BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1254|
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                              UNFINISHED BUSINESS


          Bill No:  SB 1254
          Author:   Leno (D)
          Amended:  8/20/10
          Vote:     21

           
           SENATE BUSINESS, PROF. & ECON. DEV. COMMITTEE  :  7-0, 4/5/10
          AYES:  Negrete McLeod, Aanestad, Calderon, Correa, Oropeza,  
            Walters, Yee
          NO VOTE RECORDED:  Wyland, Florez

           SENATE APPROPRIATIONS COMMITTEE  :  9-0, 4/26/10
          AYES:  Kehoe, Cox, Alquist, Corbett, Denham, Leno, Price,  
            Wolk, Yee
          NO VOTE RECORDED:  Walters, Wyland

           SENATE FLOOR  :  34-0, 5/3/10 (Consent)
          AYES:  Aanestad, Ashburn, Cedillo, Cogdill, Corbett,  
            Correa, Cox, Denham, DeSaulnier, Ducheny, Dutton, Florez,  
            Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,  
            Lowenthal, Negrete McLeod, Oropeza, Padilla, Pavley,  
            Price, Romero, Runner, Simitian, Strickland, Walters,  
            Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Alquist, Calderon, Steinberg, Wiggins,  
            Vacancy, Vacancy

           ASSEMBLY FLOOR  :  75-1, 8/25/10 - See last page for vote


           SUBJECT  :    Contractors:  workers compensation 

           SOURCE  :     Contractors State License Board 
                      Marin Builders Association 
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           DIGEST  :    This bill authorizes the registrar of the  
          Contractors State License Board (CSLB) to issue a stop  
          order to any unlicensed or licensed contractor who as an  
          employer who has failed to secure workers' compensation  
          insurance coverage for his/her employees, establishes  
          procedures to request a hearing to protest a stop order,  
          and authorizes the Director of the Department of Consumer  
          Affairs to designate 12 persons as peace officers for  
          assignment to the special investigations unit of CSLB.

           Assembly Amendments  make technical, nonsubstantive changes.

           ANALYSIS  :    

          Existing law, the Business and Professions Code:

          1. Licenses and regulates more than 250,000 contractors  
             under the Contractors State License Law by CSLB within  
             the Department of Consumer Affairs (DCA).  CSLB is under  
             the direction of the registrar of contractors  
             (Registrar).

          2. Requires every licensed contractor to have on file at  
             all times with CSLB a current and valid Certificate of  
             Workers' Compensation Insurance or Certification of  
             Self-Insurance, or a statement certifying that he/she  
             has no employees and is not required to obtain or  
             maintain workers' compensation insurance coverage.

          3. Provides that failure of a licensed contractor to obtain  
             or maintain workers' compensation insurance coverage, if  
             required under this chapter, shall result in the  
             automatic suspension of the license by operation of law.  
              The suspension shall be effective on the earlier of the  
             date that the workers' compensation insurance coverage  
             lapses or the date that workers' compensation coverage  
             is required to be obtained.

          Existing law, the Labor Code:

          1. Requires private employers to secure the payment of  
             compensation by obtaining and maintaining workers'  

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             compensation insurance or to self-insure as an  
             individual employer or as one employer in a group of  
             employers.

          2. Provides that when an employer has failed to secure the  
             payment of compensation as required, the Director of the  
             Department of Industrial Relations (DIR) shall issue the  
             employer a stop order prohibiting the use of employee  
             labor until the employer complies with the workers'  
             compensation insurance requirements.

          3. Establishes specified procedures to request a hearing to  
             protest a stop order.

          Existing law, the Penal Code:

          1. Designates specified persons employed by  
             specifically-identified state agencies as peace officers  
             and gives those persons the power of arrest.

          2. Authorizes the Director of DCA to designate three  
             persons as peace officers to be assigned to the special  
             investigations unit of CSLB, and prohibits those persons  
             from carrying firearms.

          This bill:

          1. Authorizes the Registrar to issue a stop order to any  
             unlicensed or licensed  contractor who as an employer  
             has failed to secure workers' compensation insurance  
             coverage for his/her employees.  

          2. Specifies the stop order is effective immediately upon  
             service, and that any affected employee shall be paid by  
             the employer for up to 10 days for his/her time lost,  
             pending compliance by the employer.

          3. Makes failure to comply with the stop order a  
             misdemeanor (crime) punishable by imprisonment in the  
             county jail for up to 60 days, or by a fine up to  
             $10,000, or both.

          4. Establishes specified procedures to request a hearing to  
             protest a stop order, that mirror "Existing law, the  

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             Labor Code:" Item #3).  These procedures include the  
             following:

             A.    An unlicensed contractor employer may protest the  
                stop order by filing with the Registrar a written  
                request for a hearing within 20 days after service of  
                the stop order.

             B.    The hearing must be held within 5 days from the  
                date the request is filed.  

             C.    The Registrar must notify the employer of the time  
                and place of the hearing by mail.  

             D.    At the conclusion of the hearing the stop order  
                shall be immediately affirmed or dismissed, and  
                within 24 hours thereafter the Registrar shall issue  
                and serve by registered or certified mail the written  
                findings of the hearing.  

             E.    A writ of mandate may be taken from the findings  
                to the appropriate superior court within 45 days  
                after the mailing of the findings. 

          4. Authorizes the Director of DCA to designate 12 persons  
             as peace officers for assignment to the special  
             investigations unit of CSLB.

