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:No
Urgency: No
Bill No: SB 777
Author: Lieu
As Introduced/Amended: January 4, 2012
SUBJECT
Workers' compensation insurance: coverage program.
KEY ISSUE
Should the Legislature require that the final determination of
the reasonableness of a request to share information in order to
investigate possible workers' compensation insurance fraud be
decided by the Director of the Department of Industrial
Relations and the agency or organization in possession of the
information?
PURPOSE
To provide a vehicle for further discussion on how to promote
data sharing between governmental agencies in order to combat
the underground economy.
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 requires that the Labor Commissioner establishes
and maintains a program that systematically identifies
unlawfully uninsured employers. The employers must be identified
from data from the Uninsured Employers' Fund, the Employment
Development Department, the Workers' Compensation Insurance
Rating Bureau (WCIRB), and any other sources deemed likely to
lead to the identification of unlawfully uninsured employers.
(Labor Code �90.3)
Existing law requires that all state departments, agencies, and
the WCIRB cooperate with the Labor Commissioner and on
reasonable request provide information and data in their
possession reasonably necessary to carry out the program.
(Labor Code �90.3)
This bill would provide that, for the purposes of workers'
compensation insurance fraud investigations, the reasonableness
of any request information to investigate fraud must be
determined by the Director of the Department of Industrial
Relations in consultation with the state department, agency, or
organization in possession of the information or data.
COMMENTS
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'
Hearing Date: January 11, 2012 SB 777
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
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.
On January 1st of this year, the Department of Industrial
Relations launched the new Labor Enforcement Task Force
(LETF). The primary partners of the LETF include DIR, the
Employment Development Department, Contractor's State License
Board, Board of Equalization, and the Bureau of Automotive
Repair. According to DIR, the focus of the Task Force on
collaboration, wider information-sharing and use of new
technology for enforcement will ensure more effective
targeting of businesses in the underground economy.
SB 777 seeks to strengthen ongoing and existing efforts by the
Department of Industrial Relations by serving and LETF to
combat the underground economy by encouraging data sharing
among governmental agencies by clarifying lines of authority
when determining the reasonableness of a request for data or
information in the investigation of workers' compensation
fraud. Principally, however, this bill serves as vehicle for
discussion between the Legislature and the executive branch to
encourage data sharing among governmental agencies and codify
recent administrative reforms to strengthen underground
economy enforcement.
2. Proponent Arguments :
The author of this bill notes that the Department of
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Senate Committee on Labor and Industrial Relations
Industrial Relations is in the middle of an extremely
important reorganization of ongoing underground economy
efforts through the creation of the Labor Enforcement Task
Force. However, the author notes that this reorganization has
not been concretized in statutes. The author argues that this
could lead to existing efforts to be scrapped or ignored by
future administrations, returning the fight against the
underground economy to the past challenges of a lack of data
sharing and collaboration. The author believes that SB 777
can serve as a vehicle for discussion to encourage and codify
ongoing and new requirements and practices to encourage data
sharing and collaboration among governmental agencies.
3. Prior Legislation :
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.
AB 749 (Calderon), Chapter 6, Statutes of 2002, requires,
among other things, that all state departments, agencies, and
the WCIRB cooperate with the Labor Commissioner and on
reasonable request provide information and data in their
possession reasonably necessary to carry out the program.
SUPPORT
None on file.
OPPOSITION
None on file.
Hearing Date: January 11, 2012 SB 777
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations