh, Act I)

    The recent surge of activity by agents of the U.S. Immigration and Customs Enforcement (ICE) brought to mind Eugene O'Neill's 1939 play, The Iceman Cometh. The ICE men and women recently raided IFCO, a manufacturer of pallets and pallet systems, arresting a number of managers and, most notably, somewhere around 1,100 illegal immigrants who were working for the company. (Read more at working immigrants here.) ICE has about 325 agents across the country. If this enforcement crew were to arrest 1,100 illegals a month (not likely, as it takes a long time to set up the bust), it would take them over 10,000 years to clean up the problem. That timeframe would probably satisfy the many people who fear the solutions more than the problem.

    IFCO's press release following the arrests states that the allegations are "counter to everything we stand for." Well, we must assume, not quite everything. Ironically, they manufacture pallets for the harvesting industry, products used by thousands of undocumented migrant workers toiling in fields across America.

    We all know what the problem is: we have about 12 million undocumented workers throughout the country. Most are working, providing a wealth of services in jobs that native born Americans seem reluctant to undertake. Because they are illegal, they function for the most part as second class workers, with limited benefits, lower wages and few protections. Their relatively inexpensive labor is a huge boon to our economy. So while some clamor to throw them out, others say let them stay and become citizens. Either solution would result in substantially higher costs for doing business.

    Wink Wink
    Given the downside of both proposed solutions, the Insider's guess is that we will muddle along with no significant changes. Congress will debate the issue endlessly, but will likely conclude, as they have done so far this year, that doing nothing is easier than doing something. Thousands of illegal immigrants will continue to slip through our porous borders every month. Millions of undocumented workers will continue to function with substandard wages and benefits, all the while fearing the day the ICEmen cometh. It's business as usual, wink wink, with no one quite willing to confront reality. We are living the lie that "gives life to the whole misbegotten mad lot of us." Perhaps the notion that we could actually fix this enormous problem is the biggest pipe dream of all. That's a sobering thought, indeed.

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    April 3, 2006


    Although the country is in the middle of an emotional and compelling debate on immigration, the Insider returns to the amazing and appalling case of Tom Noe, the ubiquitous Ohio coin dealer whose name has disappeared from the address books of powerful people near the Great Lakes and the Potomac River. Toledo Blade reporters James Drew and Steve Eder have been doing a great job keeping track of this ongoing saga, which now shifts to the nation's capital. We will return to the immigration issue soon. (If you can't wait, the latest developments, along with concise analysis, can be found at Peter Rousmaniere's working immigrant blog.)

    Noe parlayed his formidable fund raising activities into the chairmanship of the Citizens Coinage Advisory Committee, where he helped guide the U. S. Mint toward issuing its first 24-karat, .9999 pure gold investment coin. There are those who believe that if the scandal had not erupted, he may have ended up directing the U. S. Mint. I wonder whose faces would have appeared on Noe-era coins...I'm sure that these "No-eez" would have made awesome collectibles!

    In D.C., Noe set up the "Noe Supper Club," a group of high-ranking government officials who gathered for dinners at Morton's Steakhouse, where the tab was grabbed, needless to say, by Mr. Noe. (The Insider appreciates the name of the club, as it contains the kind of built in deniability that politicians relish: "There was no supper club, as far as I know.")

    In cultivating his Washington contacts, Noe communicated through effusive emails, this one directed to Madelyn Simmons Marchessault, the U. S. Mint's director of legislative and intergovernmental affairs: "Wow, you are GOOD," he wrote in December of 2004. Listing his home phone numbers from Lake Erie to the Florida Keys, he added: "If you can't find me now...I don't exist!!!!"

    Well, Tom, as a matter of fact, you don't exist!!! The passionate friendships, cultivated, we assume, with the millions pilfered from the Workers Comp fund in Ohio, have abruptly disappeared. Ohio's governor and three others have already pled guilty to accepting inappropriate gifts. We suspect that the federal inquiry might find some problems with Noe's largesse in the Nation's capital.

    This dreary tale of corruption undoubtedly contains lessons for us all. Knowing what is known now, officials in Ohio and Washington would say "no way" to the Noe way. Alas, it's a bit too late for that.

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    March 8, 2006


    The U.S. Labor Relations Board issued a finding in favor of the IWW ("Wobblies), in their ongoing effort to organize Starbuck baristas (employees). No, this does not mean that Starbucks has been unionized, or even that an election will take place any time soon. In agreeing to the finding, Starbucks does not admit any fault. However, they have agreed to take a limited number of corrective actions, including:

    · The reinstatement of two IWW members, Sarah Bender and Anthony Polanco, who had been discharged for their union activity. Bender's back pay totals a little over $1,600, with about $50 in interest. Polanco receives $58.87 in back pay, plus $1.99 in interest.

