Month: May 2025

PEO Caught With No Coverage By WCAB Judge

Proven illegal MEWA organizations, including the American Labor Alliance and CompOne USA.

Vol: 35 | No: 2 | Published on: January 22, 2025

A workers’ comp claim by an employee of a Professional Employer Organization is exposing some of the industry’s dirty secrets. The claim was headed to resolution through a compromise and release settlement, but a vigilant workers’ comp judge blocked the deal. He questioned the adequacy of the offer and repeatedly demanded to know if the PEO had insurance. It admitted it didn’t and that’s generated a host of other issues for the PEO and several other employers.

Employers Outsourcing is the original defendant in the workers’ comp case. It was a claim filed by Martin Vazquez for cumulative trauma (CT)  injuries to multiple parts of his body, including his head, hand, eye, and upper extremities.

Employers Outsourcing initial appearance was alongside something called Firestone Labor Union and Prime Administrators. Firestone was providing Vazquez with purported workers’ comp benefits under ERISA.

The scheme appears eerily similar to what was marketed to California employers by the now discredited and proven illegal MEWA known as American Labor Alliance and CompOne USA.

Workers’ Compensation Appeals Board records indicate that Employers Outsourcing repeatedly avoided answering questions about its workers’ comp coverage or carrier. Finally, a diligent workers’ comp judge, Hon. James Finete, ordered Employers to disclose the name of its carrier, “Petitioner took the position that so long as it identified itself as an employer that it was not required to disclose its insurance carrier,” he noted in a report.

Judge Finete forced the issue of disclosure after Employers sought to join the insurance carrier of another employer on the claim but not the employer itself. Meanwhile, Employers still had not disclosed the identity of their own carrier.

When faced with sanctions for failing to disclose the name of its carrier, Finete says that Employers changed its story. “In the response, Petitioner did an about-face and asserted that ‘there is insurance in place but have chosen to utilize the union benefits for this claim.” Employers continued to assert that it was not required to disclose its insurance coverage.

Lots of Big Dirty Secrets

The case sheds light on several dirty industry secrets. Among them is that workers comp defense attorneys routinely represent and protect uninsured employers and get settlements approved through the WCAB. The employer pays those settlements directly to the injured employee. The employer’s uninsured status is kept out of the case—read hidden from the Judge—which allows them to avoid any penalties for operating illegally.

Certain PEOs, TEMP agencies, and private employers are flaunting Labor Code section 3700’s requirement that they be insured or possess a valid certificate to self-insure. Worse, they are getting away with it.

Defense attorneys who asked to remain anonymous and others familiar with the industry explain.

Word is that illegally and intentionally uninsured employers such as temporary services and PEOs sometimes provide legitimate employers with false certificates of insurance. In addition, they skip paying workers comp premium and settle and pay claims themselves. There are no reserves or anything else. Their payroll and premium are not reported to the Workers’ Compensation Insurance Rating Bureau. The scheme is so pervasive in California that ratemaking is likely to be adversely impacted for honest employers.

The scofflaws become more competitive relative to their honest competitors because they charge less for “workers’ comp,” avoid paying premium and just pay claims as they happen. In some cases, one organization has multiple Tax IDs and buys insurance under the smallest or the one with the least dangerous classes. If claims get too big in the others where they don’t report payroll, they report the claim under the insured entity.

Defense attorneys tell Workers’ Comp Executive that intentionally uninsured employers deserve a defense “just like any other criminal.” However, they say attorneys can’t turn them in because of privilege issues.

Workers’ Comp Executive’s investigation reveals that a surprising number of defense attorneys represent these businesses and that WCAB judges almost never ask about insurance because “as long as the claim gets paid who cares?”

No UEBTF…Yet

Department of Industrial Relations officials note that the Uninsured Employers Trust Fund pays injured workers when employers have no insurance. The fund is then supposed to collect any judgment from the illegally uninsured employer. The workers’ comp judge can make a claim to the UEBTF on behalf of the worker if their employer is uninsured but is not required to do so. However, if the uninsured employer is paying the claim, there is nothing for the UEBTF to do.

Nor are judges required to report uninsured employers to those who enforce and have the power to shut down the uninsured.

The UEBTF hasn’t been joined to this case, but the WCAB’s case management system shows that numerous other staffing agencies and employers have been joined.

