BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: January 11, 2012 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: SB 691
Author: Lieu
As Introduced/Amended: January 4, 2012
SUBJECT
Unemployment insurance: compensation.
KEY ISSUE
Should the Employment Development Department be permitted to
share employment data and information with the Contractors'
State License Board for the purposes of aiding any specific
workers' compensation fraud investigation?
PURPOSE
To assist the Contractors' State License Board (CSLB) in
preventing workers' compensation fraud.
ANALYSIS
Existing law establishes a workers' compensation system that
provides benefits to an employee who suffers from an injury or
illness that arises out of and in the course of employment,
irrespective of fault. This system requires all employers to
secure payment of benefits by either securing the consent of the
Department of Industrial Relations to self-insure or by securing
insurance against liability from an insurance company duly
authorized by the state.
Existing law vests the Employment Development Department (EDD)
with the responsibility of ensuring employers remit appropriate
Unemployment Insurance (UI) contributions and to collect the
employee wage deductions to the Disability Fund. EDD uses these
funds to finance the Unemployment Insurance and Disability
Insurance (DI) Programs.
(Unemployment Insurance Code �� 301, 976, 984, 1025-1037,
1555-1562, & 3001-3015)
Existing law also authorizes EDD to collect personal income
taxes required to be withheld by employers. (Unemployment
Insurance Code �� 13000 &13020)
Existing law requires that EDD collects appropriate data in
order to carry out the responsibilities listed above. This
information includes the employer's name and address, the number
and contact information of employees employed by an employer,
the wages paid to those employees, and any independent
contractors that have performed services for an employer.
(Unemployment Insurance Code �� 1085-1093)
Existing law requires that, unless specifically provided, the
information obtained in the administration of the UI Program and
DI program are confidential and must be used for the exclusive
use and information of the director of Employment Development
Department (EDD) in discharge of his or her duties. Any person
violating the confidentiality of this information is guilty of a
misdemeanor. (Unemployment Insurance Code �1094)
Existing law specifically provides that EDD may share
information to the district attorney of any county, the office
of the Attorney General, the Department of Industrial Relations,
and the Department of Insurance if that information is relevant
to any specific workers' compensation fraud investigation.
Information cannot be shared if doing so would violate federal
law or regulations. (Unemployment Insurance Code �1095(o))
This bill would add the Contractors State License Board (CSLB)
to the list of authorized governmental entities that EDD may
share information with for the purposes of aiding any specific
workers' compensation fraud investigation.
COMMENTS
Hearing Date: January 11, 2012 SB 691
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
The State of California faces significant challenges from the
underground economy, which is defined by the Employment
Development Department as individuals and businesses that deal
in cash and/or use other schemes to conceal their activities
and their true tax liability from government licensing,
regulatory, and taxing agencies. In short, it is an entire
universe of illegal activities that can include such diverse
activities as tax fraud, cigarette smuggling, and failure to
provide employees the minimum wage. A 2005 Legislative
Analyst's Office study on the underground economy estimated
that California loses $6.5 billion in annual income tax
revenues.
One of the most egregious activities by employers who
participate in the underground economy is workers'
compensation fraud. This can include failure by the employer
to report all of his or her employees to the insurance company
when creating a policy, misreporting the type of work done by
employees, or even failing to secure any workers' compensation
coverage for all employees.
In testimony before the Senate Select Committee on Small
Business and the Underground Economy in 2011, Professor Frank
Neuhauser of UC Berkeley testified that, on average, $15 to
$68 billion of annual payroll in California went unreported,
or 4-12% of the total payroll in California. These figures
did not include wages or employees that were misreported into
a lower premium class. Particularly in high risk occupations,
this lack of reporting increased workers' compensation
premiums by more than 300%, pressuring law-abiding employers
to either go underground or go out of business.
As the licensee of California's contractors, the Contractors'
State License Board (CSLB) has frequent contact with
occupations that are on the frontline of the fight against the
underground economy. Contractors such as roofers and
electricians face some of the highest workers' compensation
premiums due to injuries, but also suffer from some of the
most significant rate distortion due to misreporting and
Hearing Date: January 11, 2012 SB 691
Consultant: Gideon L. Baum Page 3
Senate Committee on Labor and Industrial Relations
underreporting. While the CSLB must ensure that licensed
contractors appropriately maintain workers' compensation
coverage, they do not currently have statutorily guaranteed
access to EDD's databases to investigate possible workers'
compensation fraud.
SB 691 seeks to address this by permitting the Employment
Development Department to share employment data and
information with the CSLB for the purposes of investigating
any specific workers' compensation fraud investigation.
2. Proponent Arguments :
The Contractors' State License Board (CSLB), which supports
this bill, states that SB 691 will assist their enforcement
division by substantially enhancing our lead development
capability and effectiveness. Similarly, the author notes that
this bill assists the ongoing efforts of the newly-formed
Labor Enforcement Task Force by encouraging data sharing and
collaboration among governmental entities.
3. Prior Legislation :
AB 878 (Berryhill), Chapter 686, Statutes of 2011, requires
workers' compensation insurers to notify the Contractors State
Licensing Board if a licensee is found to have misled the
insurer on his or her workers' compensation coverage.
AB 2305 (Knight), Chapter 423, Statutes of 2010, requires
roofing contractors to maintain workers' compensation
coverage.
AB 2433 (Ruskin), Chapter 139, Statutes of 2010, authorizes
the Board of Equalization to access EDD data to assist in the
administration of tax programs.
SUPPORT
Contractors' State License Board (CSLB)
Hearing Date: January 11, 2012 SB 691
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations
OPPOSITION
None on file.
Hearing Date: January 11, 2012 SB 691
Consultant: Gideon L. Baum Page 5
Senate Committee on Labor and Industrial Relations