Author: WorkCompAcademy

This is an unpublished decision, and therefore not controlling on any lower court. And there is no new or novel case law discussed by the court. The case is however valuable as an illustration of how difficult it might be to create and implement a binding arbitration agreement with employees, and in this case how missteps in the implementation can badly effect the outcome of litigation.

In this case John Schwenk began working for Bristol Farms in 2009. In September 2020, he filed a class action complaint based on wage and hour claims.

Seven months after he filed his case in the trial court, Bristol Farms distributed to its employees an arbitration agreement to include a broad range of claims, including those involved in this litigation. The agreement contained an opt-out procedure for employees to follow if they did not want to be bound by the agreement.

It was undisputed that one day after Schwenk signed and submitted the acknowledgment page of the arbitration agreement, he asked for it back, and shredded it. He crossed out his signature on the receipt tracking list in the presence of a Bristol Farms administrator who then initialed and confirmed the change on the form.

Seventy days after Schwenk shredded the arbitration agreement and crossed out his signature on Bristol Farms’s receipt tracking list, counsel for both Bristol Farms and Schwenk met and discussed the agreement. Meanwhile, between the shredding of the agreement, and the discussion between counsel, Schwenk’s lawsuit had moved forward with Schwenk’s counsel propounding two sets of initial discovery requests to Bristol Farms, and the parties filing a second joint case management statement with the trial court without mentioning the arbitration agreement or that either party would seek arbitration.

Thirty days after the respective parties’ counsel discussed the arbitration agreement, Bristol Farms filed a motion to compel arbitration. Bristol Farms contended that Schwenk impliedly assented to the proposed agreement to arbitrate. The trial court rejected the contention because it found Schwenk did not assent to the agreement, and denied the motion. The court of appeal agreed and affirmed the trial court in the unpublished case of Schwenk v Bristol Farms – G060731 (October 2022).

Bristol Farms argues it is entitled to a reversal as a matter of law based on a two-part argument: (1) Schwenk agreed to Bristol Farms’s arbitration agreement by continuing employment; and so (2) Schwenk’s failure to comply with the “opt out” procedure in the arbitration agreement constituted his consent to be bound by the arbitration agreement’s terms.

In response, Schwenk notes the Legislature’s enactment of Labor Code section 432.6. in 2019. The statute provides in relevant part that no person may require an “employee to waive any right, forum, or procedure for a violation of [the Labor Code], including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court.”

Labor Code section 432.6, subdivision (c), includes in its definition of prohibited dealings any “agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights.”

Thus the court of appeal wrote “Applied facially, Labor Code section 432.6, subdivisions (a) and (c), are fatal to Bristol Farms’s argument that its opt out procedure shows Schwenk consented to the arbitration agreement.”

And the court of appeal concluded that the “trial court correctly decided Bristol Farms had not shown mutual consent in this case based on undisputed facts. Substantial evidence supports the court’s finding that Schwenk ‘never agreed to arbitrate his claims against Bristol Farms’ because Schwenk’s undisputed outward manifestations of conduct would lead a reasonable person to believe his consent did not exist.”

RxInformer just published an article “The Triple Threat of Tobacco Use on Employer, Clinical, and Medication Complexity“ which shows the effects tobacco use has on skeletal injuries, and thus may potentially be an avenue to explore apportionment of permanent disability, since California Labor Code section 4663 mandates that apportionment of permanent disability shall be based on causation. The report is well documented with references to academic and scientific literature.

Recognized as a patient risk factor within workers’ compensation healthcare, tobacco use, including cigarette smoking, has specific impacts on employee and injured worker patient populations.

– – Smoking has detrimental impacts to worker productivity, including both absenteeism and presenteeism factors.
– – Rates of tobacco use are higher among blue collar occupations, with the highest prevalence of cigarette smoking in construction, mining and manufacturing.
– – The average additional cost associated with employing a smoker are estimated at more than $7000 annually.
– – Tobacco use increases fracture risk, slows healing, and is linked to increased risk for post-surgical complications that increase morbidity, mortality, and healthcare interventions.
– – Tobacco smoke can negatively interact with a number of medications prescribed in workers’ compensation.

Tobacco use deteriorates the health and function of all major body systems and is linked to multiple clinical detriments relevant to injury and recovery. Cigarette smoking is known to delay wound healing due to the damage it inflicts on blood vessels, blood flowing to wounds, and decreased oxygen levels in blood.

Smoking also erodes the entire musculoskeletal system, degrading bone density and leaving individuals at higher risk for fractures, slower healing, and nonunion. The authors cite Hernigou J & Schuind F. Tobacco and bone fractures. Bone Joint Res. 2019;8:255-65 as authority for this claim.

