BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 777|
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THIRD READING
Bill No: SB 777
Author: Lieu (D)
Amended: 1/4/12
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE LABOR & INDUS. RELATIONS COMMITTEE : 5-0, 1/11/12
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NO VOTE RECORDED: Wyland, Runner
SUBJECT : Workers compensation insurance: coverage
program
SOURCE : Author
DIGEST : This bill requires 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.
ANALYSIS :
Existing law :
1. 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
CONTINUED
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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 (DIR) to self-insure or by securing insurance
against liability from an insurance company duly
authorized by the state.
2. 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,
EDD, the Workers' Compensation Insurance Rating Bureau
(WCIRB), and any other sources deemed likely to lead to
the identification of unlawfully uninsured employers.
3. 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.
This bill provides 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 DIR in
consultation with the state department, agency, or
organization in possession of the information or data.
Comments
The State of California faces significant challenges from
the underground economy, which is defined by EDD 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.
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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 percent 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 percent, 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, EDD,
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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
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SUPPORT : (Verified 1/18/12)
Spa & Pool Industry Education Council
ARGUMENTS IN SUPPORT : The Spa & Pool Industry Education
Council supports this bill and writes, "for the purposes of
worker's compensation insurance fraud investigations, the
reasonableness of any requested 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.
"In this economy, we are seeing more and more licensed
contractors violating the law by way of not paying workers'
compensation premiums. This results in increased risk of
employees, increased risk for consumers who may be held
responsible for injuries on their property or projects, and
premium fraud which creates an uneven playing field for
competitor. Bad actors that violate the law take business
away from the legitimate, law-abiding contractors by
underbidding projects. This not only results in unfair
completion, but it also robs the state of tax revenues."
PQ:do 1/18/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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