State launches crackdown on firms that flout wage, tax laws

Kicking off a campaign to bust companies suspected of not paying minimum wage, overtime, payroll taxes and workers’ compensation insurance premiums, the state on Wednesday sued a Southern California drywall installation contractor, seeking major financial penalties.

In the first of an expected series of enforcement actions against what he calls “the underground economy,” California Atty. Gen. Jerry Brown sued Brinas Corp. The Colorado-based firm has worked on major condominium and apartment complex projects throughout Los Angeles and San Diego counties, Brown’s office said.

“The attorney general’s office is going after people who exploit workers in violation of California law,” Brown said in an interview. “We’re leveling the playing field because, as a matter of fact, these underground businesses who cheat and don’t play by the rules develop a competitive advantage that is not fair.”

Calls seeking comment from Brinas Corp.’s offices in Downey and Colorado were not returned.

Brown said the Brinas action was the first by a small state task force of attorneys and investigators he created shortly after taking office in January. He said he planned to expand the unit and create a telephone hotline so workers could submit complaints and tips to law enforcement.

“These are difficult cases. They are very fact-specific and take a great deal of investigation,” Brown said. “When we make the case, we will definitely impose serious penalties. Our goal is to send a message to industry to knock it off.”

Business groups and labor unions applauded the attorney general’s new workplace initiative for attempting to take away the unfair competitive advantage of companies that don’t play by the rules.

“For the mainstream business community, this is good news,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

“It’s probably going to make rogue businesses either start to comply or go into the real underground economy, where you can’t trace a thing,” he said.

Barry Broad, a Sacramento lobbyist for the International Brotherhood of Teamsters, the Laborers International Union and other unions, noted that “the attorney general is well positioned to do something to send a really strong message.”

The suit filed Wednesday seeks financial penalties that could reach hundreds of thousands of dollars under California’s Unfair Competition Law.

The lawsuit, if successful, could force the company to disgorge profits that it allegedly earned by underpaying employees, failing to pay taxes and required workers’ compensation premiums and by creating an unsafe workplace.

The Unfair Competition Law gives the attorney general’s office a more powerful tool to go after scofflaw employers than the penalties levied by state tax collecting agencies when they make periodic sweeps of farm labor contractors, sweat shop operators, car washes and other businesses that rely on low-wage workers.

The California Employment Development Department defines this “underground” economy as individuals and businesses, involved in otherwise legal activities, that “deal in cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory and taxing agencies.”

Estimates of the size of this underground activity in California run from $60 billion to as high as $140 billion of the state’s annual gross domestic product, according to a 2004 UCLA survey of economic research.

Officials stress that they are not talking about other off-the-books transactions from outright criminal behavior -- such as drug smuggling, money laundering and trafficking in stolen goods -- that also generate considerable economic activity.

marc.lifsher@latimes.com