In the Spirit of the New Year

Tuesday, January 17, 2012

I realize I was all doom and gloom in my last blog entry, so in the spirit of the New Year I wanted to bring you some good news! I will save the depressing budget update for next month. 

The underground economy may not be something that DIRECTLY affects you as insurance agents and brokers, but cheaters in the system affect your clients and don’t buy insurance or sufficient insurance.   The good news: As we begin the New Year, the fight against the underground economy is gaining momentum in the Legislature and various state agencies.

On January 1^st of this year, the Department of Industrial Relations (DIR) announced the launch of the newly created Labor Enforcement Task Force (LETF).  LETF is a collaborative effort between state agencies to combat the underground economy and to improve California’s business environment in which legitimate employers can thrive.

The primary partners of the LETF include DIR, the Employment Development Department, Contractors State License Board, Board of Equalization, and the Bureau of Automotive Repair.  LETF will also collaborate with the Workers’ Compensation Insurance Rating Bureau (WCIRB), Department of Insurance, the Attorney General and Local District Attorneys, and others in affected communities.  LETF will help ensure that workers’ rights are protected and that hard-working, compliant business owners have an opportunity for healthy competition in California.

LETF’s focus on collaboration, wider information-sharing and use of new technology for enforcement will ensure more effective targeting of businesses in the underground economy.  For instance, EDD and WCIRB recently shared statewide lists of employers paying unemployment insurance taxes against lists of employer insurerds and self-insureds for workers’ compensation.  They identified mpre than 1,000 firms on the EDD list that did not have evidence or purchasing workers’ compensation insurance. This will help eliminate the worst violations of workers’ rights and help to protect the legitimate contractors and businesses.  The task force will also conduct outreach and education efforts to help businesses meet their responsibilities under the law.

In addition to the new task force, two bills from the 2011 legislative session went into effect on January 1^st.  AB 397 (Chapter 546, Statutes of 2011) requires a licensed contractor with an exemption for workers compensation insurance to recertify the exemption upon license renewal or provide proof of workers' compensation insurance coverage.  AB 878 (Chapter 686, Statutes of 2011) requires a workers' compensation insurer to report to the Contractors' State License Board (CSLB) a licensed contractor whose insurance policy it cancels.

As the 2012 Legislative Session begins, we will be seeing a number of new legislative proposals by way of introduction or what is known as a “gut and amend.”  A “gut and amend” is when an author takes a bill on one subject, completely deletes that version and inserts a new proposal on a new subject.  The deadline for new bill introductions is February 24^th but “gut and amends” can happen all year.  They are most prevalent, however, at the beginning of a two-year session or the end of any session.

We are only in the first couple weeks of the session and already two “gut and amend” measures were amended to be proposals relative to the underground economy.  Both bills are authored by Senate Labor & Industrial Relations Committee Chairman Ted Lieu (D-Torrance).

SB 691 would assist the CSLB in preventing workers' compensation fraud by adding 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.  This bill is supported by the CSLB.  SB 777 would specifically authorize the EDD to share employment data and information with the CSLB for purposes of investigating specific workers’ compensation fraud investigations.  This authorization will allow the CSLB to compare data on wages on employment taxes with information the bond has relative to workers’ compensation.

SB 777 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.  One argument of proponents is that state agencies should be using more technology, more than boots on the ground, to identify and prosecute non-compliant contractors.  SB 777 will 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.

Both bills were heard and passed by the Senate Labor & Industrial Relations Committee last week.  They will likely be heard and passed to the Assembly by the end of the month. 

Another bit of good news, it is estimated that between $60 billion to $140 billion of commerce is transacted in the underground economy.  If enforcement efforts are successful in capturing the tax revenue on these transactions, there would be no state budget deficit, thus reducing the pressure to raise additional taxes. 

If you, as agents and brokers in the industry, can think of any proposals to change the system to better ensure businesses are obtaining coverage, and the right amount of coverage, your suggestions are always welcome!

Erin K. Norwood
IBA West Legislative Advocate