Those include:

  •   Horizon Personnel Services,
  •   Simplify HR and
  •   J&J Snack Foods.

Starr Insurance and the Travelers have also been pulled into the proceedings. Case documents say that Employers provided PEO services for Horizon Personnel but confirmed that it did not have a workers’ comp insurance policy.

When the issue of joining the UEBTF to the case was raised, Employers argued against the idea. To support its argument, Employers claimed to have coverage for Vazquez’ workers’ comp claim.

“The insurance in place that EO referenced in the Objection dated December 22, 2023 referred to coverage by co-employer and EO affiliated company, Simplify HR, Inc., whose California workers’ compensation insurance carrier for the relevant time period was State National Insurance Company, Inc., and by the jobsite, J&J Snack Foods, whose California workers’ compensation insurance carrier for the relevant time period was, on information and belief, Travelers Property Casualty…EO itself does not have a California workers’ compensation insurance policy covering this claim.”

As a CT claim, there is a one-year window of exposure preceding the date of injury that can extend liability for the claim to other employers who might have employed Vazquez during this period. “Rather than join UEBTF on a CT claim, this Court attempted to determine whether there was other coverage available to this Applicant via the other putative employers disclosed by Petitioner,” noted Judge Finete.

MEWA Connection – DIR Fails

Employers’ initial appearance in the case was in conjunction with Firestone and Prime Administrators. Details from the case show that Employers was providing benefits to Vazquez through Firestone’s workers’ comp program, with the claims administered by Prime.

The organization and the benefits offered by Firestone appear to follow the scheme referenced above that Marcus Asay orchestrated through American Labor Alliance and CompOneUSA. Like Firestone, Asay’s program claimed to provide ERISA-based workers’ comp benefits under the rules of a multi-employer welfare arrangement (MEWA) as an entity claiming exception from California workers’ comp laws. Asay claimed that the organizations and products were exempt from state regulation. California has no such exemption.

Filings in the Vazquez case included a letter from the Manock Law defending the benefits that Firestone was providing. Previously, Charles Manock defended Asay and American Labor Alliance  in front of the California Department of Insurance as it sought to shut it down and in related court actions.

The California Department of Insurance found that Asay’s program was illegal. The Department of Industrial Relations held that the benefits did not satisfy the requirement that an employer obtain workers’ comp insurance or a certificate to self-insure.

Case Proceedings

The WCAB notes that it gave notice of intent (NOI) to join Simply HR, J&J Snack Foods, and Horizon Personnel on March 4, 2024. Finete ordered Employers to serve notice of intent for joining them to the case.

On April 3, 2024, Employers attempted to walk through a Compromise and Release settlement for $80,000 with a different workers’ comp judge but was rebuffed. The workers’ comp judge said the issue couldn’t be settled due to the potential sanctions Employers was facing. The day after the C&R was rejected, Employers belatedly served the NOI on the other parties.

Judge Finete issued an order suspending action on the C&R and set a trial for last May. Employers filed a premature petition for reconsideration, which automatically stayed the trial. A new trial has not been set, but there is a mandatory settlement conference next month.

Copies of Judge Finete’s opinion and order dismissing Employers’ petition for reconsideration is available in our Resources section or by clicking here.

Posted in and tagged staffing/PEO, WCAB

Employer Held Liable For Bogus PEO Garcias Pallets

A Major Win for Legitimate PEOs and Employers…

Precedent: Employer Held Liable For Bogus PEO

Vol: 35 | No: 3 | Published on: February 12, 2025

The California Labor Commissioner and the Division of Labor Standards Enforcement recently designated a decision as a precedent, upholding two citations against an employer for operating without workers’ comp coverage. The employer had contracted with Professional Employer Organizations (PEOs) for workers, payroll services, and insurance, but the PEO’s workers’ comp “coverage” was bogus.

The employer was held liable for over $1.3 million in penalties for operating without valid workers’ compensation coverage. This is a big win for legitimate Professional Employer Organizations, which are forced to compete with illegal operators who can charge less because of the fraud.

The case involves primary employer Garcias Pallets, which contracted for PEO services with Golden State Employment Corp. and Preferred Services Group, which did business as American Resource Group.

