Understanding California Labor Code §3700.5

When you work with a staffing company or temporary employment agency, you expect them to handle their responsibilities, especially when it comes to insurance coverage. But what if they don’t? What if their Certificate of Insurance (COI) is fake or expired?

Under California Labor Code §3700.5, you, the business owner, can be held legally liable for any workers provided by a staffing agency that lacks legitimate workers’ compensation insurance. That means you could be forced to pay for medical bills, fines, and legal costs, even if your staffing partner is the one committing fraud.

California Labor Code §3700.5 - What It Means for You

This law states that every employer, including those who hire through third parties, must ensure all workers are covered by valid workers' compensation insurance. If your agency fails to maintain coverage, you are considered the employer by law, and you are financially responsible.

And let’s be honest: many insurance companies won’t help you if they uncover fraud in your hiring chain. That’s why insurance policy compliance isn’t optional, it’s your protection.

The Real Threat - Insurance Fraud in the Staffing Industry

Here’s where things get dangerous.

Some staffing firms cut costs by submitting fraudulent insurance certificates, borrowing someone else’s policy, or even forging documentation altogether. This isn’t just bad business, it’s insurance premium fraud, and it’s a crime.

This kind of fraudulent activity can trigger audits from your insurance provider, the California Department of Insurance, the Internal Revenue Service, or even the Office of the Attorney General. Investigators may also refer your case to the Insurance Fraud Bureau or the insurance commissioner for further action.

If you think the risks stop at fines—think again. You could also face:

• Community service or jail time

• Business closure

• Reputational damage in your industry

• Future loss of insurance policy access

• Permanent red flags in market conduct reviews and insurance company audits

And once your company is flagged, good luck finding an insurance carrier willing to work with you again.

What Happens During a State Fund Audit?

If the State Fund or any insurance company suspects something’s off—like tax evasion, fraudulent claims, or missing payroll records, they will conduct a full audit. That means digging into contracts, timecards, job classifications, and yes, your staffing agency agreements.

Don't assume you'll get a warning. These audits are often triggered by tips to a fraud hotline, reports from a competitor, or even random market conduct reviews conducted by the insurance industry itself.

How CheckMyCert Protects You from Hidden Risk

You don’t need to be a compliance expert to avoid getting burned. CheckMyCert.org offers a fraudulent COI detection service that lets you verify any staffing agency’s Certificate of Insurance quickly, confidentially, and 100% free.

By using CheckMyCert, you're actively participating in fraud prevention strategies that protect your business—and the entire staffing industry, from dishonest operators.

What You Can Do to Stay Compliant

Here’s how to stay on the right side of the law:

✅ Verify Insurance Certificates – Don’t assume. Upload them to CheckMyCert.org
✅ Know Your Agency – Choose reputable staffing companies and ask how they maintain coverage
✅ Keep Documentation – Save COIs, job contracts, and communication logs for every worker
✅ Ask Questions – Who is the insurance carrier? Is it active? Has the policy changed?
✅ Watch for Red Flags – Vague paperwork, missing policy numbers, or delayed responses

Final Warning - The Liability Is Yours

Even if the fraud is committed by someone else, you’re the one who pays if you don’t verify. And when a worker is injured, the law doesn’t care if the insurance company said "everything looks fine" until it didn’t.

Whether it’s insurance fraud, tax evasion, or worker misclassification, failing to check your agency’s insurance could drag you into a costly mess. Don’t be the next headline.

Protect Yourself Now!

🔍 Verify staffing COIs instantly at CheckMyCert.org
⚠️ Avoid penalties, audits, lawsuits, and fraud
📄 Be proactive. Stay compliant. Know the truth before it's too late.
In compliance, there’s power. In ignorance, there’s liability.