California Company Sued by State for Illegal Worker's Compensation Practices

The California Attorney General’s Office sued an employer last week after cracking its fraudulent worker’s compensation training programs.

The lawsuit against PacifiStaff was brought under Business & Professions Code, Section 17200, which prohibits unlawful or unfair business practices, according to the California Chronicle.

Attorney General Edmund G. Brown, Jr. said, “PacifiStaff developed a sophisticated scheme where companies fired workers and rehired them in fake corporations with phantom executives. These illegal maneuvers enabled construction companies to avoid state laws which require all employers to provide workers’ compensation insurance.”

The California Department of Justice (CDJ) targeted PacifiStaff after learning Southern California construction companies were dropping workers’ compensation for their work force. Companies labeled these employees “shareholding corporate executives,” which, under California Labor Code Section 3351, does not require workers’ compensation insurance. To gain “executive” status, workers were given one share of company stock.

State Agents Eavesdropped on PacifiStaff Meetings

State undercover agents even attended PacifiStaff sales meetings where illegal schemes were discussed to help construction companies dodge paying employee workers’ compensation. PacifiStaff falsely claimed through advertising that their plan was approved by the state government.

California law requires employers to provide workers with no-fault protection of workers' compensation insurance. Workers' compensation provides medical care for work-related injuries, disability payments while recuperating from injury and death benefits for an employee’s family. Companies dodging workers’ compensation gain an advantage over competitors who protect their workers by insuring them under the law.

The California Department of Industrial Relations (CDIR) reported 49,000 nonfatal injuries and illnesses among state construction workers in 2006. Sixty percent of those cases resulted in missed days at work. CDIR listed 935,000 Californians employed in the construction industry in 2006.

Brown added, “Construction work can be extremely dangerous and those workers injured on the job deserve and depend upon the benefits afforded by California law. Today’s lawsuit sends a strong message that employers who try to short-circuit the system will be prosecuted to the full extent of the law.”