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California Attorney General has filed a civil claim against Pacifistaff and its Vice President Bruce Bowen.

By Michael Webster Investigative Reporter

California Attorney General Jerry Brown, has filed a civil complaint against Pacifistaff and its Vice President Bruce Bowen.

The state's lawsuit charges that Pacifistaff and its Vice President Bruce Bowen have marketed “an unlawful scheme” to employers -- generally in the high-hazard construction industry -- to evade workers’ compensation costs by exploiting a state law “intended to only exempt the owners of small closed corporations from the costs of paying for workers’ compensation coverage for themselves.

The Attorney General’s Office said, “that the California Department of Justice began investigating Pacifistaff after getting reports that a growing number of Southern California construction companies were starting to drop workers’ compensation for their employees. “

The State asserts that “These companies improperly labeled their employees as shareholding corporate executives to take advantage of Labor Code Section 3351(c), which does not require workers’ compensation insurance for such executives,” the release said. Undercover agents attended Pacifistaff sales meetings as part of the investigation.

During a news conference which Brown was questioned about the allegations, responded by saying, “Pacifistaff developed a sophisticated scheme whereby companies would fire their workers and rehire them in fake corporations with phantom executives. These illegal maneuvers enabled construction companies to avoid state laws which require all employers to provide workers’ compensation insurance.”

According to the suit, the company advises clients they can use the exemption “by taking their entire workforce of manual workers covered by workers’ compensation, appointing them as officers in a new corporation established apart from the original client's company, and issuing the newly appointed officer-employees nominal shares in the new corporation.”

The company markets itself as “The Antidote to Workers’ Compensation” and advises clients that employees can buy a single share of the company worth as little as a dollar to take advantage of the exemption, according to the suit.

The attorney for the Anaheim, Calif., staffing company that was sued by the state  for allegedly helping clients avoid paying workers’ compensation premiums fired back at California Attorney General Jerry Brown saying,  

“The Attorney General’s Office is classifying as 'unlawful' conduct that actually is permitted by state law,” said Heywood Friedman, who is representing Pacifistaff Inc. in the complaint filed in Orange County Superior Court.

Friedman took issue with only a few of those alleged facts in his own written release.

“Contrary to the allegations in the complaint, all workers who become beneficiaries of the business structure adopted by Pacifistaff clients do so on a knowing and voluntary basis,” the release stated. Workers who opt to not become “employee-owners” keep their jobs and their traditional workers' compensation insurance coverage, he said, and workers who do become employee-owners are provided full health insurance coverage "both as to injuries suffered on the job and off."

It's not the facts that are in dispute as much as the way the Attorney General chooses to interpret them.

For instance, he said, anyone who owns as much as one share of stock in a company is a legal shareholder. And no law says a person has to own even one share of a company to be an officer, he added.

"The Attorney General’s Office just doesn’t like the fact that the exemption has been applied the way Pacifistaff has applied it," Friedman told WorkCompCentral. "If they think it’s a loophole that’s being exploited, that’s the Legislature’s job to address that."

Friedman said he has 30 days to respond to the suit in court and he wouldn’t expect a trial to begin for at least six months.

 The lawsuit against Pacifistaff was brought under the Business & Professions Code, Section 17200, which expressly prohibits unlawful or unfair business practices. It asks for a civil penalty of $2,500 for each violation proven at trial.

A company that evades workers' compensation costs gains an unfair advantage over competitors that protect their workers by following the law, according to the Attorney General’s Office.

Investigations revealed that PacifiStaff brushed off questions about what might happen if a construction worker were actually injured on the job. Investigators also found that staff representatives engaged in the unauthorized practice of law by offering legal advice without a license.

State law requires employers to provide workers with the no-fault protection of workers' compensation insurance. Workers' compensation provides benefits such as medical care for work-related injuries, disability payments while injured, and death benefits for the families of employees. Companies who evade workers’ compensation costs gain an unfair advantage over competitors who protect their workers by following the law.

According to the California Department of Industrial Relations, there were nearly 49,000 nonfatal injuries and illnesses among California construction workers in 2006. 30,000 of these cases resulted in missed days at work, transfers, or restrictions of duty. In 2005, there were 102 construction industry fatalities due to transportation accidents, falls, or exposure to harmful substances. There were approximately 935,000 Californians employed in the construction industry in 2006.

“Construction work can be extremely dangerous and those workers injured on the job deserve and depend upon the benefits afforded by California law,” Attorney General Brown said. “Today’s lawsuit sends a strong message that employers who try to short-circuit the system will be prosecuted to the full extent of the law,” Brown added.

Sources:
 

California Attorney General Edmund G. Brown Jr. Press Release and other public statements

California Department of Industrial Relations

Attorney Heywood Friedman, who is representing Pacifistaff Inc.

WorkCompCentral.

You can view a copy of the complaint by going to http://ag.ca.gov/cms_attachments/press/pdfs/N1488_BrownSuesPacifiStaffComplaint.pdf

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