California Department of Insurance has – for the third time – now ordered American Labor Alliance to cease operations in California but to no avail. Its alter egos Agricultural Contracting Services Association and CompOne USA, as well as leader Marcus Asay, continue to do what they do.
Officials at ALA have maintained in public statements and on the witness stand that they are outside the purview of the California Department of Insurance. But a carefully constructed 37-page decision details the myriad ways in which ALA is not what it says it is. CDI explains why it is subject to state regulation and oversight. The decision also points to numerous false statements by ALA officials while under oath. The Department’s decision does not address state statutes that prohibit, and have for two decades, the formation of new MEWAs.
The decision notes that between the first cease and desist order and the date of the decision that ALA had issued at least 53 new workers’ comp “policies” to California employers. ALA officials are appealing and say they will continue operations while the court case plays out.
The Department of Industrial Relations announced last week that it accepts none of ALA’s or CompOne USA’s policies as valid. It says employers with the ALA program are operating without statutorily-required workers’ comp coverage and are subject to fines and shut down orders.
Legal experts say employers which are operating without statutory workers’ comp coverage do not have the protection of California’s sole and exclusive remedy law. Injured workers, therefore, could bring damages cases against employers. Such claims are excluded from all Commercial General Liability policies, according to experienced brokers.
Central to ALA’s arguments is the distinction between an entity claiming exemption (ECE) and a multi-employer welfare arrangement or MEWA. Under the federal Employee Retirement Income Security Act (ERISA), ECEs are exempt from state regulation whereas MEWAs are subject to state regulation.
An ECE that fails to meet the federal standards, however, defaults to MEWA status, according to the decision. A key test in this is whether the entity is a certified labor organization, which the Department and chief administrative law judge Kristin L. Rosi found that ALA is not. ECEs must also operate under valid collective bargaining agreements (CBAs), and Rosi found that ALA lacked these in nearly every instance.
“Based on the facts and applicable law, the CALJ finds ALA is not an ‘entity claiming exemption’ and thus is a MEWA, as defined by ERISA and the Insurance Code,” Rosi wrote. “The CALJ further finds ALA failed to comply with the Insurance Code’s certification requirements (see sidebar) and engaged in the unlawful solicitation, marketing and sale of insurance in violation of Insurance Code section 700.”
In rejecting ALA’s claims of being an ECE, Judge Rosi notes that the organization never sought or received a federal finding that it was an employee welfare benefit plan operating under a bona fide CBA – a key requirement to being an ECE. Judge Rosi notes that ALA officials testified that they were aware of this requirement before launching operations, but chose to proceed anyway without meeting this requirement.
The decision notes that ALA also failed to meet other requirements for being considered an ECE instead of a MEWA. Many of these hinge on having lawful CBAs, which Judge Rosi says ALA is unable to show.
“[T]here is no evidence that any ALA member is covered by a valid collective bargaining agreement,” the decision notes. “Indeed, while the CALJ ordered ALA to produce seven pertinent collective bargaining agreements, ALA could not produce even one valid agreement.”
Overall, the decision notes that federal law outlines eight affirmative conditions for establishing a valid CBA and an entity must be able to meet at least four of them. Judge Rosi found that at best ALA might be able to meet two of these conditions. “Given that Respondents fail at least six factors, Respondents’ cannot demonstrate a bona fide collective bargaining relationship exists and are not afforded exempt status,” she writes.
“Finally, Respondents cannot qualify for a MEWA exemption since they are not a certified labor organization engaged in lawful collective bargaining,” Judge Rosi writes, noting that ALA has never held a secret ballot representation election and has never been certified by the Agricultural Labor Relations Board as a labor organization. The bulk of ALA’s coverage is with farm labor contractors and their employees.
ALA also admitted that it never filed a certification petition with the National Labor Relations Board nor provided it with any signed union cards. “Instead, Respondents claims, falsely, that they certified their own authorization cards,” Judge Rosi notes. “Since there is no law permitting an employee organization to certify its own proof of support in order to circumvent mandated election procedures, Respondents do not represent any non-agricultural employees.”
