State Orders Calif. Restaurants to Close Due to Lack of WC Coverage

State Labor Commissioner Art Lujan ordered the closure of nine International House of Pancakes (IHOP) restaurants in Sacramento and Fresno because the restaurants did not have a valid workers’ compensation insurance policy. Commissioner Lujan issued a stop work order and assessed a penalty of $100,000 against the owner, the maximum allowed by law. The stop order will be lifted when the owner secures valid workers’ comp coverage.

“Our mandate is to ensure that any worker injured on the job is protected by a valid workers’ compensation insurance policy,” said Lujan.

IHOP owner Mohammad Munir has seven restaurants in the Sacramento area and two in Fresno. Munir contracted with a Professional Employer Organization (PEO) that provided him with an “occupational injury indemnity and medical benefit package.” The PEO claims this package includes adequate workers’ comp coverage, however this PEO is not authorized to provide workers’ compensation coverage in California. The PEO is being investigated by the California Insurance Commissioner.

“Employers are responsible for obtaining valid workers’ comp insurance or a certificate to self-insure, so before they turn vital programs like workers’ comp and payroll over to a third party, such as a Professional Employer Organization (PEO), they must be certain the PEO is offering coverage certified by the Department of Insurance or DIR’s self insurance program.”

California’s labor code requires all employers to carry workers’ compensation insurance. This system, created in 1913, provides employees injured on the job the medical coverage they need, as well as protection for employers from lawsuits.

In a companion action, California Insurance Commissioner John Garamendi filed charges against the broker who sold the illegal policy to IHOP, and against eight other agents and brokers allegedly involved in similar schemes.

“I fully understand the extraordinary pressure that employers face now due to the unprecedented increases in workers’ compensation premiums,” said Garamendi. “Employers are often the victims in this type of case. But this action taken against IHOP by the Labor Commissioner is compelling evidence that employers must be extremely careful when securing coverage. My Department is hammering away at the agents and brokers who sell bogus workers’ compensation insurance, but because fraud escalates in a tight market we need employers to be aware of the danger now.”

Munir is working closely with the State Compensation Insurance Fund (SCIF) to secure proper coverage for his employees. Because it was unclear when that workers’ compensation coverage would be secured, Commissioner Lujan took immediate action to close the establishments, safeguarding employees against the risk of a workplace injury.