    · Starbucks is rescinding its policy that prohibited the sharing of written union information and joining the union on company property. (As we pointed out in our previous blog, Starbuck's lounge chairs are an excellent place to sit and discuss union strategy.)

    · Starbucks has agreed to rescind its national "no-pin" policy. Workers had been banned from wearing IWW pins and had been sent home from work without pay for refusing to take them off. (The agreement does not stipulate whether body piercings containing union logos are acceptable. I await a clarification.)

    · Starbucks has agreed to end threats, bribes, and surveillance of union members. (The company apparently did try to promote some organizers, in exchange for their dropping all union activity.)

    The full text of the agreement is available here. This document provides a valuable summary of the kinds of union activities that are still protected by law. It's worth a look.

    I'm not sure where this victory stands in the historic struggle for worker rights, but congratulations to the IWW are in order. I would point out that the interest that Polanco received on his back pay ($1.99) will not buy him a latte at Starbucks. If he wants to celebrate with a cup of coffee, he'll have to go somewhere else.

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    March 7, 2006


    As part of its public relations offensive, Wal-Mart has taken to the blogwaves. They are encouraging bloggers sympathetic to their cause to publish positive news about the ubiquitous company. According to an article by Michael Barbaro in today's New York Times, the bloggers are using the tidbits, but not necessarily identifying the source.

    Here's a sample: One blogger in Iowa wrote that a new Wal-Mart opening in Illinois had received 25,000 applications for 325 jobs. "That's a 1.3 acceptance rate," the message read. "Consider this: Harvard University (undergraduate) accepts 11 percent of applicants." Insider readers can probably figure out the difference between applying to Harvard and applying for a job at Wal-Mart, but as they say, the numbers speak for themselves. My guess is that any new jobs in a depressed area will generate a lot of interest. But the original source of the unusual comparison is not the blogger, but Wal-Mart itself.

    According to Wal-Mart's Mona Williams, this is "part of our overall effort to tell our story. As more and more Americans go to the Internet to get information from varied, credible, trusted sources, Wal-Mart is committed to participating in that online conversation."

    As one who tries to represent a "varied, credible and trusted source," I beg to disagree with Mona. There is a significant difference between setting up your own blog and ghost-writing your way into the blogs of others. Even in the wide open frontiers of blogging, there is a strong notion of integrity. Wal-Mart "participates" in the conversation in the same way they "provide jobs in local communities": on their terms, using their own value system, and with zero consideration for the local businesses they are nudging toward oblivion.

    The author of Wal-Mart's "blog feeds" is someone named Marshall Manson (no relation, no relation?), a senior account supervisor at the Edelman pubic relations firm, a contractor to Wal-Mart. Manson writes for a number of conservative Web sites trying to limit the role of government. Obviously, Manson - and many others - are alarmed by state initiatives to force Wal-Mart into higher levels of health insurance coverage for its many employees. These bloggers are more than willing to use the Wal-Mart feeds, some with attribution, others without.

    Wal-Mart has invited a number of bloggers to attend a media conference in Bentonville, Arkansas. Alas, they are not footing the bill for the trip. I would point out to the behemoth retailer that the Insider has consistently covered Wal-Mart news: we are fascinated by their locking in (illegal immigrant) cleaning crews, targeting loyal employees for termination, forcing employees onto public assistance to survive, and telling managers with differing views to find another job. We're doing our part to "tell Wal-Mart's story." Nonetheless, I am still waiting for my invitation to Bentonville.

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    March 3, 2006


    Franklin Roosevelt may or may not have begun an address to the Daughters of the American Revolution with the memorable line, "Fellow Immigrants." (A curmudgeonly blogger says a reporter made up the quote.) If Roosevelt didn't say it, he should have. It's a great line and perhaps more compelling than ever. The current debate over illegal immigrants - as fractious and divisive as the debate over abortion - has created a fault line that runs through every aspect of our culture.

    In an excellent article in the New York Times (registration required) by Nina Bernstein, we read about the effect on access to health care that well publicized "throw them out" legislative initiatives have had on undocumented immigrants. Not surprisingly, these immigrants are sensitive to anti-immigration sentiments. For example, knowing that identity requirements are tightening, Chinese immigrant workers in New York City are shying away from the conventional health system (which in many cases is not exactly welcoming) and relying more on traditional herbal remedies. Bernstein writes of the sad demise of Ming Qiang Zhao, a 52 year old restaurant worker who could not afford to continue treatment for his nasal cancer. He relied on street remedies until he finally collapsed in a coma. The system which discouraged him from securing ongoing treatment readily admitted him on an emergency basis: a very expensive proposition ($5,400 day) involving several near-bankrupt hospitals. Unable to decipher the effect of the herbal remedies that he had been taking, the doctors treated him as best they could until Ming died.

