OhioBWC - Basics: (Policy library)

OhioBWC - Basics: (Policy library) - File

Policy Name:	Successorship
Policy #:	EP-19-02
Code/Rule Reference	ORC 4123.32(B) and OAC 4123-17-02.
Effective Date:	January 1, 2016
Approved:	Ronald L. Suttles, Interim Chief Employer Services
Origin:	Employer Policy
Supersedes:	Successorship Liability policy issued September 16, 2007, revised May 3, 2008. Experience Combine Complaint Policy issued June 1, 2008, last revised October 17, 2011.
History:	New policy issued May 7, 2018.
Review Date:	January 1, 2021

I. Policy Purpose

BWC will transfer experience, rights and obligations, and workers’ compensation coverage to succeeding employers in accordance with all applicable laws and rules.

II. Applicability

This policy applies to all BWC business units responsible for the review and processing of successions, employers, and their authorized representatives.

III. Definitions

A. De facto: Actually, or in reality.

B. Experience period data: Payroll and claims history used to calculate an employer’s experience modification (EM).

C. Experience modification (EM): As defined in OAC 4123-17-03(D).

D. Experience period: As defined in OAC 4123-17-03(A)(1).

E. Predecessor: The employer associated with the business prior to the succession.

F. Successor: The employer associated with the business after the succession.

G. True-up: Annual reconciliation of estimated payroll and actual payroll. All employers must file annual payroll after the conclusion of the policy year. BWC will calculate any premium obligation or credit for the completed policy year.

IV. Policy

A. Responsibilities.

1. The successor must notify BWC if it succeeds another employer, in whole or in part, in the operation of a business.

2. The successor must preserve the predecessor’s payroll records for the five years preceding the effective date of the succession.

3. BWC will provide the parties to a transfer the Notification of Business Acquisition/Merger or Purchase/Sale (U-118) form and instructions to complete the transfer of the appropriate payroll and claims. If the successor filed an Application for Ohio Workers’ Compensation Coverage (U-3) and completed the Business purchase/Associated policy information section, a U-118 may not be needed.

a. BWC will review the completed form and, if questions arise, conduct a premium audit of each party’s workers’ compensation policy.

b. BWC may not require a U-118 if sufficient supporting documentation is received from both parties.

B. Experience modification (EM) data transfer.

1. BWC will transfer the predecessor’s experience period data under the workers’ compensation law to the successor, regardless of whether the predecessor’s transfer to the successor was voluntary or through an intermediary bank or receivership, if any of the following criteria are met:

a. The successor expressly or impliedly agrees to assume such obligations.

b. The succession transaction amounts to a de facto consolidation or merger.

c. The successor is merely a continuation of the predecessor.

d. The succession transaction is entered into for the purpose of escaping obligations under the workers’ compensation law.

2. BWC will not transfer the predecessor’s experience period data to the successor if the following three conditions are met:

a. There is a material change in ownership;

i. There must be an outright sale (no association between seller and buyer).

ii. In the case of a continuation in ownership, such as a change in partnership, the owner’s interest must have been less than 1/3 ownership before the change or less than 1/2 ownership after the change.

iii. If there is a family relationship or other connection between the predecessor and successor, BWC does not consider the sale of the entity to be a material change in ownership.

b. There is a change in governing classification; and

c. There is a change in process and hazard.

i. There must be a total change in operations or industrial pursuit, or a totally new way of performing the work, such as providing the service or handling the material, that dramatically changes the degree of hazard under the successor. An evaluation by BWC’s Underwriting Department, a rating inspection by BWC’s Audit Department, or a consultation with BWC’s Division of Safety & Hygiene may be required.

ii. There is the possibility to meet the “change in governing classification” requirement and not meet the change in process and hazard. This situation could occur if BWC applies a new manual classification due to changes implemented by the successor; but, the successor uses the same processes, machinery, equipment, and tools as the predecessor. In this situation, the same degree of hazard exists.

iii. The successor must provide documentation to support a substantial modification in process and hazard.

