382 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com 17.5 Compensation Implications California employers must not deduct the cost of workers’ compensation from employee earnings.5 17.6 Good Faith Personnel Actions While California workers’ compensation broadly covers any injury arising out of employment, including psychiatric illness or injury, compensation for psychiatric injury may be denied when the employee has been employed less than six months (unless the stress resulted from “sudden and extraordinary” conditions, as opposed to “regular and routine” employment events), when the injury resulted from lawful, non-discriminatory, good faith personnel actions, or when the psychiatric claim was first made after notice of the employee’s dismissal.6 17.7 Temporary Labor To protect employers that use a temporary employment agency or that join with another employer to perform work under their dominion and control, one party may assume all responsibility for the provision of workers’ compensation benefits to those workers. The agreement has to be in writing, expressly stating which entity will provide the benefit. The responsible entity then must purchase or provide for the benefits for the protection to be implemented.7 17.8 Coverage of Employees Only 17.8.1 Workers covered Any person rendering service for another, other than an independent contractor, is presumed to be an employee for purposes of workers’ compensation liability.8 As of 2017, the definition of employees subject to coverage changed.9 Now, unless they affirmatively opt out, coverage is extended to “working members of a company.” Previously any working officer or director of a privately held corporation or partner or managing member of a partnership or limited liability company was automatically excluded from coverage unless he or she affirmatively elected coverage. To avoid coverage, any officer, director, or partner owning 15% of issued and outstanding stock, or an individual who is a general partner of a partnership, or managing member of a limited liability company must affirmatively opt out of coverage by signing a waiver under penalty of perjury confirming that he or she meets at least one of the qualifications and elects to waive coverage. This rule applies to “in force” policies, as well as to new policies. 17.8.2 Independent contractors Workers’ compensation insurance is not required for independent contractors who work for a California employer. Correct classification of a worker as an independent contractor is essential, because if a person improperly labeled as an independent contractor is injured while doing work for a company, then the company may have to pay for the medical bills for the injured worker. Similarly, if an employee hired by an improperly classified independent contractor to do some work is hurt, and the “independent contractor” does not carry workers’ compensation insurance, then the company engaging the “independent contractor” may have to cover medical bills and compensation for the injured worker. In November 2020, Proposition 22, the Protect App-Based Drivers and Services Act (see § 19.7), was approved by a majority of California voters resulting in certain gig workers who use app-based platforms to provide services becoming independent contractors by statute. As a result of the passage of Proposition 22, California added sections 7448 et seq. to the Business and Professions Code. These sections remove from the definition of
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