The PEOs used the same business address, and both provided certificates of liability insurance produced through an illegal MEWA—initially through CompOneUSA and American Labor Alliance and later through CompassPilot and Omega Community Labor Association. The MEWA and its principal officers were later convicted of fraud (for additional coverage of the illegal operation, see our Investigations section).

Garcias Pallets participated in the appeal before the Department of Industrial Relations, but the PEOs did not appear.

Designating a decision as a “Precedent Decision” is not new for many California government agencies. California Government Code section 11425.60 provides that state agencies can issue a “precedent decision” if it addresses a “significant legal or policy determination…that is likely to recur.” The California Department of Insurance also has a long history of designating decisions as precedential. It issued the Shasta Linen decision as a precedential decision due to the copious litigation surrounding Applied Underwriters and its EquityComp program.

The California Labor Commissioner, however, has not used the procedure until now. Without fanfare or announcement, the DLSE last October designated three decisions as Precedential Decisions that had been issued years earlier. Precedent decision 001 dates back to 2018, 002 is from 2019, and the Garcias Pallets case (DLSE-PD-003) is from 2021.

Department of Industrial Relations officials say that they are moving to adopt precedent decisions now due to legislative changes. “The [Labor Commissioner’s Office’s] citation authority has expanded over the past several years, allowing the LCO to cite for violations and parties which were not previously subject to citation authority,” says DIR’s MariCarmen Estudillo. “The LCO recently determined that given the rise in complex citation cases, decisions that contain a significant legal or policy determination of general application that are likely to recur may be designated as precedential. The cases selected as precedential meet this criterion.”

 Case Facts

The underlying case involved the Labor Commissioner’s office’s November 28, 2017, inspection of Garcias Pallets. On the day of the inspection, some 50 workers were repairing or manufacturing pallets. Later evidence confirmed a workforce that varied from 58 to 159 employees during the citation periods. The company provided a workers’ comp certificate effective from March 4, 2017, to March 4, 2018.

The certificate identified the insured as Preferred Services Group LLC DBA American Resource Group. The producer was CompOne USA. The certificate also listed Marcus Asay as a contact and named two insurers: National Union Fire Insurance Company, a carrier member of the AIG group, and American Labor Alliance.

AIG confirmed that it issued no policy and provided no coverage to PSG or its employer clients.

Further investigation produced another certificate of insurance dated April 26, 2018. The new certificate listed the covered employer as Golden State Employment at the same business address that PSG had listed. The certificate listed the “Issuer” as CompassPilot, which was part of Omega Community Labor Association. Omega and American Labor Alliance were alter egos. Omega took over the operations to continue the scheme after the California Department of Insurance issued ALA a cease and desist letter and later found it to be an illegal operation. Omega was ultimately deemed to be an illegal operation as well.

Citations & Fines

DLSE issued two citations to Garcias for operating without valid workers’ comp coverage. The first citation, for $1,131,030.95, covered the uninsured period from April 10, 2016, to December 23, 2017. During the proceedings, the penalty was reduced to $988,802.96. The second citation, for $412,377.94, covered the uninsured period from December 24, 2017, to July 24, 2018. This, too, was reduced to $360,521.11. The total amended amount of the citations was $1,349,324.07.

Garcias appealed the citations, and the issue went to a Tier 2 hearing before a DIR hearing officer. The company provided testimony about its move from the State Compensation Insurance Fund to the PEO. Initially, the PEO was known as North State Marketing, then American Resource Group, and later GSE. Garcias Pallets’ bookkeeper testified that the PEOs were the same companies but with different names and that she interacted with the same people regardless of what the PEO was calling itself.

DIR’s hearing officer concluded that Garcias Pallets was the employer throughout the period. It was in the business of manufacturing and repairing pallets and selling pallets to clients. It hired the workers and supervised them. The hearing officer concluded that the PEOs were joint employers of the workers making pallets for Garcias.

“The evidence also supports a finding that Garcias was a ‘client employer’ under Labor Code section 2810.3. Under Labor Code section 2810.3(b), a ‘client employer’ shares legal responsibility and civil liability with a ‘labor contractor’ for workers supplied by the labor contractor to the client employer for payment of wages and failure to secure valid workers’ compensation coverage as required by Labor Code section 3700,” the hearing officer wrote. “’ Client employer’ means any business entity with a workforce of twenty-five workers or more that obtains or is provided six or more workers by ‘labor contractors’ to perform labor within the client employer’s ‘usual course of business.’”

