The Discussion Begins

Post date: Feb 04, 2016 10:34:51 PM

From: Andrew Koenig [mailto:ark@acm.org]

Sent: Thursday, January 28, 2016 11:20 AM

To: 'FP Board'

Subject: RE: Motion to drop Workers' Comprehensive Insurance

I would like to be sure that the Board is aware of two things I learned when I was researching the Workers’ Comp. issue.

1) The penalty for not having workers’ compensation insurance is $5,000 for each 10-day period (or part thereof) during which insurance was required but not in force. In other words, going without workers’ compensation insurance for a year would incur a $185,000 fine. It doesn’t require an on-the-job injury to trigger such a penalty—all it requires is for someone to complain to the state and for the state to decide to investigate.

2) If the Folk Project does not have enough money to pay the fines, then declaring bankruptcy wouldn’t help, because in that case, the corporate officers (which I am guessing means the president, vice president, secretary, and treasurer, but might conceivably apply to the entire board) would become personally responsible for paying those fines. Declaring personal bankruptcy wouldn’t help, either. Moreover, failure to provide workers’ compensation insurance when required is “a crime in the fourth degree,” which is a felony that can incur a prison sentence of up to 18 months.

In other words, if I’m right about what I found, the Folk Project officers (however that phrase is interpreted) would be risking enormous personal fines and possible prison time if workers’ comp insurance is not in force when it is required. I suggest that if this motion passes, board members should think carefully and decide for themselves whether the personal risk is worth continuing on the board.

I know that what I’m saying might sound insane, but it all comes from the New Jersey Department of Labor’s official website, which you can read here. Note particularly the paragraphs under the heading Consequences for Failure to Insure.

Regards,

Andrew Koenig

From: ANDREW HINES [mailto:andhin@optonline.net]

Sent: Thursday, January 28, 2016 11:51 AM

To: ark@acm.org; 'FP Board'

Subject: RE: Motion to drop Workers' Comprehensive Insurance

I’m not a board member anymore…but Andy is right. I used to think otherwise but researched it and asked friends in the business.

They relate that this was legislated as a result of lobbyists and legislators.

Best and be well,

Andrew Hines

973.331.3758

Unique Mobility Devices, LLC

See our newly Patented SitAssist here: http://youtu.be/tIoL7hGjSV0

From: Mike Agranoff [mailto:Mike@MikeAgranoff.com]

Sent: Thursday, January 28, 2016 2:53 PM

To: 'FP Board'

Subject: FW: Motion to drop Workers' Comprehensive Insurance

Andy has always been thorough in his research, and has always been diligent in finding the worst possible case that we must consider. And yes, it's true.

IF some prosecutor takes it upon himself to target the Folk Project and discover our transgression, and

IF he finds it imperative or even desirable to make a case of it and charge us for doing what every other similar organization has been doing since the dawn of time, and

IF a judge, in his judicial discression, finds that we are notorious scofflaws who need to be made an example of and throws the book at us,

then we are in a heap of trouble.

In fact, we are already in a heap of trouble for not having carried Workers Comp prior to 2009. So what's the difference?

Mike Agranoff

www.MikeAgranoff.com

From: Allan Kugel [mailto:kugel@rci.rutgers.edu]

Sent: Thursday, January 28, 2016 3:39 PM

To: FP Board'

Subject: Re: FW: Motion to drop Workers' Comprehensive Insurance

I wouldn't be in favor of trying to "slip through the cracks".

But despite Andy's research, there may be other reasons that we don't have to pay workman's comp. There are really a lot of cases that would need such insurance under similar conditions, such as some casual guys offering to shovel a sidewalk for $30. Nobody has ever told me I have to check the insurance state of contractors to see if I need to have a policy for workman's comp insurance. Similarly, there may be other law/code elsewhere that exempts situations like ours from such a insurance requirement.

Clearly, SOME paid work gets done without verified workman's comp insurance, and I can't believe all such work is illegal.

Also, what is in the description is not necessarily what the law says, or what the law designers intended. Because this is a big cost for a low-budget organization such as ours, it seems reasonable for us to make sure we absolutely have to pay it, to spend extra effort on this.

Andy thinks we should already be convinced that such insurance is necessary, but the fact that such insurance isn't "reasonable and customary" for organizations like ours certainly seems like a reason to look into it further.

