Lawmakers appear primed to send a new bill to Gov. Gavin Newsom’s desk that would create a regulatory framework for professional employer organizations (PEOs) in California.
Assembly Bill 1515 would bar businesses from advertising themselves as PEOs unless they are registered with the Division of Labor Standards Enforcement, which will require payment of an initial registration fee. The purpose of the registration would be to ensure that the Division of Labor Standards can enforce labor laws.
The bill made it through the Assembly and has since made significant progress in the state Senate, with the Senate Appropriations Committee approving the bill on 8/29/25.
Currently, AB 1515 is slated for a third reading and a vote by the Senate, which suggests that it has a strong chance of being sent to Gov. Gavin Newsom’s desk before the Sept. 12 deadline to send bills to the governor’s desk. Once the bill lands on Newsom’s desk, he has 30 days to either sign it into law or veto it.
The Division of Labor Standards Enforcement (DLSE) is a department within the Department of Industrial Relations, and it is headed by California Labor Commissioner. Their focus differs from the WCAB, in the respect that the DLSE enforces wage and hour complaints under the Labor Code. The bill does appear to have a side-benefit for workers’ compensation purposes, as it appears to give workers’ compensation practitioners a place to look up registration information for PEOs. Presumably, a workers’ compensation practitioner could request the registration information from the DLSE to help track down background information about PEOs.
WHY IT MATTERS
As many of you already know, California (and other states) have had a problem with fly-by-night PEOs. While there are many PEOs who have good reputations, there are many who are created with the intention of going bankrupt in three years, often without workers’ compensation coverage later on during that timeframe.
Why would any business do that? There are too many answers for that to go into here, but some of the usual suspects include:
- Pocketing premiums and then cancelling coverage. Often, this fact pattern involves a high-deductible policy.
- Creation of a business entity solely for attaching a bunch of preexisting debt to it, then declaring bankruptcy in an attempt to escape the debt.
- Complex gamesmanship with assets and tax liability. There is historical evidence of bad actors using PEOs to allegedly make millions off of payroll tax fraud.
Regardless of the reason for creation of these fly-by-night PEOs, the problem they create is that they leave injured workers without coverage from their general employer – the PEO. This often leads to cases dragging on for years as parties dispute coverage and employment, and all-too-often it results in some unsuspecting carrier winding up with what should have been the PEO’s liability.
(If you haven’t had a case with this problem yet – consider yourself lucky. These cases present a multitude of headaches and difficulties.)
This is not a new practice. While researching this topic years ago, your humble blogger found an article from 1970s New York documenting this same scheme. There have been many papers and articles about this topic, including this NAIC study, this article in the Seattle Times, and this Florida study.
WHAT THE BILL DOES
While it does create an additional layer of bureaucracy for the law-abiding PEOs, it does require the less-trustworthy PEOs out there to register with the state. Among other things, the bill adds language to LC 1650 stating that PEOs must obtain workers’ compensation coverage, and must report employee wages using the PEO’s federal identification number.
At the end of the day, that’s one step toward holding the fly-by-night PEOs accountable for injuries that occurred during their risk. That’s a step in the right direction, and may help reduce the number of “bad PEOs” who have sullied the names of the law-abiding PEOs who do everything by the book (Ex: maintain work comp coverage, report injuries, pay wages, etc).
CONCLUSION
While there are some who have voted against this bill along the way, AB 1515 has sailed through both legislative houses with relatively strong support. Even if the bill does not get sent to Gov. Newsom’s desk for any reason, this is the type of bill that could easily resurface in future legislative sessions.
We at the Law Offices of Bradford and Barthel will continue to post legislative updates throughout the 2025 legislative session.
Got a question about workers’ compensation defense issues or pending legislation? Feel free to contact John P. Kamin. Mr. Kamin is a workers’ compensation defense attorney and partner at Bradford & Barthel’s Woodland Hills location, where he monitors the recent legislative affairs as the firm’s Director of the Editorial Board. Mr. Kamin previously worked as a journalist for WorkCompCentral, where he reported on work-related injuries in all 50 states. Please feel free to contact John at jkamin@bradfordbarthel.com or at (818) 654-0411.
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