No Coverage

Garcias argued at the hearing that it had provided workers’ compensation insurance when it contracted with the PEOs that provided the certificates and that Insurance Code Section 11658(c) provided protection.

The section holds that “the withdrawal of a policy form or endorsement by the commissioner pursuant to this section shall not affect the status of the policyholder as having secured payment for compensation or affect the substitution of the insurer for the policyholder in workers’ compensation proceedings.” In the case of the illegal MEWA, the Insurance Commissioner issued two separate cease and desist orders in a futile attempt to shut down the con, but the operation continued for years.

“The record reflects compelling facts surrounding Garcias Pallets’ mistaken belief they were provided valid insurance, ongoing provision of workers’ compensation insurance to eight employees during the citation periods with no denial of coverage, and the appearance of certificates of liability insurance as valid,” the hearing officer notes. “However…Garcias Pallets is not entitled to relief because they did not provide valid workers’ compensation insurance at the time of the penalty assessment and stop order. Nor does the Division have the discretion or statutory authority to afford relief under these facts.”

The hearing officer upheld the penalties as amended during the proceedings. Copies of the Labor Commissioner’s Precedent Decision in the matter of Garcias Pallets are available in our Resources section or by clicking here.

Posted in and tagged Labor Code, MEWA, staffing/PEO

Operating Without Workers’ Compensation Insurance in California

I. The Problem: Operating Without Workers’ Compensation Insurance in California

  • Legal Mandate: California Labor Code Section 3700 unequivocally states that all employers with one or more employees must provide workers’ compensation benefits. This explicitly includes employees hired through staffing agencies. Both the staffing agency and the client company can share responsibility for worker safety and workers’ comp coverage.
  • Tactics to Avoid Coverage:
    • Misclassification: A common tactic, especially for staffing agencies, is to misclassify employees as “independent contractors” to avoid paying workers’ comp premiums, payroll taxes, and other employee benefits. California has been aggressive in cracking down on this.
    • “Underground Economy”: Some businesses simply operate completely off the books, without any insurance.
  • Risks and Consequences of Non-Compliance: California imposes some of the most severe penalties in the nation:
    • Criminal Offense: Failing to have workers’ compensation coverage is a misdemeanor under California Labor Code Section 3700.5.
      • Punishment: Up to one year in county jail, and/or a fine of up to double the amount of the premium that would have been necessary to secure coverage (but not less than $10,000).
      • Subsequent violations lead to even harsher penalties (e.g., up to one year in jail and a fine of triple the premium, but not less than $50,000).
    • Civil Penalties (Fines):
      • Stop Order: The California Division of Labor Standards Enforcement (DLSE) can issue a “stop order,” prohibiting the use of any employee until coverage is obtained. Failure to observe a stop order is a misdemeanor (up to 60 days in jail and/or a $10,000 fine).
      • Stop Order Penalty: A penalty of $1,500 per employee on the payroll at the time the stop order is issued, up to $100,000.
      • Penalty Assessment Order: The greater of (1) twice the amount the employer would have paid in premiums during the uninsured period, OR (2) $1,500 per employee. If an injured worker files a claim, the uninsured employer can be assessed a penalty of $10,000 per employee on the payroll at the time of injury, up to a maximum of $100,000.
    • Personal Liability: If an employee is injured while the employer is uninsured, the employer is personally responsible for all medical bills, lost wages, and disability benefits. This can be financially devastating.
    • Civil Lawsuits: Injured employees can file a civil action against the uninsured employer in addition to filing a workers’ compensation claim. In these civil cases, the employer is presumed negligent and loses common law defenses. The employee may also be entitled to have their attorney’s fees paid by the employer.
    • Uninsured Employers Benefits Trust Fund (UEBTF): This state fund pays benefits to injured workers of illegally uninsured employers. However, the UEBTF then aggressively pursues the uninsured employer for full reimbursement, plus penalties.
    • Business Reputation: Operating without proper insurance can severely damage a business’s reputation and trust among employees and clients.

