Calif. DIR, Mainstay Business Solutions Come to Settlement in Workers’ Comp Coverage Dispute

April 5, 2005

California’s Department of Industrial Relations (DIR) and Mainstay Business Solutions (Mainstay), a tribal Government-Sponsored Entity of the Blue Lake Rancheria, have reportedly reached a settlement in a dispute regarding workers’ compensation insurance, which has been in progress since 2003. The dispute was settled when Mainstay agreed to waive sovereign immunity and comply with DIR’s application requirements for a Certificate of Consent to Self-Insure.

“Since the lawsuit began, Mainstay has bargained in good faith and cooperated with DIR’s requirements in applying for self-insured status,” said John Rea, acting director of DIR. “Mainstay clearly recognizes that stronger protections for their employees is a good business move and will create good will.”

Mainstay currently operates a temporary staffing business throughout California. When the dispute began, Mainstay closed its employee leasing business and obtained workers’ comp insurance, through an insurer admitted to do business in California, for the employees of the temporary staffing business.

The controversy arose when DIR learned that California employers contracting with Mainstay had reportedly not obtained workers’ comp coverage for their employees. Mainstay claimed the employees were theirs and their tribal sovereign immunity waived the requirement of contracted employers having to obtain workers’ comp coverage required under Labor Code section 3700.

Instead, employers contracted with Mainstay for occupational injury coverage through a program organized under the laws of the Blue Lake tribe. Under this plan the employees were reportedly not entitled to state benefits.

Although Mainstay officials stated that the coverage met or exceeded coverage provided under California’s workers’ comp laws, the tribal program was not recognized by the state. DIR claimed the employees worked for off-reservation businesses of the employers and not the tribe.

Further, DIR claimed that Mainstay’s tribal status did not alter the obligation of the contracted employers to provide the coverage, or self insure through DIR, as required by California law. In response, Mainstay filed suit against DIR, contending it was a tribal business and DIR did not have jurisdiction to force it or its clients to obtain workers’ comp insurance under California’s laws. Mainstay had 12,000 employees working at 2,500 companies they contracted with statewide.

“Our goal is to ensure all employees working in the state have the same rights and protections workers’ compensation insurance and California labor laws provide,” added Rea. “With this settlement, Mainstay employees can rest assured they are fully covered under workers’ compensation insurance and employers can be certain they are doing business with an entity that is in compliance with California’s workers’ compensation laws. “

Michael Hansen, Mainstay’s CEO stated, “We thank DIR for their continued support of the California business environment. Reaching the settlement is evidence that they are willing to work with large employers to revive California’s economy. We are looking forward to this new era in our company’s business operations.”

Under the settlement Mainstay not only agreed to waive claims of sovereign immunity and self-insure, providing a substantial deposit, but also agreed to reimburse the Uninsured Employers Benefits Trust Fund (UEBTF) for any prior claim costs.

The UEBTF is a fund established to pay employees injured while working for unlawfully insured employers. The cost of these claims is financed by an annual assessment paid by all insured employers. Prior to obtaining workers’ comp insurance, some Mainstay employees had made claims against the UEBTF. DIR stated that by not being insured, claims against the UEBTF by Mainstay employees exposed the UEBTF and participating employers to liability.

Employers who choose to self insure must post a security deposit with DIR that is utilized to pay claims if the employer defaults on its obligations. The security deposit is evaluated for adequacy and adjusted annually, and the employer is subject to claims audits. To gain self insured status the employer must qualify through an application process, meet specified financial requirements and be approved by the director of DIR.

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