3. In addition to section IV.B.2, BWC will not transfer the predecessor’s experience period data to the successor if all the following conditions are met:

a. The time between the predecessor ceasing all operations and ceasing as an active entity and the effective date of purchase is greater than six months. The predecessor or successor must prove the date all operations ceased.

b. There is no family relationship or other connection between the predecessor and the successor.

4. BWC will establish the successor’s appropriate premium rate:

a. Where one legal entity, not having coverage in the most recent experience period, wholly succeeds another legal entity in the operation of a business the successor’s rate will be based on the predecessor’s experience period data within the most recent experience period.

b. Where a legal entity having established coverage, or having had experience in the most recent experience period, wholly succeeds one or more legal entities having established coverage or having had experience in the most recent experience period and at least one of the entities involved has a merit rating experience, the successor’s rate will be based on the combined experience period data of all the involved entities.

c. A legal entity that succeeds in the operation of a portion of a business of one or more legal entities having established coverage or having had experience in the most recent experience period, the successor’s rate will be based on the portion of the predecessor’s experience period data acquired by the successor.

5. BWC will determine the effective date of the transfer of experience.

a. When any combination or transfer of experience is indicated, the effective date of such combination or transfer will be the beginning date of the following policy year.

b. If an entity initiates coverage on the same date it wholly succeeds another entity, or in cases where the date of succession is January 1 for a public employer taxing district (PEC), or July 1 for a private employer (PA), the effective date of the combination or transfer of experience will be the actual date of succession.

6. BWC will transfer claims from the predecessor’s policy to the successor’s policy. BWC systems will identify the successor as the employer of record on the effective date of the claims transfer.

7. If an out of state employer purchases an existing Ohio operation, BWC may use the out of state experience of the employer as a factor in determining the employer’s experience.

C. Rights and obligations.

1. BWC will transfer the predecessor’s rights and obligations under the workers’ compensation law to the successor where the successor wholly succeeds the predecessor in the operation of the business. BWC will transfer the rights and obligations regardless of whether the predecessor’s transfer to the successor was voluntary or through an intermediary bank or receivership, if any of the following criteria are met:

a. The successor expressly or impliedly agrees to assume such obligations.

b. The succession transaction amounts to a de facto consolidation or merger.

c. The successor is merely a continuation of the predecessor.

d. The succession transaction is entered into for the purpose of escaping obligations under the workers’ compensation law.

2. BWC will not transfer the predecessor’s rights and obligations to the successor if the following three conditions are met:

a. There is a material change in ownership;

i. There must be an outright sale (no association between seller and buyer).

iii. If there is a family relationship or other connection between the predecessor and successor, BWC does not consider the sale of the entity to be a material change in ownership.

b. There is a change in governing classification; and

c. There is a change in process and hazard.

ii. There is the possibility to meet the “change in governing classification” requirement and not meet the change in process and hazard. This situation could occur if BWC applies a new manual classification due to changes implemented by the successor, but, the successor uses the same processes, machinery, equipment, and tools as the predecessor. In this situation, the same degree of hazard exists.

iii. The successor must provide documentation to support a substantial modification in process and hazard.

3. In addition to section IV.C.2, BWC will not transfer the predecessor’s rights and obligations to the successor if all the following conditions are met:

b. There is no family relationship or other connection between the predecessor and the successor.

4. Effective September 1, 2006, BWC will credit the successor with any credits of the predecessor where the successor wholly succeeds the predecessor.

D. Estimated annual premium (EAP), installment payments, and true-up.

1. EAP for successor.

a. BWC will prorate the predecessor’s estimated payroll to determine the amount of payroll to add to the successor from the date of succession to the end of the current policy year.

b. BWC will recalculate the EAP and installment payments for the successor based on the additional estimated payroll.

c. If the successor is a new employer and the date of combination is the same as the effective date of coverage, BWC will ensure, at a minimum, that the successor’s estimated payroll is at least the predecessor’s prorated estimated payroll from date of succession to the end of the current policy year. BWC will use the estimated payroll on the successor’s U-3 if that estimate is higher.

