BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1254| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 1254 Page 2 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' CONTINUED SB 1254 Page 3 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 CONTINUED SB 1254 Page 4 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 CONTINUED SB 1254 Page 5 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 CONTINUED SB 1254 Page 6 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 CONTINUED SB 1254 Page 7 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 CONTINUED SB 1254 Page 8 SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED