BILL ANALYSIS                                                                                                                                                                                                    Ó






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: January 11, 2012            2011-2012 Regular 
          Session                              
          Consultant: Gideon L. Baum                   Fiscal:Yes
                                                       Urgency: No
          
                                   Bill No: SB 691
                                    Author: Lieu
                       As Introduced/Amended: January 4, 2012
          

                                       SUBJECT
          
                        Unemployment insurance: compensation.


                                      KEY ISSUE

          Should the Employment Development Department be permitted to 
          share employment data and information with the Contractors' 
          State License Board for the purposes of aiding any specific 
          workers' compensation fraud investigation?
          

                                       PURPOSE
          
          To assist the Contractors' State License Board (CSLB) in 
          preventing workers' compensation fraud.


                                      ANALYSIS
          
           Existing law  establishes a workers' compensation system that 
          provides benefits to an employee who suffers from an injury or 
          illness that arises out of and in the course of employment, 
          irrespective of fault.  This system requires all employers to 
          secure payment of benefits by either securing the consent of the 
          Department of Industrial Relations to self-insure or by securing 
          insurance against liability from an insurance company duly 
          authorized by the state.

           Existing law  vests the Employment Development Department (EDD) 
          with the responsibility of ensuring employers remit appropriate 
          Unemployment Insurance (UI) contributions and to collect the 









          employee wage deductions to the Disability Fund.  EDD uses these 
          funds to finance the Unemployment Insurance and Disability 
          Insurance (DI) Programs.  
          (Unemployment Insurance Code §§ 301, 976, 984, 1025-1037, 
          1555-1562, & 3001-3015)

           Existing law  also authorizes EDD to collect personal income 
          taxes required to be withheld by employers.  (Unemployment 
          Insurance Code §§ 13000 &13020)

           Existing law  requires that EDD collects appropriate data in 
          order to carry out the responsibilities listed above.  This 
          information includes the employer's name and address, the number 
          and contact information of employees employed by an employer, 
          the wages paid to those employees, and any independent 
          contractors that have performed services for an employer.  
          (Unemployment Insurance Code §§ 1085-1093)

           Existing law  requires that, unless specifically provided, the 
          information obtained in the administration of the UI Program and 
          DI program are confidential and must be used for the exclusive 
          use and information of the director of Employment Development 
          Department (EDD) in discharge of his or her duties.  Any person 
          violating the confidentiality of this information is guilty of a 
          misdemeanor.   (Unemployment Insurance Code §1094)

           Existing law  specifically provides that EDD may share 
          information to the district attorney of any county, the office 
          of the Attorney General, the Department of Industrial Relations, 
          and the Department of Insurance if that information is relevant 
          to any specific workers' compensation fraud investigation.  
          Information cannot be shared if doing so would violate federal 
          law or regulations.  (Unemployment Insurance Code §1095(o))

           This bill  would add the Contractors State License Board (CSLB) 
          to the list of authorized governmental entities that EDD may 
          share information with for the purposes of aiding any specific 
          workers' compensation fraud investigation.  


                                      COMMENTS

          Hearing Date:  January 11, 2012                           SB 691 
          Consultant: Gideon L. Baum                               Page 2

          Senate Committee on Labor and Industrial Relations 
          








          
          1.  Need for this bill?

            The State of California faces significant challenges from the 
            underground economy, which is defined by the Employment 
            Development Department as individuals and businesses that deal 
            in cash and/or use other schemes to conceal their activities 
            and their true tax liability from government licensing, 
            regulatory, and taxing agencies.  In short, it is an entire 
            universe of illegal activities that can include such diverse 
            activities as tax fraud, cigarette smuggling, and failure to 
            provide employees the minimum wage. A 2005 Legislative 
            Analyst's Office study on the underground economy estimated 
            that California loses $6.5 billion in annual income tax 
            revenues.  

            One of the most egregious activities by employers who 
            participate in the underground economy is workers' 
            compensation fraud.  This can include failure by the employer 
            to report all of his or her employees to the insurance company 
            when creating a policy, misreporting the type of work done by 
            employees, or even failing to secure any workers' compensation 
            coverage for all employees.  

            In testimony before the Senate Select Committee on Small 
            Business and the Underground Economy in 2011, Professor Frank 
            Neuhauser of UC Berkeley testified that, on average, $15 to 
            $68 billion of annual payroll in California went unreported, 
            or 4-12% of the total payroll in California.  These figures 
            did not include wages or employees that were misreported into 
            a lower premium class.  Particularly in high risk occupations, 
            this lack of reporting increased workers' compensation 
            premiums by more than 300%, pressuring law-abiding employers 
            to either go underground or go out of business.

            As the licensee of California's contractors, the Contractors' 
            State License Board (CSLB) has frequent contact with 
            occupations that are on the frontline of the fight against the 
            underground economy.  Contractors such as roofers and 
            electricians face some of the highest workers' compensation 
            premiums due to injuries, but also suffer from some of the 
            most significant rate distortion due to misreporting and 
          Hearing Date:  January 11, 2012                           SB 691  
          Consultant: Gideon L. Baum                               Page 3

          Senate Committee on Labor and Industrial Relations 
          








            underreporting.  While the CSLB must ensure that licensed 
            contractors appropriately maintain workers' compensation 
            coverage, they do not currently have statutorily guaranteed 
            access to EDD's databases to investigate possible workers' 
            compensation fraud.  

            SB 691 seeks to address this by permitting the Employment 
            Development Department to share employment data and 
            information with the CSLB for the purposes of investigating 
            any specific workers' compensation fraud investigation.  

          2.  Proponent Arguments  :
            
            The Contractors' State License Board (CSLB), which supports 
            this bill, states that SB 691 will assist their enforcement 
            division by substantially enhancing our lead development 
            capability and effectiveness. Similarly, the author notes that 
            this bill assists the ongoing efforts of the newly-formed 
            Labor Enforcement Task Force by encouraging data sharing and 
            collaboration among governmental entities.

          3.  Prior Legislation  :
            
            AB 878 (Berryhill), Chapter 686, Statutes of 2011, requires 
            workers' compensation insurers to notify the Contractors State 
            Licensing Board if a licensee is found to have misled the 
            insurer on his or her workers' compensation coverage.

            AB 2305 (Knight), Chapter 423, Statutes of 2010, requires 
            roofing contractors to maintain workers' compensation 
            coverage.

            AB 2433 (Ruskin), Chapter 139, Statutes of 2010, authorizes 
            the Board of Equalization to access EDD data to assist in the 
            administration of tax programs.


                                       SUPPORT
          
          Contractors' State License Board (CSLB)
          

          Hearing Date:  January 11, 2012                           SB 691 
          Consultant: Gideon L. Baum                               Page 4

          Senate Committee on Labor and Industrial Relations 
          








                                     OPPOSITION
          
          None on file.






































          Hearing Date:  January 11, 2012                           SB 691  
          Consultant: Gideon L. Baum                               Page 5

          Senate Committee on Labor and Industrial Relations