I also believe that there are special protections for all-volunteer organizations like ours, that limit personal liability -- otherwise, volunteering for such organizations would be too dangerous (and with no upside) for anybody to do it. I believe the law makes specific liability exemptions for volunteers and good samaritans for just this reason.

From: John Lamb [mailto:johnlamb@aol.com]

Sent: Thursday, January 28, 2016 3:39 PM

To: lmeyer123@gmail.com; Mike@mikeagranoff.com

Cc: fullboard@folkproject.org

Subject: Re: Motion to drop Workers' Comprehensive Insurance

Kris and I once tried to pin this down for certain groups that we are involved in. We got not much further, but here are some notes Kris wrote back then

[After many calls to people who were not particularly helpful] I ended up with the Dept of Banking and Insurance state agency (973-622-6014) and spoke with someone named Allen (at x299). Date: 7/19/2013.

Allen happens to be a musician and was the first person I encountered who seemed to understand our situation. (He was kind enough to give me his direct extension, in case we need to contact him directly.) Some points he made:

- if an injury is work related, personal health insurance rejects the insurance claim

- if the business is an LLC without any employees, no policy is needed

- any org that has "Inc." at the end of the name is automatically impacted

- there is no such thing as a "waiver" for this situation

- Rate is based on the highest rate class associated with the organization (e.g., "musician" is a higher class than a clerical or board role)... so our rate class would be "musician"

- The musician rate is 2.33/100 * estimated hours (i.e., total hours per year)

- if you cannot obtain coverage on our own, then a carrier is assigned (I don't have notes regarding "how" this happens... at that point, we had to end the call)

Perhaps one of the officers or trustees might see if Allen still works there. He seemed to be more helpful than anyone else we spoke with in many hours of trying to figure this out. Even if he no longer there, the NJ Dept. of Banking and Insurance may be able to provide more information.

Personally, I wonder if cancelling or allowing an existing WCI policy to expire would land us on a list for further scrutiny.

From: Chris Riemer [mailto:chrisriemer@verizon.net]

Sent: Thursday, January 28, 2016 3:53 PM

To: 'John Lamb'

Cc: fullboard@folkproject.org

Subject: RE: Motion to drop Workers' Comprehensive Insurance

In one of those rare bits of synchronicity, this morning was also the day I found time to call someone in Trenton to ask the powers that be these questions, and have reported on that in a fairly lengthy email to Barrett. In a nutshell, he said it was kind of a grey area.

The upshot is that in the great state of New Jersey, contractors are sometimes considered like employees in a Workers Comp context. So the question isn't really are the performers' employees or contractors. They are clearly contractors, but in NJ at least, that's not the determining factor.

The interesting part is that the person I spoke to in Trenton also suggested I might try NJCRIB (the same Banking and Insurance department that Kris contacted). And they still have the same phone number. I haven't called yet, but now I can ask for Allen! The Worker's Comp guy said that NJCRIB department had been able to arrange for some special coverage for a documentary film crew, and their knowledge of entertainment issues might help.

From: Andrew Koenig [mailto:ark@acm.org]

Sent: Thursday, January 28, 2016 8:15 PM

To: 'FP Board'

Subject: RE: Motion to drop Workers' Comprehensive Insurance

I think that the claim that

- if the business is an LLC without any employees, no policy is needed"

is more complicated than it sounds, for several reasons.

First, the Folk Project is not an LLC.

More important, however, is that as far as Workers’ Compensation insurance is concerned, the Folk Project does have employees, namely its performers. They are treated as independent contractors as far as the IRS is concerned, but if you look at what the NJ Department of Labor has to say, it seems pretty clear that performers are employees as far as Workers’ Compensation is concerned, because they are paid to show up at a particular place and time and do a particular kind of work.

From: Bob McNally [mailto:bobmcnally@me.com]

Sent: Friday, January 29, 2016 4:05 PM

To: FP Board

Subject: RE: Motion to drop Workers' Comprehensive Insurance

I personally think that a logical (lay) interpretation of the law gives a reasonable and arguable answer of yes we don't need WC, our performers are independent contractors running their own businesses.

However it is not possible to get a definitive answer how a NJ court would rule without going to court. One instance of going to court would cost far more than $2,500, even if we were successful. I believe the law is in effect like extortion, the way it is written:

~ it requires us to estimate a risk of complying or not

~ without more than general guidelines

~ with crushing penalties if we choose wrongly.

