Passing the Buck: the Deficiencies of Labor Code Section 3602(d)

• Publication year: 2018
• Author: MARTIN FASSLER, ALJ, RET.

Passing the Buck: The Deficiencies of Labor Code Section 3602(d)

MARTIN FASSLER, ALJ, RET.

Oakland, California

In California all private sector employers are required to secure workers' compensation insurance or to obtain approval from the Department of Industrial Relations to be self-insured. However, Labor Code section 3602(d), enacted in 1995, provides that if a business employs a worker assigned to it by another business, those two businesses may agree on which of them is to provide workers' compensation insurance for the worker, thereby excusing one of them from having to secure coverage. Specifically, Labor Code section 3602(d) provides:

(d)(1) For the purposes of this division, including Sections 3700 and 3706, an employer may secure the payment of compensation on employees provided to it by agreement by another employer by entering into a valid and enforceable agreement with that other employer under which the other employer agrees to obtain, and has, in fact, obtained workers' compensation coverage for those employees. In those cases, both employers shall be considered to have secured the payment of compensation within the meaning of this section and Sections 3700 and 3706 if there is a valid and enforceable agreement between the employers to obtain that coverage, and that coverage, as specified in subdivision (a) or (b) of Section 3700, has been in fact obtained, and the coverage remains in effect for the duration of the employment providing legally sufficient coverage to the employee or employees who form the subject matter of the coverage.

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That seems straightforward, although there are three significant conditions to be satisfied:

1. There is a "valid and enforceable agreement" between the employers to obtain that coverage.
2. That coverage has been in fact obtained.
3. The coverage remains in effect for the duration of the employment, providing legally sufficient coverage to the employee or employees who form the subject matter of the coverage.

That provision, though, leaves room for considerable confusion and, potentially, mischief—enough to deny benefits to injured workers for extended lengths of time. That is the case if, after a claim for benefits is filed, the two employers point to each other, or even to a third party, as the party that is supposed to provide workers' compensation benefits and if no party presents evidence of a "valid and enforceable agreement" that clearly identifies which business is to provide insurance coverage. This article asserts Labor Code section 3602(d) is flawed, at least in its application, and requires fixing.

Note: This article lays out a real-life example of the confusion and delay that arise from the application of Labor Code section 3602(d). I represented the Uninsured Employers Benefits Trust Fund for a period when the case was pending before the WCAB. The views expressed in this article are mine and do not reflect the views of the Department of Industrial Relations. I have...