Notable is the established connection between tobacco use and post-surgical complications. The trauma of surgical intervention triggers a natural inflammatory response in the body that enables tissue recovery and helps to fight infection. The negative impacts of tobacco on cardiovascular function, pulmonary function and tissue healing are shown to interfere with this process, lending itself to higher rates of significant postsurgical complications. Here the authors cite Sorensen LT. Wound healing and infection in surgery. The clinical impact of smoking and smoking cessation: a systematic review and meta-analysis. Arch Surg. 2012;147(4):373-83 and Turan A, Mascha EJ, Roberman D, et al. Smoking and perioperative outcomes. Anesthesiology. 2011;114(4):837-46 as medical literature on this issue.

Tobacco smoke can negatively interact with certain medications by impacting how the body absorbs, metabolizes, distributes and excretes them. This can mean reducing or, in rare cases, enhancing the effectiveness of the medication. It can also mean increasing the risk of adverse effects.

Some of the potentially impacted prescribed within workers’ compensation include, but are not limited to Benzodiazepines, Opioids, Tricyclic antidepressants, Alprazolam, Cyclobenzaprine, Naproxen and others. See the publication by the American Academy of Family Physicians. Drug interactions with tobacco smoke for a more complete list.

Edgardo Cabrales Sr., 61, and his son, Edgar Cabrales Jr., 36, both of San Jose, are charged with five felony counts each of insurance fraud after a Department of Insurance investigation found they allegedly underreported $12 million in employee wages and payroll to save on workers’ compensation insurance premiums.

The Cabrales own two commercial cleaning companies in San Jose: Pine Building Maintenance (PBM) and Network Facility Management (NFM).

An investigation by the Department began after the State Compensation Insurance Fraud (SCIF) suspected the businesses of fraud.

The investigation discovered that since 2016 the Cabrales had only secured insurance coverage for a fraction of their PBM employees and they had never secured a workers’ compensation insurance policy to insure their NFM employees, even though the majority of their business was operated through NFM.

The father and son accomplices failed to report approximately $12 million in wages to SCIF in order to save money on insurance, resulting in $4.2 million in lost premiums.

In this case, Cabrales’ underreporting significantly lowered the premiums owed. Businesses that fraudulently lower their premiums benefit from an unfair market advantage, giving them the ability to charge less in labor costs, and thereby underbid businesses who pay the appropriate premiums.

Cabrales Jr. self-surrendered yesterday and his father, Cabrales Sr., was arrested on October 23, 2022, at the San Francisco International Airport. The Santa Clara County District Attorney’s Office is prosecuting this case.

Employers are required to maintain workers’ compensation insurance to cover their employees in the event of an accidental on-the-job injury. To ensure proper coverage, employers are required to accurately report the number of employees, job classifications, and the amount of payroll expended. One of the common ways in which employers avoid paying insurance premiums is to underreport a business’s payroll by providing false payroll reports to their insurance company.

Rebecca Gage sustained injury to the lumbar spine through September 14, 2011 while employed as a deputy sheriff by the County of Sacramento. She requested advanced disability pension payments pursuant to Labor Code section 4850.4.

The employer made payments, but the payments were unreasonably delayed and she was awarded LC. 5814 penalties. The WCAB granted reconsideration and reversed the penalty order. It found that because advance disability retirement payments were not equivalent to regular workers’ compensation benefits, and that these benefits were not subject to a section 5814 penalty. The Court of Appeal reversed in the 2016 published case of Gage v WCAB. ( 6 Cal.App.5th 1128 [81 Cal.Comp.Cases 1127].) and concluded that the WCAB does indeed have jurisdiction to impose penalties under Labor Code section 5814. Subsequently the parties resolved all penalties.

Gage received advanced disability pension payments from May 8, 2015 through October 17, 2018 for a total of $120,144.03. Her disability retirement application was denied on October 17, 2018. The employer designated mediation as its independent level of resolution to recover these payments and scheduled a mediation with a retired judge for April 27, 2020. Gage did not attend. The matter proceeded to a status conference to compel her to attend. The WCJ denied the request finding no jurisdiction to do so, despite the Court of Appeal decision.

The WCAB again granted reconsideration on August 9, 2021, finding that the order was issued without creation of a record, and the case was remanded for further proceedings which occurred on December 13, 2021. The sole issue at trial was “[j]urisdiction to enforce Labor Code, section 4850.4.”

The WCJ concluded that initial jurisdiction over a plan to repay advanced disability retirement benefits vests solely with the local agency who issued payment. And that the Appeals Board has non-exclusive jurisdiction over litigation of any repayment plan or applicant may seek a writ of mandate with the Superior Court, but jurisdiction with the Appeals Board only exists after the parties have completed the first two steps outlined in the statute. And the WCJ found that the parties are expected to meet and confer to reach an agreement on a repayment plan per Labor Code section 4850.4(f). Both parties filed a petition for reconsideration which was granted in the newest WCAB panel decision of Gage v County of Sacramento ADJ8010054 (September 2022).

The employer contends that the Appeals Board has jurisdiction over repayment of applicant’s advanced disability pension payments since the Court of Appeal held that the Appeals Board has jurisdiction to “enforce payment” of advances. The panel responded by saying this “construction of the Court’s holding improperly conflates jurisdiction over section 5814 penalties with jurisdiction over section 4850.4 payments” because these payments are “compensation: under section 3207.

