Silicon Valley Blogger does a superb job hosting this week’s Cavalcade of Risk at The Digerati Life. The intro gives a hint of this week’s content: The theme of this carnival is risk management. From disruptive physicians, to Indian IPOs and patents, and even baboons, you’ll find quite a diverse set of articles in this carnival that are tied together by the common thread of risk management and the concept of risk. Quite a smorgasbord – makes for some fun reading!
Archive for January, 2008
New Hampshire has come up with their own 12 step program to determine whether contractors are truly independent or just employees. Meanwhile, the IRS has come down hard on FedEx, hitting the company with a $319 million fine for misclassifying drivers as independent contractors.
Let’s start in New Hampshire. The state has come up with 12 criteria for determining independence, all of which must be met or the system defaults toward an employer-employee relationship. The criteria include the usual focus on control of the work, but there are a few new wrinkles:
A. The person possesses or has applied for a federal employer identification number of social security number or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter.
[This appears to imply that undocumented workers – who cannot have federal id numbers or social security numbers – are automatically employees.]
F. The person has continuing or recurring business liabilities or obligations.
G. The success or failure of the person’s business depends on the relationship of business receipts to expenditures.
Like Massachusetts, New Hampshire is looking for objective evidence that the independent contractor runs a legitimate business. Both states accept the presence of employees with the IC as compelling evidence – but that will not help the typical sole proprietor without employees. Whereas Massachusetts has stipulated that a subcontractor in the same trade as the contractor is by definition an employee, New Hampshire does not focus at all on the sub’s specific trade.
Having issued all this clarification, the states now sit back and let someone else figure out the details. That someone else, alas, is the poor insurance auditor, who has been given the unenviable task of determining the status of each and every subcontractor. You don’t suppose that this detective work is contemplated in the current fee structure, do you?
In MA, auditors have some latitude. If the independent contractor/sole proprietor does not have any employees, they are likely to be added to the general contractor’s payroll for workers comp. In New Hampshire, auditors are held to a higher standard. They must inspect records and operations of every GC and sub to determine whether the subcontractor meets all 12 criteria for independence. They do this at their own risk: If they make a wrong determination, they are in violation of state law.
Closing in on FedEx
The IRS in December determined that FedEx drivers were misclassified as independent contractors. They slammed the company with a $319 million fine and penalties. Since the fine only covers 2002, FedEx could face additional penalties totaling over a billion dollars after the IRS completes its investigation. FedEx has already lost the argument in a number of states, including California. Now they’ve lost at the federal level as well. They are going to sit down with the IRS this spring to hash out the implications of their latest losing argument. (For our numerous postings on this important case, just enter “FedEx” in the search box.)
FedEx managers are apparently hanging their hopes on a 1995 agreement between FedEx Ground’s predecessor company (Roadway Package System) and the IRS, which reads in part: “The Service agrees that it will not reclassify the RPS owner-operators as employees, except upon a determination after audit, that RPS has exercised control over the RPS Owner-Operators in a manner that conflicts with the 1994 Operating Agreement, Letter of Assurance and Exhibits.” Unfortunately for FedEx, there is a growing body of evidence that the company exercises rigid control over every aspect of the relationship with their “independent” drivers, from uniforms and length of hair to schedule of pick up and delivery.
Much has been made of the liability facing FedEx in the area of employee benefits, but little attention has been paid to workers comp. We can safely assume that hundreds of current and former drivers have been injured on the job. When they come up with a total cost for violating fair labor standards, the comp costs will have to be added in. This long-profitable enterprise appears on the verge of accepting retroactive responsibility for as many as 17,000 employees. That’s a lot of drivers and a truckload of liability.
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.
