BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: April 10, 2013 2013-2014 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: SB 270
Author: Padilla
As Introduced/Amended: February 14, 2013
SUBJECT
Underground economy: enforcement actions
KEY ISSUE
Should the Legislature direct agencies participating in the
Joint Enforcement Strike Force (JESF), administered by the
Employment Development Department, and the Labor Enforcement
Task Force (LETF), administered by the Department of Industrial
Relations, to coordinate their law enforcement activities to
combat the underground economy?
ANALYSIS
Existing law establishes the Joint Enforcement Strike Force
(JESF), administered by the Employment Development Department,
to combat California's Underground Economy. The JESF is a
coalition of California State government enforcement agencies
that work together to combat the underground economy to ensure a
level playing field for California businesses. The goals of the
JESF are to:
Eliminate unfair business competition.
Protect workers by ensuring that they receive all
benefits to which they are entitled by law relating to
wages and hours, health and safety, and income
replacement.
Protect the consumer by ensuring that all businesses
are properly licensed and that they adhere to the State's
consumer protection regulations.
Reduce the burden on law-abiding citizens and
businesses by ensuring that all businesses and individuals
comply with the State's licensing, regulatory, and payroll
tax laws.
Reduce the tax gap by increasing voluntary compliance
with the State's payroll tax laws to maximize the State's
General and Special Fund revenues.
The JESF coalition is a partnership that includes, but is not
limited to, representatives from the Employment Development
Department, Department of Consumer Affairs, Department of
Industrial Relations, Department of Insurance and the office of
Criminal Justice Planning. Other agencies that are not part of
the administration, such as the Franchise Tax Board, the State
Board of Equalization, and the Department of Justice, are also
encouraged to participate in the strike force. (Unemployment
Insurance Code §329)
The existing Labor Enforcement Task Force (LETF) , under the
administration of the Department of Industrial Relations since
January 2012, was created to combat the underground economy in
California to create an environment where legitimate businesses
can thrive. The goals of the LETF are to:
Ensure workers receive proper payment of wages and are
provided a safe work environment.
Ensure California receives all employment taxes, fees,
and penalties due from employers.
Eliminate unfair business competition by leveling the
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Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
playing field.
Make efficient use of state and federal resources in
carrying out the mission of the LETF.
The LETF coalition is a partnership that includes
representatives from the Labor & Workforce Development Agency,
Department of Industrial Relations, including Division of Labor
Standards Enforcement and Division of Occupational Safety and
Health (DOSH), Employment Development Department, Contractors
State Licensing Board, California Department of Insurance,
Board of Equalization, Bureau of Automotive Repair, State
Attorney General and district attorneys throughout California.
In this joint effort, information and resources are shared to
ensure hard-working, compliant business owners and their
employees have an opportunity for healthy competition.
This Bill would direct agencies participating in the Joint
Enforcement Strike Force (JESF) and the Labor Enforcement Task
Force (LETF) to the degree feasible, coordinate their law
enforcement activities and exchange information to better
facilitate their law enforcement activities.
COMMENTS
1. Need for this bill?
The term "underground economy" refers to any business that
deals in cash and/or uses other schemes to cover up its true
tax liability from government licensing, regulatory, and
taxing agencies. According to the Department of Industrial
Relations, common "underground economy" practices include tax
evasion, tax fraud, cash pay, tax gaps, wage theft, payments
under-the-table, and payments off-the-books.
Business in the underground economy is conducted outside the
bounds of state law. This allows underground businesses to
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Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
gain an unfair advantage over their law-abiding competitors by
ignoring labor laws and their tax obligations to state and
local governments. According to the author, underground
economic activity in California's is worth between $60 and
$140 billion a year and costs the state over $8.5 billion in
lost tax revenue every year.
The Department of Industrial Relations and the Employment
Development Department both have special task forces to target
enforcement in the underground economy. These task forces are
composed of various state and federal agencies, with some
agencies represented on both task forces. This bill would
ensure these two taskforces work together and share
information necessary to the carry out this enforcement.
2. Proponent Arguments :
Proponents argue that violations of labor and tax laws often
go hand in hand. When an employer fails to pay a worker
minimum wage or overtime pay or utilizes unreported cash
payments, the state loses revenues from income and payroll
taxes that fund the unemployment insurance system, paid family
leave, disability insurance and state general fund programs.
The author argues that, unfortunately, state enforcement
efforts in the underground economy are limited due to limited
resources and a growing economy.
According to the author, between 1970 and 2011, the labor
force in California grew approximately 125 percent. However,
staff positions at Division of Labor Standards Enforcement
have only grown 45 percent since 1970. In order to pool
limited resources to combat the underground economy, the
Legislature created the Joint Enforcement Strike Force and the
Department of Industrial Relations created the Labor
Enforcement Task Force. Each entity is comprised of various
state and federal agency; however, both have some overlapping
membership. Unfortunately, the author argues, there is no
formal process for these two entities to coordinate efforts
and share information. This bill would direct the two task
groups to coordinate efforts to combat the underground
economy.
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Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
Overall, proponents argue that employers operating in the
underground economy hurt everyone and the increased
coordination of efforts between enforcement agencies will help
to reduce disparities between employers that do not adhere to
the law and those that do.
3. Opponent Arguments :
None received.
SUPPORT
California Association for Health Services at Home
California Rural Legal Assistance Foundation
Spa & Pool Industry Education Council
OPPOSITION
None received
Hearing Date: April 10, 2013 SB 270
Consultant: Alma Perez Page 5
Senate Committee on Labor and Industrial Relations