~ the cost of defending ourselves alone would be crushing

~ no mechanism for obtaining a legal determination without court involvement.

Since we cannot afford a legal defense, and can't get a binding legal ruling ahead of time, the prudent thing is to bite the bullet and pay the thugs. Cost of doing business. If paying the $2500 meant we could not do our work any longer, then I'd say resist. But if we can afford it, it's the best choice among poor choices.

Bob

However:

Despite my gloomy conclusion above, this page may be of interest supporting the "performers are independent contractors not employees" perspective, if we want to take the risk.

"In Gilchrist v. Div. of Employ. Sec., supra, 48 N.J. Super. at 158, the court concluded that the requirement that a person be customarily engaged in an independently-established trade, occupation, profession or business “calls for an enterprise that exists and can continue to exist independently of and apart from the particular service relationship. The enterprise must be one that is stable and lasting - one that will survive the termination of the relationship.” An examination should determine if an individual could continue to exist independently of and apart from the challenged relationship.

"In the absence of some evidence showing that the worker is “customarily engaged in an independently established trade, occupation, profession or business”, the relationship would be classified as that of employer-employee."

From: Andrew Koenig [mailto:ark@acm.org]

Sent: Friday, January 29, 2016 4:39 PM

To: fullboard@folkproject.org

Subject: RE: Motion to drop Workers' Comprehensive Insurance

You have to be careful to distinguish the question of whether someone is an independent contractor for tax purposes from the question of whether someone is an independent contractor for WC-insurance purposes. The DoL is very clear that those are two separate questions, and it is possible for someone to be an independent contractor under tax law but an employee under WC law.

As far as workers’ compensation is concerned, someone who is paid to do work is assumed to be an employee until it is proven that the individual is an independent contractor. That means that in case of any dispute, the burden of proof would be on the Folk Project.

To prove that someone is an independent contractor, the employer must show that:

1) It neither exercised control over the worker, nor had the ability to exercise control in terms of the completion of the work.

2) The services provided were “either outside the usual course of the business … or that such service is performed outside of all the places of business of the enterprise.”

3) The purported independent contractor actually “has a profession that will plainly persist despite the termination of the challenged relationship.”

It seems to me that although the Folk Project would pass (3), it would fail (1) and (2). The Folk Project clearly exercises control over its performers: It insists that they perform at particular times and places in exchange for payment. The performances are clearly inside the usual course of business of the Folk Project, and almost always take place in one of the usual places of business of the Folk Project.

Corroborating evidence is here. If you think I’m mistaken about this, I’d greatly appreciate some evidence that argues the other way, because so far I haven’t found any.

Regards,

Andrew Koenig

From: Chris Riemer [mailto:chrisriemer@verizon.net]

Sent: Friday, January 29, 2016 4:58 PM

To: 'FP Board'

Subject: RE: Motion to drop Workers' Comprehensive Insurance

Just recapping something I learned in talking to Workers' Comp folks in Trenton yesterday.

The issue isn't whether the performers are employees or contractors; they are clearly the latter. The issue is that in the state of New Jersey, contractors can be considered as employees in the context of Workers Comp. (I would add that on our annual Worker's Comp audit, we tell Liberty Mutual that we have no employees. But there's another whole section about subcontractors, as well. That's what our premiums are based on. A copy is attached at the end of this page, for the tragically detailed-oriented.)

In some ways, this could be considered a good thing. The idea is that someone should accept responsibility for what happens within a logical "work place" and provide coverage for potential work-related injuries therein. New Jersey doesn't really care whether the injured person is technically an employee or technically a contractor. The state just wants to be sure someone is looking out for them.

I agree with Mike's observation that the size of the risk pool for audience and volunteers is maybe 100 times larger than the risk pool for performers. So it seems kind of nutty that we're paying about the same premium on both General Liability and Workers' Comp: roughly $2,500 each. So we should certainly shop around for the best deal we can make.

But in Mike's scenario of the falling musician and the broken hand... We'd want to help them out anyway, I think. We wouldn't want to be left with no recourse beyond "Sorry, Charlie."

