Open Letter - structural problems with Workers Compensation rating

Dear Governor Brown, Commissioner Jones, Mayor Schaaf:

Small business owners in Oakland, along with peers in certain other California cities, are on the forefront of a wave of increasing wages and other costs which together put the future of our businesses in jeopardy.  This is creating problems in several areas, some of which are dictated by state law or agencies.  Workers Compensation Insurance is one which needs immediate attention.

Workers compensation is a significant cost for restaurants, accounting for tens of thousands of dollars in annual expense for a medium-sized operation.  There are several structural problems which are creating disproportionate increases in cities like ours, many of which are related to rapidly increasing wages:

Minimum wage increases are creating unfair increases in premiums with no increase in risk

As minimum wage increases, restaurant workers (who are heavily tip-compensated) are getting significant raises.  The average cost for our employees in 2016 is 15%-30% more than in 2014.  Workers comp risk hasn’t increased for those workers, but today, we’re paying decidedly more than we were for the same insurance.

Regional rating means that higher-wage cities are subsidizing premiums for neighboring lower-wage cities

Since minimum wages vary widely between cities, and since workers comp rates are generally set by region, here in Oakland we are effectively subsidizing the risk for surrounding cities with lower wage structures.  Employees doing the same work with the same risk exposure in San Leandro are insured for significantly less premium.  This isn’t fair to higher-wage-paying employers.

Settling of fraudulent claims penalizes employers unfairly

Many of us have experienced workers compensation claims which were settled without merit - we’ve seen claimants and their unscrupulous attorneys claim injury where there was none, claim inability to work when the claimants have been observed to be able-bodied and working, and have seen claims expand to include wage and other employment disputes, again without merit, solely to create more leverage for settlement.  The decision to settle these claims is made by our insurers, in the interest of closing the claim as quickly as possible.  But we pay the penalty in the form of greatly increased rates and inability to take our business to another company if we’re unhappy.

We’re looking forward to establishing a dialog about how to address some of these structural problems to help protect our own small businesses and continue to support small entrepreneurship as the important social value we believe it is.