A new edition of Health Wonk Review is being hosted by Vince Kuraitis at e-CareManagement blog, including posts about in-store clinics, physicians, problems and solutions in health systems, and cats, dogs and kangaroos. Suffice it to say that this is the first time kangaroos have surfaced in HWR, and I will leave it to you to discover why. This edition is Vince’s debut as HWR host, and he carries out his duties with style and grace. His blog focuses on issues and trends in chronic disease management and technology. While there, you might check out his take on Disease Management Megatrends for 2008, a post which is also available in a 20-minute podcast version.
New tools for our sidebar
In other matters, here are a few handy tools that have recently come to our attention – we’ll be adding them to our sidebar:
Health care – HealthExecLynx is a huge compendium of links related to all things health care – an absolute must for your bookmarks. It lists thousands of links, including health care news sources, blogs, associations, governmental concerns, career resources, and more – an excellent resource.
Safety signs – Safety Sign Builder 2.0 – this free service includes a number of web-based tools that facilitate the creation of custom general and safety signs. Each Sign Builder tool has unique options designed to make the creation of any custom sign quick and easy. Build Hazmat signs, ANSI signs, or OSHA-compliant Lockout Tags in English and in Spanish. Safety Sign Builder 2.0 is sponsored by St. Claire, Inc.
OSHA – OSHA recently announced eight new OSHA Training Institute (OTI) Education Centers. Current OTI Education Centers offer training courses on OSHA standards and occupational safety and health issues. The Centers provide safety and health training to private sector and federal personnel from agencies outside OSHA.
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.
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.
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.
When Paul Soto joined the NYPD in 1993, he was 25 years old and weighed 250 pounds. Ten years later, his weight ranged well above 300 pounds. As you might expect, he was having difficulty performing the essential functions of his job. He applied for disability retirement; pending review of his application, he was placed on light duty, which kept him in the precinct house on desk duty. During the year his application was under consideration, he tripped and fell on the way to his ortho specialist, injuring his knee to the point where he no longer could work at all.
The issue here is not Soto’s eligibility for disability benefits. At age 40, he is collecting half his pay, taxable. Soto contends that because he was working at the time of his fall, he should be able to collect job-related accidential disability benefits, which are higher than ordinary disability: he claimed that his fall on the way to the doctor was a work-related accident, because it occurred while he was on light duty. His case reached the NY Supreme Court, where Justice Judith Gische upheld the pension board’s rejection of the request. The justice ruled that the fall was due to morbid obesity and not to Soto’s functioning as a cop. Had Soto prevailed, his benefits would have increased to 75 percent of his former pay and would not have been taxable. There was a lot of money on the table.
The unfortunate Mr. Soto, who now weighs in at 500+ pounds, has been the subject of ridicule in the media. He inspired one of David Letterman’s Lists: Top Ten Signs a Police Officer is Too Fat. (The not-very-funny list can be found here.)
Essential Job Functions
The over-riding issue is one of functional capacity. Unlike firefighters, NY cops are not required to pass periodic physical exams. They are tested as job applicants, but once in, there are essentially in forever. Police administrators, like everyone else, operate in the shadow of the Americans with Disabilities Act. In addition, police unions severely constrain any actions taken against veteran cops. Too bad. When you take into account the public safety dimension, it’s pretty clear that some objective physical (and mental) standards for cops are needed – at the time of hire and throughout their careers.
As for Paul Soto, once he was unable to perform his job duties, he should have been given an ultimatum: lose weight or lose your job. Every reasonable effort to help him lose weight should have been made. Unless you accept the argument that his weight gain was something totally beyond his control, he should have been held accountable for his conditioning. That would have been better for the NYPD and ultimately, better for Soto himself. The system that now pays him to do nothing has done a disservice to the taxpayers and to a once productive citizen.
The Tennessee Restaurant Association (TRA), as you might expect, is a lobbying group for restaurants. One of the benefits of membership is access to special insurance programs. Around 500 members participated in a workers comp program run since its 1993 inception by the TRA’s charismatic director, Ronnie Hart. Unfortunately, as we read in the Tennessean, Mr. Hart had no experience in insurance – he was a lobbyist by trade. So he learned “on the job” for the first few years and then hired a company called Hospitality Management Plus to administer the program. The “plus” was apparently the routine doubling of management fees and unauthorized dipping into the reserves. The minus, alas, is that neither Hart nor Hospitality Management knew how to run an insurance operation. Both are now bankrupt.