Chris

From: John Lamb [mailto:johnlamb@aol.com]

Sent: Friday, January 29, 2016 5:38 PM

To: chrisriemer@verizon.net; fullboard@folkproject.org

Subject: Re: Motion to drop Workers' Comprehensive Insurance

While it certainly would not hurt to look for better rates, I am not sure we should expect to find any. When I looked into this earlier, I found that premiums were based on two factors: a base rate that is set by the State of New Jersey, and a modifier based on the insured's claims history.

The base rate varies by the type of work done, with musicians being more expensive to insure than typical office workers. The insurer has very little leeway in setting rates; it mostly can only decide whether or not to accept an applicant. At most, an insurer can try to bend the rules a little in your favor when classifying the type of work done. Applicants who cannot find a willing insurer are put into an assigned risk pool and have an insurer selected by the state. Additionally, there is a fairly high minimum premium on policies that cover part-time workers, calculated as if they had worked for something like ten to twenty hours per week (I don't remember the exact number, but am pretty sure it was at least ten) even if they were only hired for two. That minimum may be why our WC premium seems so high when compared to our general liability premium, despite the large difference in the amount of actual risk covered. The state may have the interests of workers in mind, but this can sure feel like a protection racket to small employers who do not fit the traditional mold the laws were written to cover.

From: Lori Falco [mailto:lwfalco@optonline.net]

Sent: Friday, January 29, 2016 5:47 PM

To: Chris Riemer; 'FP Board'

Subject: Re: Motion to drop Workers' Comprehensive Insurance

Regarding helping out in case performers are injured at our venue, I recently had a discussion with Karen Taylor, our contact at K&K, which handles our liability insurance. I called because I had some unrelated questions, but as long as we were talking I asked her if K&K would cover us if a performer were injured at one of our events. She said that if it's due to our negligence, it would be covered. So if the performer tripped on one of our wires, K&K would pay. But if the accident were due to the performers negligence, such as they tripped on their own wires, K&K would not pay. So we do have some coverage for the performers from our liability policy.

For what it's worth, Karen thought that performers should have their own Work Comp insurance. She is not an attorney and we should not take her opinion as the final authority, but I thought it was worth passing it along. Her opinion is a reminder that there are some alternatives to resolving this question. We could decide that we don't carry Work Comp insurance, but we do ask that all performers verify that they carry their own before we book them. When we last discussed this several years ago, I believe some folks who performed regularly told us that they were routinely asked if they carried their own insurance. Another alternative is for us to provide self insurance for Work Comp.The New Jersey website on Work Comp does list self insurance as an option, but I haven't had time to delve into the details.

Lori

From: Mike Agranoff [mailto:Mike@MikeAgranoff.com]

Sent: Sunday, January 31, 2016 11:40 AM

To: 'FP Board'

Subject: FW: Motion to drop Workers' Comprehensive Insurance

That's very interesting. It is the first indication I've heard of something that I had never anticipated: that our current liability insurance might cover our performers under some circumstances. So that might be the first place to look if we're trying to get some special rider to our current liability insurance to cover the performers as well at a more reasonable cost than our current Workers' Comp.

Mike Agranoff

www.MikeAgranoff.com

From: Leigh M. Walker [mailto:lmwalker@eclipse.net]

Sent: Saturday, January 30, 2016 12:01 PM

To: fullboard@folkproject.org

Subject: Re: Motion to drop Workers' Comprehensive Insurance

I worked for insurance and reinsurance companies for many years, and workers comp was the most important line of business in my specialty, which was bidding on contracts for accounts over $1 million. So my area was not accounts like this, but I do have some related experience.

I'll comment on some of the ideas that have come up. First, self-insurance is for companies that can back their own self-insurer with millions of dollars of capital. Second, for small accounts the rates are based on the type of work performed and there is little room for modification. Third, minimum premiums are high. Small accounts with premiums under $10,000 are in total very unprofitable and often wind up in assigned risk, and the statewide losses from the assigned risk pool are split among all insurers according to market share. This doesn't apply to the Folk Project, which clearly is not really employing anyone and consequently would likely be wildly profitable (as a percentage of premium) for an insurer because of the lack of exposure beyond what's covered in the general liability policy.

