BILL ANALYSIS                                                                                                                                                                                                    

                                                                     SB 560

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          Date of Hearing:  July 8, 2015

                           ASSEMBLY COMMITTEE ON INSURANCE

                                   Tom Daly, Chair

          560 (Monning) - As Amended July 2, 2015

          SENATE VOTE:  35-0

          SUBJECT:  Licensing boards: unemployment insurance.

          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 (DIR), which is  
            required to enforce the state's labor laws.  
          2)Requires every employer to provide workers' compensation  
            coverage for all of its employees, either by purchasing a  
            policy of workers' compensation insurance from a licensed  
            insurer, or by obtaining a certificate of self-insurance from  
            the DIR.


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          3)Establishes an enforcement division, within the CSLB, which is  
            required to enforce the prohibition against unlicensed  
            contracting activity,

          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.  

          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.  

          6)Provides that falsely understating payroll to a workers'  
            compensation insurer for the purpose of obtaining lower  
            workers' compensation insurance premiums is insurance fraud.

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


          1)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 on the importance of obtaining workers'  

          2)Background.  The CSLB's enforcement division, the Statewide  
            Investigative Fraud Team, enforces the prohibition against  


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            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. 

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

          3)Enforcement of Workers' Compensation Insurance Laws.  In  
            California, the DLSE is authorized to enforce the state's  
            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.  


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          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.  The DLSE may also elevate  
            the citation to a misdemeanor notice to appear in egregious  

          4)Payroll fraud.  Some contractors, whether licensed or not,  
            attempt to obtain a competitive advantage by not purchasing  
            workers' compensation insurance.  A related, but frequently  
            more difficult to detect, problem occurs when an employer  
            misrepresents the amount of payroll he or she has, in an  
            effort to obtain the same competitive advantage as the  
            employer without coverage at all.  The bill expresses the  
            Legislature's intent that the CSLB investigate payroll fraud  
            as well as cases involving no coverage at all.

          5)Prior 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 payroll information from  
            Employment Development Department.




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          Contractors State License Board (sponsor)

          Air Conditioning Sheet Metal Association

          Air-conditioning & Refrigeration Contractors Association

          American Subcontractors Association California, Inc.

          California Chapters of the National Electrical Contractors  
          Association (NECA)

          California Legislative Conference of the Plumbing, Heating and  
          Piping Industry

          Finishing Contractors Association of Southern California 

          Plumbing-Heating-Cooling Contractors Association of California

          United Contractors 

          Western Electrical Contractors Association

          Western Line Constructers

          Construction Employers' Association (CEA)


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          None received

          Analysis Prepared by:Mark Rakich / INS. / (916)