Fight Against Underground Economy Continues


As we begin the New Year, the fight against the underground economy is gaining momentum in the Legislature and various state agencies.

On January 1st 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 where 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 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.  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.

The goals of the workforce will be to:

  • Ensure workers receive proper payment of wages and are provided a safe work environment.
  • Ensure California receives all employment taxes, fees, and penalties due from employers.
  • Eliminate unfair business competition by leveling the playing field.
  • Make efficient use of the state and federal resources in carrying out the mission of the Labor Enforcement Task Force.

In addition to the new task force, two bills from the 2011 legislative session went into effect on January 1st.  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 24th 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 two 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 this past Wednesday.  The two measures will now go to the Senate Appropriations Committee for hearing before heading to the Senate Floor.