I also worked in areas involving regulatory compliance. Someone made a comment about how if the Folk Project became a target for a regulator or prosecutor, there would be big trouble. That statement is true well beyond just this issue. The US government estimates that business spends around $2 trillion a year complying with its regulations, and that doesn't include the cost of complying with state and local regulations. It's doubtful that any fairly large business complies anywhere near perfectly with the mass of stuff it's supposed to. Regulations sometimes contradict each other. Some are impossible to comply with ("Certify by February 5 what your business stands as of February 29," i.e., nearly a month in the future). In practice, the working regulators don't know or understand many of the regulations they have to deal with. No one does.

How regulations work and how they get applied can be quite political. While any fairly large organization could be fined enough to put it out of business, in practice the government isn't going to shut down all business in the country. Even shutting down smaller operations is not in the interest of the government, and while sometimes compliance with the letter of a particular regulation is insisted on, generally many regulators are smart people who are just trying to do their jobs.

The intent here is not to vilify anyone, just to point out how complicated things are. It's a good idea to get legal advice, but it's doubtful that any lawyer has a thorough grasp of the totality of the New Jersey Administrative Code, and even when it comes to a narrow question like whether a particular kind of insurance is required, there are many questions about what the definitions of words are, etc. Very few regulations have been adjudicated in court, so definitive answers aren't always possible. It might be useful to know if the insurance department or prosecutors have ever gone after anyone similar to the Folk Project for something like this. Do other similar organizations buy workers comp insurance? These precedents would imply something useful on the remote chance the Folk Project were targeted.

Is New Jersey trying to require that workers comp insurance be purchased by everyone who hires a musician for an evening? My wife's chorus has hired itself out to do singing quartets on Valentine's day, and I doubt that the people whose houses were visited bought work comp or that the insurance department expected it. It's clear that the purpose of the laws and regulations is to protect workers who need coverage because of work-related injuries, not for avocation-related injuries (another point it's easy to imagine a lawyer pointing out in court).

The Folk Project is doing something more than hiring a quartet to sing a few Valentine songs. Still, you get the point.

For sure there is some risk in not buying work comp insurance. I think it's riskier to drive to a Minstrel concert.

Leigh Walker

Swingin' Tern

From: Andrew Koenig [mailto:ark@acm.org]

Sent: Saturday, January 30, 2016 12:27 PM

To: fullboard@folkproject.org

Subject: RE: Motion to drop Workers' Comprehensive Insurance

Leigh asks (presumably rhetorically):

Is New Jersey trying to require that workers comp insurance be purchased by everyone who hires a musician for an evening?

I think the answer to that is no. The Department of Labor’s statement about this question makes it clear that the requirement for workers’ compensation insurance applies only when a corporation hires one or more individuals. A homeowner who hires a band for a house party is not a corporation. For convenience, here is what I think is the relevant part of the Department of Labor’s statement:

All corporations operating in New Jersey must maintain workers' compensation insurance or be approved for self-insurance so long as any one or more individuals, including corporate officers, perform services for the corporation for prior, current or anticipated financial consideration.

Financial consideration means any remuneration for services and includes cash or other remuneration in lieu of cash such as products, services, shares of or options to buy corporate stock, meals or lodging, etc.

I truly do not understand how it is possible to interpret this statement in any way other than to mean that the Folk Project, which is a corporation operating in New Jersey, is require to maintain workers’ compensation insurance because its performers, who are individuals, perform services for the corporation for financial consideration. If you do not think that this statement is crystal clear, would you mind please explaining what part of the statement you think is unclear or unambiguous?

From: bluesq5555 . [mailto:bluesq55@gmail.com]

Sent: Tuesday, February 02, 2016 4:05 PM

To: Mike Agranoff

Cc: FP Board

Subject: Re: FW: Motion to drop Workers' Comprehensive Insurance

Friends:

I confess to being surprised that, when we've spilled so many electrons on a question involving Workers' Compensation law, there would be so little interest in getting the opinion of a WC lawyer.

In any event, I spoke to a name partner in a firm that specializes in WC, who was recommended by a friend who is a retired WC judge. The lawyer, who is himself an officer of a 501(c)(3), said, without hesitation, that because FP has no employees, and the performers we present are genuine independent contractors, we are not required to have it, and don't need it. This is confirmed by my own (superficial) research.

Concerning the contractor issue, the key is whether we "control" them, and we don't - our performers are not, to take an example, appliance installers whose workload comes entirely from Sears.

