California’s SB 189, signed in October 2017 and effective July 1, 2018, rewrote the workers’ compensation exclusion rules for business owners and executives. Under the new rules, corporate officers, directors, general partners, LLC managing members, professional corporation owners, and cooperative directors can still opt out of workers’ comp coverage, but most must meet an ownership threshold and carry health insurance to do it. The bill also pulled a previously ambiguous group into “employee” status: people who hold shares or membership interests through a revocable trust.
Who Can Still Opt Out
SB 189 amended Labor Code Sections 3351 and 3352, which set the definitions of “employee” and the exclusions from that definition.1LegiScan. California SB189 2017-2018 Regular Session Chaptered Eligibility to waive coverage now depends on your role and how the business is organized.
Corporate Officers and Directors
An officer or director of a private or quasi-public corporation can waive coverage only if two things are true. They own at least 10% of the corporation’s issued and outstanding stock, and they are covered by a health insurance policy or health care service plan.2California Legislative Information. California Code LAB 3352 – Employee Exclusions
A family-business alternative lowers the ownership bar. An officer or director who personally owns at least 1% of the stock qualifies if a parent, grandparent, sibling, spouse, or child owns at least 10%.
Sole shareholders sit outside this framework. A sole shareholder who is also an officer or director of a private corporation is automatically excluded from the employee definition and doesn’t file a waiver at all. That person can instead voluntarily elect into coverage under Labor Code Section 4151 if they want the protection.3California Department of Insurance. Notice Regarding SB 189 Changes in Definitions of Employee and Exclusions
General Partners and Managing Members
General partners and managing members of LLCs who draw wages from the business are employees under Labor Code Section 3351(f).4California Legislative Information. California Code LAB 3351 – Employee Definition To waive, they sign a written statement under penalty of perjury confirming they are a qualifying general partner or managing member. There is no ownership percentage floor and no health insurance requirement at this level.3California Department of Insurance. Notice Regarding SB 189 Changes in Definitions of Employee and Exclusions
Professional Corporation Owners
Owners of a professional corporation organized under Corporations Code Section 13401 — law firms, medical practices, accounting firms, and similar entities — can waive coverage if they personally render the professional services the corporation is organized to provide. The waiver is a written statement under penalty of perjury, and the owner must carry a health insurance policy or health care service plan. The signed waiver must be shared with every other owner, and the corporation keeps a copy on file.3California Department of Insurance. Notice Regarding SB 189 Changes in Definitions of Employee and Exclusions
Cooperative Corporation Officers and Directors
Officers and board members of cooperative corporations face the strictest waiver standard. They need a written waiver under penalty of perjury, proof of health insurance, and a disability insurance policy comparable in scope and coverage to a workers’ compensation policy. Copies of the waiver go to every other officer or board member, with one kept on file at the cooperative.3California Department of Insurance. Notice Regarding SB 189 Changes in Definitions of Employee and Exclusions
The Health Insurance Requirement
The health insurance condition is the change most likely to trip up someone who waived coverage under the old rules. Corporate officers, directors, professional corporation owners, and cooperative directors all must confirm they carry a health insurance policy or health care service plan before they can opt out. If a person previously waived without carrying separate health coverage, that older waiver is no longer valid on its own terms. The rationale is straightforward: an owner walking away from the workers’ comp safety net has to have some medical coverage in place.
Revocable Trust Holders Are Now Employees
Before SB 189, transferring corporate shares or partnership interests into a revocable trust created uncertainty about whether the trust holder still counted as an “employee.” SB 189 answered that question. Under Labor Code Section 3351(g), anyone who holds the power to revoke a trust that owns shares in a private corporation or holds general partnership or LLC interests is an employee for workers’ comp purposes.4California Legislative Information. California Code LAB 3351 – Employee Definition
If you own your business interest through a revocable trust, the business’s workers’ comp policy must cover you unless you qualify for a waiver. A trust holder who would qualify as an officer or director under Section 3351(c), or as a working partner or managing member under Section 3351(f), can pursue a waiver through those routes if they meet the underlying criteria.1LegiScan. California SB189 2017-2018 Regular Session Chaptered Estate planning arrangements that shifted shares into trust years ago should be re-examined against this rule.
How to Execute a Waiver
The mechanics of the waiver process are consistent across business types, with the documentation varying by category:
- The waiver must be in writing and signed under penalty of perjury.
- It takes effect when the business’s workers’ comp insurance carrier receives and accepts it. With the signer’s consent, the insurer may backdate acceptance by up to 15 days.
- Once accepted, the waiver stays in effect indefinitely until the signer submits a written withdrawal to the insurer.
- The insurer, agent, or broker has no obligation to verify the statements in the waiver.
The Conclusive Presumption
Once a proper waiver is signed and accepted, a conclusive presumption applies: the signer is not covered by workers’ comp benefits.2California Legislative Information. California Code LAB 3352 – Employee Exclusions That presumption cannot be overcome later. If you sign a waiver stating you own 10% of the company’s stock and you actually own 8%, you cannot turn around after an injury and claim benefits by pointing to the error. The accuracy of the facts you attest to is not a formality.
What Happens If a Business Gets It Wrong
Every California employer must carry workers’ compensation insurance for its employees. Failing to do so is a misdemeanor punishable by a fine of up to $10,000 or up to one year in county jail, or both.5California Department of Industrial Relations. DWC FAQs for Employers SB 189 raises the exposure because it added people to the employee category. A business that doesn’t update its policy to cover revocable trust holders, or that keeps relying on stale waivers from officers who no longer meet the 10% and health insurance test, is technically uninsured for those individuals.
An uninsured employer also faces civil liability for the full cost of a workplace injury without the damage limits the workers’ comp system otherwise provides, and the state can issue stop orders that halt operations until coverage is in place.
What SB 189 Is Not
SB 189 is sometimes confused with other California bills numbered similarly or dealing with employment. It is not AB 5, the 2019 statute that codified the ABC test for independent contractor classification. It is also unrelated to California’s corporate climate disclosure laws, SB 253 and SB 261, which were passed in 2023 and apply to large companies doing business in the state based on annual revenue thresholds.6California Air Resources Board. California Corporate Greenhouse Gas and Climate Related Financial Risk Disclosure Programs SB 189 addresses one thing: who counts as an employee for workers’ compensation and who can waive out.