           Background

           The Labor Code 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.  These provisions apply to contractors, and the  
          Business and Professions Code requires a contractor to have  
          workers compensation insurance or to certify to CSLB that  
          they do not have any employees as a condition for  
          licensure.

          There is widespread belief in the business community that  
          high costs are making it increasingly difficult to do  
          business in California.  Often cited as a primary example  
          of this is the state's workers' compensation system.  In  

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          2004, the Legislature undertook reform of policies and  
          procedures in that system, hoping to curb the skyrocketing  
          costs of workers' compensation premiums in the state and  
          made some fundamental reforms.  

          However, the deteriorating economy has made it difficult  
          for those engaged in business to make ends meet.  In some  
          cases, legitimate contractors have gone out of business and  
          have had to lay off their employee workforce.  In some  
          cases, those former employees who do not hold contractor  
          licenses seek to work in the building or home improvement  
          industry, and ultimately become unlicensed contractors.  It  
          naturally would follow that those contracting without a  
          license would be unlikely to obtain workers compensation  
          insurance for the workers that they may employ.  This cuts  
          the cost margins for the unlicensed contractor, and often  
          allows the unlicensed contractor to undercut legitimate,  
          licensed contractors on price.  

          Failing to secure unemployment insurance jeopardizes not  
          only the employees of the unlicensed contractor, but also  
          the consumer (often a homeowner).  If a worker is injured  
          on the job and there is no workers compensation insurance,  
          the homeowner may be held liable for medical costs.  Often,  
          homeowners insurance does not cover uninsured workers in  
          such cases.  

           Related Legislation

           AB 370 (Eng), Chapter 319, Statutes of 2009, increases the  
          maximum criminal fines for unlicensed contractors, requires  
          a mandatory jail sentence for a third or subsequent  
          conviction for unlicensed contracting, and clarifies that  
          the enhanced penalties for persons with prior unlicensed  
          activity convictions applies not only for performing work,  
          but also for offering to perform or submitting a bid to  
          perform contracting work.  

          AB 2412 (Eng), 2007-08 Session, was the same as AB 370, but  
          was one of an unprecedented number of bills that were  
          vetoed by the Governor citing the delay in passing the  
          Budget.

          AB 881 (Emmerson), Chapter 38, Statutes of 2006, requires  

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          all licensed roofers to have workers compensation  
          insurance, and authorizes the Registrar to remove the  
          roofing classification from a contractor license for  
          failure to maintain workers' compensation insurance.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee:

                         Fiscal Impact (in thousands)

           Major Provisions       2009-10     2010-11    2011-12    Fund  

          Stop order hearings            $27      $53       $53   
          Special*
          New peace officer positions             Minor initial  
          costs; up to $35 annually      Special*

          * Contractors State License Fund

           SUPPORT  :   (Verified  8/25/10)

          Contractors State License Board (co-source)
          Marin Builders Association (co-source)
          American Fence Association
          California Applicants Attorneys Association
          California Chamber of Commerce
          California Coalition on Workers' Compensation
          California Fence Contractors Association
          California Labor Federation
          California State Council of Laborers
          California Teamsters
          Flasher/Barricade Association
          Golden State Builders Exchange
          Plumber and Steamfitters Local 159
          Plumbing, Heating, Cooling Contractors of California
          State Building and Construction Trades Council

           ARGUMENTS IN SUPPORT  :    The bill's sponsors argue that  
          unlicensed contractors have an illegal, unfair advantage  
          over legitimate licensees, and the use of uninsured  
          employees represent a potential risk to the public by the  
          fact that a property owner could be held liable for injures  

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          to an uninsured worker.  The sponsors state that this bill  
          will provide CSLB with the authority to issue an  
          administrative stop work order to unlicensed contractors  
          who are not providing workers' compensation for their  
          employees, and make failure to comply with the order a  
          misdemeanor.  

          The sponsors also state that although the bill increases  
          the number of peace officers that CSLB may employee from  
          three to 12, the bill does not automatically increase the  
          number of CSLB's peace officers.  There are still the  
          current multi-layer approval requirements.  CSLB would  
          still have to seek authorization to employ the additional  
          peace officers through a Budget Change Proposal (BCP).  The  
          BCP to employ additional peace officers would have to be  
          approved by both DCA and the Department of Finance, and  
          ultimately the funds must be appropriated by the  
          Legislature through the annual Budget process.  The  
          sponsors stress that while CSLB has funding available for  
          these positions, none will be funded without ultimate  
          approval in the Budget.  The bill provides mere  
          authorization to move forward in the budget process with  
          these new positions.


           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill  
            Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,  
            Brownley, Buchanan, Caballero, Charles Calderon, Carter,  
            Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            DeVore, Eng, Evans, Feuer, Fletcher, Fong, Fuller,  
            Furutani, Gaines, Galgiani, Garrick, Gatto, Gilmore,  
            Hagman, Hall, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Lieu, Logue, Bonnie Lowenthal, Ma,  
            Mendoza, Miller, Monning, Nava, Nestande, Niello,  
            Nielsen, Norby, V. Manuel Perez, Portantino, Ruskin,  
            Salas, Saldana, Silva, Skinner, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Villines, Yamada, John A. Perez
          NOES: Harkey
          NO VOTE RECORDED: Fuentes, Knight, Vacancy, Vacancy


          JJA:mw  8/26/10   Senate Floor Analyses 

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                         SUPPORT/OPPOSITION:  SEE ABOVE

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