If someone believes that we should carry the insurance out of an excess of caution, that's another issue. But, I have lawyer's certainty that we don't need it.

J

From: Chris Riemer [mailto:chrisriemer@verizon.net]

Sent: Tuesday, February 02, 2016 4:31 PM

To: 'FP Board'

Subject: RE: FW: Motion to drop Workers' Comprehensive Insurance

I'll repeat something from an earlier note, namely that by focusing on the employee-vs-contractor issue (particularly me), we may have been asking the wrong question.

According to the person I spoke to at the Workers Compensation office in Trenton, contractors can be considered as employees in a Workers' Comp context. This is to a degree borne out by the audit report we need to fill out each year for Liberty Mutual, which after asking about the salaries we paid employees goes on to ask what we paid to subcontractors. The best I could get from Trenton was a statement that this was a grey area, and that we should consult a lawyer. So Jay's note is a positive development.

In any case, my feeling is that we'd want to provide some degree of coverage for all the folks in the room, be they volunteers, audience members or the performers themselves. And since it appears that our current liability policy specifically excludes any hired person, the Workers' Comp policy is the current alternative. It may not be the only one, though. And there are still questions that need to be answered.

• If a performer were injured, would Liberty Mutual pay the claim, or try to dodge because the performer is not an employee? Mike has gotten conflicting testimony on that.

• Is there some kind of rider we can get on a general liability policy that would cover the performers at a lower cost? I'm reasonably sure we thought our old policy covered them but I never read the fine print.

So I think that after Mike walks us through the basic arguments tonight, we should table it pretty quickly. We need another month to settle the side issues.

Chris

From: mdelvec952@aol.com [mailto:mdelvec952@aol.com]

Sent: Tuesday, February 02, 2016 5:08 PM

To: bluesq55@gmail.com

Cc: fullboard@folkproject.org; mike@sanctuaryconcerts.org

Subject: Re: Motion to drop Workers' Comprehensive Insurance

Thanks, Jay,

I had a similar soliloquy that I had intended to write down for the Board's information, or share tonight in person, with the statement that it's FP-Board's fiduciary responsibility to seek council to advise on such issues to limit club exposure as much as practical.

My own experience: For more than 20 years I've presided over one non-profit who pays honorariums to presenters ten times per year and hires contractors for heavy mechanical work, and I'm an officer in a few others, such as The Sanctuary Concerts, a couple of historical societies and The Folk Project. I did this research and spoke to attorneys specializing in law for non-profit corporations. Per all of them, The Sanctuary, the historical societies (and the Folk Project) don't need Worker's Comp coverage. It's both for the reasons that Jay stated, and because New Jersey has many layers of good faith and volunteer protections.

What I found when researching this for the railroad club was that our insurance budget was better spent on General Liability on its members and member-activities adding all of the locations of those activities as additional insureds, and Director's and Officer's insurance. In the case of the Folk Project, the General Liability will cover the performers and volunteers to the degree on the declarations page (the higher the premium, the more it covers). The D&O insurance covers the legal expenses incurred from legal action due to negligent actions by one or more board members. The officers and directors of a non-profit are personally responsible for their decisions, though in the State of New Jersey there are so many good samaritan protections that it's very unlikely that a case will go that far looking for a settlement.

Keep in mind that any person or entity can sue any other person or entity, the defense of which will cost something whether the accusation is right or wrong. That defense is what D&O insurance will cover, not the damage or loss to anything material. Just the legal fees.

Another policy, usually offered by the same carriers, is Errors and Omissions coverage, more commonly known as Malpractice Insurance. That would cover material damage and some legal costs to the degree on the declarations page that were due to the negligence of one or more members of the management team. If it's just a few bucks more, it may be worth having. At the railroad club, we don't have E&O. We do have D&O.

I would strongly recommend D&O insurance for the Folk Project. That its two biggest events are held in century-old structures does expose the group to significant expense should something go seriously wrong during the time we're using those places. And, that its general liability insurance did lapse at one point does show that a simple and innocent oversight can cause significant exposure to the club treasury and all of the directors and officers. While our general liability insurance may cover the amounts above the deductible on claims for damages or injuries, it won't cover any legal expenses, filings or court costs. The D&O insurance would.

Hope this helps ....Mike Del Vecchio