BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: April 29, 2009 2009-2010 Regular
Session
Consultant: Rodger Dillon Fiscal:Yes
Urgency: No
Bill No: SB 313
Author: DeSaulnier
Version: As amended April 27, 2009
SUBJECT
Workers' compensation: penalty assessments.
KEY ISSUES
Should the standard, per-employee penalty assessment on
employers that fail to maintain workers' compensation insurance
coverage on their employees be increased?
Should the law be clarified to eliminate an unintended bar to
the collection by the state of workers' compensation premium
payments and penalties on employers that have failed to maintain
workers' compensation coverage?
PURPOSE
To provide more effective incentives for employers to maintain
state-mandated workers' compensation insurance coverage and to
eliminate a competitive advantage obtained by those who fail to
follow the law.
ANALYSIS
Existing law:
1.Requires every employer, except the state, to secure the
payment of workers' compensation for employees for injuries
arising out of, or in the course of, employment.
2.Specifies that the director of the Department of Industrial
Relation shall issue and serve a penalty assessment order of
$1000 per employee on an employer who is found to be without
workers' compensation insurance and on whom a stop-work order
has been imposed due to the lack of such coverage. The
collected monies are deposited in the Uninsured Employers
Benefit Trust Fund (UEBFT). The monies in the UEBFT are
collected through a basic charge on all employers,
supplemented by the fines and penalties. [Labor Code 62.5]
3.Provides that at any time that the director determines that an
employer has been uninsured for a period in excess of one week
during the calendar year preceding the director's
determination, the director may issue and serve a penalty
assessment order that requires the uninsured employer to pay
to the director, for deposit into the State Treasury to the
credit of the Uninsured Employers Fund, the greater of: (1)
twice the amount the employer would have paid in workers'
compensation premiums during the period the employer was
uninsured or (2) the sum of one thousand dollars ($1,000) per
employee employed during the period the employer was
uninsured. This penalty shall be in lieu of, and not in
addition to any other penalty imposed under the section of law
described in number 2, above.
4.Provides that if the employer is currently insured, or becomes
insured during the period during which the above penalty is
being determined, the amount an employer would have paid in
workers' compensation premiums shall be calculated by
prorating the current premium for the number of weeks the
employer was uninsured.
5.Provides that if the employer is uninsured at the time the
above penalty is being determined, the amount an employer
would have paid in workers' compensation premiums shall be
calculated by applying the rating for that type/class of
worker as determined by the Workers' Compensation Insurance
Rating Bureau (WCIRB) and the Insurance Commissioner to the
number of weeks the employer was uninsured.
6.Provides that if the employer contends that the assignment of
the governing classification is incorrect, or that any
Hearing Date: April 29, 2009 SB 313
Consultant: Rodger Dillon Page 2
Senate Committee on Labor and Industrial Relations
employee should be assigned to a different classification, the
employer has the burden to prove that the different
classification should be utilized.
This Bill:
1.Increases the per-employee penalty for the lack of workers'
compensation coverage from $1000 to $1500.
2.Provides the director of the Department of Industrial
Relations with the option to issue a penalty assessment order
either:
a) Under the provisions related to a stop-work order and the
$1500 penalty [L.C. 3722(a)], or
b) Under the provisions setting forth the procedure for
securing payment of unpaid workers' compensation premiums
in conjunction with the per-employee penalty [L.C.
3722(b)].
1.Establishes the period for the prorating of back premiums at 3
years.
2.Provides that if the employer is uninsured at the time the
above penalty is being determined, the amount an employer
would have paid in workers' compensation premiums shall be the
product of the employer's payroll within the 3-year period
immediately prior to the date the above penalty assessment is
issued multiplied by a rate determined in accordance with
regulation that may be adopted by the Labor Commissioner or,
if none has been adopted, the average insurer rate per $100 of
payroll as reported in the most recent summary published by
the rating organization designated by the Insurance
Commissioner (i.e. the WCIRB).
3.Deletes the provisions regarding the governing classification
to which each employee of an uninsured employer shall be
assumed to be assigned under the provisions of this section.
COMMENTS
Hearing Date: April 29, 2009 SB 313
Consultant: Rodger Dillon Page 3
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
The Committee regularly receives reports of employers failing
to pay workers' compensation, and the state Economic
Employment Enforcement Coalition and other employment-related
enforcement entities finds employers without coverage in the
course of many of their workplace investigations. Enhanced
and more effective penalties may have an added deterrent
effect on such non-compliance.
In addition to enhancing the penalties for employer
non-compliance with worker's compensation law, this bill
attempts to fix an unintended conflict in Labor Code Section
3722 as reported by the Division of Labor Standards
Enforcement and the Commission on Health and Safety and
Workers Compensation. This unintended conflict may be
explained as follows:
a) L.C. 3722(a) provides that the director shall issue a
penalty assessment of $1000 where he/she has identified an
employer who is not providing workers' compensation
coverage for employees and where the director has issued a
stop-work order on the employer for lack of such coverage.
b) Labor Code 3722(b) provides for a procedure for
determining what back premium payments are owed by the
employer and requires payment of premiums and specified
penalties. But this subsection also states that its
penalties may not be in addition to penalties assessed
under 3722(a).
c) Since L.C. 3722(a) specifies that in the case where the
director is required to issue a stop-work order the
director must issue a penalty order of $1000, there remains
no option for the director to require payment of back
premiums and associated penalty assessments because 3722(b)
prohibits any penalty imposed in addition to that in
3722(a).
d) Thus, in effect, in cases involving required stop orders
Hearing Date: April 29, 2009 SB 313
Consultant: Rodger Dillon Page 4
Senate Committee on Labor and Industrial Relations
- often, egregious examples - no back premiums and
associated penalties may be collected.
Finally, an additional problem with the existing law is that
it may be difficult for enforcement agencies to determine what
premiums may be owed because this requires an evaluation of
how many workers were on a payroll over a lengthy period in
the past, what type of work they were doing, and what rating
they would each have had as determined under the rating plan
devised by the Workers' Compensation Insurance Rating Bureau -
all in consultation with the Insurance Commissioner. This
bill would provide for a simpler and more efficacious means of
assessing premiums and penalties owing.
2. Proponent Arguments :
The author and supporters of SB313 believe the bill will
create a more effective penalty structure for employers that
fail to maintain workers' compensation coverage. They argue
that under the current scheme employers may face a penalty
that is less than what their workers' compensation costs would
have, thus creating a disincentive to have coverage. Other
proponents say that certain employers' failure to maintain
coverage creates an unfair competitive advantage for violators
of the law. Further, the money recovered by the penalties
will be deposited into the Uninsured Employers Benefit Trust
Fund (UEBTF). This fund provides benefits to the injured
employees of illegally uninsured employers, and most that
funding comes from a levy on law-abiding employers. SB313
will reduce the amount law-abiding employers have to pay to
the UEBTF.
3. Opponent Arguments :
None received
SUPPORT
Small Business California (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
CAL Insurance and Associates, Inc.
Hearing Date: April 29, 2009 SB 313
Consultant: Rodger Dillon Page 5
Senate Committee on Labor and Industrial Relations
California Applicants' Attorneys Association
California Chamber of Commerce
California Conference of Carpenters
California Labor Federation, AFL-CIO
California School Employees Association, AFL-CIO
Efficiency Data & Development
Glendale City Employees Association
Organization of SMUD Employees
Safeway Inc.
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
OPPOSITION
None received
* * *
Hearing Date: April 29, 2009 SB 313
Consultant: Rodger Dillon Page 6
Senate Committee on Labor and Industrial Relations