The U.S. Department of Labor reached a similar conclusion. In a letter last spring, the federal agency informed ALA that it did not qualify as a labor organization and terminated ALA’s union file number.
Beyond refuting ALA’s claims of being exempt from state oversight, Judge Rosi finds in the decision that ALA officials were less than truthful on the witness stand and repeatedly mischaracterized the true nature of the organization and its relationship with employer clients and their workers. The decision notes that ALA characterizes itself as a union labor organization, but Rosi’s decision notes that out of 400 employer clients ALA was able to produce only one collective bargaining agreement, and that was with a company that ALA’s Marcus Asay organized. Judge Rosi discounted the validity of that CBA as the signed authorization cards that allegedly proved its validity were dated 18 months after the claimed start date of the CBA. Asay testified under oath that all 400 employer members had CBAs.
Rosi also details a number of other instances where ALA failed to engage in arms-length negotiations with employer clients. The decision notes that Asay is actually a board member or serves as an agent for at least six employer clients of ALA.
The decision notes that at one point ALA issued its employer clients certificates of liability insurance (COLI) that listed Travelers Casualty Insurance Company and National Fire Union Insurance Company as the workers’ compensation insurance carriers. The evidence, however, proved that “neither Travelers nor National Fire provided workers’ compensation insurance to ALA members. In fact, Respondents admit that they listed their own liability insurance providers on ALA-issued COLIs and listed their own insurance policy numbers,” Rosi notes.
The decision does not say what if any sanctions will be issued and the Department has not announced any enforcement action. CDI officials repeatedly stressed to Workers’ Comp Executive that they could not comment on any on-going investigation or pending enforcement action.
Troubled Policy Declarations
The decision also identifies falsehoods contained in the policy declarations that ALA issued and the testimony that officials gave on the witness stand. Notable was Asay’s claim that CompOne USA does not collect premiums from its member clients, but the company’s policy declarations state that “premiums” will be collected. The decision cites multiple other references to premium in ALA’s literature and communications.
The declarations also state that ALA will collect the state-mandated surcharges that are placed on workers’ comp premiums, such as the fees to fund the California Insurance Guarantee Association and the Department of Industrial Relations’ operations. Company officials admitted on the stand that they collect these fees but have never remitted them to the proper authorities.
The decision points out that the policy declaration also gives the illusion that ALA actually files workers’ comp rates with the state, but this is false. Under questioning, ALA officials admitted that they do not file a rating plan or any statistical information with any regulatory authority or the Workers’ Compensation Insurance Rating Bureau.
Copies of the precedential decision are available in our Resources section or by clicking here.
No New MEWAs
Missing from the Department’s decision and the broader discussion so far is the fact that California closed the door on the certification of any more MEWAs opening up shop in the Golden State. That door was closed over two decades ago.
Lobbyist John Norwood who represents the MEWAs operating legally in the state points out that Insurance Code section 742.24 outlines who can and can’t be licensed in California. The upshot is that the law has barred any new MEWAs from the California market since 1995.
“If you do not meet all of the qualifications you cannot be licensed including (h) the requirement that the MEWA file with the CDI no later than November 30, 1995,” says Norwood. The lobbyist is well versed on the issue as he helped pass the law that barred any new entrants. “So, the MEWA must have been in operation in compliance with this section for at least five years prior to November 30, 1995. Thereafter, no MEWA could meet these qualifications, so we virtually closed the door on future MEWAs.”
Additionally, the Department’s decision notes that before a MEWA could be certified in California – if such a thing were still possible – it would have to maintain a surplus of not less than $1 million and obtain sufficient stop-loss coverage to protect its operations.
During the evidentiary hearing, ALA officials testified that they launched the program without any initial capitalization and are not carrying any reinsurance. ALA is also paying claims out of cash flow and maintains no case reserves.