II. Prosecution and Enforcement in California

California employs multiple agencies and strategies to prosecute uninsured employers, including staffing agencies:

  1. California Department of Insurance (CDI) – Fraud Division:
    • The CDI’s Fraud Division is a key player in investigating workers’ compensation fraud, including “premium fraud” (employers misstating payroll or employee classifications) and “uninsured employer fraud.”
    • They work closely with local district attorneys’ offices across the state to prosecute violators.
    • The CDI maintains a public website listing Workers’ Compensation Fraud Convictions, detailing the name, case number, county, description of offense, and amount defrauded. This is a valuable resource for finding specific prosecution examples. (e.g., you can browse monthly conviction lists from 2020-2024 on their site).
    • Source: Workers’ Compensation Fraud Convictions – California Department of Insurance
  2. Local District Attorneys’ Offices (DA’s):
  3. California Division of Labor Standards Enforcement (DLSE):
  4. Workers’ Compensation Appeals Board (WCAB):
    • If an injured worker files a claim against an uninsured employer, the WCAB hears the case. If an award is made to the worker, the UEBTF pays, and the employer is then pursued for reimbursement and penalties.
    • Recent legislative efforts (like the Senate Bill S847 mentioned in one search result from May 2025) are aimed at strengthening the Director of the DIR’s ability to identify uninsured employers, place liens on their property, and recover funds for the UEBTF.

III. Resolution and Solutions

When a staffing agency or other employer is found operating without workers’ compensation insurance in California, the resolution typically involves:

  1. Securing Immediate Coverage: The business is compelled to obtain workers’ compensation insurance. Stop-work orders remain in effect until this is done.
  2. Payment of Fines and Penalties: Substantial civil penalties and administrative fines are assessed for the period of non-compliance.
  3. Restitution: If an employee was injured, the employer must reimburse the UEBTF for any benefits paid to the injured worker.
  4. Criminal Prosecution: Depending on the severity and intent, individuals responsible within the staffing agency can face misdemeanor charges, potentially leading to jail time. Felony charges are possible for more severe fraud or repeat offenses (e.g., lying to reduce premiums, as mentioned by the Shasta County DA).
  5. Liens and Asset Forfeiture: The state can place liens on the employer’s property (including real estate) to recover unpaid benefits and penalties.
  6. Increased Scrutiny: Staffing agencies, in particular, face ongoing scrutiny due to the shared responsibility for temporary workers and the historical issue of misclassification.

In essence, California’s system is designed to make operating without workers’ compensation insurance extremely costly and legally perilous for any employer, including staffing agencies, with a focus on protecting injured workers and maintaining a fair business environment.

find specific articles of these happenings and prosecutions in california

You’re in luck! California is very active in prosecuting workers’ compensation fraud, including cases where employers (sometimes staffing agencies or companies using their services) operate without proper coverage. The California Department of Insurance (CDI) is a key player and publishes information on convictions.

Here are some specific articles and resources detailing prosecutions in California:

1. Recent Convictions and Press Releases from the California Department of Insurance (CDI):

The CDI has a dedicated section for “Workers’ Compensation Fraud Convictions” where they list recent cases. This is an excellent source for specific examples.

  • San Jose security company owner sentenced in $3.4 million workers’ compensation fraud case (May 19, 2025):
    • Details: Raul Chavez, owner of Tactical Operations Protective Services (a company providing security guard, staffing, and patrol services), was sentenced for a six-year scheme to underreport payroll and avoid paying workers’ compensation premiums. He concealed over $3.4 million in payroll, resulting in $205,565 in unpaid premiums. He pleaded guilty to felony premium fraud, received 180 days in county jail, two years probation, and ordered to pay restitution.
    • Relevance: This is a very recent and highly relevant example, as it directly involves a company that performs “staffing” services.
    • Source: California Department of Insurance Press Release
  • CDI Workers’ Compensation Fraud Convictions Database:
    • The CDI explicitly states they post convictions for violations of various codes, including Labor Code Section 3700.5 (failure to secure payment of compensation). You can browse monthly lists of convictions.
    • How to use it: Go to the CDI’s website and navigate to their “Workers’ Compensation Fraud Convictions” page. From there, you can select specific years and months to see detailed lists of convictions, often including the name of the convicted party, the county, a description of the offense (which often includes operating without coverage or premium fraud), the amount defrauded, and the punishment imposed.
    • Source: Workers’ Compensation Fraud Convictions – California Department of Insurance

