California Labor Commissioner Julie A. Su’s aim is to send a message to the state’s underground economy.
The message is that the principals of companies with shady employment practices, such as those who try to cut costs by under-reporting employees or employee wages to save on workers’ compensation premiums, may face jail time.
And Su is backing up her message through the creation of the Criminal Investigative Unit.
The unit, an arm of the Department of Industrial Relations, will be focusing on serial violators, and a large number of those violators tend to be workers’ comp violators, Su told Insurance Journal.
“We will enforce all of the laws that are on the books to protect the honest employers who are really struggling to compete against the underground economy and to protect working people and to make sure they are paid the wages they earned.”
According to her, the unit will “level the playing field for California” by targeting employers who try to scam the system by “underpaying, underbidding and under-reporting.”
DIR’s field enforcement already goes out the workplace to check on and identify red flags being thrown up by lawbreakers, but the investigative unit gives DIR the firepower to step up the punishment for these violations and ferret out those whose violations extend beyond just one or two, Su said.
“It makes it more costly to violate the law,” she said, noting the cost will be above the normal citations, and that “these provisions provide for jail time.”
She added, “We just want the message to be very strong: the good guys and working people who are playing by the rules to make a living – we are out there to protect them.”
The unit will look at several workplace violations, most notably wage violations and workers’ comp fraud, Su said.
“The largest percentage of citations that my office issues is for failure to secure workers’ compensation as required,” she said.
Under the state’s labor code it’s a misdemeanor for failure to obtain workers’ comp punishable by a fine and up to a year in county jail.
The California Professional Association of Specialty Contractors applauded the creation of the unit.
“What we’ve been concerned about regarding flagrant violations for those of us in construction is that they don’t get caught quickly enough,” said Brad Diede, executive director of CALPASC. “It takes a long time for state agencies to be able to catch them and convict them and publish the conviction. What we think this is going to help is to convict these criminals, these bad actors, more quickly.”
The violators Diede is talking about often are able to under-bid legitimate contractors on jobs, and that puts those who are abiding by the law at a disadvantage, he said.
“The cost of compliance has fixed costs to it,” he said, adding that legitimate contractors pay things like payroll taxes, and ensure appropriate funding for workers’ comp premiums and funding for safety programs.
“Cheating contractors don’t add those costs to the bids,” he said. “Legitimate contractors lose the work. In this economy particularly, legitimate contractors need to get the work.”
A report issued late last year from University of California Berkeley’s Center for the Study of Social Insurance, “Measuring the Impact of the Underground Economy on Employers & Anticipating the Effects of Health Reform,” states an estimated average of $15 to $68 billion of California each year went unreported from 1997 to 2005.
This amounted to 4 percent to 12 percent of total wages in California, and many more dollars may have been misreported into low-premium rate class codes, the report states.
For Su, it’s all about the serial violators, who not only repeatedly flaunt California labor laws, but who operate so brazenly as to factor in the cost of citations when they are caught into their bottom lines.
“I do think they’re definitely a priority for me,” she said of serial violators. “They have operated under the radar for far too long. We’re trying to change that calculus.”
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