California: Statute Prohibiting Self-Insurance by Temp Services Employers and Leasing Employers Upheld

A California appellate court has upheld the constitutionality of Labor Code § 3701.9, which generally prohibits temporary services employers (TSE's) and leasing employers (LE's) from self-insuring their workers’ compensation liability. Plaintiffs had contended that the statute violated their equal protection rights because it treated TSE’s and LE’s differently from other employers, who are permitted to self-insure. The court found that the plaintiffs had not and could not allege the statutory difference in treatment lacked a rational basis. The court noted that TSE’s and LE’s were in the business of providing employees to other businesses, so TSE’s and LE’s had an incentive to expand their payrolls. TSE’s and LE’s could dramatically change the scope of their workers’ compensation risk by adding new clients and new employees, but the required 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, was a rational basis for excluding TSE’s and LE’s from the workers' compensation self-insurance program.

Thomas A. Robinson, J.D., the Feature National Columnist for the LexisNexis Workers’ Compensation eNewsletter, is the co-author of Larson’s Workers’ Compensation Law (LexisNexis).

LexisNexis Online Subscribers: Citations below link to Lexis Advance. Bracketed citations link to lexis.com.

See Kimco Staffing Servs., Inc. v. State of Cal., 2015 Cal. App. LEXIS 394 (May 8, 2015) [2015 Cal. App. LEXIS 394 (May 8, 2015)]

See generally Larson’s Workers’ Compensation Law, § 150.01 [150.01]

Source: Larson’s Workers’ Compensation Law, the nation’s leading authority on workers’ compensation law.

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