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What is an Excluded Employee under California’s Workers’ Compensation Law?

In California, employers are required to provide workers’ compensation benefits to their employees who sustain work-related injuries or illnesses, even if they employ only one employee.  Workers’ compensation insurance provides basic benefits to injured workers including medical care, temporary and permanent disability benefits, return-to-work supplements, supplemental job displacement benefits, and death benefits.  The California Labor Code defines who is an employee for purposes of workers’ compensation benefits.  Basically, an employee is defined as any person who is in the service of an employer either through contract or appointment and even includes individuals such as minors, aliens, and those incarcerated in a correctional institution.  However, whether or not someone is actually considered an employee will also depend on the situation.

In January 2017, California’s workers’ compensation law changed in terms of who is considered an excluded employee for workers’ compensation purposes.  Many employees who were previously excluded must now be covered by workers’ compensation insurance.  The new law provides that all business workers’ compensation policies, including those policies that are currently in-force, are required to cover certain directors and officers of private corporations and working members of limited liability companies and partnerships that might have been excluded from coverage before the law took effect.

Prior to the law, paid directors and corporate officers were considered employees, but directors, officers, and working partners who were the sole shareholders did not have to be covered under a business’ workers’ compensation policy unless they opted to be covered. This was the case for sole shareholders of a corporation, and for working members of a limited liability company or partnership who were general managers or partners.  Under the new law, directors, officers, and partners must be covered by workers’ compensation insurance and can only opt out of coverage if they sign a waiver and file it with their employer’s insurer.  The law also requires:

  • That a director or officer own at least fifteen percent of the corporation’s stock in order to opt out of workers’ compensation coverage;
  • That with the fifteen percent ownership requirement, no more than six people can be excluded;
  • That the director or member sign a waiver stating they are a qualifying member or officer;
  • That the waiver remains in effect until the insurance company receives a written withdrawal;
  • That a managing member of a limited liability company or a general partner of a partnership sign a waiver to opt out of coverage.

In other words, to exclude directors, officers, partners, and members from workers’ compensation coverage in California, they must first meet certain qualifications.  If they do qualify, then each individual who wants to be excluded from coverage will be required to submit a signed waiver to opt out.  The new law is meant to prevent employers from giving their employees false titles or small ownership shares just to avoid covering them under workers’ compensation.

Knowledgeable and Experienced Workers’ Compensation Lawyer in California

If you have any questions regarding this new law regarding workers’ compensation coverage, or if you’ve been injured on the job, particularly if your injury happened in the San Bernardino, Hemet, or Inland Empire areas, you might be entitled to benefits under California’s workers’ compensation law.  Albert E. Hirst, III, has many years of experience handling workers’ compensation cases and he has the resources necessary to help you obtain the results you need and deserve so call us today at (909) 885-7190 to schedule your free consultation and learn what we can do for you.