Underground Economy Targeted in Statewide Enforcement Effort

May 24 2016 - Benefits, Health and Safety, Workers' Compensation - Gail Cecchettini Whaley

On May 19, a multi-agency team led by the California Department of Insurance conducted a statewide enforcement and outreach effort targeting those businesses that may operate in the underground economy. The multi-agency team visited dozens of locations across the state to educate business owners of their obligations to comply with insurance, licensing, workplace safety, labor laws and tax codes.

Underground Economy

If you don’t want enforcement agencies going through your files, comply with state laws.

Businesses that operate in an “underground economy” may engage in such activities as hiring employees off the books and paying them under the table, not withholding and remitting state disability insurance contributions, failing to protect workers as required by workplace health and safety regulations and not carrying the proper licenses or adequate workers’ compensation insurance coverage.

“Businesses operating in the underground economy have an unfair and illegal competitive advantage that undermines legitimate businesses and comes at the expense of workers and consumers,” said Insurance Commissioner Dave Jones.

Enforcement teams visited a wide variety of businesses: security firms, restaurants, environmental waste companies, personnel services, home design, roofing, tree services, limousines and charter bus companies, moving companies, retail stores and construction sites.

The teams verified that contractors had valid licenses and workers’ compensation insurance and they checked that workplace safety measures were followed.

Safety, licensing and insurance violations were found at approximately 20 of the businesses visited. Those not carrying required licenses or workers’ compensation insurance were issued immediate stop work orders. Other businesses received administrative citations and penalties for workplace safety violations, and some received audit referrals.

The multi-agency team included the Department of Insurance, the Contractors State License Board, the Employment Development Department, Franchise Tax Board, Department of Industrial Relations and local district attorneys.

The task-force provided the following information on the scope of its effort:

  • Sacramento Valley: Four tree services companies and one landscaping company were visited; three companies were found with violations and two had no violations. Violations found included a stop work order issued by the Division of Labor Standards Enforcement; no workers’ compensation insurance; and Cal/OSHA issued eight workplace safety violations, two of which were serious, and one prohibit-use order for unsafe equipment.
  • Bay Area, including Silicon Valley: Nine businesses visited, including home remodeling, charter bus and limousine services and moving companies. Four companies had no violations. The five companies with violations ranged from a stop work order for no workers’ compensation insurance to penalties for contracting without a license.
  • Fresno: Three businesses were visited, including an ambulance company and two tire stores. More than a dozen workplace safety violations were found at the three businesses and one was issued a stop work order for no workers’ compensation insurance.
  • Los Angeles and Inland Empire: 12 businesses were visited, including restaurants, a vape shop, hotels, a nursery, builders and auto services. Violations ranged from no workers’ compensation insurance to workplace safety violations.
  • San Diego: Three construction businesses were visited; one had no violations and two had violations ranging from more than a dozen with workplace safety violations to illegal advertising.

Gail Cecchettini Whaley, CalChamber Employment Law Counsel/Content

Complying with California’s employment laws is a complex task. HRCalifornia offers numerous resources, from comprehensive California employment law information to assistance from the CalChamber Labor Law Helpline’s HR advisers. Not a member? See how CalChamber can help you.

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