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California court upholds ruling: Staffing firms can’t self-insure workers’ comp

May 13, 2015

A California Court of Appeals on Friday upheld a ruling the state can prohibit staffing firms from self-insuring their workers’ compensation liability coverage.

KimstaffHR Inc. and Kimco Staffing Services Inc., an Irvine, Calif.-based firm which ranks on Staffing Industry Analysts’ list of largest US staffing firms, in 2013 filed suit against the state of California. Kimco argued Labor Code section 3701.9, which prohibits temporary services employers and leasing employers from self-insuring their workers’ compensation liability, violated its 14th Amendment right to equal protection because it treats temporary services employers and leasing employers differently from other employers, who are permitted to self-insure.

The appeals court agreed with the trial court that a rational basis exists for treating [temporary services employers] and [leasing employers] differently from other employers with respect to self-insurance.

Temporary services employers and leasing employers “are in the business of providing employees to other businesses, so [temporary services employers] and [leasing employers] have an incentive to expand their payrolls,” the ruling stated.

Temporary services employers and leasing employers can dramatically change the scope of their workers’ compensation risk by adding new clients and new employees, but the self-insurance deposit would not be adjusted until the subsequent year.

“The potential for a rapid increase in the number of employees, coupled with the delay in adjusting the amount of the self-insurance security deposit, is a rational basis for excluding [temporary services employers and leasing employers] from the workers’ compensation self-insurance program,” the court said.