2. BWC will void the predecessor’s installment payments that are due after the date of combination.

3. True-up.

a. The predecessor is required to true-up within thirty (30) days of receiving notice from BWC.

i. The predecessor must report payroll from the first day of the policy year through the last date it had employees.

ii. BWC will prorate predecessor’s payroll for the coverage period and increase the EAP by ten percent (10%) if the predecessor fails to true-up by the due date.

b. Successor’s true-up must include payroll from predecessor from the date of combination to the end of the policy year.

4. Partial transfers.

a. BWC will transfer estimated payroll to the successor based on the portion of predecessor that was purchased.

b. BWC will recalculate the EAP and installment payments for the successor based on the additional estimated payroll.

c. True-up is due after the conclusion of the policy year.

i. Predecessor must report payroll for the portion of the business that it owned for the entire policy year and for the portion of the business it owned up to the date it was sold to the successor.

ii. Successor must report payroll for its existing business for the entire policy year and for the portion of the business bought from predecessor from the date of purchase.

5. Successions that occur after BWC has issued the successor an EAP letter but, before the end of the current policy year.

a. Both predecessor and successor must true-up for the current policy year.

b. BWC will add estimated payroll to the successor for the renewal year based on the predecessor’s reported payroll. BWC will recalculate the EAP and installment payments for the successor.

E. Policy combinations and workers’ compensation coverage transfers.

1. Where the successor wholly succeeds the predecessor, BWC will determine the date the predecessor’s policy is combined into the successor’s policy as follows.

a. Where the successor has workers’ compensation coverage prior to the date of succession, BWC will combine the predecessor’s policy into the successor’s policy effective the date of succession.

b. Where the successor does not have worker’s compensation coverage prior to the date of the succession, BWC will combine the predecessor’s policy into the successor’s policy effective:

i. The date of succession, if the original effective date of the successor’s policy is equal to the succession date.

ii. The original effective date of the successor’s policy, if the original effective date of the successor’s policy is later than the succession date.

2. BWC will use the Application for Coverage policy to determine the coverage effective date for a successor’s new policy.

3. BWC will not grant retroactive coverage to the successor except as provided in OAC 4123-14-03.

4. BWC will assign only one policy to a legal entity. If a legal entity succeeds one or more risks, BWC will combine policies to ensure the successor is assigned one workers’ compensation policy. BWC may grant an exception to:

a. A temporary agency. See the Temporary Labor Services policy for additional information.

b. An employer with multiple locations where there is no interchange of labor between the locations.

5. BWC will deny requests by a predecessor to retain its workers’ compensation policy number. The predecessor must submit a U-3 and the non-refundable application fee to apply for coverage for its new or future business operation.

F. BWC determination of a succession.

1. BWC will use multiple criteria and a preponderance of the facts to determine whether a successor wholly succeeded a predecessor. Criteria BWC will use includes, but is not limited to:

a. Business ownership.

b. Continuity of business operations.

c. Real estate, plant, equipment, material inventories, and other assets or property.

d. Customer profiles.

e. Industrial pursuit.

f. Employee roster.

g. Business location.

2. The records BWC will examine to determine whether a successor wholly succeeded a predecessor includes, but is not limited to:

a. Purchase or sales agreements.

b. Federal tax and Ohio Department of Jobs and Family Services (ODJFS) records, including W-2s and 1099s.

c. Receipts, invoices or transfer documents relating to real estate, equipment, vehicles, material inventory, and other assets or property.

d. List of customers and supporting invoices.

e. Accounts receivable ledgers.

f. Payroll records.

3. Where the successor wholly succeeds the predecessor, BWC has the right to transfer the predecessor’s EM data and liabilities to the successor without either party’s signature or approval.