    Who cares?
    Beyond the humanitarian issues, beyond the inflammatory rhetoric seeking to toss the illegals out, is the reality of having a two-tier health care system. In the system that most of us subscribe to, treatment is readily available, pharmacology is the best in the world, and minor ailments are treated with respect and concern. In the parallel universe of undocumented immigrants, there are bootleg remedies and unlicensed practitioners - until you collapse and are taken by ambulance to an emergency room.

    The public health implications of this two-tiered system are alarming. Bernstein quotes James Tallon, president of the United Hospital Fund: "Anything that keeps anyone away from the health system makes no sense at all. It takes one epidemic to change everyone's attitudes about this." (We've already blogged the terrifying conjunction of avian flu and illegal workers in the poultry industry.)

    The debate over what to do about illegal immigration impacts every one of us. I highly recommend that Insider readers track the current debate in Washington through Peter Rousmaniere's working immigrants blog, which is devoted solely to immigration-related issues.

    Public Policy Parameters
    The immigration issue is complex. There are no easy solutions. The problem is going to test us in ways that we can hardly envision. It brings to mind something that Roosevelt definitely did say: "When you get to the end of your rope, tie a knot and hang on. "I would hope to see the debate over immigration guided by a few basic assumptions:
    - It's neither feasible nor desirable to deport 11+ million undocumented people and their families.
    - Undocumented workers are an important part of our economy. If they disappeared tomorrow, we would all suffer the consequences.
    - It's counter-productive to cut off immigrant access to the health care system. You don't want people treated by quacks. Somehow, we must open health care to everyone residing in our borders. It's the right thing to do and it's in our own selfish interests to do it.
    - No matter what people think about illegal immigration, we must develop some kind of fundamental accommodation, some way of making every immigrant visible, so that these people are able to engage in the mainstream culture on a basic level.
    - As we figure out ways to accommodate undocumented workers, the cost of doing business will definitely go up. When the protective umbrella of fair labor laws and fundamental benefits begins to cover workers who are currently "off the books," the cost of labor will rise.
    - You can build walls to keep people out, but walls tend to become prisons for people on both sides.

    There are undoubtedly many more assumptions could be added to this list. Insider readers should jump in on the discussion. This problem is not going away. And how we address it as a nation has powerful implications for all of us.

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    February 28, 2006


    Today the Insider looks at seemingly divergent issues which converge in a striking manner: federal involvement in mine safety (MSHA enforcement), federal prosecution for workers comp fraud, and the ongoing saga of work in the mines. It's a complex picture, but one which resolves into a single focus: the exploitation of the people who work in mines.

    MSHA and the Phantom Miners
    We begin with an article by Frank Thomas in USA Today. The recent disaster at the Sago mines killed 12 miners. We were all momentarily saddened by their hastily penned farewell notes to their families, but that was then, and this is now. It turns out that MSHA had found numerous violations in the Sago mine prior to this disaster. But to determine fines, MSHA uses a bizarre math: they multiply the violation by the number of miners exposed to the specific danger. In 90% of Sago's violations in 2004 and 2005, inspectors said one person was endangered. You send a crew into a mine, but MSHA comes up with a count of one! As a result of this peculiar math, the fines prior to the disaster were minimal.

    Here are some specific examples cited by Thomas in the article, quoting federal inspectors:

    • On Aug. 16, 2005, an inspector found a main escape path "obstructed by concrete blocks." On Nov. 8, 2005, an escapeway was "not being maintained in a safe condition to assure passage of anyone." Sago got six citations for blocking escapeways miners use to flee a fire or explosion. Each citation said one miner was endangered. The mine paid $60 fines for two violations. The amounts of the four other fines are being decided.

    • On Aug. 16, 2005, an inspector found "chemical smoke" being blown toward areas where two mining teams were working. A team typically has eight to 10 miners. The citation said one miner was endangered. A fine is being determined.

    • Sago was cited for 22 violations from July 2004 to December 2005 for "accumulation of combustible materials" — coal dust and coal chunks that can spread fires and explosions. All 22 violations said one miner was endangered. MSHA fined the mine a total of $1,768 for 17 violations and is deciding fines for the five others.

    Thus, on the prevention side, MSHA's enforcement efforts were seriously undercut by an unwillingness to accurately count the miners. MSHA blew an opportunity to put real leverage into enforcement before the disaster occurred.

    More Phantom Miners
    Now the second story. Meg Fletcher has an interesting article in Business Insurance about a case of workers comp fraud in Tennessee. Once again, undercounting of miners is a key to the situation. Gary Slater ran several leasing companies that provided workers for the mines. He operated companies with deceptively similar names: for example, Carol Dale Contracting Inc and Carol-Dale Inc. He would secure workers comp for one of the entities, but not for the other. He employed over 100 miners, but only about 15 were formally covered by a workers comp policy.

