Friday, August 8, 2014

Up A Tree Without A Ladder

Business owners often complain about workers' compensation and this story from Oregon highlights exactly why.

A tree trimming and landscape maintenance business was started by Robert and Jannai Cornett in 1998 with a pickup truck, "a chainsaw and a rake, a little blood and a lot of sweat."

R&R Tree Service grew from there to a 30 employee company with trucks, equipment, and an office.

At some point in time the company switched from a private workers' compensation carrier to SAIF Corporation, Oregon's state fund.

The company had a program by which volunteers would come out and collect the wood from trees that R&R had cut down to give to the needy to use as firewood.

As in many things in life, trying to do good just results in trouble, and that's where the trouble started for R&R - SAIF didn't like this arrangement and smelled "underreporting" of payroll.
Up the proverbial tree...
It should be noted that the volunteer program had started long ago and R&R's prior carrier had no issues with it...

So SAIF started auditing the company's payroll with multiple audits of records from 2007 until 2011.

Robert Cornett had kept a daily log of employee hours based on verbal reports from each crew at the end of each work day. For each job, Robert would record the person or business being billed, the crew members assigned to the job, the number of hours worked per crew member and whether the work performed was "above ground" or with "boots on the ground."

He made this division because SAIF had assigned two risk classification codes to R&R for its non-office and sales staff. Workers doing tree and shrub pruning above ground level were assigned code 0106. Workers doing lawn maintenance performed from the ground level were assigned code 9102.

The above ground ("AG") and below ground ("BG") designations were then input into the payroll records on a weekly basis - but there was no other "verifiable" payroll records to support this input.

It should be noted that SAIF didn't have an issue with this system during four audits between 2002 and 2007. In fact, one auditor even said R&R had "an excellent system of tracking work and time."

But later SAIF assigned a particularly aggressive auditor to review the company's records for years 2007 and 2008, and he took issue with the payroll tracking methodology.

That auditor found R&R's records did not meet the requirements for verifiable records under OAR 836-042-0060.

Under OAR 836-042-0060(4), payroll records are "verifiable" if they establish the time worked and duties performed by each employee, and they are supported by original entries from other records, including but not limited to time cards, calendars, planners or daily logs prepared by the employee or the employee's direct supervisor or manager.

Based on the auditor's findings, SAIF assigned the entire payroll to the highest rated classification.

For the year audited, 2007-2008, this raised the company's premium by over $67,000.

The company objected, and of course this incited further auditing, ultimately resulting in a claim by SAIF of over $386,000 in additional premiums.

R&R went through all of the appellate procedures for contesting the additional assessments and lost all of them all the way to a state appellate court.

According to WorkCompCentral's news report on the story, R & R likely will close its doors and terminate all of its employees, putting another 30 people on the unemployment rolls.

And that's a shame.

Sure, those of us up in the ivory tower of workers' compensation insurance compliance will say, "that's the law," or "they should have hired an expert to help," or "where was their broker in all of this?"...

That's besides the point. Here we have a well intentioned, seemingly compliant business taking care of people, putting value into the economy for 15 years, and they're taken out by The System.

What's wrong with the picture is that what should be a cooperative relationship turned adversarial.

I'm sure SAIF has its own position on the matter, but all they said to WorkCompCentral was that they were "pleased with the ruling" and the Court of Appeals' determination that "SAIF followed the correct process and acted appropriately in determining the policyholder's premium."

SAIF's media relations department needs some lessons in how to conduct good public relations. Their response exacerbates the adversarial perception of business versus carrier and the industry doesn't need that.

Maybe SAIF was legally correct and that it's auditors and employees were doing their jobs.

But maybe at some point a senior executive could step in and see the PR mess this kind of case creates, figure out a compromise and then media relations could proclaim the carrier's great willingness to help small business comply.

Instead, like most large corporate bureaucracies, nobody really cares - and if a customer goes out of business, there will be plenty more in the pipeline to collect premium from.


  1. David, Their senior management are all busy with their attorneys. Besides, we know both PR and HR are not the company's forte....

  2. I wonder what the company's loss ratio was before and after the audit....

  3. Does the punishment fit the crime?