4. BWC will not use this policy to address the impacts of alternative rating programs in which an employer may be participating. The rules for the specific rating plans apply.

G. Bankruptcy and receivership.

1. Bankruptcy:

a. BWC will issue a new policy with the status of debtor in possession (DIP) when an employer enters into bankruptcy and continues to operate.

i. The experience period data from the original policy will transfer to the DIP policy to develop the DIP’s rate. However, the liabilities will remain with the original policy.

ii. If the employer emerges from bankruptcy and continues to operate, BWC will update the policy to remove the DIP status. The employer retains the experience period data.

b. When an employer enters into bankruptcy and sells the business, there is no transfer of experience period data or liabilities to the buyer.

2. Receivership: When a receiver is responsible to liquidate the assets of an entity, BWC considers the receiver a third party intermediary; no liabilities or experience transfers to the succeeding employer.

H. Request for information.

1. Pursuant to executing the Request for Business Transfer Information (AC-4) a potential successor may request information from BWC concerning:

a. The premium rates to be applied where one employer takes over the occupation or industry of another, and

b. The portion of the account assumed by the successor.

2. The information released to the successor and/or its authorized representative will only include the following:

a. Employer demographic information.

b. Account receivable balance.

c. Payroll history.

d. EM history.

e. Most recent quarterly claim cost summary.

f. If a current audit is pending.

3. The information released by BWC is current as of the date of its release only and does not reflect any changes, adjustments, or audits that may be in process. BWC cannot guarantee the accuracy of the information beyond the date of production.

I. Resolution of complaints.

1. An employer that BWC determines to be a successor may file a complaint.

2. BWC has identified certain “extenuating circumstances” that allow BWC to grant the employer’s request for relief. There must be a direct correlation between the extenuating circumstance and the employer’s request. The extenuating circumstances are outlined in section IV.J below.

3. BWC will investigate the employer’s complaint.

a. BWC will ascertain the reasons the employer is requesting relief.

b. BWC will request documentation from the employer, including, but not limited to:

i. BWC records.

ii. Application for Ohio Workers’ Compensation Coverage (U-3).

iii. Notification of Business Acquisition/Merger or Purchase/Sale (U-118).

iv. Copy of purchase, lease, or management agreement.

4. BWC will approve or deny the employer’s request for relief.

5. The following do not qualify as extenuating circumstances:

a. Successions accomplished under a lease agreement.

b. Successions accomplished under a “lease-purchase” agreement.

c. Successions accomplished through a “management contract” agreement.

d. Successions accomplished through a “purchase agreement.”

6. BWC staff who process an employer’s complaint must obtain management level sign-off on each recommendation to approve or deny the employer’s request for relief.

J. Circumstances that qualify as extenuating circumstances.

1. Bankrupt employer. This circumstance is intended to include all experience combine situations involving a bankrupt employer.

2. BWC error. This circumstance is intended to cover all instances where BWC has made material errors in transfer. If the error was due to incomplete or inaccurate information provided by the predecessor or successor, BWC error does not apply.

3. Employer acquires equipment through auction to use in its existing business and has acquired nothing else from the former employer.

4. Involuntary transfer through an intermediary bank. This circumstance is intended to cover instances where the successor acquires its interest in the predecessor’s business by means of an involuntary transfer through an intermediary bank.

a. The following two conditions must be present:

i. The transfer from the predecessor must be involuntary.

ii. The acquisition by the ultimate transferee/successor must be through an intermediary bank. BWC may require appropriate documentation to support the involuntary transfer.

b. In addition to the above two conditions, for successions that occur on or after July 5, 2010, NONE of the following criteria can exist:

i. The successor expressly or impliedly agreed to assume such obligations.

ii. The succession transaction amounts to a de facto consolidation or merger.

iii. The successor is merely a continuation of the predecessor.

iv. The succession transaction was entered into for the purpose of escaping obligations under the workers’ compensation law.

v. The transfer was through an entity other than an intermediary bank.

c. If one or more of the above five criteria is met, BWC will transfer the predecessor’s experience, rights and obligations.

