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