California Suit Charges Staffing Firm with Comp Scheme

California Attorney General Jerry Brown has sued PacifiStaff, a Southern California staffing company, charging that the firm has helped building contractors avoid paying workers compensation insurance.

In his suit, Brown accuses Anaheim, California-based PacifiStaff of training construction companies to violate California workers compensation laws with the use of “fake corporations with phantom executives.”

Brown filed a similar lawsuit against Los Angeles drywall company Brinas Corp. In that suit, Brown alleges that the company exploited employees, engaged in unfair business practices and violated workers protections.

In the new complaint, filed in Orange County Superior Court, Brown charges that PacifiStaff showed construction companies how to evade workers compensation costs by “exploiting a legal exemption intended to only exempt the owners of small (private companies) from the costs of paying workers compensation coverage for themselves.”

“PacifiStaff developed a sophisticated scheme whereby companies would fire their workers and rehire them in fake corporations with phantom executives,” Brown said in a statement. “These illegal maneuvers enabled construction companies to avoid state laws, which require all employers to provide workers compensation insurance.”

Brown said he is suing PacifiStaff under California’s Unfair Competition law and will attempt to collect $2,500 per infraction for what could potentially be thousands of cases involving individual workers.

PacifiStaff denies that the business model adopted by its clients in any way “constitutes an unlawful or unfair business practice violation.”

In a statement, PacifiStaff explained that employers that adopt their business model do not “seek to avoid their obligation to provide meaningful benefits to their workers,” adding that Californians have “benefited” from their business model.

Brown said undercover investigators attended a PacifiStaff sales meeting where representatives pitched the scheme. The complaint charges that PacifiStaff advised employers to appoint their entire workforce of manual workers as “sham officers,” and issue each of them a “nominal share in the corporation, in order to unlawfully claim the exemption for corporate officers or directors who are also the sole shareholders of a (private company).”

The complaint contends that this leaves workers without the no-fault protections of the workers compensation system and makes it more difficult for other employers to competitively bid for contracts.

Filed by Jeff Casale of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com