The state’s Department of Commerce & Insurance took over the fund in 2005. They originally estimated the shortfall at $1.5 million. The revised number is $4.8 million, which has upset the stomachs – and wallets – of the 500 or so members on the hook for payment.
Randy Rayburn, owner of the renowned Sunset Grill and Midtown Cafe, is very angry. He is also a bit circumspect: “In hindsight, what does a lobbyist know about running an insurance company?”
Frank Grisanti, a restaurant owner and trustee of the fund, says he knew that Hart was making a profit running the trust, but he did not see it as a conflict at the time. “I guess it turns out that it was poor judgment…” Grisanti is facing a $60,000 assessment as his part of the trust’s liability. That’s a lot of surf and turf.
I’m sure the restaurant owners now appreciate the need for a little due diligence in the insurance area. Just as they would not hire a plumber to be a lead chef, they might think twice about asking a lobbyist to run an insurance company. It looks simple enough, but on-the-job training is not the way to go. Now the owners are stuck with the bill. They’ll need more than extra strength Tums for this severe case of “Hart-burn” in Tennessee.
We’re pleased to be hosting this week’s edition of Cavalcade of Risk. Participants have submitted a wide spectrum of analysis, tips, tricks, and tools to help manage risk, both in the public and the personal arenas. It’s a hefty issue, so let’s jump right in.
First, a few brave souls take a look at the landscape. Blogging at the RGE Monitor, Rachel Ziemba reassesses the risk management climate in the financial sector for 2008. Leon of Sox First takes the pulse of some financial experts as to whether the the subprime crisis will drag us into a recession and Ian Welsh of The Agonist offers his thoughts on why we can expect that financial crises will keep happening. With that backdrop, let’s look at what our other participants have had on their minds over the last few weeks.
Our bloggers have thoughts on managing your personal finances in this challenging environment. Jeff Miller of A Dash of Insight suggests that understanding risk and reward means knowing to what extent prices already reflect the risk. Dorian Wales stresses the importance of diversifying your risk in the stock market at Personal Financier.
In a post at The Skilled Investor’s Personal Finance Blog, Larry Russell suggests that Fund Authority Scores are tools that can take the snake oil out of investment. Offering advice from experience, Fire Finance Blog shares their views on 7 mutual fund investing mistakes. Malaysian financial planning blogger Kclau offers a huge roundup of his personal finance articles from 2007. And after the chips fall, the Silicon Valley Blogger opines about why the rich keep getting richer.
Health, health care, and health insurance
Health care is occupying much of the mind share for risk bloggers these days. Health Savings Accounts (HSAs) seem to be a hot topic again this week. In a post at Colorado Health Insurance Insider, Louise notes that there is not a lot of opportunity for comparison shopping yet. And sparks fly at Managed Care Matters when Joe Paduda describes HSAs as thinly-disguised tax breaks for the well-to-do. In other financing mechanisms, Jonathan Pletzke of Consumer’s Health Insurance Blog looks at the matter of health insurance for the self-employed, while Joe Kristan of Tax Update Blog considers the tax implications of S corporation owner-employee health insurance.
Also in the health care arena, Zagreus Ammon discusses the risk that retail clinics pose to the public hospital system (part 2) at his blog The Physician Executive. Of course, with a presidential campaign in the offing, the health care landscape could change in other ways, as well. Jason Shafrin of Healthcare Economist looks at the health care reform positions for both Reuplican and Democratic presidential candidates. And Bob Laszewski of Health Care Policy and Marketplace Review, who has had an ongoing series examining candidates’ positions, this week offers an in-depth analysis of Senator Hillary Clinton’s Health Care proposal.
