BILL ANALYSIS Ó
SB 560
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Date of Hearing: July 8, 2015
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
SB
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
Code.
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.
COMMENTS:
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'
compensation."
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
cases.
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.
REGISTERED SUPPORT / OPPOSITION:
SUPPORT:
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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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OPPOSITION:
None received
Analysis Prepared by:Mark Rakich / INS. / (916)
319-2086