K. Scenarios.

1. Successor applies for coverage on the date of succession.

a. Employer B, not having established coverage wholly succeeds Employer A which has established Ohio workers’ compensation coverage. U-3 and U118 forms returned to BWC indicate Employer B wholly succeeded Employer A on October 4. Employer B applied for coverage and paid the application fee on October 4.

b. BWC action: Preponderance of the facts show that Employer B wholly succeeded Employer A. Successor Employer B’s coverage is effective October 4.

i. Predecessor Employer A’s existing policy is combined into Successor Employer B’s policy effective October 4.

ii. All workers’ compensation rights and obligations of Predecessor Employer A are transferred to Successor Employer B. Successor Employer B will receive all future invoice/statements associated with Predecessor A’s policy.

iii. Experience of Predecessor Employer A is transferred to Successor Employer B effective October 4.

iv. Correspondence sent to Predecessor Employer A and Successor Employer B advising of actions taken by BWC.

v. Successor Employer B reports payroll and pays premium under its new workers’ compensation policy. Employer A is responsible for reporting payroll for the period July 1 through October 3. Employer B becomes responsible for paying the premium for the July 1 through October 3 period if the premium is not paid by Employer A. Employer B is responsible for reporting and paying the premium for the October 4 through June 30 period and subsequent periods.

2. Successor applies for coverage after date of succession.

a. Employer B, not having established coverage wholly succeeds Employer A which has established Ohio workers’ compensation coverage. U-3 and U-118 forms returned to BWC indicate Employer B wholly succeeded Employer A on October 4. Employer B applied for coverage and paid the application fee on December 1, after the effective date of the succession.

b. BWC action: Preponderance of the facts show that Employer B wholly succeeded Employer A.

i. Successor Employer B’s coverage is effective December 1.

ii. Predecessor Employer A’s existing policy is combined into Successor Employer B’s policy effective December 1.

iii. All workers’ compensation rights and obligations of Predecessor Employer A are transferred to Successor Employer B. Successor Employer B will receive all future invoice/statements associated with Predecessor A’s policy.

iv. Experience of Predecessor Employer A is transferred to Successor Employer B effective the following July 1 (first day of the policy year).

v. Correspondence sent to Predecessor Employer A and Successor Employer B advising of actions taken by BWC.

vi. Successor Employer B reports payroll and pays premium under its new workers’ compensation policy. Employer A is responsible for reporting payroll for the period July 1 through October 3. Employer B becomes responsible for paying premium for the July 1 through October 3 period if the premium is not paid by Employer A. BWC will charge Employer B a no coverage penalty for the period October 4 through November 30. Employer B is responsible for paying the premium for the December 1 through June 30 period and subsequent periods.

3. Business transaction effective first day of a policy year.

a. Employer B having established coverage wholly succeeds Employer A which has established Ohio workers’ compensation coverage. U-118 form returned to BWC indicates Employer B wholly succeeded Employer A on July 1 (effective first day of a policy year).

b. BWC action: Preponderance of the facts show that Employer B wholly succeeds Employer A.

i. Predecessor Employer A’s existing policy is combined into Successor Employer B’s existing policy effective July 1.

iii. Correspondence sent to Predecessor Employer A and Successor Employer B advising of actions taken by BWC.

iv. Successor Employer B reports payroll and pays premium under its existing workers’ compensation policy. Employer B is responsible for reporting payroll and paying the premium for the July 1 through June 30 period and subsequent periods.