The last sentence of section 4850.4(f) permits the local agency to “take reasonable steps, including litigation” to recover the advanced payments “[i]f repayment is not made according to the repayment plan.” At this juncture, there is no repayment plan in place. Defendant may not pursue litigation to recover the advanced payments it made until applicant has failed to make payments per a repayment plan adopted either by an agreement between the parties or following submission of the issue to defendant’s administrative appeals remedy. It is thus premature to address whether “litigation” as that term is used in the statute entails proceedings before the Appeals Board or in civil court, or both.“

The Order was rescinded, and the case taken off calendar with the WCAB concluding that “The Appeals Board does not have jurisdiction to force applicant’s participation to agree on a repayment plan or in the local agency’s administrative appeals remedy.”

A workers’ compensation applicant attorney was sentenced to four years in state prison and ordered to pay over $700,000 in restitution to seventeen different insurance carriers for participating in two separate insurance fraud referral schemes.

Jon Woods, 61, of Cypress, was convicted in August of 37 felony counts of insurance fraud along with an aggravated white-collar crime sentencing enhancement. Woods was one of ten workers’ compensation applicant attorneys charged by the Orange County District Attorney’s Office in June 2017 as a result of a complex insurance fraud investigation.  

Charges were also filed against Carlos Arguello, Fermin Iglesias, and Edgar Gonzalez, along with four chiropractors, and several employees working for Carlos Arguello.  Carlos Arguello, his employees, and Fermin Iglesias have all pleaded guilty in their Orange County Superior Court cases.  Arguello and Iglesias were also charged in federal court for violating federal laws related to their scheme with medical providers, resulting in a four-year federal sentence for Arguello and a five-year federal prison sentence for Iglesias.

Woods was found guilty of participating in two different insurance fraud schemes – one with a “marketer” named Carlos Arguello, and the other with a subpoena company owner named Edgar Gonzalez.  From 2011 to 2016, Woods paid Carlos Arguello for workers’ compensation clients procured through Arguello’s attorney marketing business, Centro Legal International, and later Tu Justicia Legal, as well as Centro de Abogados.

Targeting mainly Hispanic neighborhoods across the State, Arguello’s business handed out more than four million business-card-sized flyers per month to attract prospective workers’ compensation clients for Arguello’s “marketing” scheme.  The flyers contained different toll-free numbers that all rang to a call center located in Tijuana, Mexico.  The call center operators served as a sales force, responsible for securing clients for Arguello’s attorneys by conferring with staff of various law firms about the callers’ cases, and then dispatching a “sign-up” representative from Arguello’s network to the caller’s home within 24-48 hours to sign legal paperwork to hire the law firm and start the injury claim.  Arguello distributed clients to law firms based on the amount each law firm paid Arguello for clients that month.

In addition to paying a monthly fee for obtaining clients, Woods also sent records subpoena work to companies controlled and operated by Carlos Arguello, in an amount equal to the number of clients he received from Arguello.  These companies billed the workers’ compensation insurance policy of the injured worker’s employer for all the records subpoena services they provided for Woods, because the law requires that cost of an injured worker proving his/her workers’ compensation claim must be paid by the employer’s workers’ compensation insurance.  This includes expense for obtaining records through subpoenas ordered by the injured worker’s lawyer.

Arguello’s scheme required that all clients procured through Arguello’s “marketing” would be sent to clinics chosen by Arguello’s organization.  Like the lawyers participating in his scheme, a group of doctors or chiropractors were also paying Arguello for workers’ compensation patients.  Fermin Iglesias, an associate of Carlos Arguello, oversaw the medical side of the scheme, in which medical service providers issued prescriptions for medical products to businesses owned by Iglesias in exchange for referral of patients to their clinics.

California’s workers’ compensation laws prohibit any person from paying for referral of business that would be billed through workers’ compensation insurance, and prohibit acceptance of such business in exchange for any kind of payment, benefit or compensation.  At trial, representatives of seventeen different workers’ compensation insurance companies testified that their companies would not have paid any of the bills received from a records subpoena company if they knew that the services rendered were a result of an unlawful referral scheme.

Woods was also found guilty of participating in a second fraud scheme in which he referred additional records subpoena work to USA Photocopy, a subpoena company owned by Edgar Gonzalez. Gonzalez paid various business expenses for Woods’ law firm as a bribe to receive the firm’s records subpoena work, including paying salaries for several entry-level employees who worked at Woods’ law firm, and paying bills for shredding costs, copier maintenance, new scanners, as well as an overseas back-office assistant.

Arguello and Gonzalez’s records subpoena companies had offshore offices in El Salvador, where employees reviewed subpoenaed records to identify more businesses that they can serve with more records subpoenas on Woods’ behalf. These companies billed workers’ compensation insurance companies for each individual subpoena.

Senior Deputy District Attorney Noor Hasan of Insurance Fraud prosecuted this case.