9. COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 28, 2012

Notes to Financial Statements

Note 9 - COMMITMENTS AND CONTINGENCIES

Everyday Staffing, LLC tax liabilities:   On June 30, 2006, we acquired three locations from Everyday Staffing LLC (Everyday Staffing) in exchange for 579,277 shares of our common stock. At the time of the acquisitions, Michael Moothart, controlling member of Everyday Staffing, represented that all tax liabilities of Everyday Staffing had been paid. As a result of the acquisitions, we booked a note payable to Everyday Staffing in the amount of approximately $113,000. In early 2008, we received notice from the State of Washington that Everyday Staffing owed certain tax obligations to the State that arose prior to the date of acquisition. The State of Washington requested that we pay the amounts due under a theory of successor liability. Subsequently, we received a second claim for successor liability. These two claims are described below.

The Department of Labor and Industries (the Department) issued two Notices and Orders of Assessment of Industrial Insurance Taxes (Notice(s)) to us.  The Notices claims and assesses taxes of approximately $958,000. We strongly dispute both the alleged successor liability and also the monetary amount asserted by the Department. We are pursuing our administrative remedies in order to vigorously contest the assertions of these Notices. In strongly disputing the claims of the Department, management believes that the potential liability, if any, is not probable and is not reasonably estimable at this time. Accordingly, no liability has been established on our balance sheet for the amount claimed. Management believes our liability, if any, from the claims and assessments of the Department are not reasonably likely to have a material adverse effect on our financial position, results of operations, or cash flows in future periods.

After approximately four years of inaction by the Department on the pending administrative cases, it recently issued orders affirming its 2008 decisions. On October 22, 2012, we received two Orders and Notices from the Department affirming the Notices and Orders as Assessment that were served upon us in November 2008. We intend to file administrative appeals of the Department's latest Orders in the pending cases with the Washington Board of Industrial Insurance Appeals.

In response to our position that we are not the legal successor to Everyday Staffing, the Department asserted its claim of successor liability against a second limited liability company, also known as Everyday Staffing, LLC (Everyday Staffing II).  Everyday Staffing II was organized by the members of Everyday Staffing after Everyday Staffing was administratively dissolved by the state. The assertion by the State of Washington of successor liability against Everyday Staffing II is consistent with the position advanced by us that Everyday Staffing II, and not Command Center, Inc. is the only successor to the entity against which the industrial insurance taxes were assessed.

In response to the 2008 Department Notices for payment of Everyday Staffing liabilities, we filed a lawsuit against Everyday Staffing and Mr. Moothart seeking   indemnification and monetary damages. In September, 2009, we obtained a judgment against Mr. Moothart and Everyday Staffing, jointly and severally, in the amount of $1.295 million. The collectability of this judgment is questionable. Glenn Welstad, our CEO, has a minority interest in Everyday Staffing as a passive investor.

Legal Proceedings:

In September 2011, we were served with a lawsuit filed against us by Dun & Bradstreet (D&B).  In June 2012, we stipulated to the dismissal of the case without prejudice. The suit alleged that D&B provided financial information and services to us on account pursuant to a written order and sought recovery of $247,000.  The dismissal of the lawsuit does not reflect a resolution of the underlying issues and we have agreed with D&B to mediate this dispute without pending litigation.  We have recorded a reserve of $50,000 for this potential liability.

In December, 2011, Jeff Mitchell, our former Chief Financial Officer, filed a lawsuit in Kootenai County, Idaho District Court against us and Glenn Welstad, our CEO, alleging breach of contract, failure to pay wages, and for director's liability, arising out of the alleged nonpayment of a bonus claimed to be due for the third quarter of 2011. While specifically denying all liability, the suit was settled through mediation in September in order to avoid the expense and uncertainty of litigation.  We agreed to pay Mr. Mitchell $100,000, of which $25,000 has been paid to date.  The remaining $75,000 will be paid as installments over the next seven months.

On August 3, 2012, Trident Seafoods Corporation and Liberty Mutual filed a lawsuit against Command Center, Inc., in the United States District Court, Western District of Washington, for declaratory judgment, breach of contract and violation of the Consumer Protection Act.  This action is the result of a previous decision of the administrative law judge for the U.S. Department of Labor, wherein it was determined that a former employee of Command Center was, in fact, an employee of Trident Seafoods, for purposes of the U.S. Longshore and Harbor Workers' Compensation Act.  Trident Seafoods alleges Command Center has a contractual duty to pay workers’ compensation benefits for the injured “borrowed” employee.  Command Center believes the claims asserted by Trident are unfounded and intends to vigorously defend this case.