2. Local District Attorney (DA) Offices Prosecutions:

California’s county District Attorney offices are on the front lines of prosecuting these cases. Many have dedicated fraud units. While I can’t link to every single case, here are examples of their programs and what they report:

  • Merced County District Attorney: Their website highlights that it is illegal for an employer to operate without workers’ compensation insurance (CA Labor Code Section 3700.5) and outlines the penalties, including up to one year in jail and/or a fine of up to double the premium owed, but not less than $10,000. They also mention that they receive reports from the CA Department of Insurance Fraud Hotline.
  • Shasta County District Attorney: Also has a Workers’ Compensation Insurance Fraud Program and details penalties for both employees and employers, including for “Employer Fraud” (lying to their insurance company about the number of employees, which leads to underpaying premiums or operating uninsured).

3. Precedent-Setting Cases (Employer Liability for Bogus PEOs):

Sometimes, the “staffing agency” itself might be operating illegally, or an employer might contract with a “Professional Employer Organization (PEO)” that is bogus and doesn’t provide legitimate workers’ comp. California courts have addressed this.

  • “Precedent: Employer Held Liable For Bogus PEO” (February 12, 2025):
    • Details: This article from Workers’ Comp Executive discusses a landmark decision where an employer, Garcias Pallets, was held liable for over $1.3 million in penalties for operating without valid workers’ comp coverage, despite having contracted with PEOs whose coverage was “bogus.” This highlights the due diligence required by businesses when using labor contractors or staffing solutions.
    • Relevance: This shows how an employer can be held liable even when they thought they were getting coverage through a third party (like a PEO or staffing agency) that was not legitimate.
    • Source: Precedent: Employer Held Liable For Bogus PEO | Workers’ Comp Executive

4. Large-Scale Fraud Rings (often involving shell companies/labor brokers):

While not always explicitly “staffing agencies,” many large workers’ compensation fraud schemes involve networks of shell companies, labor brokers, or fake businesses designed to avoid premiums or exploit workers.

How to find more specific cases:

  • Directly search the CDI’s “Workers’ Compensation Fraud Convictions” database. It’s the most direct route for official convictions.
  • Search District Attorney websites: Look for press releases from California county DAs, specifically for their “Workers’ Compensation Fraud Unit” or “White Collar Crime” sections.
  • Use more targeted keywords: If you know a specific county, industry (e.g., construction staffing, agricultural labor contractors), or a time frame, add those to your search.

These resources provide concrete examples and demonstrate the rigorous enforcement efforts in California against employers, including those in the staffing industry, who attempt to operate without the legally mandated workers’ compensation insurance. Sources

Workers’ Comp Executive

www.wcexec.com

PEO Caught With No Coverage By WCAB Judge | | Workers’ Comp Executive

“The insurance in place that EO referenced in the Objection dated December 22, 2023 referred to coverage by co-employer and EO affiliated company, Simplify HR, …

California Department of Insurance

www.insurance.ca.gov

Workers’ Compensation Fraud Convictions – California Department of Insurance

Enforcement Overview / Fraud Division Overview / Workers’ Compensation Fraud Convictions.

Yrulegui & Roberts

www.rjylaw.com

What is the Legal Definition of Workers’ Compensation Fraud in California?

Some of the most common examples of workers’ compensation fraud in California include: A False Claim by an Employee: As an example, someone might claim they …

California Department of Insurance – CA.gov

www.insurance.ca.gov

San Jose security company owner sentenced in $3.4 million workers’ compensation fraud case – California Department of Insurance

News: 2025 Press Release. For Release: May 19, 2025. San Jose security company owner sentenced in $3.4 million workers’ compensation fraud case. SAN JOSE, Calif …

Merced County

www.countyofmerced.com

Workers’ Compensation Insurance Fraud | Merced County, CA – Official Website

– District Attorney. – About Us. – Units. – Fraud Unit. – Workers’ Compensation Fraud.

