Say, Does Workers' Comp Cover Wretched Excess?

Layoffs are never easy for small manufacturers such as Security Metal Products Corp. But the Hawthorne (Calif.) metal-door maker is finding layoffs especially painful these days. Thirty percent of the workers the company has laid off over the last few years have claimed mental stress and filed claims for as much as $25,000, says David B. Hirsch, vice-president for operations. Security's insurance company typically settled up fast, for as much as $10,000. "The way the law was written, we couldn't win by fighting them," Hirsch says. He has since moved most of his company, which currently employs 125 people, to Oklahoma, where the law is less hospitable to stress claims and overall costs are considerably lower.

Hirsch is not the first executive to discover that stress claims have become a growth industry in California. Last year alone, an estimated $380 million was paid to employed and unemployed workers claiming sleepless nights, headaches, and other ills. TV commercials and newspaper ads beckon workers to doctors and lawyers, who counsel those employees who have been fired, transferred, or work under unusual pressure. Plenty of other states are struggling to cap the costs of rising workers' compensation claims. But in California, stress-related claims have now become the key issue in resolving the already convoluted struggle over the state's $56 billion budget.

QUID PRO QUO? Even though tighter restrictions on stress claims wouldn't raise a dime toward the additional $2.3 billion the state needs to close its budget gap in timely fashion, Republican Governor Pete Wilson says such measures must be part of the budget package. "Workers' compensation has become a major cost of doing business in California and is a disincentive for companies to expand in or move to California and create jobs," the governor says. His proposal would make workers prove that their jobs contributed to 50% of their mental stress, up from the current 10% requirement. Wilson would also disallow all claims for stress attributable to firings or layoffs.

California Democrats and unions charge that Wilson, who is backed by the state's largest business groups, is making tougher laws on workers' compensation the price for agreeing to a tax hike on businesses and the wealthy. "The condition for taxing the rich is screwing the workers," blasts Assembly Speaker Willie L. Brown Jr. And labor, which had hoped to push legislation next year to raise California's current $336-a-week disability limit, sees the recent turn of events as the first move toward scaling back the state's overall workers' compensation program.

Even if the fight over mental stress claims is only symbolic, few would deny that California's workers' compensation program has problems. According to an industry group, the National Council on Compensation Insurance, Golden State workers collected $5.3 billion in disability payments in 1989, the last year for which numbers are available. That's roughly a 10% hike over the previous year. As a result, California companies pay insurance rates second only to Montana, which is dominated by riskier industries such as mining and timber (chart).

California is only one of four states to allow claims for stress, but the present fight may well be the precursor of state-by-state battles to cut back on workers' compensation programs in general. In Maine, 10,000 workers were temporarily furloughed earlier this year when Governor John R. McKernan Jr. and Democratic legislators fought over budget cuts that included payments in the workers' compensation program. Pennsylvania is also looking into cutting workers' comp, says Richard A. Victor, executive director of the industry-supported Workers' Compensation Research Institute. At that rate, the David Hirsches of the world may soon find more and more states beckoning as factory sites.

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