Workers’ compensation fraud is a widespread issue in the staffing industry, where bad actors use illicit shell companies to avoid liability. The Vazquez decision uncovered a prime example of this fraudulent tactic, where Employers Outsourcing created multiple potential shell companies—Firestone Labor Union, Prime Administrators, and Simplify HR—to mislead regulators and obscure its true lack of workers’ compensation coverage. This report examines the tactics used by suspicious companies to commit billing fraud and the legal precedents that highlight the dangers of these schemes.

A Web of Illicit Shell Companies

In Martin Vazquez v. Employers Outsourcing, the California Workers’ Compensation Appeals Board discovered that Employers Outsourcing had systematically misrepresented its compensation policy and deliberately misled regulators about its workers’ compensation coverage. Rather than operating as a legitimate employer, Employers Outsourcing created multiple affiliated entities, including:

• Firestone Labor Union

• Prime Administrators

• Simplify HR

The company used these shell entities to claim it had valid insurance through a union-administered welfare plan rather than a legitimate workers’ compensation insurance policy. This tactic effectively shielded Employers Outsourcing from liability, making it difficult for injured workers to access benefits.

Key Findings in the Vazquez Case

• Fake Insurance Representation – Employers Outsourcing claimed it had workers’ compensation insurance when it did not.

• Document Misrepresentation – The company provided misleading records to regulators and the court.

• Failure to Produce Records – Employers Outsourcing withheld crucial information when ordered by the court.

• Stalling Tactics – The company used procedural delays, including frivolous reconsideration petitions, to avoid compliance.

The WCAB ruled against Employers Outsourcing, making it clear that fraudulent potential shell companies will not be tolerated.

The Illusion of Coverage

The Vazquez case follows a pattern of fraud in the staffing industry, similar to Corona v. Koosharem Corp. In Corona v. Koosharem Corp., the staffing agency used complex leasing agreements to create the illusion of valid insurance. When a worker was injured, the company collapsed its leasing structure, leaving no clear party responsible for covering the claim. The California courts ruled that employee leasing firms cannot evade liability by using paper companies and fraudulent insurance arrangements.

How Illicit Shell Companies Enable Workers’ Comp Fraud

The tactics used by Employers Outsourcing and Koosharem Corp. are not isolated incidents. Many bad actors engage in similar schemes to evade compensation policy responsibilities.

Common Fraudulent Tactics Include:

• Fake Employee Leasing Agreements – PEOs claim another company holds the workers’ compensation policy, only for the coverage to be nonexistent or fraudulent.

• Layered Illicit Shell Companies – Multiple corporate entities are created to confuse regulators and dodge liability.

• Misuse of Union Welfare Plans – Some staffing firms claim that union-administered health plans replace traditional workers' compensation insurance, which is illegal in the United States.

• Bankruptcy Evasion – Fraudulent staffing agencies shut down one entity and reopen under another name to avoid paying claims.

Legal Implications and Industry Crackdown

Regulators in the United States are increasing efforts to combat illicit shell companies and workers’ compensation fraud in the staffing industry. The Vazquez decision, combined with the precedent set in Corona v. Koosharem, signals a strong stance against fraudulent company structures.

Recent enforcement actions include:

• Increased penalties for PEOs and suspicious companies misrepresenting their compensation policy.

• Enhanced investigative powers for the Office of Internal Audit and Commercial and Government Entity regulators.

• Stricter auditing of union-backed insurance plans to detect illicit actors.

The federal government is intensifying scrutiny on beneficial ownership and substantial control of staffing agencies, ensuring stronger internal controls to prevent fraud. The Office of Internal Audit and Companies House are collaborating to track companies engaged in workers' compensation fraud.

Protect Yourself from Suspicious Companies

If you are a staffing agency, employer, or worker, you need to be vigilant about verifying insurance coverage.

• Employers: Before working with a PEO or staffing agency, verify their workers’ compensation insurance policy through the Companies House and Commercial and Government Entity databases.

• Workers: If you are injured on the job, confirm that your employer’s compensation policy is legitimate before signing any settlement agreements.

• Regulators & Attorneys: Push for stronger criminal penalties against illicit actors committing fraud through shell companies.

If you have been a victim of billing fraud, please contact the proper authorities. If you believe that your insurance certificate is fraudulent, submit it through our contact form at CheckMyCert.org.