Labor Commissioner and the Division of Labor Standards Enforcement recently designated a decision as a precedent, upholding two citations against an employer for operating without workers’ comp coverage. The employer had contracted with Professional Employer Organizations (PEOs) for workers, payroll services, and insurance, but the PEO’s workers’ comp “coverage” was bogus.The employer was held liable for over $1.3 million in penalties for operating without valid workers’ compensation coverage. This is a big win for legitimate Professional Employer Organizations, which are forced to compete with illegal operators who can charge less because of the fraud.The case involves primary employer Garcias Pallets, which contracted for PEO services with Golden State Employment Corp. and Preferred Services Group, which did business as American Resource Group.The PEOs used the same business address, and both provided certificates of liability insurance produced through an illegal MEWA—initially through CompOneUSA and American Labor Alliance and later through CompassPilot and Omega Community Labor Association. The MEWA and its principal officers were later convicted of fraud (for additional coverage of the illegal operation, see our Investigations section).Garcias Pallets participated in the appeal before the Department of Industrial Relations, but the PEOs did not appear.Designating a decision as a “Precedent Decision” is not new for many California government agencies. California Government Code section 11425.60 provides that state agencies can issue a “precedent decision” if it addresses a “significant legal or policy determination…that is likely to recur.” The California Department of Insurance also has a long history of designating decisions as precedential. It issued the Shasta Linen decision as a precedential decision due to the copious litigation surrounding Applied Underwriters and its EquityComp program.The California Labor Commissioner, however, has not used the procedure until now. Without fanfare or announcement, the DLSE last October designated three decisions as Precedential Decisions that had been issued years earlier. Precedent decision 001 dates back to 2018, 002 is from 2019, and the Garcias Pallets case (DLSE-PD-003) is from 2021.