    When a worker was injured, Slater would either buy them off or, in the case of a more serious injury, he would move the employee from the payroll of his uninsured company to that of his similarly named insured entity. Then he would file a claim. As a result of his gross understatement of payrolls, he was able to defraud two insurance companies of over $6 million in premiums.

    Unfortunately for Slater, his scheme had one fatal flaw: by absorbing the losses for over 100 people, the premium for his insured entity (with a payroll of only 15 people) was vastly understated. So his rate of injury was extremely high (even in the high risk world of mining), and his experience rating went through the roof. As a result, the insurers began to investigate.

    Federal Charges
    Slater was done in by his own success. As a result of avoiding comp premiums, he generated huge profits that had to be hidden. So he set up an elaborate money laundering scheme involving phony invoices for trucking services. Because his criminal activity involved both the mails (mailing key documents including fraudulant application forms for insurance) and money laundering, the investigation was able to benefit from robust federal resources. After his partners in crime pled guilty and agreed to cooperate, Slater's conviction was a slam dunk. He has been sentenced to nine years in prison and ordered to pay more than $5 million in restitution.

    Ghosts of Living Workers
    These two story lines converge in the hard-scrabble lives of the miners. The common theme seems to be that miners literally do not count. MSHA cannot see them, so mine owners, instead of being financially motivated to fix safety problems, avoid heavy fines. The owners in some cases don't even hire the workers - they lease them from the likes of Mr. Slater, who in turn hides the workers off the payroll and avoids paying taxes and benefits.

    Every day thousands of people put on their gear and go where none of us would go. They live in constant fear. They never see the sun at work. Even if they survive from shift to shift, they face long-term health hazards. These "ghost workers" move among us, as we turn on the lights, crank up the heat, and log onto the internet. We cannot function without them, but we, in turn, are doing a very poor job of making their work safe and of rewarding them for their sacrifices.

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    February 21, 2006


    The good news from Iraq (OK, there isn't much) involves the dramatic improvement in battle-related trauma treatment. Soldiers are surviving injuries that in prior wars would have resulted in certain death. So far, over 15,000 soldiers have been injured since the fighting began in March 2003. By the time major military operations have been completed, more than two million soliders will have been deployed in Iraq and Afghanistan. That would project to about 70,000 troops suffering physical injuries.

    These wounded soldiers return to the states, go through rehabilitation and then, one hopes, they return to the workplace. When you consider that about 30 percent of the armed forces are citizen soldiers (National Guard and Reservists), you realize that many of these injured soldiers will be returning to the jobs they left behind. Their employers will be confronted with the challenges of "reasonable accommodation" - trying to adapt job functions to the capabilities of their returning workers.

    As challenging as this accommodation process is likely to be, it may prove far easier than dealing with the mental health issues of returning soldiers.

    The Stress of War
    There's something about people trying to kill you 24/7 that gives rise to inordinate stress. This is stress of a level that few people outside of the military - or a war zone - ever experience. In a compelling article (PDF) written by Robert Hartwig for the Insurance Information Institute, we learn that nearly 30 percent of returning military personnel suffer from at least one type of mental health problem, including depression, anxiety and/or post-traumatic stress syndrome (PTSD).

    Here we have a confluence of issues that bode poorly for these returning heroes. We seem to expect that people thrown into war will simply pack up their gear, change into civilian clothes and go about their business. For some, that may prove possible. But for others, the transition will be excrutiating.

    Given this country's ambivalence about mental health treatment, it's not surprising to find that even soldiers with stress symptoms often resist treatment. Hartwig quotes a study in the New England Journal of Medicine that found a reluctance to use mental health services even among soldiers who met screening criteria for major depression, anxiety or PTSD:
    - only 78 percent acknowledged a problem
    - just 43 percent indicated an interested in receiving help
    - only 40 percent had received help within the past year (and just 27 percent received help from a mental health professional)

    The respondants cited a number of reasons for not seeking help, including the belief that they would be perceived as weak (65 percent), embarassment (41 percent) and difficulty getting time off for treatment (55 percent). (As for that last problem, employers would likely be obligated to provide release time for counseling under the Americans with Disabilities Act.) But tellingly, 38 percent indicated that they did not trust mental health professionals, while 25 percent believed that mental health care doesn't work at all!

    There are at least three significant themes here: First, we live in a culture that continues to stigmatize mental illness. Second, the mental health profession has done a poor job of explaining itself to the general public. And third, the employers of these mentally stressed (and untreated) soldiers will be confronted with a host of problems when these former workers return from their battlefield commitments.

    Hartwig points out that returning veterans with physical or mental impairments are entitled to lifetime benefits from the Veterans Administration (assuming, of course, that VA services are adequately funded). The VA also operates a Readjustment and Counseling Service to ease the transition of veterans returning to civilian life. Insurance claims adjusters would do well to take note of these resources!

    Business as Unusual