Employer Wish List Led to Grand Bargain with Labor

Published 12/11/14 on WorkCompCentral, authored by Greg Jones

Editor's Note: Three WorkCompCentral reporters devoted at least one week each in the past several months to tell the story behind the story about the dysfunction of California's workers' compensation system. This is the fourth of six stories in our special report, which was distributed in print form at the Third Annual Comp Laude Awards Gala in Los Angeles on Saturday.

When Sean McNally was managing the workers’ compensation program for the self-insured Grimmway Farms in the early 2000s, the owner of the company approached him with frustrations about the state’s workers’ compensation system.

“He said, ‘We have fewer injuries than we’ve ever had and we’re paying more than we ever have,’” McNally recalled.

The boss asked McNally to come up with a “Christmas list” of things he would change if he were the king of California workers’ compensation for a day. That list would spark a chain of events that led to Senate Bill 863 – the largest-ever reform measure in California workers’ compensation.

McNally and Grimmway Farms took the list to other growers across the state and raised about $6.5 million to lower workers’ compensation costs. They filed a ballot initiative with the state’s attorney general, and that caught the attention of the governor.

“We filed with the attorney general and like the next day (Arnold) Schwarzenegger called and said, ‘Who are you guys, and we need to meet because I ran on work comp reform and you guys are ... hijacking it,’” McNally said.

The group met with the former governor and got him on board with the effort. Together, they leveraged the pressure from the ballot measure to get the state Legislature to pass Senate Bill 899, a 2004 law that reduced permanent disability benefits for injured workers amid other changes. The governor appointed McNally to leadership roles with the State Compensation Insurance Fund and the Commission on Health and Safety and Workers’ Compensation.

Both the bill and McNally’s place on CHSWC would prove instrumental to aligning the components that would lead to SB 863. CHSWC is where McNally formed a relationship with California Labor Federation Legislative Director Angie Wei, also a commissioner on the board, as well as CHSWC’s former Director, Christine Baker. McNally and Wei got to know each other, and Baker helped them see eye to eye, McNally said.

Meanwhile, discontentment about the cuts to benefits grew among those representing injured workers and the costs of workers’ compensation began to rise for employers, despite SB 899.

McNally and other employers wanted to take the power to rule on medical decisions away from judges because it led to unpredictability, causing insurers to need to reserve more money and thus raise insurance rates for businesses. Wei and other labor groups wanted to gain back the permanent disability benefits they’d lost. Baker became director of the Department of Industrial Relations, and Jerry Brown was elected to the governorship. All the pieces for reform were in place.

“We’ve got a sympathetic governor, we’ve got a sympathetic labor secretary; we’ve got Christine in a better place now,” McNally recounted.

In the second half of 2011, McNally and Wei decided to pull together a group of negotiators representing labor and employment to start meeting in Sacramento to achieve the aims of both sides.

Joel Sherman, the director of safety, workers’ compensation and regulatory compliance for Grimmway Farms, said that drawing the right people together for such a project is a particular talent of McNally’s.

“(During negotiations for SB 899 and SB 863), some issue would come up and he would put his mind to it and he would come up with the name of an individual who understood that aspect well enough to come up with language that would survive, in some cases, Supreme Court scrutiny,” Sherman said.

McNally picked William Zachry with Safeway, Tim East with Disney, Martin Brady with the Schools Insurance Authority, Dan Bagan from the United Parcel Service and Theresa Muir with Southern California Edison.

McNally said that only labor and management were invited to the negotiating table because those are the two original stakeholders in workers’ compensation.

As such, those involved in the negotiations were sworn to secrecy. While myriad other groups – doctors, lawyers, copy shops and more – were aware that reform efforts were underway, details didn’t become public until a draft version of the bill was
released in August 2012, about a month before the governor would sign it into law.

Alan Gurvey, a member of the California Applicants’ Attorneys Association, said he believes that those involved with the negotiations approached the reform efforts with only cost reduction in mind and that the permanent disability increases didn’t justify the other changes the bill included – things like eliminating the compensability of sexual dysfunction and adding the independent medical-review process.

“(IMR) had nothing to do with getting the injured worker medical treatment,” Gurvey said. “It had everything to do with cost containment for our clients.”

McNally said that applicants’ attorneys didn’t want the IMR process to bypass the AME/QME process because it gives them less control over medical decisions.

“They hate that jurisdiction was taken away from the judges because they can’t manipulate the outcome,” he said.

McNally said the creation of IMR for workers’ compensation and the elimination of sexual dysfunction and other “abused” injuries from compensability both reflect victories he was hoping to achieve coming into the reform negotiations.

But as the workers’ compensation system moves through the process of implementation and learning to work with the climate SB 863 created, he said he is unsure whether the bill has achieved the results he and others wanted.

“We probably won’t know for another six months or a year how much the perm disability increased, if at all, and how much in savings we’re getting out of IMR,” he said.