BILL ANALYSIS
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|Hearing Date:April 5, 2010 |Bill No:SB |
| |1254 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: SB 1254Author:Leno
As Amended:March 22, 2010 Fiscal:Yes
SUBJECT: Contractors: workers compensation.
SUMMARY: Authorizes the registrar of the Contractors State License
Board to issue a stop order to any unlicensed contractor who as an
employer who has failed to secure workers' compensation insurance
coverage for his or her employees; establishes procedures to request a
hearing to protest a stop order; authorizes the Director of the
Department of Consumer Affairs to designate 12 persons as peace
officers for assignment to the special investigations unit of the
Board.
Existing law, the Business and Professions Code:
1) Licenses and regulates more than 250,000 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 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, or a
statement certifying that he or she has no employees and is not
required to obtain or maintain workers' compensation insurance
coverage.
3) Provides that failure of a licensed contractor to obtain or
maintain workers' compensation insurance coverage, if required
under this chapter, 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
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coverage lapses or the date that workers' compensation coverage is
required to be obtained.
4) Makes it a misdemeanor for an unlicensed person to engage in the
business or act in the capacity of a contractor and makes a first
offense punishable by imprisonment in the county jail for up to six
months, or by a fine up to $5,000, or both. The law further
establishes enhanced penalties imposed by the court for a repeat
unlicensed contractor offender.
5) Provides that persons employed as investigators of CSLB's special
investigations unit and designated by the Director of DCA have the
authority of peace officers in investigating contractor law
violations or with any criminal prosecution arising from any
investigation conducted under these laws.
Existing law, the Labor Code:
1)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.
2)Provides that when an employer has failed to secure the payment of
compensation as required, the Director of the Department of
Industrial Relations (DIR) shall issue the employer a stop order
prohibiting the use of employee labor until the employer complies
with the worker's compensation insurance requirements.
a) The stop order shall become effective immediately upon
service.
b) Any employee so affected by work stoppage under the stop order
shall be paid by the employer for the time lost, not exceeding 10
days, pending compliance by the employer.
3)Establishes specified procedures to request a hearing to protest a stop
order, as follows:
a) An employer may protest the stop order by filing with the
Director of DIR a written request for a hearing within 20 days
after service of the stop order.
b) The hearing must be held within 5 days from the date the
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request is filed.
c) The Director of DIR must notify the employer of the time and
place of the hearing by mail.
d) At the conclusion of the hearing the stop order shall be
immediately affirmed or dismissed, and within 24 hours thereafter
the Director shall issue and serve by registered or certified
mail the written findings of the hearing.
e) A writ of mandate may be taken from the findings to the
appropriate superior court within 45 days after the mailing of
the findings.
Existing law, the Penal Code:
1)Designates specified persons employed by specifically-identified
state agencies as peace officers and gives those persons the power
of arrest.
2)Authorizes the Director of DCA to designate 3 persons as peace
officers to be assigned to the special investigations unit of the
CSLB, and prohibits those persons from carrying firearms.
This bill:
1) Authorizes the Registrar to issue a stop order to any unlicensed
contractor who as an employer has failed to secure workers'
compensation insurance coverage for his or her employees.
2) Makes failure to comply with the stop order a misdemeanor (crime)
punishable by imprisonment in the county jail for up to 60 days, or
by a fine up to $10,000, or both.
3) Establishes specified procedures to request a hearing to protest a
stop order, that mirror "Existing law, the Labor Code:" Item #3).
These procedures include the following:
a) An unlicensed contractor employer may protest the stop order
by filing with the Registrar a written request for a hearing
within 20 days after service of the stop order.
b) The hearing must be held within 5 days from the date the
request is filed.
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c) The Registrar must notify the employer of the time and place
of the hearing by mail.
d) At the conclusion of the hearing the stop order shall be
immediately affirmed or dismissed, and within 24 hours thereafter
the Registrar shall issue and serve by registered or certified
mail the written findings of the hearing.
e) A writ of mandate may be taken from the findings to the
appropriate superior court within 45 days after the mailing of
the findings.
4) Authorizes the Director of DCA to designate 12 persons as peace
officers for assignment to the special investigations unit of the
CSLB.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by Contractors License Board , the
Marin Builders Association , the Engineering Contractors Association ,
the Flasher/Barricade Association and the California Fence
Contractors Association (Sponsors). The Sponsors argue that
unlicensed contractors have an illegal, unfair advantage over
legitimate licensees; and the use of uninsured employees represent a
potential risk to the public by the fact that a property owner could
be held liable for injures to an uninsured worker. The Sponsors
state that this bill will provide the CSLB with the authority to
issue an administrative stop work order to unlicensed contractors
who are not providing workers' compensation for their employees, and
make failure to comply with the order a misdemeanor.
