Corporate officers and their relatives are covered employees for workers' compensation insurance

STATE OF CALIFORNIA PETE WILSON, Governor
DEPARTMENT OF INDUSTRIAL RELATIONS
DIVISION OF LABOR STANDARDS ENFORCEMENT
LEGAL SECTION
455 Golden Gate Avenue, Room 3166
San Francisco, CA 94102
(415)703-4150
ANNE HIPSHMAN, Staff Counsel
GARY HERMANN
REDDING
SENIOR DEPTY. COMM.
July 15, 1998

Mr. Issac J. Vaughn
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, CA 94304-1050

Re: Penalty Assessment No. 37448 Issued to Rosalie's Taste
of New Orleans, Inc. a California corporation
Your Letter dated June 30, 1998

Dear Mr. Vaughn:

Your letter, referenced above, to Jose Millan, the State Labor
Commissioner, has been referred to me for a response.

In that letter you question the citation for civil money
penalties in the amount of $2,000.00 issued to Rosalie's Taste of
New Orleans, Inc. (hereinafter "Rosalie's") for failure to have
worker's compensation insurance and, for 2 employees, employed at
the time of the inspection by Deputy Labor Commissioner Marga
Morales.

You state in your letter that your client believed that, at
the time of the inspection, worker's compensation insurance was not
required because all "operators" of the business were either
officers and relatives "of the Company."

Labor Code section 3700 requires every employer in this State
that uses employee labor to have a policy of worker's compensation
insurance to cover those employees.

Labor Code section 3351 defines the term "employee" for
purposes of coverage under the worker's compensation act. This
definition is quite broad and includes "...every person in the
service under an employer under any appointment or contract of
hire..." The definition goes on to include at subsection (c):

All officers and members of boards of
directors of ...private corporations while
rendering actual service for the corporations
for pay...

Mr. Issac J. Vaughn
Re: Rosalie's Taste of New Orleans, Inc.
July 15, 1998
Page 2.

Labor Code section 3352 provides the statutory exclusions from
the definition of "employee." As you can see there is no general
exclusion for relatives.1 Even if there were an exclusion for
relatives of an "owner," your client would not be able to avail
themselves of that exception because Rosalie's is a corporation,
and as such is a separate "person" under state law. And, the
corporation has no relatives.

Moreover, I have reviewed Ms. Morales' investigative file and
it reveals that, at the time of the inspection, aside from any
officers or relatives of the corporation, there were four employees
working at the restaurant. Three of them were present and observed
by Ms. Morales, and there was one other employee, not present at
the time of the inspection who was listed on the restaurant's
schedule, for a total of four employees. Labor Code §3722(a)
states that civil money penalties for employing labor and not
having worker's compensation insurance are statutorily set at
$1,000.00 per employee. The Labor Commissioner's office is
permitted to use the company's records to determine how many
individuals are employed by the business, whether or not they were
actually observed working at the time of the inspection. (See
Woodline Furniture v. Dept of Indus. Relat. et al., (1994) 23
Cal.App.4th 1653).

Based on the evidence that presented itself at the time of the
inspection, then, without reference to any officers of the
corporation, who are employees for purposes of worker's
compensation coverage as explained above, Ms. Morales could have
written a citation in the amount of $4,000.00 rather than the
$2,000.00 actually assessed.

Had your client been interested in pursuing an appeal of this
citation, and litigating the propriety of the issuance of this
citation to Rosalie's, their appeal rights were plainly stated on
the reverse side of the citation. The due date for contesting the
citation or paying it is likewise stated plainly on the citation.
Your letter was sent almost one month after the mandatory appeal
period had expired. The citation is now final.

1 The only exception for "relatives" is found at section 3352(a) when the
employee is a parent, spouse or child of a person who is an owner or
occupant of a residential dwelling whose duties are incidental to the
"ownership maintenance or use of the dwelling..."

Mr. Issac J. Vaughn
Re: Rosalie's Taste of New Orleans, Inc.
July 15, 1998
Page 3.

If you have any further questions, give me a call.

Very Truly Yours,

ANNE HIPSHMAN

cc: Jose Millan
Assistant Chiefs
Marga Morales (TIPP file)