BILL ANALYSIS Ó SB 560 Page 1 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. SB 560 Page 2 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 SB 560 Page 3 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. SB 560 Page 4 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: SB 560 Page 5 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) SB 560 Page 6 OPPOSITION: None received Analysis Prepared by:Mark Rakich / INS. / (916) 319-2086