When it comes to managing health risks, we often talk about risk in terms of our own behaviors, but what about the behaviors of those who treat us? InsureBlog’s Bob Vineyard has a thoughtful (and disturbing) item on questions we should be asking to minimize our own risk of a bad outcome. David Williams of Health Business Blog demonstrates the importance of due diligence with some chilling examples of how medical quality can take a wrong turn. And on the issue of health care quality run amuck, here at Workers Comp Insider, my colleague Jon Coppelman presents another example in the story of Dr. Chan, a neurosurgeon who amassed a small fortune taking kickbacks for surgical implants.
On the matter of managing our own personal health risk, bloggers offer some news. On the matter of cardiovascular disease, Barbara Duck, hostess of the Medical Quack Blog, tells us that strawberries might lower the risk and Dick Hanneman, president of the Salt Institute informs us that salt is not necessarily as bad for us as we’ve been led to believe. But not all news is good. According Mahdi Ebrahimi of Organic Agriculture, cooking certain foods at high temperatures may increase the risk for breast cancer.
Other risk matters
Over at CNET’s NewsBlog, Chris Soghoian reports on a major irony: the TSA’s own website may be putting travelers at increased risk of ID theft. Data integrity is an increasingly important issue for consumers. At the Security and Risk Management Blog, Jen Mulligan has some disturbing news about data privacy. Some recent news from England serves as a springboard for some great tips on reducing your own risk of ID theft.
Tired of working for “the man” and thinking of striking out on your own? Conventional wisdom holds that 80% of all small businesses will fail within the first 5 years of operation. Matthew Paulson of American Consumer News looks at common mistakes in his post entitled How to Start a Small Business and Fail Miserably At It. But if your endeavor requires negotiating a contract, you might learn something from the sports world. James Mirtle looks at the risks involved in high-dollar professional sports contracts. And if worse comes to worst, Karen Halls offers advice on how to recover at Bankruptcy Lawyer’s Blog.
The Insider continually tracks the impact of an aging workforce. There’s no lack of material! Here’s an interesting case from the Bluegrass state, where the issues of working past retirement age and the calculation of disability benefits collide.
Charles Lickteig was a deputy sheriff in Jefferson County, Kentucky. He was eligible for retirement age at 55, but chose to continue working, in order to better support his school-aged children. At age 61 he was unable to continue, due to a deteriorating vertebra, arthritis, nerve damage, and Parkinson’s disease. (His disability is apparently not directly related to the law enforcement work he carried out for 18 years.) He filed for the special disability retirement benefits available to public employees engaged in “high hazard” work. Kentucky Retirement Systems denied his request for disability retirement, granting him instead the retirement benefits available to workers engaged in ordinary work. Under the state system, only workers under 55 are eligible for disability retirement benefits.
Lickteig’s Attorneys brought his case to the EEOC, arguing that the Kentucky plan violates the Age Discrimination in Employment Act (ADEA) of 1967. Under the Kentucky approach, the benefits for employees who become disabled would vary by age: two employees, each with the same total time of service but of different ages, would receive different benefits. A worker below the age of 55 would always receive benefits at least equal to and in most cases greater than those granted to workers over 55.
The District Court and a panel of the Sixth Circuit at first concluded that the Kentucky plan did not violate the ADEA. While the approach took age into account to determine benefits, it did not attach any stigma to age itself. The Sixth Circuit reheard the case en banc and reversed, holding that the simple act of treating younger disabled retirees better than older ones was sufficient to make out a prima facie ADEA violation. (Four of 12 judges dissented.)
At this point, Kentucky has been ordered to revisit the calculation of Lickteig’s benefits and to remove the traces of age discrimination from its retirement system. Kentucky has appealed, asserting that the EEOC and Court rulings violate state sovereignty. Now the case moves to the U.S. Supreme Court, which will sort out the territorial and age issues. (The EEOC brief can be found here.) As with every issue reaching this particular court, it will be fascinating to see how they rule.