Building Trades News

Over the last three years, since Governor Schwarzennegger rammed through a package of Workers' Compensation law changes, companies throughout California have experienced 50 percent reductions in their premiums. That is what was intended when State Senate Bill 899 was enacted by the California Democratic Legislature and signed by the Governor. However, an increase of treatment and benefits for workers injured at work was also touted as a goal. What the years of experience have shown is that the injured workers are seeing cuts in benefits of as much as 85 percent according to industry analyst.

But, gutting the injured workers benefits and 50 percent reductions in premiums isn't enough for some contractors, especially for a group of non-union contractors who had promulgated a scheme with PacifiStaff, Incorporated to eliminate their Workers' Compensation Insurance premiums totally. The companies developed a plan to set up a phony holding company so that they could transfer their current employees to the new company and now call them "employee-owners" so that they would not be required to carry Workers' Compensation on them. That is a flaw in the Workers' Compensation law, that owners of companies are exempt, even though this leaves an opportunity for the business bosses to set up a fraud by claiming actual employees are owners.

The PacifiStaff case is only the "tip of the ice berg" of what unscrupulous contractors will do to pocket (steal) money through whatever means they can trump up. Time and time again contractors are looking for ways to avoid the simplest protections for their employees. PacifiStaff went farther than most however, by apparently devising this scheme and actually advertising for companies that knowingly wanted to break the law to make an illegal profit as the expense of the not only their employees but the competition as well. That is why California has the Business Code Section 17200, which is called the "Unfair Competition Act."

Our California Attorney General Jerry Brown has filed an Unfair Competition Act suit against PacifiStaff and included as defendents, are all of the contractors who where a party to this fraud. In instituting the Complaint, the Attorney General is very clear about the scheme that "PacifiStaff, Inc., its agents, and Does 1 through 50, have perpetrated on the construction industry. He said; "This action is brought by the Plaintiff, the People of the State of California, (Jerry) Brown, Attorney General…, against PacifiStaff, …, in order to halt the proliferation and implementation of an unlawful scheme marketed by PacifiStaff to employers in the State to evade Workers' Compensation costs by exploiting a legal exemption intended to only exempt the owners of small closed corporations from the costs of paying for Workers' Compensation coverage for themselves. Marketing itself as the "Antidote to Workers' Compensation,' PacifiStaff advises employers – generally in the high-hazard construction industry – to appoint their entire workforce of manual workers as sham officers, and issue each of them a nominal share in the corporation, in order to unlawfully claim the exemption for corporate officers or directors who are also the sole shareholders of a closed corporation. The employer… then does not obtain Workers' Compensation to cover their 'new officer/shareholder workers.' This scheme leaves the workers without the no-fault protection of the Workers' Compensation System, and makes it more difficult for legitimate employers that fulfill their Workers' Compensation obligations to competitively bid for contracts against these corporation that falsely claim the 'officer' exemption."

New schemes are thought up every day by phony contractors in our industry and it is vital to fair contractors, most of which are signed to Union Collective Bargaining Agreements, that these illegitimate activities are stopped and prosecuted. Fair contractors - following the law, paying their bills and providing a decent wage – can't compete if the lawbreakers are allowed to ignore their responsibilities. The Craft Unions and Union Contractors have done an amazing job in exposing the cheaters in the industry through labor/management funds that pay for field inspectors, who are monitoring construction sites continually. But, without either State or Federal Agencies who will enforce the law it can be a waste of time and money.

We have the opportunity now to lend our support to Attorney General Brown for his action in stopping these contractors and PacifiStaff in their illegal scheme, which at the same time sends a message to other employers that if you are going to break the law you will be prosecuted.

This would be an excellent occasion to call the Attorney General's office or send and letter or E-mail, saying thank you for taking action against PacifiStaff.