Court Rejects Challenge to Statute which Bars Temporary Services Employers from Self-Insuring Work Comp

Publish Date:May 19, 2015
Summary:
In Kimco Staffing Services, Inc. v. The State of California, which was filed on May 8, 2015, the California Court of Appeal (Second Appellate District) held that there was a rational basis for the Legislature's passage of the statute which prohibits temporary workers compensation liability.
In Kimco Staffing Services, Inc. v. The State of California, which was filed on May 8, 2015, the California Court of Appeal (Second Appellate District) held that there was a rational basis for the Legislature's passage of the statute which prohibits temporary workers compensation liability.

Labor Code Section 3701.9, which was enacted as part of SB 863 in 2012, provides that TSE's and LE's may not self-insurance for workers' compensation.  TSE's and LE's are in the business of providing employees to other businesses.

A TSE and an LE filed a lawsuit against the State of California which alleged that Section 3701.9 violated their constitutional equal protection rights.  The State responded that Section 3701.9 did not deny equal protection rights because there was a rational basis for treating TSE's and LE's differently that other employers in regard to self-insuring for workers' compensation.

The trial court ruled in favor of the State and entered a judgment dismissing the lawsuit.  The plaintiffs appealed.

The Court of Appeal affirmed the judgment of dismissal.  The court noted that an equal protection challenge to statute is governed by the rational basis test.  In this case, Section 3701.9 did not violate equal protection because there was a rational basis for treating TSE's and LE's differently than other employers.

The Court of Appeal explained that "a rational basis exists for treating TSE's and LE's differently from other employers with respect to self-insurance.  TSE's and LE's are in the business of providing employees to other businesses, so TSE's and LE's have an incentive to expand their payrolls.  TSE's and LE's 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. (Section 3701, subd.(c).)  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 TSE's and LE's from the workers compensation self-insurance program. 

The Court of Appeal's opinion is available at www.courts.ca.gov
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