The Sponsors also state that although the bill would increase the
number of peace officers that the CSLB may employee from 3 to 12,
the bill does not automatically increase the number of CSLB's peace
officers. There are still the current multi-layer approval
requirements. The CSLB would still have to seek authorization to
employ the additional peace officers through a Budget Change
Proposal (BCP). The BCP to employ additional peace officers would
have to be approved by both DCA and the Department of Finance, and
ultimately the funds must be appropriated by the Legislature through
the annual Budget process. The Sponsors stress that while the CSLB
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has funding available for these positions, none will be funded
without ultimate approval in the Budget. The bill provides mere
authorization to move forward in the budget process with these new
positions.
2.Background. The Labor Code 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. These provisions apply
to contractors, and the Business and Professions Code requires a
contractor to have workers compensation insurance or to certify to
the CSLB that they do not have any employees as a condition for
licensure.
There is widespread belief in the business community that high costs
are making it increasingly difficult to do business in California.
Often cited as a primary example of this is the state's workers'
compensation system. In 2004, the Legislature undertook reform of
policies and procedures in that system, hoping to curb the
skyrocketing costs of workers' compensation premiums in the state
and made some fundamental reforms.
However, the deteriorating economy has made it difficult for those
engaged in business to make ends meet. In some cases, legitimate
contractors have gone out of business and have had to lay off their
employee workforce. In some cases, those former employees who do
not hold contractor licenses seek to work in the building or home
improvement industry, and ultimately become unlicensed contractors.
It naturally would follow that those contracting without a license
would be unlikely to obtain workers compensation insurance for the
workers that they may employ. This cuts the cost margins for the
unlicensed contractor, and often allows the unlicensed contractor to
undercut legitimate, licensed contractors on price.
Failing to secure unemployment insurance jeopardizes not only the
employees of the unlicensed contractor, but also the consumer (often
a homeowner). If a worker is injured on the job and there is no
workers compensation insurance, the homeowner may be held liable for
medical costs. Often, homeowners insurance does not cover uninsured
workers in such cases.
3.Battling the Underground Economy. The underground economy is an
ongoing threat to California's citizens and legitimate businesses.
Illegal and unlicensed operators who fail to pay taxes and comply
with licensing and insurance laws take revenues earmarked for public
schools, law enforcement, and other public services. It is
estimated that California loses between $60 to $140 billion in
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revenues and unpaid taxes each year as a result of the underground
economy.
In battling the underground economy, in 2006, the CSLB joined with
various state and federal regulators to form the Economic and
Employment Enforcement Coalition (EEEC) in performing a number of
construction sweeps. In addition the CSLB continues its proactive
enforcement efforts with its Statewide Investigative Fraud Team
(SWIFT) carrying out numerous undercover sting operations each year,
targeting unlicensed operators and repeat offenders.
Through these efforts, the CSLB is able to initiate action against
numerous unlicensed contractors and repeat unlicensed offenders.
These unlicensed persons are typically cited or arrested, and cases
are referred to local district attorneys for prosecution.
The CSLB also cooperates with DIR's Division of Labor Standards
Enforcement (DLSE) in enforcing the workers compensation laws.
However, the DLSE currently has certain enforcement tools that the
Sponsors of this bill believe would be useful and effective for the
CSLB to have. Specifically, (1) the authority to issue an
administrative order to stop the further use of uninsured employees
and, (2) the ability to press criminal charges for a violation of
the order. The Sponsors believe that while CSLB and DLSE work
together at times, providing the CSLB with this authority
(specifically for unlicensed contractors) would further enhance the
state's efforts to enforce these provisions in the law, most notably
targeting the underground economy with CSLB enforcement efforts
designed for that purpose.
4.Arguments in Support. The CSLB, one of the Sponsors of the bill,
writes in support and states that the bill will help to mitigate the
harm to the industry and consumers by providing the CSLB with the
authority to issue an administrative stop work order to unlicensed
contractors who do not cover their employees with workers
compensation insurance. CSLB believes that the bill's increase in
the number of peace officers that may be employed from
3 to 12 is an essential component, and states that the enactment of
these provisions "could more readily assist our enforcement efforts
against unlicensed contractors and the burgeoning underground
economy. These peace officer positions, if approved, would also be
used to pursue criminal charges against licensees whenever the
evidence obtained in a consumer case reveals workers' compensation
insurance fraud and abuse."
American Subcontractors Association-California (ASAC) writes that
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hundreds of ASAC member companies have incredible difficulty
competing with illegitimate, uninsured, underinsured, and unlicensed
workmen. Unlicensed contractors shave costs and easily undercut our
legitimate businesses. Not carrying workers' compensation insurance
provides a loophole for these unlicensed persons and jeopardizes
both their employees, day labor, and the public as property owners
may be liable for injuries on their property, according to ASAC.
