Ad Industries Considers Relocating to Nevada : North Hollywood: The custom binder maker blames its decline on workers’ compensation costs, AQMD regulations and the recession.
During its heyday in 1989, Ad Industries Inc., a North Hollywood manufacturer of custom binders, employed 190 workers on two shifts and pulled in annual revenues of $9.5 million. For 20 years, the company’s profits steadily increased.
Today, Ad Industries has about 110 employees working 1 1/2 shifts, revenues have fallen to $6.5 million, and it lost money in 1991 and 1992.
What brought about this turn of events?
The recession, for one. But Ad Industries President Richard Wurzel, 74, also blames the company’s declining fortunes on a combination of increased workers’ compensation claims--many of which he believes are dubious--and restrictions and fees levied by the South Coast Air Quality Management District (AQMD).
Ad Industries’ tale of woe could be that of a multitude of other small Southern California businesses that have been beset with the problems of skyrocketing workers’ compensation costs and burdensome regulations, as well as normal economic and competitive pressures. And like many other companies these days, Wurzel says he is considering relocating out of state, possibly to Nevada.
What finally “put the frosting on the cake,” said Wurzel, was when his company recently lost a contract to manufacture custom binders for the city of Los Angeles to a Minnesota penitentiary. “Here, I pay close to $2 million to keep 110 people employed, and the city takes work that helps people in the city of L. A. and gives it to a correctional institute in Minnesota.”
William Gamble, director of supplies for Los Angeles, said the city was bound by law to give the Minnesota prison the manufacturing job because it was the lowest bidder.
But for Wurzel, losing the contract was another indication that times have changed for the worse for the company that he and his wife Dorothy started in a small office in Sherman Oaks in 1969. At that time, he said, it seemed easy to sell binders of all sizes stamped with the logo or insignia of a corporation, studio or school. The company has made binders for Universal Studios, Walt Disney Co., Nintendo and Levi Strauss.
More than two dozen workers’ compensation claims filed by former employees in the past three years have also hurt Ad Industries. In almost every case, the primary reason cited for the claim was stress.
Two female workers, for example, had been laid off and filed virtually identical claims on the same day in May, 1992, using the same team of attorneys and naming stress as the primary ailment. In another case, a salesman who suffered a heart attack filed a workers’ compensation claim, blaming his illness on stress. After collecting $80,000, the man took a similar job at an Ad Industries competitor.
Although the average workers’ compensation claim settlement at Ad Industries is between $2,000 and $3,000, the costs of each claim run much higher--often $20,000 to $25,000--because of reserves held by the insurance company to pay for future medical, legal and compensatory expenses.
Also, Ad Industries’ workers’ compensation insurance premiums rose--about 250% in 1992, said Louis Lorch, president of Sherman Oaks-based Lorch Insurance Agency, which insures Ad Industries.
After rising workers’ compensation claims forced Ad Industries to curtail bonuses, parties and pay raises, Wurzel met with his staff earlier this year. The company was spending $295,236 annually on workers’ compensation claims, Wurzel told them. That was more than $2,800 per employee--or about 3 1/2% of the company’s sales in 1992.
“The worst part is that the employer is a loser as soon as the claim is filed,” said Larry Wurzel, vice president and general manager and Richard Wurzel’s son. “Even if the employer beats it, it’s lost thousands of dollars.”
In California, to collect workers’ compensation for stress, the employee only has to claim that 10% of the injury is linked to his job, but the employer ends up paying for 100% of the medical and legal costs. In states such as Nevada and Oregon, stress claims are covered only if the workplace is the primary cause.
On Friday, Gov. Wilson signed workers’ comp reform legislation that addresses some of the complaints of Ad Industries and other businesses. Among other changes, the new law will limit the ability of former workers to file claims and mandates that for stress claims, work must ordinarily be the main cause of the injury for an employee to qualify for compensation.
Ad Industries also fought a frustrating battle with the AQMD last year when the air-quality monitoring organization levied an $8,000 permit and processing fee for silk-screening equipment that had already been replaced with less-polluting models.
Although the company succeeded in getting the fees reduced and then eliminated, the experience still rankles. Richard Wurzel is now contemplating moving his company out of state, possibly to Nevada, which he said has workers’ compensation laws more favorable to employers and lower corporate taxes.
There are still compelling reasons for Ad Industries to stay put, Wurzel said. “Our customer base is here, we live here and would like to stay here.”
Moving costs would also be enormous. Wurzel estimated that it would cost him at least $250,000 to move his machinery, and he’d have to keep a sales office in Los Angeles.
But Wurzel also knows he isn’t alone in his thoughts of leaving.
“It used to be you couldn’t find a building to lease in this area,” he sighed. “Now, look at all the ‘for lease’ signs.”
