One other article from the “Left Coast”–How to become the “Vice-President of Dough-Making” and why.
Editor’s comment: In Illinois and most states, owners, officers and partners of a company can opt out of workers comp coverage. Section 1(b)(3) of the Illinois Act defines employers and says: “Every sole proprietor and every partner of a business may elect to be covered by this Act.” Case law interprets this to allow partners and owners to avoid ever-increasing workers’ comp premiums.
In some states, they are starting to see charlatans and neer-do-wells try to exploit this otherwise simple exemption into a scheme to avoid paying premiums. The Contractors Asset Protection Association (ConAPA), a company based in California, sought to help companies avoid workers’ comp premiums by designating employees in high rate occupations as “corporate officers.” The ConAPA company website seems to have gone 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 high wage workers inflated titles, they issue workers relatively worthless shares of stock. ConAPA focused on industries with high injury rates and expensive comp costs such as roofers, maintenance workers and cooks.
Using their strange business model, a housekeeper might become a “senior vice president, facilities.” A roofer became “VP for environmental protection.” A baker might be the “Vice-President of Dough-Making.”
California Attorney General Edmund G. “Jerry” Brown has filed a lawsuit to stop the Contractors Asset Protection Association, Inc. from engaging in a “sophisticated and fraudulent scheme” to cheat the state workers compensation system. “This company falsely promised its clients that if they gave their employees empty titles and worthless shares of stock they could avoid tens of thousands of dollars in workers compensation premiums,” Attorney General Brown said. “But you can’t simply call a security guard a vice president and avoid complying with the law through a sophisticated and fraudulent scheme.”
This lawsuit seeks a permanent injunction barring Contractors Asset Protection Association, Inc. (ConAPA) and its founder-president from engaging in unfair and deceptive business practices in violation of sections of the California code. The lawsuit also seeks restitution and civil penalties of no less than $300,000. The lawsuit alleges ConAPA sought to exploit a legal exception to the workers compensation law, where directors of a corporation who are also the sole shareholders can exempt themselves from workers’ compensation coverage. Under this scheme, ConAPA marketed and advertised an unlawful business plan urging employers to misclassify rank-and-file employees as “corporate officers” and issue them nominal shares of company stock so as to avoid paying workers’ compensation insurance premiums. Despite the titles, many workers were not assigned any managerial or administrative duties and performed the same rank-and-file duties for the same pay that they performed prior to their “promotion.” ConAPA ensured that its clients were able to prevent their new “officer-shareholders” from gaining control over the business. Employees were also required to sell their shares back to the company if they left the company. ConAPA apparently told its clients this business model was “legal” and implied the program had been scrutinized and approved by several state authorities, which it had not.
We caution the sharks in the insurance industry to stay out of Illinois waters with this silly scheme. We are pretty sure Illinois Attorney General Lisa Madigan would be on it faster than the ink dried on the policy. If you have thoughts or comments, please send a reply.
