BILL ANALYSIS                                                                                                                                                                                                    

                                                                     SB 560

                                                                    Page  1

          Date of Hearing:  June 23, 2015


                                Susan Bonilla, Chair

                     SB 560(Monning) - As Amended April 6, 2015

          SENATE VOTE:  35-0

          NOTE: This bill is double-referred to the Assembly Committee on  

          SUBJECT:  Contractors.

          SUMMARY:  Requires the enforcement division of the Contractors'  
          State License Board (CSLB) to enforce an employer's obligation  
          to secure the payment of workers' compensation under the Labor  

          EXISTING LAW:

          1)Establishes the Division of Labor Standards Enforcement  
            (DLSE), also known as the Labor Commissioner's Office, within  
            the Department of Industrial Relations, which is required to  
            enforce the state's labor laws.  (Labor Code (LAB)  79-107)
          2)Requires an employer to carry workers' compensation insurance.  
             (LAB  3700-3709.5) 


                                                                     SB 560

                                                                    Page  2

          3)Establishes an enforcement division, within the CSLB, which is  
            required to enforce the prohibition against unlicensed  
            contracting activity.  (Business and Professions Code (BPC)   

          4)Authorizes the CSLB's enforcement representatives to issue a  
            written notice to appear in court for a misdemeanor violation  
            under Penal Code  853.6.  (BPC  7011.4(b))

          5)Grants investigators for the Special Investigations Unit  
            within the CSLB the authority of peace officers to investigate  
            or prosecute a violation of the laws administered by the CSLB.  
             (BPC  7011.5)

          THIS BILL:

          6)Requires the enforcement division within the CSLB to enforce  
            an employer's obligation to secure the payment of valid and  
            current worker's compensation insurance in accordance with  
            existing Labor Code provisions. 

          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          Purpose.  This bill is sponsored by the  CSLB  . According to the  
          author, "[This bill] would expand the jurisdiction of CSLB's  
          Enforcement Division to include ensuring payment for adequate  
          workers' compensation.  Including workers' compensation  
          violations in the Notice To Appear will streamline the referral  
          of these cases to local district attorneys and place an emphasis  


                                                                     SB 560

                                                                    Page  3

          on the importance of obtaining workers' compensation."

          Background.  The CSLB's enforcement division, the Statewide  
          Investigative Fraud Team (SWIFT), enforces the prohibition  
          against unlicensed contracting activity.  According to the  
          CSLB's 2014 Sunset Review Report, the enforcement division  
          consists of enforcement representatives, peace officers, and  
          enforcement supervisors.  When the CSLB suspects serious or  
          repeat violations for unlicensed activity, it will assign the  
          case to one of its enforcement representatives or peace officers  
          for formal investigation.  The cases are subject to review by  
          enforcement supervisors.  

          In addition, the CSLB uses SWIFT to conduct stings and sweep  
          construction sites.  The CSLB also uses SWIFT to conduct joint  
          operations and sweeps with other state agencies to raise the  
          penalties for violations by tacking on additional violations,  
          such as the failure to carry workers' compensation insurance.

          If an investigation uncovers evidence of a possible violation of  
          unlicensed activity, the CSLB may issue a warning letter, issue  
          a citation, or refer the case to the District Attorney for  
          criminal prosecution (issue a notice to appear).  However, the  
          CSLB's enacting statute only permits the CSLB, when acting  
          alone, to take action for violations specific to the licensure  
          of contractors, which does not include the general obligation to  
          carry workers' compensation insurance under the Labor Code.  

          For instance, the CSLB can require a contractor to carry  
          workers' compensation insurance as a condition of licensure.  If  
          the CSLB finds that an unlicensed contractor is not carrying  
          workers compensation, it may issue the contractor an  
          administrative citation, which the contractor would have to pay  
          if the contractor eventually wishes to apply for a license.   
          Because of the limitation, the CSLB wishes to expand its  


                                                                     SB 560

                                                                    Page  4

          jurisdiction to additionally cite for the failure to carry  
          workers' compensation insurance under the Labor Code.

          Enforcement of Workers' Compensation Insurance Laws.  In  
          California, the DLSE, also known as the Labor Commissioner's  
          Office, enforces state workers' compensation insurance laws.   
          When the DLSE suspects that an employer does not carry workers'  
          compensation, it will issue a stop order.  The order prohibits  
          the employer from using employee labor until the employer  
          obtains coverage.  

          A violation of the order is a misdemeanor-punishable by  
          imprisonment in the county jail for up to 60 days, a fine of up  
          to $10,000, or both.  The DLSE assesses a penalty of $1,000 per  
          employee on the payroll at the time the stop order is issued and  
          served, up to $100,000 (LAB  3722(a)).  The DLSE may also  
          elevate the citation to a misdemeanor notice to appear in  
          egregious cases.

          Prior Related Legislation. AB 2554 (Berryhill), Chapter 85,  
          Statutes of 2012, provided CSLB enforcement representatives the  
          authority to issue a notice to appear for violations of  
          contracting laws.

          SB 691 (Lieu), Chapter 832, Statutes of 2012, added CSLB to the  
          list of agencies approved to receive workers' compensation  
          insurance information from EDD.


          The  CSLB  writes in support, "Under existing law, CSLB  
          [enforcement representatives] can issue a written [notice to  
          appear] to individuals who are caught contracting without a  


                                                                     SB 560

                                                                    Page  5

          license.   This occurs during CSLB's undercover sting operations  
          which are set up to target unlicensed contractors.  Oftentimes,  
          these unlicensed contractors show up to a sting site with an  
          employee.   In those cases, the unlicensed contractor generally  
          does not carry [workers' compensation] insurance.  This bill  
          would allow CSLB to additionally cite for that violation, so  
          that it becomes part of the case that is forwarded to the local  
          district attorney for prosecution. 

          Failure to adequately insure employees against work-related  
          injuries is a significant component of the underground economy.   
          This bill provides CSLB an additional tool to help address this  


          None on file.


          Contractors State License Board (sponsor)

          Construction Employers' Association

          Plumbing-Heating-Cooling Contractors Association of California

          Western Electrical Contractors Association


                                                                     SB 560

                                                                    Page  6

          None on file.

          Analysis Prepared by:Vincent Chee / B. & P. / (916) 319-3301