BILL ANALYSIS
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|Hearing Date:June 21, 2010 |Bill No:AB |
| |2305 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 2305Author:Knight
As Amended:April 22, 2010 Fiscal:Yes
SUBJECT: Contractors: workers compensation insurance coverage.
SUMMARY: Extends the sunset date, from January 1, 2011 to January 1,
2014, on law requiring a roofing contractor to obtain and maintain
workers' compensation insurance, even if he or she has no employees,
and extends the parallel sunset date requiring the Department of
Insurance to report on this effect.
Existing law:
1)Licenses and regulates more than 300,000 contractors, including C-39
roofing classification contractors, under the Contractors State
License Law by the Contractors State License Board (CSLB) within the
Department of Consumer Affairs (DCA). The CSLB is under the
direction of the registrar of contractors (Registrar).
2)Requires private employers to secure the payment of compensation by
obtaining and maintaining workers' compensation insurance or to
self-insure as an individual employer or as one employer in a group
of employers.
3)Requires every licensed contractor to have on file at all times with
the CSLB a current and valid Certificate of Workers' Compensation
Insurance or Certification of Self-Insurance; allows all specialty
and general contractors to claim exemption from the requirement to
have workers compensation insurance if the contractor certifies it
does not have any employees or is otherwise exempt from having
workers' compensation insurance.
4)Provides that failure of a licensed contractor to obtain or maintain
workers' compensation insurance coverage, if required under the
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Contractors State License Law, shall result in the automatic
suspension of the license by operation of law. The suspension shall
be effective on the earlier of the date that the workers'
compensation insurance coverage lapses or the date that workers'
compensation coverage is required to be obtained.
5)Requires a contractor, until January 1, 2011, with a C-39 roofing
classification to obtain and maintain workers compensation insurance
whether or not it has employees. Requires the CSLB to remove the
C-39 classification if a contractor holds a C-39 classification in
addition to another license classification and does not have a valid
Certificate of Workers' Compensation Insurance or Certification of
Self-Insurance on file with CSLB. The law would require the
suspension of the license when the sole classification is the C-39
roofing classification.
6)Until January 1, 2011, requires a workers' compensation insurer who
provides a policy to a contractor with a C-39 classification to
perform an annual payroll audit for the contractor, and allows the
insurer to place a surcharge on the policy holder to recoup
reasonable costs of the audit.
7)Until January 1, 2011, requires the Insurance Commissioner, through
the Workers' Compensation Insurance Rating Bureau (WCIRB), to
annually compile statistical data on those holding C-39 licenses.
This bill:
1)Extends the sunset date, from January 1, 2011 to January 1, 2014, on
the law requiring a contractor with a C-39 roofing classification to
obtain and maintain workers compensation insurance, even if it has
no employees.
2)Extends the parallel sunset date requiring insurance companies to
perform an annual payroll audit of C-39 contractors, and the
Department of Insurance to annually compile information on C-39
contractors.
FISCAL EFFECT: The Assembly Appropriations Committee analysis, dated
May 5, 2010, indicates annual fee-supported special fund costs of less
than $30,000 to the Contractors State Licensing Board to continue
oversight of roofers' workers' compensation coverage.
COMMENTS:
1.Purpose. This bill is sponsored by the Roofing Contractors
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Association of California (RCAC) in order to extend the provisions
enacted by AB 881 in 2006. The RCAC believes that extending the
sunset on this program will keep in place a comprehensive approach
to eliminating fraud in the roofing industry, which increases system
efficiency while also bringing down costs for California's roofing
contractors.
The RCAC states: "The roofing industry in California has among the
highest workers compensation rates of all industries in the state.
The nature of the work requires considerable investment in order to
ensure the protection and safety of industry workers and
contractors. However, a high incidence of payroll reporting fraud
has also helped lead to these exorbitant costs, as many roofing
contractors under-report their payroll in order to secure lower
workers premiums. When roofing companies under report their payroll
and carry substandard levels of workers compensation insurance,
their employees are put at an even higher risk without appropriate
insurance coverage in place."
2.Background. A C-39 roofing contractor is certified to install
products and repair surfaces that seal, waterproof and weatherproof
structures. The CSLB has more than 5,000 active
C-39 licensees currently on file.
3.Prior Legislation. AB 881 (Emmerson. Chapter 38, Statutes of 2006)
requires all licensed roofers to have workers compensation
insurance, authorizes the registrar of contractors to remove the
roofing classification from a contractor license for failure to
maintain workers' compensation insurance, and requires insurers who
issue workers compensation policies to roofing contractors to
perform annual audits of these policyholders, as specified, and
allows the insurers to recoup the cost of these audits through a
policy surcharge. The bill also requires CDI to designate a rating
organization to compile data on individuals with C-39 designations
and report to CDI each year on total annual payroll and loss data in
accordance with the standard workers' compensation insurance
classifications.
SB 313 (DeSaulnier, Chapter 640, Statutes of 2009) increases the
per-employee penalty for the lack of workers compensation coverage
from $1000 to $1500. Requires the Director of the Department of
Industrial Relations to issue a penalty assessment order, as
specified. Restructures the laws governing penalties to be assessed
on employers that do not comply with the law mandating that every
employer provide, through insurance or an approved self-insurance
program, workers' compensation benefits for its employees.
