BILL ANALYSIS AB 2305 Page 1 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." AB 2305 Page 2 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, AB 2305 Page 3 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) AB 2305 Page 4 319-3301