BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2305
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          Date of Hearing:   April 20, 2010

              ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER  
                                     PROTECTION
                                 Mary Hayashi, Chair
                    AB 2305 (Knight) - As Amended:  April 14, 2010
           
          SUBJECT  :   Contractors: workers' compensation insurance  
          coverage.

           SUMMARY  :   Extends the sunset date, from January 1, 2011 to  
          January 1, 2016, on existing law requiring a roofing contractor  
          to obtain and maintain workers' compensation insurance, even if  
          he or she has no employees, and extends the parallel sunset date  
          requiring the Department of Insurance (DOI) to report on this  
          effect.    

           EXISTING LAW  :

          1)Requires private employers to secure the payment of  
            compensation by obtaining and maintaining workers'  
            compensation insurance or to self-insure as an individual  
            employer or as one employer in a group of employers.  The  
            Contractors' State License Law requires every licensed  
            contractor to have on file at all times with the Contractors'  
            State License Board a current and valid Certificate of  
            Workers' Compensation Insurance or Certification of  
            Self-Insurance, or a statement certifying that he or she has  
            no employees and is not required to obtain or maintain  
            workers' compensation insurance coverage. 

          2)Requires a contractor, until January 1, 2011, with a C-39  
            roofing classification to obtain and maintain workers'  
            compensation insurance even if he or she has no employees.   
            Failure to comply with this requirement results in the  
            automatic suspension of the license. 

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           Purpose of this bill  .  According to the author's office, "This  
          bill is simply an extension of provisions put into law by AB  
          881."









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           Background  .  A C-39 roofing contractor is certified to install  
          products and repair surfaces that seal, waterproof and  
          weatherproof structures.  

          AB 881 (Emmerson) Chapter 38, Statutes of 2006 requires all  
          licensed roofers to have workers compensation insurance,  
          authorizes the registrar of contractors to remove the roofing  
          classification from a contractor license for failure to maintain  
          workers' compensation insurance, and requires insurers who issue  
          workers compensation policies to roofing contractors to perform  
          annual audits of these policyholders, as specified, and allows  
          the insurers to recoup the cost of these audits through a policy  
          surcharge.  The bill also required DOI to designate a rating  
          organization to compile data on individuals with C-39  
          designations and report to DOI each year on total annual payroll  
          and loss data in accordance with the standard workers'  
          compensation insurance classifications. 

          AB 881 was necessary because, according to the author, "the  
          roofing industry in California pays among the highest workers'  
          compensation rates of all industries in the state.  The nature  
          of the work requires considerable investment in order to ensure  
          the protection and safety of industry workers and contractors.   
          However, a high incidence of payroll reporting fraud has also  
          helped lead to these exorbitant costs, as many roofing  
          contractors under-report their payroll in order to secure lower  
          workers' [compensation] premiums."  The incidence of payroll  
          reporting fraud was so high, according to supporters, that 3,000  
          out of the 5,900 licensed C-39 roofers in California claimed to  
          not have any employees.  The sponsor, The Roofing Contractors  
          Association of California (RCAC), and supporters state that the  
          annual audits make it more difficult for a roofer to  
          under-report his or her payroll and commit insurance fraud.   
          This bill extends these requirements until 2016.

          Initial DOI reports analyzing the effect of AB 881 indicate that  
          roofing contractors are obtaining workers' compensation policies  
          at a rate generally consistent to their numbers, so contrary to  
          some concerns, these individuals are not moving their business  
          underground. 

           Arguments in support  .  RCAC writes, "AB 881 has made inroads,  
          but the work of eradicating the underground economy is far from  
          over.  We have held meetings with the DOI and State Compensation  
          Insurance Fund, and they acknowledge the degree of the problem,  








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          and are cooperating with RCAC in our efforts to expose  
          fraudulent operators.  It is critical for the provisions of AB  
          881 to continue, via AB 2305, so that the efforts to fight the  
          underground economy and its effects are not undermined."

           Arguments in opposition  .  The California Applicants' Attorneys  
          Association writes, "AB 2305 would create a perverse incentive  
          for unethical roofing contractors to commit workers'  
          compensation fraud, and unfairly shift costs not only to  
          law-abiding roofing contractors, but to all legitimate  
          employers."

           Author's amendments:  

          The author has agreed to reduce the sunset date on all  
          provisions in the bill from 2016 to 2014.
           
          Previous legislation  .  AB 881 (Emmerson) Chapter 38, Statutes of  
          2006 requires all licensed roofers to have workers compensation  
          insurance, authorizes the registrar of contractors to remove the  
          roofing classification from a contractor license for failure to  
          maintain workers' compensation insurance, and requires insurers  
          who issue workers compensation policies to roofing contractors  
          to perform annual audits of these policyholders, as specified,  
          and allows the insurers to recoup the cost of these audits  
          through a policy surcharge

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          The Roofing Contractors Association of California (sponsor)
          California Department of Insurance
          California Professional Association of Specialty Contractors
          Construction Industry Legislative Council
          Imperial Roofing
          State Building and Construction Trades Council of California
          Union Roofing Contractors Association
          United Union of Roofers, Waterproofers and Allied Workers

           Opposition 
           
          California Applicants' Attorneys Association
           
          Analysis Prepared by  :    Sarah Weaver / B., P. & C.P. / (916)  








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