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4.Related Legislation. SB 1254 (Leno) was heard by this Committee
earlier this year and passed on a 7-0 vote. That bill authorizes
the CSLB to issue a stop work order when a contractor fails to
provide adequate workers compensation coverage for its employees.
That bill is currently pending in the Assembly.
AB 2390 (Buchanan), also before the Committee at today's hearing,
requires a contractor who bids on a public works project to show
proof of coverage when it submits the bid, rather than when it
begins work on the project.
5.Arguments in Support. In sponsoring the bill, the Roofing
Contractors Association of California (RCAC) writes, "AB 881 has
made inroads, but the work of eradicating the underground economy is
far from over. We have held meetings with the [CDI] and State
Compensation Insurance Fund, and they acknowledge the degree of the
problem, and are cooperating with RCAC in our efforts to expose
fraudulent operators. It is critical for the provisions of AB 881
to continue, via AB 2305, so that the efforts to fight the
underground economy and its effects are not undermined."
The Union Roofing Contractors Association (URCA) states that "AB 881
has had some success in eradicating the rampant fraud that is
inherent in our industry. The Department of Insurance and the State
Compensation Insurance Fund has been working closely with the
roofing industry in this endeavor, but more work needs to be done.
The extension of AB 881 provisions via your bill would go a long way
in extirpating an "underground economy" of fraudulent contractors
whose activities have created an unlevel playing field to the
detriment of honest licensed contractors. AB 2305 would require all
workers' compensation insurers to audit all policies against a
company's payroll records to ensure that under-reporting is not
taking place. By auditing every California roofing contractor's
payroll and workers' compensation policy, it becomes increasingly
difficult to commit acts of payroll and insurance fraud."
6.Arguments in Opposition. The California Applicants Attorneys
Association (CAAA) writes, "AB 2305 would create a perverse
incentive for unethical roofing contractors to commit workers'
compensation premium fraud, and unfairly shift costs from the
roofing industry not only to legitimate employers, but also to
taxpayer-funded programs and services." CAAA states that these
current provisions which this bill would extend were enacted in 2006
for a fiye-year trial period in lieu of provisions that require
automatic suspension of the license until coverage is secured."
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CAAA states that the provisions which require carriers to perform
annual audits of their roofer policyholders, and for the Workers'
Compensation Insurance Rating Bureau to compile and report the
pertinent data from those audits, to the Insurance Commissioner for
fraud prosecution, or any other necessary action, is also being
extended by the bill. CAAA states that "the first report was due in
2008; however, if any such audits have been performed, no
comprehensive analyses have been filed with the Insurance
Commissioner. As a result, there is no credible evidence of any
reduction in either injuries or premium fraud, which were the intent
and goal of the original legislation."
CAAA further believes that removing the contractor's C-39
classification, but allowing a contractor to retain a valid license,
along with the lack of implementation or enforcement of the auditing
and reporting requirements, effectively creates incentives to
under-report payroll, misclassify employees, and even avoid securing
workers' compensation coverage altogether. "A scofflaw roofer is
not going to cease operating just because its license lacks the C-39
roofing classification. Injuries to its workers, however, no longer
will be reported as roofer injuries. Alternatively, such a
contractor simply could become part of the underground economy,
eliminating other worker protections and depriving the state of
payroll tax revenues as well. In either case, costs for injuries
that the roofing industry should bear will be shifted to non-roofer
policyholders or to taxpayer-funded programs such as Medi-Cal and
general assistance."
7.Policy Issues :
a) Conflicting provisions. For all other contractors, the law
requires that failure of contractor to obtain or maintain
workers' compensation insurance coverage shall result in the
automatic suspension of the license by operation of law. The
suspension shall be effective on the earlier of the date that the
workers' compensation insurance coverage lapses or the date that
workers' compensation coverage is required to be obtained. This
bill would extend the provision which, instead of suspending the
license, would only remove the C-39 classification, and allow the
contractor to continue to work under another license
classification. The Committee may wish to consider whether it
should continue this unequal treatment of licensees .
b) Inconsistent with SB 1254 (Leno). As stated in Comment # 4.,
above, this Committee heard and passed SB 1254 on a 7-0 vote
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earlier this year. That bill authorizes the CSLB to issue a stop
work order when a licensed or unlicensed contractor fails to
provide workers compensation coverage for its employees . It
would appear that this bill is inconsistent with the policies in
SB 1254 which was previously passed by this committee .
c) Extending sunset date without the studies or reports. AB 881
from 2006 requires a workers' compensation insurer to annually
audit each of its C-39 customers. The bill also requires the
Insurance Commissioner, through the Workers' Compensation
Insurance Rating Bureau (WCIRB), to annually compile statistical
data on those holding C-39 licenses. It is unknown to Committee
Staff whether these required audits have been completed and
whether statistics have been compiled. The Author and Sponsor
should speak to this issue.
NOTE : Double-referral to Labor and Industrial Relations Committee
(second.)
SUPPORT AND OPPOSITION:
Support:
Roofing Contractors Association of California (Sponsor)
Construction Industry Legislative Council
California Labor Federation
State Building and Construction Trades Council of California
Union Roofing Contractors Association
United Union of Roofers, Waterproofers and Allied Workers
Alex Engardt Roofing and Siding Co.
Imperial Roofing
Opposition:
California Applicants Attorneys Association
Consultant:G. V. Ayers