4. Business transaction between employers with established coverage.

a. Employer B, having established coverage wholly succeeds Employer A which has established Ohio workers’ compensation coverage. U-118 form returned to BWC indicates Employer B wholly succeeded Employer A on October 1.

b. BWC action: Preponderance of the facts show that Employer B wholly succeeds Employer A.

i. Predecessor Employer A’s existing policy is combined into Successor Employer B’s existing policy effective October 1.

iii. Experience of Predecessor Employer A is transferred to Successor Employer B effective the following July 1 (first day of the policy year).

iv. Correspondence sent to Predecessor Employer A and Successor Employer B advising of actions taken by BWC.

v. Successor Employer B reports payroll and pays premium under its existing workers’ compensation policy. Employer A is responsible for reporting payroll for the period July 1 through September 30. Employer B becomes responsible for paying the premium for the July 1 through September 30 period if the premium is not paid by Employer A. Employer B is responsible for reporting and paying the premium for the October 1 through June 30 period and subsequent periods.

5. Partial transfer.

a. Employer B not having established Ohio workers’ compensation coverage takes over a portion of the operations of Employer A which has established Ohio workers’ compensation coverage. U-3 and U-118 forms returned to BWC indicate Employer B took over a portion of the operations of Employer A on April 1. Employer B applied for coverage and paid the application fee on April 1.

b. BWC action: Preponderance of the facts show that Employer B took over a portion of the operations of Employer A on April 1.

i. Successor Employer B’s coverage is effective April 1.

ii. Predecessor Employer A retains its existing BWC policy number.

iii. Partial Transfer Audit assignment generated to determine what portion of the payroll and claims transfer to Successor Employer B for premium rate making purposes.

iv. Partial transfer adjustment completed upon submission of audit findings.

v. Successor Employer B reports payroll and pays premium under its new workers’ compensation policy. Employer A is responsible for reporting payroll and paying premium for the July 1 through March 31 period. Successor Employer B is responsible for reporting and paying the premium for the April 1 through June 30 period for the portion of Employer A’s business operation Employer B took over on April 1.

vi. Correspondence sent to Predecessor Employer A and Successor Employer B advising of actions taken by BWC.

6. Multiple successions.

a. Employer A having established Ohio workers’ compensation coverage was combined into Employer B having established Ohio workers’ compensation coverage effective June 10, 2008. Employer B sells entire business operation to Employer C not having established coverage. U-3 and U-118 forms returned to BWC indicate 100% of business operation purchased by Employer C on March 8 of this year. Employer C applied for coverage and paid the application fee on February 15 of this year.

b. BWC action: Preponderance of the facts concludes that Employer C wholly succeeds Employer B.

i. Successor Employer C’s coverage is effective February 15.

ii. Predecessor Employer B’s existing policy is combined into Successor Employer C’s new policy effective March 8.

iii. All workers’ compensation related rights and obligations of Predecessor Employers A and B are transferred to Successor Employer C. Successor Employer C will receive all future invoice/statements associated with Predecessor A and B’s policy.

iv. Experience of Predecessor Employer B is transferred to Successor Employer C effective the following July 1. (First day of the following policy year).

v. Correspondence sent to Employers B and C advising of actions taken by BWC.

vi. Successor Employer C reports payroll and pays premium under its new workers’ compensation policy. (Employer B is responsible for reporting payroll for the period July 1 through March 7. Employer C becomes responsible for paying the premium for the July 1 through March 7 period if the premium is not paid by Employer B. Employer C is responsible for reporting the payroll and paying the premium for the March 8 through June 30 period and subsequent periods).

7. Employer applies for coverage without submitting Notification of Business Acquisition/Merger or Purchase/Sale (U-118).

a. Employer A having established Ohio workers’ compensation coverage sells entire business operation to Employer B not having established Ohio workers’ compensation coverage. No U-118 form sent to BWC. Employer B submits U-3 to BWC indicating startup date of August 17. BWC received information indicating Employer B might have succeeded in the business operation of Employer A.

b. BWC action:

i. New application for coverage of Successor Employer B reviewed by BWC. U-118 form is forwarded to Successor Employer B requesting information regarding business transaction.

ii. Application for Successor Employer B is held in pending status until all required information is received or supervisor determines it is appropriate to finalize the application and proceed with the combine/transfer.