California Apparel News

In the wake of landmark legislation aimed at reforming California’s distressed workers’ compensation system, Los Angeles apparel makers are finding ways to reorganize their infrastructures to keep spiraling costs at bay.

Part of those reorganization efforts include the implementation of the Return to Work and Modified Work Program (SB899), passed by the California Legislature and signed by Gov. Arnold Schwarzenegger earlier this year.

The reform package is being phased in from now through January 2005. SB899 gives the state tighter control over claim payouts and allows insurance companies to scrutinize ongoing claims more closely. The new law includes a regulation that makes it mandatory for employers to encourage their injured employees to return to work.

“The intention of SB899 and last year’s round of legislation was to lower workers’ compensation costs, and early return to work is one way that an employer can reduce his workers’ comp cost,” said Rich Stephens, spokesman for the Division of Workers’ Compensation at the California Department of Industrial Relations (DIR).

Stephens points to advantages for both employers and employees. “The employer has a productive worker on the job who is not at home collecting benefits, and the employee is working and getting a salary,” he said.

All business owners are required by law to provide workers’ comp insurance, which can cost apparel industry employers anywhere from $9 per $100 of payroll to $13 per $100 of payroll. Workers’ comp insurance pays expenses for medical care, rehabilitation, lost wages from injuries, and death benefits in cases where employees are killed on the job. Currently, California’s maximum disability benefit is $728 a week.

The average workplace injury incident rate among employees is 2.5 per 100 full-time employees. About 2,900 apparel employees reported workplace injuries in 2001, according to the DIR’s Division of Labor Statistics and Research.

The actual incidence of injury may be even higher, according to Susan Gard, a DIR spokesperson, who said some workers are reluctant to report workplace injuries.

“It’s illegal to discriminate against workers who file a workers’ comp claim, but in the real world, it happens all the time,” she said.

Policyholders’ fees can skyrocket if there is a high frequency of employees reporting work-related injuries. Some employers responded to rate hikes by freezing their staffs or shedding jobs.

Some Los Angeles apparel companies shuttered their operations last year when workers’ comp premiums skyrocketed up to 250 percent.

Looking for savings

Lawmakers point to other cost-saving aspects of SB899, including one regulation that holds employers responsible for the portion of the injury caused on the job and not for preexisting injuries. SB899 also gives employers the option to choose a medical provider network for his/her employees, which gives the employer more control over medical treatments and costs.

Perhaps the most visible change in workers’ comp as a result of SB899 is a regulation that puts a limit on the length of time an employee can collect temporary disability benefits. “For the first time ever, medical management, in creating a schedule of payment, is going to curb some of the costs and prevent workers from claiming long-term disabilities,” said Robert Mancia, group insurance consultant at the State Compensation Insurance Fund.

Mancia said there is a maximum of 104 weeks for temporary disability payments and a maximum of 24 chiropractic and physical therapy treatments for each case under the new guidelines. “The cap can only be overturned if a medical opinion approved it. Prior to that, it has been open-ended,” he said.

Under SB899, for every employee who returns to work, an employer can receive up to a 15 percent reduction in the amount of loss assessed by the insurance company toward the company’s total premium.

“It’s just one of the pieces of the puzzle that employers may use to try to control costs,” Mancia said.

Mancia said early cost-savings estimates indicate that the Return to Work and Modified Work Program can save employers anywhere from a few hundred dollars to several thousand dollars. A one-year account of cost savings from the program will be included in audit reports that will be submitted to the California Department of Insurance by 2006.

Cross-training programs are another aspect of the program. Employers are teaching their employees to perform a variety of tasks so they can fill in for injured workers, if needed.

The DIR said employers can avoid workplace injuries by implementing an Injury and Illness Prevention Program. Under Title 8 of the California Code of Regulations, employers are required to implement a written IIPP plan that is specific to their workplace. Gard said the agency checks to see if business owners are in compliance with IIPP during workplace inspections. Noncompliance in workplace safety is cited more than any other violation, she said.

To help business owners comply with the regulation, the Division of Occupational Safety and Health offers an on-site consultation program that assists employers at work sites, over the phone, in meetings and via correspondence. The federally funded program performs approximately 2,200 on-site visits per year.

Addressing challenges

Small businesses were not what lawmakers had in mind when they drafted the legislation, according to Randy Youngblood, chief executive officer of Apparel Resources Inc., a labor-compliance monitoring company in Yorba Linda, Calif.

“This regulation really applies to large companies with 50 or more employees,” he said, explaining that companies that cannot provide modified work for injured workers can still be charged administrative fees by insurance companies.

Apparel contractor Hector Bustamante said his workers’ comp insurance premium for 25 employees increased from $6,000 last year to $13,000 this year.

Bustamante is owner of and operations manager at Azusa, Calif.–based Lauren B. Manufacturing Inc., a 35-year-old apparel business that produces private-label sportswear and athletic apparel for local manufacturers. He was one of several apparel contractors who attended a recent workers’ comp workshop hosted by the Garment Contractors Association of Southern California Inc., where insurance experts offered their advice to business owners.

“Workers’ compensation costs could be minimized by employers who work in partnership with their employees, their treating physicians and their insurance claim brokers,” explained Helene Freedman, senior consultant at Arthur J. Gallagher & Co.

Bustamante said the Return to Work and Modified Work Program was a good idea but said he would have to find ways to apply it to his company.

“I think it’s going to be hard for us because we don’t have a lot of non-production positions here, he said. “At the prices that we’re getting paid now, it would be impossible to create new positions for workers who want to return to work under a modified work program.” —Claudia Figueroa