Wednesday, December 14, 2011

CA Efforts to Catch Cheating Employers - One Part of the Value Proposition

New efforts to identify and punish employers who willfully avoid obtaining workers' compensation insurance appears to be paying dividends in California, if recent activity is an indicator.

Governor Jerry Brown signed legislation on Oct. 9 authorizing fines of $500 to $15,000 per violation for willfully classifying an employee as an independent contractor. The bill allows civil penalties of $10,000 to $25,000 for a pattern of willful misclassification.

On the heels of that legislation, a collaborative effort between the Department of Industrial Relations, the Employment Development Department and the Workers' Compensation Insurance Rating Bureau has resulted in the discovery that 479 of 1,498 employers -- about 31% of those randomly selected for review by the Employment Development Department this year -- did not have workers' compensation insurance for their employees. Further review found that 80 of the employers actually did have a policy and an additional 45 purchased insurance after receiving a notification from the department.

Christine Baker, who was appointed just last week to serve as director of the Department of Industrial Relations pending Senate confirmation, testified during a Dec. 5 hearing of the Select Committee of the California state Senate Business and the Underground Economy that the department issued 56 citations against employers who had no workers' compensation insurance and against 46 employers who let the coverage lapse. Fines totaled $400,958.

Starting in January, computer monitoring of payroll information reported to the state will also be used to identify employers who are using more workers than they claimed when purchasing a policy or who are logging more work hours than are being reported. This should help identify businesses that need to be investigated, rather than the random sweeps that had occurred in the past which resulted in "good" businesses getting swept up in the drag-net.

The next big step in dealing with cheating employers is rapidly deploying enforcement action.

Bruce Wick, director of risk management for the California Professional Association of Specialty Contractors, testified that in the case of Petronella Roofing, an Orange County contractor accused of running the largest known workers' compensation insurance fraud case in the history of the state, red flags were identified long before the company was shut down, a process that took five years.

"Had they been shut down earlier, we could have given more business to legitimate contractors," testified Wick.

Contractors State License Board compliance chief David Fogt said a board review of the more than 300,000 licensed contractors in California found about 60% are exempt from carrying workers' compensation insurance.

"They've signed under penalty of perjury that they have no employees and we know that is not true," Fogt testified. "The majority have their own workers or they're picking people up at Home Depot."

According to our story in WorkCompCentral this morning there was some question by the Senate panel that perhaps some employers just didn't know that they needed workers' compensation insurance.

While this argument was countered by testimony common sense says that the vast majority of such employers knowingly cheat - an independent contractor doesn't need any direction on the performance of the task at hand, and has their own tools.

Times are tough, no doubt. I'm glad that the State of California is intent on leveling the playing field. This can only boost the overall economy of the state so long as the return on investment remains positive, and so far it appears so.

Baker testified that compliance with workers' compensation insurance requirements is one of the best tools for driving the so-called underground economy out of California.

I agree to a point - we don't really want to drive the underground economy out of California, we just want it to be above ground, providing required insurance, and paying taxes. This is one part of the value proposition in the current schema and when done correctly is what government should be doing. workers compensation, work comp, injured worker 

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