Wielding the power authorized by the State Compensation Insurance Fund board of directors, SCIF president Jan Frank has filed a cross-complaint in a lawsuit that seeks to lift Governor Arnold Schwarzenegger's furlough order from the backs of all workers at the quasi-public agency. The complaint pits Frank and the State Fund's board squarely against the interests of the administration, which has fought all attempts to lift the furlough order at SCIF even though it does not help the state's fiscal crisis.

Payroll at SCIF is supported entirely by the premiums collected by the carrier so applying the furlough order does not save any money for the state's general fund -- the premise behind the furlough order. And applying the order has potentially exposed the carrier and thereby its insured employers to additional expenses in the form of penalties and/or higher claims costs due to potential delays in the claims adjudication process.

Beyond the logical argument against the furlough, the complaint also makes the pragmatic one that attorneys for the California Attorneys, Administrative Law Judges and Hearing Officers have used successfully to this point -- that the governor lacks the authority to impose the staffing cutback on the carrier. In addition to noting the numerous sections of the Insurance Code that vest control and management of SCIF to its board of directors and management team, Frank points out in the cross-complaint that Insurance Code section 11873(c) states " positions funded by the State Compensation Insurance Fund are exempt from any hiring freezes and staff cutbacks otherwise required by law." (Click here for a copy of the cross-complaint)

That code section was key in Judge Peter Busch's decision in the CASE lawsuit, noting that "a 'furlough' reduces the availability of staff and therefore constitutes a 'staff cutback' for purposes of the statute." He noted that the furlough order should not apply to SCIF employees, but he limited his order only to CASE members as they were the only parties to the lawsuit before him. Frank's cross complaint, which was filed as part of the legal case brought by the Service Employees International Union on behalf of its members, would extend that relief to all State Fund employees.

Frank is asking the court for a writ setting aside the portion of the executive orders calling for a furlough and salary reduction for State Fund's workers, and for the court to command Controller John Chiang to immediately pay them their full salaries without any reductions pursuant to the furlough orders. The complaint also asks for a declaration from the court stating that Governor Schwarzenegger and David Gilb, director of the Department of Personnel Administration, do not have the power to furlough SCIF employees and that the Controller does not have the right to reduce their salaries under the executive orders. The complaint also seeks attorney fees and other costs.

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