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Westaff franchisees sue over workers’ comp

May 30, 2014

A group of Westaff franchisees sued Koosharem, the parent company of Select Staffing, in March citing concerns over workers’ compensation and general liability costs. Court records report at least two Westaff franchisees are no longer profitable after Select increased workers’ comp fees by 65.7 percent in 2013.

The lawsuit was filed in federal court in California by 17 franchisees across the U.S., according to court records. Koosharem became their franchisor when it acquired Westaff in 2009.

Koosharem exited bankruptcy proceedings this month after filing a pre-packaged Chapter 11 in April. However, a Select spokesperson said the company was not able to comment on the Westaff franchise case.

The Westaff case includes several concerns.

One concern involves an alleged pool of money Westaff franchisees believe they may have been paid into prior to the Koosharem acquisition, according to court records. That pool of money was earmarked for workers’ comp claims, but concerns are some of those funds may have gone to Koosharem as a “bonus” instead.

Another concern: franchisees believe they may have been overcharged for workers’ comp insurance after Koosharem acquired Westaff. The franchise contract calls for Select to provide workers’ comp coverage, according to court records. However, Koosharem is self-insured for workers’ comp claims up to $500,000 per individual claim. Court records say Koosharem charged franchisees $4.26 per $100 of wages for workers’ comp, but just 94 cents of the amount went to insurance-related expenses. “The other $3.32 was to pay for uninsured claims ($2.80) and Koosharem’s internal corporate costs to administer its risk management program,” according to court records.

“There is nothing in any of the franchise agreements that indicates that Koosharem is entitled to withhold from the plaintiffs funds for creating large posts of money that either may or may not be used to pay out future workers’ compensation claims,” according to court documents. “Plaintiffs agreed only to allow their franchisor to withhold from plaintiffs only the actual cost of providing workers’ compensation insurance covering claims by the temporary employees working in plaintiff’s territory.”

A third concern involves an increase in workers’ comp payments in August 2013. Workers’ comp charges rose 65.7 percent to $7.06 per $100 in wages from $4.26.

Court documents indicate the increase arose because Koosharem’s workers’ comp insurer Ace — for claims of more than $500,000 — required a higher cash collateral. The insurer required the extra collateral because of concerns about Koosharem’s financial situation, according to court records. The insurer would be liable to pay all claims — even those below $500,000 — if Koosharem did not pay.

However, the increase hit franchisees hard. “Since the increase of nearly $2.80 per $100 of wages, two plaintiffs have gone from operating profitably to operating unprofitably,” according to a court document.

In addition to the three concerns, franchisees are also concerned they may be overcharged for general liability insurance. In some cases, franchisees have had to pay out of their own pocket when the franchisor would not pay on a claim, according to court records.

Remedy franchisees also have claims over workers’ compensation costs, according to bankruptcy court records. Those claims are being handled by arbitration. Select acquired RemedyTemp Inc. in June 2006.