www.wcexec.com

PEO Caught With No Coverage By WCAB Judge | | Workers’ Comp Executive

Operating Without Workers’ Compensation Insurance New York

I. The Problem: Operating Without Workers’ Compensation Insurance

  • Legal Requirement: New York law generally requires all employers with one or more employees to carry workers’ compensation insurance. This specifically includes staffing agencies, as they are considered the employer of the temporary workers they place.
  • Risks of Non-Compliance:
    • Financial Penalties: Substantial fines can be imposed, often $2,000 for every 10-day period without coverage, or up to two times the cost of compensation for the payroll during the period of failure. These can quickly accumulate.
    • Criminal Charges:
      • For businesses with five or fewer employees, failure to secure coverage is a misdemeanor, punishable by fines and potentially jail time.
      • For businesses with more than five employees, it can be a Class E felony, with higher fines and potential incarceration.
      • Repeat offenders can face even more severe penalties, including Class D felonies.
    • Civil Liability: If an employee is injured, the uninsured employer is personally responsible for all medical bills, lost wages, and potential disability benefits, which can be devastating. Injured workers can also sue the employer directly.
    • Stop-Work Orders: The state can issue stop-work orders, shutting down the business until proof of insurance is provided.
    • Personal Liability: Corporate officers can be held personally liable for claims and penalties.
    • Misclassification Fraud: A common tactic used by some staffing agencies to avoid workers’ comp is to misclassify employees as “independent contractors.” New York actively cracks down on this, as it deprives workers of benefits and gives dishonest companies an unfair advantage.

II. Prosecution and Enforcement in New York

New York employs a multi-pronged approach to combat staffing agencies operating without workers’ compensation insurance:

  1. New York State Workers’ Compensation Board (WCB) Investigations:
    • The WCB is the primary agency responsible for enforcing workers’ compensation laws.
    • They conduct investigations, often initiated by inquiries when an employer’s coverage information is missing.
    • If non-compliance is found, they issue penalty notices.
    • Cases investigated by the WCB are often referred to the New York State Office of the Attorney General for prosecution.
  2. Office of the New York State Attorney General (OAG) Prosecutions:
    • The OAG plays a crucial role in prosecuting employers, including staffing agencies, for workers’ compensation fraud and non-compliance.
    • They bring civil and criminal charges, often seeking significant fines and restitution for unpaid wages or benefits.
    • The OAG may work in coordination with district attorneys’ offices across the state.
  3. Task Forces and Coordinated Efforts:
    • New York has established task forces, such as the Wage Theft Task Force (a collaboration between the Department of Labor, the Attorney General, and District Attorneys), which also addresses issues related to workers’ compensation by cracking down on misclassification and wage theft.
    • There have been increased efforts to conduct random audits of companies’ business records and surprise audits to deter non-compliance.
  4. Increased Penalties and Enforcement:
    • New York has significantly increased the penalties for non-compliance over time to act as a stronger deterrent.
    • The state has invested in new technologies and systems to identify businesses that have failed to register or pay into the workers’ compensation system.
  5. Public Awareness and Reporting:
    • The state promotes awareness among workers about their rights, including the right to workers’ compensation.
    • Hotlines and online reporting tools are available for workers to report wage theft or suspected non-compliance.

III. Resolution and Solutions

When non-compliance is identified and prosecuted, the solutions generally involve:

  1. Securing Coverage: The primary goal is to compel the staffing agency to obtain the required workers’ compensation insurance coverage. In some cases, stop-work orders are lifted only after proof of insurance is provided.
  2. Payment of Fines and Penalties: Agencies are assessed substantial civil fines for the period they operated without coverage.
  3. Restitution: If employees were injured while the agency was uninsured, the agency will be held responsible for covering medical expenses and lost wages, either directly or by reimbursing the Uninsured Employers’ Fund if it paid out benefits.
  4. Criminal Convictions: For more severe or repeated violations, criminal convictions can lead to higher fines, probation, and even jail time for responsible individuals.
  5. Debarment: Businesses found in violation may be debarred from bidding on or being awarded public works contracts.
  6. Policy Reforms: The state continually reviews and reforms policies to make it harder for businesses to evade workers’ compensation obligations and to enhance enforcement capabilities.

In essence, New York’s approach to staffing agencies operating without workers’ compensation insurance involves aggressive enforcement through fines, criminal prosecution, civil penalties, and a focus on preventing misclassification, all aimed at protecting workers and ensuring a fair playing field for compliant businesses. Sources