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Kimco Staffing Services, Inc. v. State

California Court of Appeals, Second District, Third Division

May 8, 2015

KIMCO STAFFING SERVICES, INC. et al., Plaintiffs and Appellants,
v.
THE STATE OF CALIFORNIA et al., Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC510127, Debre Katz Weintraub, Judge.

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[Copyrighted Material Omitted]

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COUNSEL

Glassman, Browning, Saltsman & Jacobs, Anthony Michael Glassman, Rebecca Nell Kaufman; Roxborough Pomerance Nye & Adreani, Nicholas P. Roxborough and Michael Adreani for Plaintiffs and Appellants.

Christopher Jagard, Fred Lonsdale and Vinodhini R. Keller for Defendants and Respondents.

OPINION

EDMON, P. J.

Plaintiffs and appellants Kimco Staffing Services, Inc. (Kimco) and KimstaffHR, Inc. (KimstaffHR) (collectively, plaintiffs) appeal a judgment of dismissal following an order sustaining without leave to amend a demurrer by defendants and respondents State of California, by and through California's Department of Industrial Relations (Department) and Christine Baker, in her official capacity as Director of the Department (collectively, the State).

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Labor Code section 3701.9 prohibits temporary services employers (TSE’s) and leasing employers (LE’s) from self-insuring their workers’ compensation liability.[1] The essential issue presented on appeal is whether section 3701.9 violates equal protection because it treats TSE’s and LE’s differently from other employers, who are permitted to self-insure.

We conclude plaintiffs did not and cannot allege the statutory difference in treatment lacks a rational basis. As the trial court found, 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. (§ 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. Therefore, the judgment of dismissal is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

1. The enactment of section 3701.9, giving rise to this litigation.

This controversy arises out of the adoption of section 3701.9, added in 2012 as part of Senate Bill No. 863 (2011-2012 Reg. Sess.) (Senate Bill 863), which significantly reformed the workers’ compensation law.

By way of background, California law “establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company duly authorized by the state.” (Sen. Com. on Labor & Industrial Relations, Analysis of Sen. Bill 863 (2011-2012 Reg. Sess.) as amended Aug. 30, 2012, p. 1; see §§ 3700 [duty of employer to secure payment of workers’ compensation], § 3701 [self-insurance].)

The final Senate Committee bill analysis indicated that the stated purpose of Senate Bill 863 was “[t]o reduce frictional costs, speed up medical care for

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injured workers, and to increase Permanent Disability (PD) indemnity benefits to injured workers.” (Sen. Com. on Labor & Industrial Relations, Analysis of Sen. Bill 863 (2011-2012 Reg. Sess.) as amended Aug. 30, 2012, p. 1.)

Section 3701.9, enacted as part of Senate Bill 863, prohibits LE’s and TSE’s from being self-insured. Section 3701.9 provides: “(a) A certificate of consent to self-insure shall not be issued after January 1, 2013, to any of the following: [¶] (1) A professional employer organization. [¶] (2) A leasing employer, as defined in Section 606.5 of the Unemployment Insurance Code.[2] [¶] (3) A temporary services employer, as defined in Section 606.5 of the Unemployment Insurance Code. [¶] (4) Any employer, regardless of name or form of organization, which the director determines to be in the business of providing employees to other employers. [¶] (b) A certificate of consent to self-insure that has been issued to any employer described in subdivision (a) shall be revoked by the director not later than January 1, 2015.” (§ 3701.9, italics added, as added by Stats. 2012, ch. 363, § 16, italics added.)[3] [4]

2. Pleadings; pertinent allegations.

Plaintiffs commenced this action on May 30, 2013, and filed the operative second amended complaint for declaratory and injunctive relief nine months ...


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