California Applicants Attorneys Association believes the bill will
help crack down on the underground economy, and ensure that workers
have access to medical and indemnity benefits if they are injured on
the job.
California Landscape Contractors Association (CLCA) states that when
an unlicensed contractor is cited and removed from the worksite,
they may continue to direct the performance of illegal work using
employees. By issuing a stop work order and making failure to
comply with the order a misdemeanor, the bill expands the menu of
remedies that the CSLB may seek to stop unlicensed contracting
activities as well as violations of the state's labor laws. CLCA
further states that by adding 9 sworn peace officer positions to the
CSLB's special investigations unit, the bill would give each CSLB
regional office a full time peace officer with the power to arrest
persons who demonstrate a pattern of repeat violations.
California Chamber of Commerce states that the bill offers protection
to contractors that are issued a stop order by creating a timely and
transparent dispute resolution process which provides protections to
any contractor that can prove it has been inappropriately issued a
stop order.
Construction Industry Legislative Council (CILC) states that although
CSLB currently issues administrative citations to unlicensed
contractors, the accompanying orders of abatement are often ignored
and the unlicensed contractors continue working. The criminal
violation in the bill would add a considerable deterrent for
ignoring a stop work order in these situations.
5.Related Legislation. AB 370 (Eng, Chapter 319, Statutes of 2009)
increases the maximum criminal fines for unlicensed contractors;
requires a mandatory jail sentence for a third or subsequent
conviction for unlicensed contracting; clarifies that the enhanced
penalties for persons with prior unlicensed activity convictions
applies not only for performing work, but also for offering to
perform or submitting a bid to perform contracting work.
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AB 2412 (Eng) of 2008, was the same as AB 370, but was was one of an
unprecedented number of bills that were vetoed by the Governor
citing the delay in passing the Budget.
AB 881 (Emmerson, Chapter 38, Statutes of 2006) requires all licensed
roofers to have workers compensation insurance, and authorizes the
Registrar to remove the roofing classification from a contractor
license for failure to maintain workers' compensation insurance.
6.Policy issues: Suggested Amendments.
a) Should these provisions also apply to licensed contractors?
The Sponsors argue that unlicensed contractors with employees who
are not covered under workers compensation costs legitimate
contractors "playing by the rules" a significant amount of work,
since overhead costs are significantly lower. Because of the
cost savings from not having paying workers compensation
insurance, and failure to pay or under-reporting income taxes,
etc., such contractors are able to cut their costs and underbid
legitimate contractors who play by the rules. However, the
industry has not only suggested that unlicensed contractors, who
fail to provide workers compensation insurance for their
employees, take jobs from legitimate contractors and do harm to
consumers, but also those contractors who are licensed and who do
not obtain workers compensation insurance also harm both the
legitimate contractor and the consumer.
The Author may want to consider amending this bill to authorize the
Registrar to issue a stop work order to a licensed contractor
who fails to secure workers compensation insurance for his or her
employees.
b) Should the enforcement provisions in this bill more fully
mirror the provisions in the Labor Code? The provisions of this
bill which authorize the Registrar of the CSLB to issue a stop
work order largely mirror those in Labor Code Section 3710.1 (See
"Existing law, the Labor Code" items # 2) & #3), above).
However, this bill does not specifically provide for the stop
order to become effective immediately upon service, nor does it
contain a requirement to pay any employee affected by such a work
stoppage to be paid by the employer for such time lost, not to
exceed 10 days, pending compliance by the employer.
The Author may want to consider amending this bill to require that
the stop work order issued by the Registrar become effective
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immediately upon service, and to require that any employee
affected by such a work stoppage shall be paid by the employer
for such time lost, not to exceed 10 days, pending compliance by
the employer.
Support:
Contractors License Board (Sponsor)
California Fence Contractors Association (Sponsor)
Engineering Contractors Association (Sponsor)
Flasher/Barricade Association (Sponsor)
Marin Builders Association (Sponsor)
American Subcontractors Association-California
California Applicants Attorneys Association
California Association of Sheet metal and Air Conditioning
Contractors National Association
California Chamber of Commerce
California Landscape Contractors Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Spa and Pool Industry Education Council
California State Council of Laborers
California Teamsters Public Affairs Council
Construction Industry Legislative Council
Golden State Builders Exchanges
National Electrical Contractors Association, California Chapter
Plumbing-Heating-Cooling Contractors of California
Western Electrical Contractors Association
Opposition:
None received as of March 31, 2010.
Consultant:G. V. Ayers